As we approach the festive season, financial discipline (along with dietary discipline) tend to fall by the wayside and New Year’s resolutions about getting yourself into shape are usually the result. Here are 8 simple ideas to guarantee your long-term financial fitness.
As of September 2017 there are just under 17 million credit cards in Australia (source: finder.com.au) with an average balance of $3,077. Of this average balance, the component which accrues monthly interest (eg which is not paid off each month) is $1,881. The total debt accruing interest is around $31 billion at any one time. Credit Card interest rates are around 15%-20%. If you’re not paying off your credit card to $0 each month, then you are in trouble and you need to change your habits immediately!
There are plenty of free apps available and there is also the ASIC Money Smart budget planner which is also a great help. For those that don’t wish to go into every tiny detail you can replace a budget with simple discipline. In my case I do a “no budget budget” which I’ve written about before and had in place for close to 15 years. I set aside at the start of every pay what I need for loan repayments, insurances, savings, etc ……..and I spend the rest. Then I review my position at the end of each month (via a simple spreadsheet) to make sure I’m heading in the right direction. It’s not fancy, it’s all about good habits!
As a youngster the chances are you’ll end up with multiple employers over the first decade of your working life. The result of this is you end up with multiple employer superannuation funds. 2 things we recommend are 1. you ideally only have one superannuation account (so you’re not paying multiple fixed fees across a number of accounts) and 2. Your employer is actually making the payments you are owed.
The most important skill you can have in succeeding financially is spending less than you earn (yes – it’s that basic!), however you wouldn’t believe how difficult this is for some, regardless of how much they earn. Set aside a fixed percentage of your gross income each year from an early age and the results are amazing due to compounding returns (the 8th Wonder of the World). As you earn more, you save more. Also read The Richest Man in Babylon or the Millionaire Next Door to help you get in that disciplined frame of mind.
As an exercise using any rate of return you like and a starting amount of say $10,000, try the following exercise. If your rate of return is 5% per annum (or any other positive rate – it doesn’t matter) compounding and you reinvest those returns – just check out what the income return is in year 20 compared to year 10, then compare year 30 to year 20. The earlier you start investing, the better chance you get at these fantastic yearly returns later on!
I have one client who is financially very successful. In his 70’s, he told me one of the reasons he was in a comfortable position was that he took his own lunches to work and didn’t waste money on continually buying takeaway food and snacks. Too many takeaways can be bad for your waist line and your finances. We don’t suggest you live on bread and dripping, just avoid eating out all of the time!
I have a problem with buying sporting hats, I would have more than I could count and each year it is suggested to me I should throw some out. In most houses there would be $000’s of unwanted/unused items in all of our homes. Try and only purchase items you will use and enjoy. Christmas is a great example of buying a lot of junk which is rarely used.
So many institutions now want you to pay via a monthly direct debit, which in some circumstances may suit you. However, there are charities, gym memberships, Netflix, internet, Pay TV, entertainment providers, phone provider subscriptions, etc which may require a minimum term. This could see you trapped into a monthly expense for something you no longer use/want or enjoy.
I imagine the majority of you reading this know these suggestions are pretty simple, but you would be staggered at the percentage of the population that do not any of the above, let alone some!
Be different, be disciplined, but most importantly get in these habits early.
Have a great festive season!
