The financial New Year's resolutions you need to keep in 2023

Everyone makes (and breaks) resolutions at the turning of the year. But with rising inflation and a looming recession, there are some financial new year's resolutions that will be essential to get ahead in 2023.

talkBIG hosts Chris and Young chat to guest Andrew Fernance about setting and achieving financial goals, with expert strategies for making hard financial decisions. Whether you're managing your personal finances or the budget for your business, these tips will help you get ahead in 2023.

Highlights from this episode of talkbig:

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Episode Transcript

Key financial takeaways from 2022

VO: talkBIG. Create, save and protect with RSM. Welcome to the RSM talkBIG podcast. Helping you invest well, understand money and achieve the best tax outcomes. Your hosts today are Andrew Sykes, Chris Oates and Young Han.

Chris Oates: Welcome to the RSM talkBIG podcast. I'm Chris. I'm here with our regular host, Young.

Young Han: Hi everyone!

Chris Oates: And we've got guest host Andrew Fernance in today.

Andrew Fernance: Hi, everybody.

Chris Oates: Andrew is one of the principals here at RSM in our business advisory department, and he's an expert in all things tax and business. Plenty of years of experience, Andrew. You've been around the traps. Seen plenty of changes over the years.

Andrew Fernance: Definitely.

Chris Oates: Today, we thought OK - new year. We've got through 2022 into 2023 and, well... Everybody's got New Year's resolutions, so we thought we'd come up with a few tips and ideas.

Chris Oates: Obviously, 2022 saw a lot happen, a lot of changes. We saw markets be volatile, interest rate inflation, which makes well cost of living and just in general, personal business. That brings money to the forefront.

Chris Oates: So we thought, well, okay, why not a couple of tips for people setting goals and looking at, well, where do you want to go in 2023?

Chris Oates: So, Young. What did you learn from 2022 that you're going to bring across into the New Year?

Young Han: Well, with the pandemic, there was a lot of changes happening in the market. And one of the thing that everyone experienced is probably cost of living gone really high. And also the interest rate going up and up. And I think everyone - if you haven't got your loan fixed before it went up, we are in trouble.

How to save when money is tight

Young Han: So, we want to talk about that 50/30/20 rule we talked about last time.

Young Han: And really, it was about spending 50% on your needs and 30% your wants and 20% into savings. But now the interest rate is going up, it really becomes 50, 20, 30.

Chris Oates: Yeah, it's definitely - just putting being able to put money away to save is getting a lot more difficult for people. And I know in business it's not just your personal household budget, Andrew. Businesses are affected too.

Andrew Fernance: Yeah. Business are affected a lot, because the individual's income comes directly from the business. So if the business is not performing as well and not making as much profit , then that ultimately affects the owners of the business as the income comes through. So budgeting within the business and planning the same fundamentals within the business is just as important.

Chris Oates: Definitely. And one of the things that's quite important when we do try to do that savings because we always say make sure you're putting money aside before you start trying to spend it on yourself and doing the things that you want to do.

Chris Oates: So it's that 20% on the wants. You need to make sure you're doing the saving side and looking to the future. Is that right, Young?

Young Han: That's correct.

Could an offset account help homeowners combat RBA rate hikes?

Young Han: And then I think what we just want to emphasize again about utilizing your offset account for saving up. It's not only because of the rising interest rate, but it's also having that money available for you - just in case that you need to use it. And also the interest rate going up, it's kind of helping you to save, but also minimize your interest expenses going out.

Chris Oates: And when you look at that, when you put money into savings account... For a long time, you were getting next to nothing at the bank. And that was a pretty common comment that we'd hear from people. But even though savings accounts have gone up, mortgage rates and lending rates are always above what you can get from saving in the bank.

Chris Oates: So ultimately you do - you will save more from being able to pay less interest on your loan. So, offset account, you put it into the account and then it sits next to your mortgage. And that will then mean that whatever is in there, let's say you've got $10,000 in an offset account. It just means you're not paying interest on $10,000 on your mortgage.

Chris Oates: That's a really good way to save.

Young Han: I also suggested linking your pay account with your offset account. So when your employer pays you your monthly wage, it goes straight into your offset account. And I actually set it up in two ways. So one goes into the offset account and on the other going to kind of transactional account, which is money used for daily living cost.

Chris Oates: Yes. So until you take the money out, at least it’s saving you a bit of interest and sitting in there.

How to actually keep your financial new years resolutions

Chris Oates: So one of the things, the key things as well is if you've got a New Year's resolution, it's easy. We all do it. We all say we all sit here in January and go, I want to do I want to put money away.

Chris Oates: I want to save some money. I want to do let's call it $500 every month. But we'll get a couple of months down. The bills will come in and we'll stop doing it. And there's not really something there that we're trying to aim for. And what's that $500 going to try to achieve for us? So, Andrew it's about setting a light on the hill and knowing what you're trying to actually do.

Andrew Fernance: Yeah, and the important thing is... We talk about New Year's resolutions at this time of the year, but really resolutions are goals. And for all goals, we need to plan and budget to make sure we've got the money to reach those. So it's the same process that we do for everything else. It's just emphasised at this time of the year. And with the higher cost of living and everything else, we really need to plan really, really hard just to ensure, like you said, Chris, in three months time when the bills come in and everything is there - that plans don't go out the window.

Chris Oates: Yeah, so you’re saying that - I've been at the coast. I've seen everybody else has owned a boat. But if I want to buy that boat, actually make sure I can afford it.

Andrew Fernance: Yes. You need to make sure you've got your plans there and the savings towards the goal that you want to meet.

Adjusting your financial goals to fit new circumstances

Andrew Fernance: But in times like this, it's also really good to reassess your goals. So the boat that you were looking at in 2021 or 2019 might be a little bit out of reach at the moment and you just need to reassess your goals.

Young Han: I just want to talk about what that actually means in the actual dollar value increase. Because we obviously talked about rising interest rate and your goals needs to be changed. So, can you just walk through an example of what it looks like and how it's affecting the household because of the interest rate?

Chris Oates: Yeah, definitely. And by the rates going up, it means there's going to be more money that you need to put into that 50% bucket of your needs. So, paying your mortgage.

Chris Oates: Using the example of let’s say average loan is around $600,000 for a household. If you were paying 2% on a 25 year mortgage, you've probably been paying around two and a half thousand dollars a month.

Chris Oates: So, if that was a fixed loan, which there's still plenty of fixed loans that are due to come off in this calendar year. And that could go up to, let's call it 5% mortgage rate. The difference is about - that's three and a half thousand a month. That's $1,000 extra you have to find in your household budget to just pay off your mortgage.

Chris Oates: So that's where you're saying, Andrew, you got to make sure that it's there. Is it realistic, now you've got $1,000 less? Are you able to get to where you want to be?

How to budget for rate increases and higher cost of living

Chris Oates: One of the ways that you can start to prepare for that...Cause let's call it July is when your rates change or your mortgage comes off its fixed period. If you're putting that thousand dollars away now, rather than spending it on that wants bucket, what that will mean is when it comes to July, it's not that big of a difference to the household budget. You've been putting it into that offset account. You've been saving interest on your current mortgage for one. But it just means you won't be saving that thousand dollars any more come July, but you know your mortgage is covered.

Chris Oates: So that's kind of setting that goal. You know, one thing OK, six months down the track, I know I have to pay more into my mortgage. So you're setting that goal of being ready for that.

Andrew Fernance: That's like preparing yourself for the higher payments. So you're doing it in advance. So it is saving, but you're also preparing for the future.

Young Han: And let's face it, we everybody’s just gone mad Christmas shopping on your credit card. Your credit card bill for the December month, which is coming up, it's going to be higher than usual, which means that you're going to have the higher minimum repayment amount that you have to be able to pay for it. And the thing is, you know the perfect storm will be you don't have enough in your savings to pay off your bigger than usual credit card debt, PLUS your fixed rate just comes to expiry.

Young Han: Then you really have to work out how you're actually going to meet that 50, 20, 30 rule, because obviously your 50% of your needs going to be a lot bigger than before.

Chris Oates: Definitely. It's - and you mentioned the credit cards, I know... I think we all spent probably more than we have in other years this year. Everybody got out there. We had a bit more freedom, so everybody enjoyed buying a few more presents. So that could be a way you might be saying, okay, well, if you've got to pay $1000, $2,000 off the credit card key, you’re starting your savings strategy.

Young Han: Yeah, because you're going to - if you don't pay that debt, you actually end up using all your money just for the interest charge on your credit card. So that's the money that doesn't give you any benefit, just the money that's gone. You rather want to focus on paying off - if you do have those high interest debts - make sure you pay them first before you even think about saving money.

Why cashflow is essential for businesses

Chris Oates: Yeah, we've seen credit card statements, you see the snowball effect and how much you could actually pay in interest if you took the full 40 years and just paid your minimum. And I think in business it's the same. Andrew, you can get into a fair bit of strife. Businesses use credit cards, too.

Andrew Fernance: Yeah, you can. A little bit of difference in business is sometimes it's about survival. And you need to make sure the business continues. And companies always need to be liquid and pay the debts as they fall due. So then it's a matter of making sure you have the cash flow to initially survive and get through the hard times. So you’re there when things are a bit easier to make more money.

What should you do with your bonus check?

Chris Oates: And a lot of us - well, some of us throughout the year and depending on the work, might get paid some bonuses too. So in the past we might have got the bonus and said, Oh, well, we want to go out, we want to buy some golf clubs or spend it on - in the wants bucket.

This year, we might actually need to change that. So how do you look at it for somebody that gets paid a bonus and what they should be doing with it, Young?

Young Han: I want to talk about the bonus and potentially about your pay rises as well. Because some companies will give you the pay rise in January.

Chris Oates: Inflation is higher.

Young Han: That's correct. But so, usually I'll say one third use it for funds. One third you use for retirement. One third to pay down your debt. But with this time of the year, you want to make sure that you focus on paying off your debts first and then have enough money in the offset account to pay for your mortgages.

Young Han: And then if you do get the pay rises, don't change your lifestyle. Remember that time when we got our first job and we were very tight on our budget and then we very wisely and carefully spent our money? If this is going to - sounds too hard because your lifestyle changed, you've got kids and family and all this.

Young Han: What we did in our household, we actually say, OK, for this month, let's just try using cash only. So we got rid of using the credit card. Everyone had like a money to spend. And then that way you actually realize - it's kind of a shocking system. So you actually realize how much money you were spending. And then you are paying, you know, previous months credit card debt with the this month, the wage that you receive and then that amount doesn't stay the same.

Young Han: It actually gets bigger and bigger and bigger because you just get into that spending mode. So right now, because we know it's coming, we need to make sure that we put that strategy in place to make sure that you train yourself, you educate yourself, how much money you're spending and how much money you will need in a couple of months time when your fixed rate comes to an end.

Andrew Fernance: Which means you'll have to be saving to have that money to spend. So you're going to have to be diligent and control those urges to spend the money. So you've got it to then spend it to not use your credit.

How to get S.M.A.R.T with your money in 2023

Young Han: Yeah. And I just want to talk about setting goals. So we talked about we need to be careful with how we spend. I want to just touch base about the SMART goal, which is Specific, Measurable, Achievable, Realistic and Time setting. So I read from now January we're back at work. What can we actually set up as a goal?

Young Han: Chris, can you think about any specific goals that you would like to implement in your household?

Chris Oates: It might even just be have some money to do some renovations on the house. And it could be as simple as you want to fix the roof. You know, it's okay, but it probably needs doing. And if I want to do that some time this year, so like September, I want to do it then.

Chris Oates: Okay, well, I'm nine months down the track, so there's your time. It's specific: I know I want to fix the roof. And there, I suppose the attainable side of it is well, you need to get the quotes and find out what it is and make sure it fits into the cash flow. But knowing those things, it means I can look now and go ‘Over nine months, how much do I need to save?’

Young Han: That's right. And then that actually gives you the goal of how much you want to save. But then that move to the next specific step is how you're actually going to save those money. So, that could be about, Andrew you're going to find ways of cutting off your lunch, eating out every day, coffee a day. You can kind of replace that with like other supplement lunchboxes that's going to work out cheaper than you dining out at the cafe every day.

Andrew Fernance: And it's a perfect example of budgeting. So you've got the plan to fix the roof and that's got a certain cost and money that's gotta come out. And there's still only so much income coming in; you're going to have to give up something else to do it. And if you haven't got that plan, you won't know what you can or what you have to give up to be able to do it.

Useful financial planning and investing strategies to help you through tough times

Chris Oates: Exactly. So it all comes back to setting a goal, having a budget so that you can - you know what you need to do to get to where you want to be. The other thing that being a financial planner you look at investments and what people want to do. One of the rules is a general rule that well if you're taking 4% or 5% out of your investment, then you can probably safely do it.

Chris Oates: So we're talking retirees, people that aren’t as reliant on work income coming into it. If you do have investments, have a strategy into there. So one thing that we sort of talk about is: How do you make your investment decisions? Our philosophy is protect and grow at RSM. It's about protect your money and grow - so low risk, but get to where you want to be.

Andrew Fernance: That's a really important issue because volatility is really going to keep coming into it.

How emotional decision making could hurt your wallet (or bottom line)

Chris Oates: When you talk to clients, Andrew, when they’re sort of thinking about investing, is there anything that makes them get it wrong sometimes?

Andrew Fernance: Oh look, tough times like this, if you're trying to tell people to save extra for retirement and save extra for other investments... You know, a loaf of bread, I saw there was a loaf of bread, a shop in Canberra was selling it for $14. For a loaf of sourdough at the market.

Andrew Fernance: Everything's costing more. The first thing people will give up is that savings. Because it's in the future. And I mean, it's really something for the planners, Chris - to make sure that people don’t do that and realize how important each saving is. But that’s so hard when the cost of living is high and the basics are going up and your mortgage is. If your mortgage is costing you an extra thousand dollars a month, that's like how are you meant to be putting in extra money for your retirement in 30 years time?

Chris Oates: You’re right. And what these times do - they make people start making emotional decisions. So with the investment side of things, it's about being objective and having a strategy and sticking to it. And if you're ever going to make a decision, come back to your strategy. So if you've got that, even write it down. A sentence two sentences about why you're investing and stick to it.

Chris Oates: If you're thinking, I might want to go out and buy some shares or you want to do something, make sure it all comes back to that.

Young Han: It comes down to you working with your client about the, I guess, strategy and their appetite with the risk that's involved. So, on average the share market usually gives you a 10% return in long term, whereas if you really looking to cryptos or any options and all that, yes they are, it could be a higher return, but it's a high risk as well.

Young Han: So you’re exposing yourself to a greater risk of losing money. There's no guaranteed return. So, I guess it comes back to having that plan even in your investment strategy and a portfolio. Building and make sure that you're not keep drawing down money from the profit that you made from your portfolio, because then it's going to have a greater impact on your retirement as well.

Chris Oates: Yeah, be comfortable. Know what the risks are, what you're doing. I think is what you’re saying, Young.

Getting back on track with savings when times are good

Andrew Fernance: Chris, just following on from that. I think that gives us - you've got to have sort of two plans. So we had a plan, times have changed, we have to amend it. And then when times are better, we have to remember, well, we haven't been saving $1000 a month because the mortgage was higher, so now we have to catch up.

Andrew Fernance: So when you look at that, Chris. The clients who have a savings retirement plan, they put it on pause for lack of a better word. At the moment. Then they have to revise that when times change to get back on track.

Chris Oates: Oh 100%. The flexibility in your plan is key. If you've not been able to - use superannuation as an example. If you've been making tax deductible contributions into your super, but then because you can't touch that till you 60 and you need to put some more money into the mortgage, you stop doing it.

Chris Oates: But interest rates they will go higher, they'll come back down a little bit at some stage. What it's about is when that cash value is up or you might get another pay rise. Make sure you are taking it out of that bucket. But what you took out of the bucket of savings goes back in. So you don't just start $1,000 again.

Chris Oates: It might be that you need to do $1100 when you can. That way you're not hurting your long term wealth just to fix the issues that are going on at the moment.

Why you should speak to a professional financial advisor before making any risky financial decisions

Young Han: Just talking about the portfolio. There are questions quite often asked about taking the investment loan to start your portfolio going. At the time of year right now with the interest rate going up, what's your view on that?

Chris Oates: It increases the risk in a portfolio definitely by taking out debt to do it. And if somebody's going to do it, you just need to understand the risk that you're taking and know what could go wrong. As long as you know that and you're comfortable with it, if you are going to borrow, talk to someone. So don't just go out and go, ‘You know what? I want to take out a $10,000, $20,000 loan just to buy some shares without knowing really what the implications are.’ It's not as simple as a one answer fits everybody situation. There’ll be people on high incomes that will still have spare cash flow. And they’d like the tax deductions of having an investment loan, but they can support it. Somebody on a lower income may not be able to.

Chris Oates: They might have a higher mortgage because interest rates were low and they borrowed a bit more. So it is a hard one to say one size fits all, but just know what you're getting yourself into before you do it.

Tools to keep your financial goals on track this year

Chris Oates: And we've talked a lot about different ideas, trying to have a structure, make sure you've got a budget. Look at where you're spending your money. There's plenty of calculators and tools and apps that you can use out there. You've got the RSM app that people can download onto your phones where it's got links to a number of - could be super contributions, can be mortgage calculators, there's tax calculators, there's lots of information in there.

Chris Oates: So have a go with that. It can keep you on track, can make it a bit easier to track your spending and what you're doing. So use your resources; you're not alone. And talk to people if you need professional help. Just pick up the phone and organize to sit down with someone.

Chris Oates: It's a new year. Let's move forward. Let's just make the most of what we've got and where we want to get to.

Young Han: Yeah, just to summarise. I think you should sit down today and work out your damage, or the specific goals that you have. Whether you want to do something or have a project or you have X amount of debt to pay off that you accumulated over Christmas. Then you look at what your 50, 20, 30 looks like and then set up small action items that you can actually implement on a daily basis.

Chris Oates: But thanks everybody for joining us today. Thanks Young.

Young Han: Thank you.

Chris Oates: And thanks, Andrew.

Andrew Fernance: Thank you both.

Chris Oates: And so to listen to more episodes from the RSM talkBIG podcast, you can download from any of your favorite podcast streaming platforms. Till next time, thank you.

Young Han: Thank you.

VO: talkBIG. Create, save and protect with RSM.