Starting out – the first timer’s guide to finance
Or, how to manage your money and have fun too!
By Melissa Field
When it comes to all things monetary, sussing out a few simple must-dos today will set you well on the path to a happy financial future. Here’s how…
Tip 1: The B word
Yes, that’s right: budget. This is the most fundamental building block of any financial planning and the sooner you put one in place, the sooner you’ll reap the rewards.
According to money pro Alison Haynes, author of Time Money Happiness (published by Murdoch Books), “Putting a budget in place, even if you’re earning very little, will set you up to manage your money with ease.” She recommends, “Don’t keep withdrawing money from the ATM and only carry your credit card on you if you absolutely have to."
“Identifying your ‘want’ purchases against your ‘need’ purchases will also help you keep spending under control. Do you really ‘need’ that large cappuccino on your way to work or do you simply ‘want’ it? Anything on your need list (travel expenses, rent, mobile top ups) is non-negotiable and must be covered by your available funds. Everything else on the want list can wait.”
Tip 2: Safety net
It’s never too soon to start saving. Who knows when you’ll be stung for a hefty dental bill, a rent hike or an urgent desire to relocate to Rio? Set up a savings plan now and squirrel your spare change away into it at every opportunity.
Saving $100 a month in a high interest (6% or more) account for five years will generate nearly $6000 in savings plus another $1000 in interest alone – there’s a start on your first home deposit right there. Even if you can’t save this much each month, every little bit helps. Put away what you can, when you can and watch your nest egg grow.
For more info go to http://www.ratecity.com.au/ to compare the various accounts available.
Tip 3: Ditching Debt
When you’re first financially independent, you may already be saddled with some unavoidable debt like hefty HECS fees. The average student will have racked up, on average, a $10,500 debt once they’ve obtained their degree, which you must start paying off once your salary hits $39,825 a year.
There’s no deadline to clearing this debt and financial experts agree that paying off student loans should be a lower priority than paying off a straining credit card, for example. According to AMP financial planner Michael Crandon, “Debt that incurs very low interest (like HECS fees) isn’t the most urgent of your debts to clear because its interest is only going up by about 3% a year. This is low in comparison to debt incurred on a credit card.” Some expired interest-free credit can cost up to 28% a year.
However, avoiding further debt is also a very good idea. According to financial expert Dymphna Boholt from WildlyWealthyWomen.com.au, this means “keeping credit card spending under control and always trying to pay off your bill each month.” Dymphna recommends, “Leave your card at home in order to avoid costly impulse buys. Impose a ‘cooling off period’ on yourself. If you really can’t live without that pair of designer jeans you’re willing to go into debt for, they’ll still be there tomorrow. Nine times out of ten, sense will prevail and you won’t go back for that costly purchase.”
Tip 4: Housing help
For many Australians, a home of our own is the ultimate goal. But with property prices continuing to escalate and interest rates rising regularly, staying put at Mum and Dad’s and saving a deposit for a home of your own rather than blowing it all on rent is a good way to go.
That’s not to suggest that you live at home forever; rather, don’t be in such a rush to move out if you don’t have to. Your finances will thank you – so long as you put a savings plan in place to squirrel away the money you’re not paying to a landlord.
When you do take that first step on the home ownership ladder, Nicole Pedersen-McKinnon, finance editor for Sydney’s Sun-Herald newspaper and creator of financial advice website nomumbojumbo.com.au, recommends that “When you do take out a mortgage, set up a linked offset account. This account is netted off against your mortgage and you’re charged less interest. If you maintain regular mortgage repayments you’ll pay off your loan sooner.” Paying off a mortgage may seem like a distant dream now but arming yourself with the best advice possible now helps you achieve a happy financial future.
Tip 5: Use your common cents!
Being financially savvy doesn’t mean you can’t have any fun. According to personal finance coach Sandy Forster, “It’s all about having some balance and understanding that planning for your financial future is just as important as having some fun now you’ve finally got some money in your pocket, too.”
She suggests that while it’s a really good idea to start making contributions to a super fund as soon as you can, having a savings plan set aside for treats like holidays and other luxuries is a good idea, too. “When you identify a specific goal, saving rarely seems as hard,” she says. “Your ‘treats’ fund can also act as your safety net so that when that exorbitant car insurance bill comes in you’ve got the means to cover it.”
Sandy also suggests looking for ways to cut the costs of your social life. “Most of your friends will be in the same financial situation as you are once you’ve left school or uni, so look at things you can do together cheaply. Go to the beach, only go to the movies on Tuesday when tickets are half price or, rather than eating out, have a meal at a friend’s house and all contribute a course. Also, stash your spare change in a money box at the end of the day. Count it up each month; you’ll be amazed how much you’ve managed to save painlessly!”