The top mistake that is costing Australians financially

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3 min readWhen you hear the words debt you usually think of the negative form that keeps many Australians awake at night. However, there are ways to spin your debt to work for you instead of against you. As a nation, we currently owe $32 billion (and climbing!) in credit card debt, meaning the average cardholder owes $4,200.

We can pat ourselves on the back for a decrease in the annual growth in actual credit cards falling to 4% in 2016, but the question remains. What keeps debt following many Australians around like a bad smell?

Lack of budgeting

There are obviously many other factors that see Australians slipping into debt such as having too many credit cards and loans, struggling with repayments, or the volatile economy that has resulted in employment rates constantly shifting.

Budgeting is the root of many problems faced by Australians who don’t live within their means. This ranges from grocery shopping right down to taking out credit cards and home loans that they won’t be able to meet repayments on.

When it comes to budgeting Bill Tsouvalas, CEO of Savvy, says ‘you have to live not only within your means but on half to three quarters of your income’.

Overspending during the festive season also backs Australians into to the debt corner. According to The Sydney Morning Herald, four out of five Australians will be spending the next three months paying off their Christmas induced debt. Most of which went into buying food and gifts.

More money, more problems

A survey released by the APS shows that the top causes of stress among Australians is financial stress. According to research by AMP, they found that 24% of the 2000 Australian employees that were surveyed were feeling financially stressed across all industries, income and job levels.

This has led to people becoming less satisfied with their lives and less engaged at work. Not being able to practice day to day budgeting can lead to ill-informed decisions being made due to financial pressure.

The ripple effect

Failing to plan your day to day finances can have a negative ripple effect on major decisions that you will have to make in your life. The basic decision such as choosing the correct credit card that works with your current financial standing is crucial.

Budgeting around a 0% interest credit card versus a low-interest rate credit card can make a huge difference in your budget. While one boasts a 0% interest for a set period of time (6 to 15 months) you will have to consider if it is financially sustainable after the interest-free month has finished. The other can save you up to 50% in repayments when compared to your average credit card that is on offer.

Knowing how to budget around your income and your credit card can save you a lot of financial stress. Understanding the features and terms that come with the kind of plastic you carry around in your wallet can see you using it in a better way that enhances your financial power rather than cripples it.

Finding a way forward

There are various steps that you can implement into your lifestyle that will help you stick to your budget and promote healthy financial practices.

  • Use cash or a debit card when buying small items like coffee, alcohol, or cheat meals that you buy on a daily basis instead of placing it on your card.
  • Take lunch to work instead of spending money on takeaways.
  • Compare a credit card that has a low-interest rate that is suitable for your type of spending.
  • Budget for things like groceries, birthday gifts and holidays well in advance.
  • Get into the habit of frequently checking your bank statement and use that as a guide in terms of where you have to make financial cuts.
  • Speak to a debt counsellor who will help you map a way forward to financial freedom.

For more tips on budgeting and saving take a look at these nine ways to save money around the house and tips for millennials to curb bad spending habits.

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Bill Tsouvalas
Bill Tsouvalas is the founder and CEO of Savvy, one of Australia's leading financial institution. Established in 2010, Bill turned Savvy into one of BRW's fastest-growing companies in 2015. He frequently shares his knowledge and ideas on cars, mortgage, money and investment in the media.

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