Make sense of any extra dollars and cents
From stimulus packages, tax returns to early superannuation withdrawals, some Australians may have found themselves with a bit of extra cash.
While this is a welcome relief to those impacted by the COVID-19 crisis, it can be hard to know what to do with this new money.
Should you pay off your credit card? Add more to your mortgage repayments? Buy the new fridge you’ve been eyeing off for a while? Or lock it away in a savings account?
There is no right or wrong decision when it comes to managing extra cash flow in your budget. But you should ask yourself these key questions before making your decision.
What in my life has caused the most financial stress in the past month?
Whether you’re paying for the laundromat each week because your washing machine gave out, or your credit card balance just isn’t decreasing as you’d like, there can be a range of money challenges keeping you up at night. Instead of jumping on the first one you can think of, write down each money worry you’ve had in the past month and then order them by their urgency.
What change will happen in my life because of this?
After you’ve listed your money worries in order of what’s most urgent, think about what would change in your life if you chose the items at the top of your list. Would you and your family have a bit more room in your budget at the end of each month? Would it mean finally closing down that credit card?
What are those around me doing and is it right for me?
It’s common in economic downturns for people to put any extra cash into their mortgage and increase their redraw or offset accounts. While this can be a good decision for many people who’ve looked at the pros and cons, it’s worth considering what other debts you have and whether paying off those high interest earning debts, like credit cards and personal loans, might provide you with greater cash flow relief in the long term.
If these aren’t priorities for you – and it’s okay if they aren’t – it might be worth looking into how you can lock your extra cash into a high interest savings account. This could be the right step for you if you’re looking to build your safety net for a ‘rainy day’.
Finally, after considering your answers to these questions, remember to make a considered and conscious decision and try to avoid blowing it on the latest on-sale item that won’t pay you back in the long-term.
For more information on building your safety net and to better manage your money, visit RACQ’s Financial Wellbeing Hub.
The information in this article has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in the document is general advice and does not take into account any person's particular investment objectives, financial situation or needs. Before acting on anything based on this advice you should consider its appropriateness to you, having regard to your objectives, financial situations and needs