It's FY20 next week, which is a great opportunity to start afresh and make some financial resolutions for the coming financial year.
A new financial year could be a time to work on some new goals or to expand your existing goals.
Here are three things you could do to start FY20 with a bang:
Pay down debt
Debt lending is a very profitable enterprise for many Australian businesses. Just think how much profit Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) make between them. Many billions.
But you don't want to be paying them any more than you have to. Compound interest is great if it's working for you but terrible if it's working against you. Eliminate all high-interest debt as quickly as possible, I think that's one of the best things you can do for your net worth, your budget and your financial confidence. Remember, you're saving yourself after-tax money by reducing your interest expense.
However, mortgage and HECS debts are very cheap these days, so it's worth considering if paying those down is worth it, your interest rate may be so lower it might be better to invest instead.
Set good financial foundations
It's very hard to build a good financial house if you don't have good financial foundations.
Two of the keys to getting this right is knowing where your money is going and also having some savings.
Spending less than you earn is a critical step for increasing your net worth, so you have to have some knowledge of what your expenditure looks like. You don't necessarily need to have a complete budget, but you need to know your expenses aren't outstripping your after-tax income.
I also think it's very important to have some savings set aside. Life expenses do not follow a spreadsheet, sometimes emergencies come up. I think every adult should have at least $1,000 set aside, hopefully a lot more! For example, if your car being written off would be the worst-case, then I think you should have enough cash to buy a decent replacement.
Invest more
The best way to grow your wealth is your invest in cashflow-producing assets like shares. Despite all of the recessions and wars over the decades, shares have returned an average of 10% per annum.
If you regularly invest in good low-cost investment options like BetaShares Australia 200 ETF (ASX: A200), iShares S&P 500 ETF (ASX: IVV) and MFF Capital Investments Ltd (ASX: MFF) for the long-term then you are headed for a solid level of wealth by retirement.
