Question 1: I recently had a large, unexpected expense come up and really struggled to pay it off. I just can’t seem to get ahead and save money. Any tips?

Well, the simple answer is spend less than you earn, but that doesn’t really help most people put anything into action.

Cash flow management and budgeting are the cornerstone of wealth creation and financial planning, but this is often downplayed or even overlooked as people look for the next shiny investment.

I believe the key is to find a system that works for you, as you will then be much more likely to stick with it and succeed.

Below are some ideas that you can try.

Write a budget

This sounds intimidating, but it needn’t be. Simply record your income and add up your expenses.

You can then decide how much of your income you want to save and look at what expenses you can cut back or cut out altogether.

You could take advantage of a host of free budgeting options, apps and online tools, or the old-school Excel spreadsheet.

Alternatively, look back at your credit card and bank statements. Because nearly all of our spending these days is done electronically, it is quite easy to see where funds have been spent.

Moneysmart – run by corporate regulator ASIC – also has some good tools that are easy to use.

Track your spending

Whatever you track can be improved.

Want to eat less calories? Track them. Want to do more steps? Track them. Want to spend less? Track spending.

There are many free apps that can track your spending, with all major banks now offering one.

Using one for the first time, you will be surprised to see where your money goes.

Once you find out, you can make more informed decisions about where you want to spend your money.

Pay yourself first

Automatically paying money into your savings account as soon as you get paid is probably the easiest way to save money.

It takes into account some basic behavioural finance principles, in that it recognises that most people don’t like doing budgets and are more likely to spend their money if they leave it in their everyday account.

In other words, disposable income is normally disposed of.

Paying yourself first involves putting money aside for your ‘future self’ before anything else.

You can then do anything you want with the leftover amount because that is reserved for current spending.

You might want to save set amounts into specific accounts straight from your pay, before you have a chance to spend it.

For example, you might put some money into a holiday account and some into an emergency or new car fund etc. If you then receive a pay rise, pay yourself first and put the additional amount into savings.

Alternatively, you might want to pay yourself a percentage of your salary, much like your employer super payments which are set at 10 per cent of your salary (moving to 10.5 per cent in 2022-23).

You might decide to pay somewhere between 2 and 10 per cent of your salary into dedicated savings accounts.

Your lifestyle spending tends to automatically correct.

If you ‘pay yourself first’ your short-term spending will go down and the reverse is also true.

If you receive a pay rise and don’t think too much about it, your short-term spending will go up.

Your lifestyle spending adjusts to your available income.

If you can employ all of the above cash flow measures, even better.

But the main point – if you want to get your finances in order – is that you should be making conscious decisions about how much you want to save and how much you want to spend.

This will make your future finances more durable and lead to less financial stress.

Just knowing you have a plan and funds available in an emergency will put you at ease.  

Question 2: I will have about $100,000 from an inheritance coming next year when a family property is sold. At age 67, can I still contribute this into super? What is the cut-off age for non-concessional contributions? Can contributions be made into the pension phase account, or only the accumulation phase account? Thanks

The good news for you is the government recently passed legislation that allows all individuals under the age of 75 to make after-tax (non-concessional) contributions to super without having to meet a work test, so long as they have a total super balance below $1,700,000.

The work test is currently applied for all individuals aged 67 or over, and to pass the test you must be gainfully employed for a minimum of 40 hours over a consecutive 30-day period.

The new rules come into effect on July 1, 2022 and will encourage many older Australians to put more money into super – perhaps from an inheritance or because they have sold high-valued assets and have funds to invest.

Note that the new rules will also apply for salary-sacrifice contributions (although if you are salary sacrificing you probably already meet the work test).

But if you wish to make a personal tax-deductible contribution, then meeting the work test from age 67 will still be required.

You can only make contributions into the accumulation stage of super.

If you already have your funds in pension phase, then you can either start a new pension with the additional funds, or you could look at rolling back (transferring) your pension back to the accumulation stage, adding the extra funds, and then starting a new pension with the combined amount.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives. 

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