Money
Try this FIRST template for finances that can fly (no matter what happens to you…)
If there’s one person who knows the value of a robust financial plan when you hit one of life’s tight spots, it’s Nicole Pedersen-McKinnon. Here she shares exactly how she managed when life knocked her for six again and again.
By Nicole Pedersen-McKinnon
I wouldn’t wish a life crisis on anyone – but 3 years ago, I had a helluva one… almost simultaneously getting diagnosed with cancer and separated then subsequently divorced.
Luckily, I had – in advance – implemented my FIRST strategy for my family, to ensure safe and successful finances.
It’s a template to stay on track with money, such that you’ll be okay come what may… and everyone can still forge financially ahead.
And I (inadvertently!) proved it works.
Here’s what you do to set up your own FIRST plan.
F is for ‘Holy Shit Fund’
Sometimes ‘shit happens’… and to good people. You can only affect your preparedness for it and your reaction to it.
I never imagined I’d discover a malignant lump in my breast aged 45. In a million years, I didn't foresee my marriage ending either. And having both occur within 3 months? Unthinkable.
But my former husband’s and my amazing Holy Shit Fund (HSF) – financially, at least – helped us navigate through it all. I am here, mercifully, to tell you that the financial relief of an emergency fund is invaluable when everything else feels heavy.
And think about even a not-as-big life crisis… how would your finances cope if your fridge broke, your children unexpectedly needed money help or your car needed replacing?
It’s vital to create a HSF fund to cushion your money (and your mind) from the stress.
For this, you should aim to set aside at least 6 months’ worth of salary. Yes, I know that’s a lot, but you can just slowly squirrel a little extra away each pay with your end-goal being that 6-month buffer.
Of course, this fund would immediately ‘pay’ for itself if for some reason you found yourself without income for 6 months – more on that in a moment.
And if you have a mortgage, I’ll also shortly tell you where to keep this emergency cash stash such that it will also slash your loan interest – and time in debt.
But first you need to fully protect your family if you are to prosper.
I is for Insurance
I believe 3 types of risk insurance are essential (these are aside from home, car and other necessary insurance for your possessions).
I credit one with saving my life.
Private health
Private health insurance covered the majority of the cost of my double mastectomy and simultaneous reconstruction to combat cancer. Just my hospital bill – for 8 days – would have been around $30,000. Instead, I paid a $500 excess.
Read the story: Private health insurance literally saved my life after breast cancer
In my case, the some-would-say extreme surgery carried the additional benefits of removing my need for radiation and also skipping some 10 years of hormone blockers (as mine was a hormone positive cancer) – and that meant it saved me extra trauma, time and money.
But – the main purpose – was it virtually removed my risk of recurrence.
Yes, private health insurance is pricey, but if you earn over $97,000 (as a single) or $194,000 (as a couple) and don’t have it, you’ll pay a tax penalty of up to 1.5 percent of your salary anyway.
That penalty would instead pay for some decent hospital cover, so it's a false economy to ‘save’ the money. In fact, having had my health experience, I think it’s a risky strategy.
Don’t forget, either, that you get a tax rebate for private health premiums, so the government effectively chips in a bit.
And here’s my huge personal hack: You can often make it pay for itself – claiming back what you pay in premiums – by opting for extras and taking advantage of all the allowances and perks (hello, biannual dental check-ups and cut-price exercise physiology).
But remember, your insurances need to extend beyond health to your broader wealth… and budget.
Income protection
If you are still working and pre-super, how would you pay your bills if an accident or injury prevented you from working? Income protection insurance (IPI) is also crucial – and that applies particularly if you’re single like I am because there’s no other income to fall back on.
While the price is also steep, income protection premiums are tax-deductible.
Now, recall that 6-month HSF you are carefully building. My top saving tip for IPI is to opt for a 6-month waiting period for far-lower premiums. Your HSF will cover you for 6 months while you wait for your IPI to kick in.
Life
Finally, don’t forget a level of life insurance – it’s not that expensive – sufficient to protect any dependents (remember, you might also have some automatically in your super - check with your fund). Nobody wants their loved ones burdened by debt.
Speaking of which, I’ll venture you can pocket a small fortune in interest on your largest loan, if you hold it still…
R is for Rates (not mates)
Toss loyalty out the window when it comes to your home loan… it probably represents the single biggest source of financial leakage in your life.
As in, tens of thousands of dollars, if not hundreds. Indeed, we saved $200,000 in mortgage interest, in part, by simply doing the below.
Right now, there’s currently a staggering 3 percentage point difference between the highest and lowest mortgage interest rates, according to rates published on comparison site Mozo.
How might that saving look for you? Switching your $500,000 home loan from the highest rate to the lowest would put about $1,000 back in your pocket each month.
But if refinancing with your current lender isn’t an option, don’t hesitate to threaten to leave… and mention the best interest rate you’ve found online.
You might just score an instant discount for doing nothing extra!
And where to keep your HSF such that it will slash your mortgage… the intel I promised earlier?
In a magic little Aussies invention called an offset account.
4 benefits of using an offset account
- It saves you an identical amount of time and money because your offset balance is simply netted off your outstanding loan balance.
- Unlike putting money directly into a loan and hoping the lender will let you redraw it if you need to later, you retain full access and autonomy over your cash.
- You will be eligible for the Australian Government Deposit Guarantee of up to $250,000, provided the offset account is issued by what’s called an authorised deposit-taking institution (ADI).
- By not officially paying down a mortgage with extra repayments, you preserve your tax deductions if you later decide to turn your home into an investment property.
For the last 2 reasons, I wouldn’t borrow from an outlet that wasn’t an ADI. There’s a comprehensive list of the many of them here.
Don’t miss this: Floor the accelerator and pay off your mortgage in the next 7 years
Which brings me to your life-changing wealth-building move…
S is for Superannuation
How is your super tracking as you approach retirement? Because super is essentially, accidentally sexist… so if you’re a woman, it may need some attention.
For some crazy reason, the gender pay gap reported by the Workplace Gender Equality Agency is still 21.1 per cent.
Often lower pay has been compounded by women taking career breaks to birth and raise children
As a result, Australian women retire with an average of 25 per cent less than men, say figures from the Association of Superannuation Funds of Australia.
But here’s what you can do about it as part of this FIRST strategy to protect everyone in a family.
Super fix 1
If you’re still working, your employer contributions to your super fund should now be 11.5% - check. Note that this will increase to 12% on 1 July this year.
Super fix 2
At least once a year (and a new year is a great time) it’s vital to evaluate your fund: the median balanced fund generated an impressive 11.5% for the 2024 calendar year, and 12.8 percent for pension members in the median balanced pension product, according to SuperRatings. How did yours compare?
The government’s MyGov YourSuper portal makes it easy to rank funds and if yours is falling short, switch.
Super fix 3
You know how we talked about that potential $1000 monthly saving from your mortgage (see ‘R is for Rates’ above)? If you still can, consider salary sacrificing the amount you save when you change your home loan rate into your super to boost your retirement savings significantly.
T is for Tests
Please prioritise your self-care and your health.
We are all busy but finally make time to tackle the ‘less-crucial’ stuff at the end of your to-do list.
Start here: Vital health checks to have in your 50s and 60s
It might end up saving your life… health is truly wealth.
And be sure to enact this whole FIRST template for finances that can fly... no matter what happens to you.
Trust me.
This article reflects the opinions and experiences of the author and does not necessarily reflect the views of Citro. It contains general information only. It is not financial advice and is not intended to influence readers’ decisions about any financial products or investments. Readers’ personal circumstances have not been taken into account and they should always seek their own professional financial and taxation advice that takes into account their financial circumstances, objectives and needs.
Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter and Instagram.
Feature image: iStock/Tinpixels
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