It seems simple, but figuring out the best place to keep your money to boost your cashflow can be confusing. Financial planner Ben Nash shares some common sense advice.
It’s common these days for people to have a bunch of bank accounts, loans, credit cards, and savings accounts. But keeping your money in the wrong accounts can end up costing you big time.
The more you can get out of your banking set-up, the more money you’ll have for your next trip, renovation, or investment. It sounds simple, but often figuring out the best place to keep your money can be complicated and plain confusing!
As a financial planner who works with young professionals, executives and small business owners, I often see some crazy stuff people do with their banking that ends up costing them a packet. When we help our clients they are often amazed they didn’t know the easy ways they could save on bank interest and fees.
Know where your money is
The big four banks in Australia earned over $3.6 billion in profit last year. So they clearly don’t need your help to make money.
Once you understand the differences between your accounts, interest rates, the tax payable/claimable on your loan or savings accounts, and how credit cards can impact your cashflow, it’s easy to beat the banks at their own game. You can boost your cashflow and hold onto more of your money for the things you want.
To squeeze more out of your bank(s), think about all the accounts you have and what they’re used for. It’s important you weigh up which account your pay goes into, which accounts are used to pay bills, and where any savings or credit card balances are held. Getting this wrong can end up costing you extra interest or fees and charges.
Using multiple bank accounts can be a great way to make sure you pay yourself first. Whether that’s money towards your next holiday, or straight into your investment account.
Think about whether separating things like your fixed or discretionary costs from your long-term savings would make your life easier. Hint: it does for most of my clients! This also allows you to see where your money is going and quickly identify any potential problems or opportunities.
Know your best interests
You should also be aware of the different interest rates on your accounts. Make sure you aren’t wasting money paying interest charges when you can easily avoid it.
Holding your money in savings account versus credit cards versus mortgage or even offset account will make a big difference between how quickly you get ahead (or how fast you fall behind…).
Know how savings are taxed
You should also understand the tax you’ll pay on any interest earned and how this affects the after-tax return you get from your money. Be aware of any tax deductions you can claim on the interest payable on your accounts.
The average income earner in Australia pays over $19k in tax each year. Any tax you can (legally) avoid will boost your cashflow and put money back into your pocket. Getting this right can even mean you’re able to take your next holiday sooner!
Know why it matters
So, it’s super important you keep your money in the right place. It can mean the difference between ‘plodding along’ or taking control of your money to get ahead faster.
Don’t throw money away because you ‘don’t have the time’ to take a close look at your banking.