By Kellie Cowie
We all have things we wish we could ‘go back in time’ and tell our 18-year-old self. Whether it is the topic is relationships, life, career or finances, we have all learned lessons over the years which if we knew back then, would place us in good stead for the future, but alas, we made mistakes, and learned slowly the sharp lessons life had to teach us to get to where we are today.
I strongly believe that ‘Finance 101’ should be taught in the primary and high school curriculums and that every school student should graduate high school knowing how to manage their money, what superannuation is and basic budgeting. Because it is not (yet!), I thought I would share some money principles which I have learnt working in Financial Services for the last 10 years and are some of the things I wish I knew as an 18 year old.
Pay yourself first
Every time you receive your income ‘pay yourself’ a set amount into a separate savings account. Make sure the amount you allocate challenges you (not so much that you cant afford your bills, but enough that perhaps, by the end of the month you are forgoing some of the ‘nice to have’ things). If you need to, make that account difficult to access (like no debit card so you are forced to go into a branch to withdraw money or no internet banking available) or even sign up for an account that rewards you for not touching the balance and for contributing regularly (and make sure it has a good interest rate!). As you get older, money gets harder and harder to save due to all the financial commitments, so get into a good habit early and save, save, save!
Always have 3 months of income as a ‘base line’ for savings:
How much is enough savings? There is no right or wrong answer here, but I wish someone had told me, as I left high school, that if I had, as a general rule, a ‘3-month salary buffer’ then that would be a great ‘base line’. When you have that amount in your account, call it your $0 balance and be strict with yourself not to go below it, except in emergency situations (no, holidays do not count as an emergency!).
Keep Your Finances Simple:
Your finances will inevitably get more complex as you get older. Enjoy the simplicity of not having many financial responsibilities in your teens and early 20’s and try to keep that simplicity right through your (financial) life. Question your regular subscription payments to make sure they are still appropriate and you are still using the benefits and be sure to reconcile your bank accounts (ie what is going out and coming in) at least fortnightly. Fraud is a legit ‘thing’ that happens and you need to be aware.
Bad debt, is BAD!
Bad debt is debt that doesn’t give you anything in return. Like car loans, personal loans and credit cards. Whilst I’m on that point, keep credit cards to a minimum and YOU pick the limit-don’t let the bank dictate the credit limit! Also, you don’t always need to take up that credit card limit increase, just because they offered! Other bad debt, like personal loans and car loans are for extreme situations only. If you want something, save up for it, don’t just borrow from the bank to ‘have it now’, it will be so much more rewarding!
Create a variety of income sources:
In this day and age, there are so many ways to make money. Don’t rely on one income source, from your employer. Get creative! The more you diversify your income from different sources, the better off you will be. The BEST income, is a passive income-so one that doesn’t rely on your personal exertion-think about things like savings account interest, investment property rent, dividends from shares or even creating that great app that people are buying from iTunes/Google Play. Other income sources could be setting up a online business on the side to sell those great earrings you make, whilst sitting in front of the TV or even cashing in on social media.
Understand your Superannuation
Your superannuation will generally be your 2nd biggest asset in life, behind owning your home (if you even decide to own a property). Don’t be afraid to understand what it is and how it works. At the end of the day, when you want to retire, this will be your ‘nest egg’ and will dictate how much income you can draw from it and at what age you retire-so look after it and treat it well!
If this all seems too hard and confusing, ‘outsource’ this to a Financial Adviser who will be in your corner to guide you through your financial goals and ensure you are on track. At the end of the day, your financial situation is dependant on you. By setting yourself up financially, you will be free to enjoy the things you want to do, and have the life you want to live.
A version of this article first appeared in Money Magazine on March 8th, 2017.