With interest rates on the rise, and further rate rises expected it is not surprising the clients are starting to worry about how they are going to manage. Our financial landscape is changing.

This means that now is a really good time to stop, survey our position and develop a plan of attack with which we can move forward with confidence. Along the way we may need to re-evaluate our lifestyle decisions and core beliefs about money.

We have in recent years reveled in the myriad of finance options available. Interest free credit cards and retailers that encourage us to “buy now and pay later” lure us with “promise” of lifestyle at no cost (at least on the surface) but these products have resulted in us accumulating greater debts. If used correctly, these facilities allow us to get ahead but most do not work the products to their advantage and are left paying so much more than the purchase price by the time they have paid off the debt and all the interest incurred.

So in an environment of rising rates, it is time to confront ourselves, our worst habits and attitudes…and consider that we may need to take a more conservative approach to our finances. Perhaps it is time to buy only that which we can afford now and live within our means today. Maybe it is time to shelve the thinking that we will spend next years pay rise, bonus, savings before they are in the bank.

Here is a 6 Step Plan to help you take charge of your finances. If you follow the steps you will be able to manage your money rather than having your debts rule you.

1. Id Your Debts

The starting point of any plan is to assess the current landscape, so start by making a list of all your debts.

List on a page all your debts, starting with your home loan and investment property loans (if any) then working through your credit cards, store cards, car loans, personal loans and even HECS debts.

Next to each debt write down whom they are with, what the monthly repayments are, what the current interest rate is on the debt and whether they are tax deductible or not.

Tip 1: Setting up a table in Microsoft Excel will help get all the information organised and easy to view.

2. Write Down Your Upcoming Commitments

Look ahead at your plans for the next 3-5 years and start to think about what the cost will be to do those things that you plan/want to do. Everyone’s plans will be different but most will have a cost. Planning on getting married? Buying a new car? Going on holiday? Starting a family? School fees? Investments?

Next to each item you list down, estimate how much it will cost upfront or as an ongoing expense.

Now you can get a clear picture of what money you will need over the next few years over and above your living costs. With this information you can start to devise a plan…but more on this later.

3. Review Your Position

What was a good deal at the time that you took out a debt may not be so great any more. Equally, what might have once suited you may not be right for you now.

Every 12-24 months it is valuable to take a look at your position and make sure your lending is set up in a way that best suits your needs as they now are.

Here are 4 important questions to ask yourself:

· Have we got good interest rates on all our debts?

· Are we happy with the product/structure? Fixed v Variable etc

· Will we need finance in the next 12 months for any of our plans?

· Can we consolidate debts? If so, will doing so advantage us?

Tip 2: There are 2 reasons to consolidate debts:

1. To reduce the interest rate we are paying on one or more debts and in the process save money
2. To reduce the repayments on existing debts because you cannot keep up with your repayments

If you are restructuring for the first reason, the goal is to take advantage of lower rates but to still repay the debt in the same time as the original loan arrangement – not a longer term. Otherwise, you may end up actually paying a lot more interest in total over the life of the debt even though the rate is lower.

Re-structuring for the second reason is a last resort as the cost of lowering repayments now is almost always that you will pay more interest over time. So there is a real cost to the breathing space you create now.

4. Develop a Plan

It is important to have a plan of attack with your finances. Identify which debts will be paid off 1^st, 2^nd, 3^rd etc. Be clear about how much you will put into each debt each month – just the minimum? Or how much more?

You will progress much quicker where you have a specific plan and clear targets.

In the current climate with high interest rates you might also consider committing to taking on no new debt and only spend from accumulated savings.

Setting up a budget helps many people to develop a plan of attack and a Microsoft Excel spreadsheet is a great place to set this up. Start by recording how much income you have coming in (net salary, social security benefits and income from other sources).

Then set out all your essentials under key categories: Home (mortgage, rates, electricity etc), Car, food and other necessities. Then allow some spending for discretionary indulgences (going out, memberships, holidays etc).

If you are spending more than you are bringing in then you must cut back on your discretionary spending. But if you are spending less then look at using this surplus to pay more off your debts.

Tip 3: As a general rule, start by paying off the non tax-deductible debt with the highest interest rate.

Tip 4: Try and pay an additional $20-$50 pm more off your debts starting from this month and watch the savings.

5. Protection

What happens if you can’t work? Or take care of the family? How will you and your family manage with life and keep up with loan repayments then? Do you really want the added burden of worrying about meeting the mortgage repayments and providing for your family at a time like this?

Here are a few frightening statistics:

· 32% Australians who retire early, do so due to ill health and injury.

· There is a one in three chance you will be off work for 3 months due to illness or injury before you turn 65

· One third of males and a quarter of females will be hit by a major illness like cancer before they turn 75

The more debts you have, the greater the exposure and the more you need to ask yourself whether you have sufficient protection in case something happens to me/us.

Insurance can give you the confidence that should something like this happen, you and your family are protected and will not be left in financial difficulties.

Tip 5: Most people have some form of income protection and life insurance via their employer but statistics show that only 4% of the average working families have the level of life cover recommended by the experts to cover their needs. Find out what level of cover you have and talk to an expert to see if it is adequate or what it would cost to increase your cover to a satisfactory level.

6. Stay Committed

Once you have completed the above steps you are well on your way…but the real benefits of your work will only be enjoyed if you remain committed to seeing through what you have started.

Focus on adhering to your budget, making extra loan repayments, only taking on new debts where absolutely necessary and each year reviewing your financial position.