There are some simple money mistakes Aussies are making, and it’s costing us – and some of Australia’s top finance experts would really like us to stop burning holes in our wallets this way.
If they had a captive audience, what advice would they give?
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Yahoo Finance asked some financial advisers about the one thing they wish Australians would (or wouldn’t) do with their money. Here’s what they said.
Spend less than you earn
(If you’re going to take anything away from this, this is the rule to remember: it was a sentiment shared by more than one financial adviser.)
Live on less than what you make, invest it wisely and live a long-time. It’s a formula that can’t not work.
—Michael Abrahamsson, financial adviser and director at Flinders Wealth
Spend less than you earn and borrow less than you can afford. That way you will always be growing your money, not getting in over your head, not losing money on dead interest and you get to keep your sleep at night factor.
—Helen Baker, financial adviser and founder at On Your Own Two Feet, author
Learn the ‘Rule of 72’
I wish everyone could know about ‘the rule of 72.’ Everybody loves the thought of doubling their money, and why wouldn’t we want to have twice as much of something we love?
Determining how long it would take to double your money if you didn’t add to it or draw any investment earnings (i.e. compound returns) comes down to dividing 72 by either your timeframe or rate of return.
For example, let’s say you wanted to double your money in 10 years. 72 divided by 10 equals 7.2, meaning you need an annual rate of return of 7.2 per cent. Alternatively, let’s say you have the opportunity to earn a rate of return of 6 per cent each year. 72 divided by 6 equals 12, meaning it would take 12 years to double your money.
This is a simple and easy way to determine what level of risk you might need to take on to achieve your goals.
—Pierce Hanlen, senior associate advisor at Hewison Private Wealth
Get into the property market as early as possible.
Buying property at a young age (whether it's an owner occupied or investment) has almost always resulted in my clients accumulating more wealth than peers who didn't buy property 10-15 years down the track.
The key is to pick the right type of property in the right areas which is easier said than done. Using simple maths, if you borrow money at 4 per cent to buy an investment property and your total return on the property was 10 per cent (a combination of net rental plus capital growth), you're growing your wealth by 6 per cent per year on that asset.
—James Gerrard, financial adviser and founder of FinancialAdvisor.com.au
Delay your gratification
This is recognition of how our basic human behaviour can impact our finances. Impulse purchases satisfying our wants, rather than needs can be fun – but can also be very expensive.
A couple of tips to help regain control:
When shopping online, park your purchases in the shopping cart, then log out. If you go back to the site in a week or so, then you’ve had time to consider your decision properly and either press ‘buy’ or clear out the cart. However, remember to ignore those pesky email reminders!
An oldie but a goodie – if you shop the old fashioned way and use a credit card, then try popping the card in a glass of water and putting it in the freezer. You can still access it, but it means you’ll have to wait until it thaws out!
—Anne Graham, CEO/Senior Financial Planner at Story Wealth Management
Don’t forget to compound
The power of compounding! People spend money on things today that don’t truly make them happy or align to their core value. Instant gratification can have a detrimental impact on their longer term goals. Our clients crave that sense of freedom, the ability to make choices and a degree of flexibility, this requires a level of structure, discipline and consistency. Set realistic, specific and measurable goals and formulate a game plan to ensure success.
—Glen Hare, financial adviser, Fox and Hare
Diversity is key. In nature the most diverse ecosystem wins. So when looking to invest everyone should know the full menu out there, the different options, varieties, cuisines (such as bonds, interest rate swaps, mortgage backed securitisation, equities, value, small cap, emerging markets, indexing, diversification, etc.).
You can eat it all and enjoy the benefits only the big end of town really end up investing in. Just be diverse in your portfolio.
—Cody Harmon, financial adviser and managing partner at Hard Line Wealth
Check out your superannuation
Get engaged with your superannuation! This is a financial gift from your employer which, if managed properly can set you up for a spectacular retirement. So many clients who have no idea where their super is, or how it is invested. When they’re shown how their superannuation can grow over time, with the ‘magic’ of compound interest, most clients get super excited (pardon the pun!) and immediately become a lot more interested in their personal retirement savings nest egg.
And it is all really very simple. All you need to do is contact your financial adviser or go directly to your super fund and ask to speak to one of their advisers and they will be able to guide you as to the best investment option for you. Most super funds will also consolidate all your funds into one fund for you as well (let them do the running around for you).
You would be amazed at the benefit of consolidating your super and investing it in the right investment type for you – typically based on your age, years to retirement and attitude towards investment risk. Getting this right can add hundreds of thousands to your retirement nest egg. No client has ever said to me they’re not interested in extra money at retirement.
—Simone Du Chesne, financial adviser, EQ Wealth
Do something about it (from a place of love)
The best love letter you could write is the one that leaves your spouse with enough money to pay off the mortgage and provide living expenses for your family if you die. It’s called life insurance and taking it out is an act of love (and responsibility).
Financial advice is not about products. It’s about owning your life. You can’t do that if your finances are out of control and you have no structure. It’s like expecting to look fabulous while you sit on the couch day after day eating ice cream. It just won’t happen.
—Peter Foley, financial adviser and director at Third View
And finally: Just talk about it
It’s SO hard to drill it down to one thing but I would want to impart is that we need to start talking about money again. With each other, with our partners, with our kids so that we normalise it and it stops being this big, icky, awful, uncomfortable thing but rather just another thing we talk about.
—Melissa Brown, financial adviser and founder of The Money Barre
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