After 18 months of writing this column, it’s time to wrap it up. I’m no longer starting out. I’ve worked in a full-time capacity for almost three years, I’ve been living independently for almost five (two of those in a studio all by myself!) and my partner and I have saved enough money to put a deposit on a property. Happy days! And I owe it all to everything I’ve learnt at Money.
Here are the top three things I’ve learnt on the job:
1Live within your means
Life is expensive. Health insurance and electricity costs increase almost every year but wages growth continues to wane. Unlike our parents’ situation did when they were our age, we’ve now got to fit monthly broadband and mobile data costs into the budget. Yes, your money is worth a lot more now than it was 20 years ago – if you had $1 back in March 1998 it would now be worth an extra 64¢. But if you happen to live in Sydney, that extra 64¢ doesn’t mean much considering the median house price has ballooned by almost 400% over the past 20 years. So rent and mortgage costs now take up a really large chunk of the budget.
A credit card can help you pay your bills on time and cover unexpected large costs. But it can also be a gateway to spending more than you earn. Avoiding temptation is hard, and if you can’t pay off your debts within the interest-free period you’re just going to accrue more debt, making it harder to get ahead.
It sounds prehistoric but budgeting really is the best way to avoid drowning in debt. Set yourself a spending limit for the week, which is easier now with apps such as Pocketbook. Check your banking app often and set reminders for bill payments in your calendar. Budgets don’t mean you can’t live a little. STARTING OUT Put aside a set amount of spending money for yourself each week. If you don’t have much wriggle room or have debt that needs immediate attention, you’ll have to be strict with yourself.
2Saving isn’t impossible
You’ve got to have self-discipline. I haven’t backpacked through Europe but a lot of my friends have. There are pros and cons. The experience of travelling when you’re young can give you wisdom and perspective. And if you’ve got no savings goals you’ve got nothing to lose. But if you can’t afford it, it’s probably a bad idea. A friend once put an entire trip to Europe on her credit card, and then went to India on credit the next year. When she settled down her debt was so bad that she had to move back in with her parents and get a second job to pay it off. When you’re in your mid-20s and trying to start your life, to me this is not an enviable position to be in.
Over the past two years I’ve learnt there are better, more realistic ways of saving than eating 80¢ mee goreng packet noodles for dinner. Exchange traded funds are great for growing savings. They’re lower-cost investments compared with managed funds and they pull off better returns than term deposits or savings account. Better still, if you need the money you can sell your shares at any time – maybe even for a profit! You can invest in an ASX-listed ETF through an online broker, or you can invest via an online platform such as Acorns, which has its own portfolio of ETFs. I’ve written a lot about ETFs before but if you need more information on how to invest head to moneymag.com.au.
3Don’t neglect your super
Give yourself a super check-up at the start of every financial year. Look at how your fund performed, check how much you spent in fees and make sure your level of return is appropriate for your situation. Last year I made the call to axe my insurances within super. I’ve got no dependants or any large outstanding debts that may burden my partner, so I got rid of my life insurance and saved a few hundred dollars this year. This isn’t always foolproof – you could always get sick and regret not keeping your cover. Seek your own advice here. But it’s a really easy way to cut down on fees.
And if you’ve got more than one fund, please sort that out. It’s so easy to consolidate your accounts – just head to the MyGov website and do it before you lose any more of your hard-earned money to fees.
It sounds prehistoric but a budget really is the best way to avoid drowning in debt