Get your financial new year off to healthy start

Paul Clitheroe

RETHINKING a few bad habits is a great way to get your finances in better shape in the new financial year.

It's no secret for instance that smoking is bad for our health, but the financial toll can go well beyond the cost of a packet of cigarettes.

According to research group Canstar, a 40-year old male non-smoker could pay around $81 per month in life insurance premiums (assumes a directly held policy worth $500,000). The premium for a smoker the same age can skyrocket to around $169 each month.

If you manage to quit the habit, your premiums will start to fall after just 12 months.

While it may not affect your health, one financial habit that can cost us dearly is playing it safe. Sure, it always makes sense to have a buffer of cash savings, but in today's low-interest-rate environment holding large sums of money in cash-based investments can see you miss out on higher returns elsewhere.

Term deposit rates are about 3% right now - only a whisker above the inflation rate of 1.3%, so your money is earning next to nothing in real terms. If you have savings that you're unlikely to need in the near future, think about investing in shares, or a balanced managed fund offering exposure to a range of asset classes.

History tells us shares perform well time over time, and along with tax-friendly dividend income you'll benefit from long term capital growth - something you won't get with cash in a bank account.

Just as bad habits can be a drain on our finances, good habits can play a key role building personal wealth. Use the end of the current financial year to start an annual habit of reviewing your key financial products - your everyday account, credit card and home loan, to check that you're getting the best deal. Even small differences in fees or rate you're paying can add up to big savings over time. Comparison sites like Finder or Mozo make it easy to see how your financial products stack up.

Take action today to get your money management in better shape. Simple steps like drafting a household budget; consolidating multiple super accounts into a single fund; or setting up an automatic transfer from your everyday account to a savings account or other investments can make a significant difference to your financial wellbeing over time.

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