Helen Baker* says there are five key skills everyone should master to look after their financial wellbeing.
Interest rates on the rise, property prices falling, share market bouncing, jobs in demand, COVID, the “R” word on the horizon, climate change…. a lot of things are out of our control.
So when it comes to finances what can you control?
Humans aren’t born naturally good at managing money.
Like so many things, we learn it over time – and master it with practice.
Take command of your wealth by mastering these important money matters:
- Build solid foundations
Just like a strong house needs good foundations, so too does money management.
There are five financial fundamentals everyone should have:
- Emergency fund:
Keep spare cash that is easy to access.
Losing your job, falling ill, fleeing domestic violence are a sad reality for many people.
If you don’t ever use it, great! But if you do need it, you’ll be thankful it’s there.
- Spending and investment plan:
Most people hate the B-word – budget.
I’m one of them.
I prefer the term ‘spending and investment plan’.
This covers not just your income and outgoings, but your financial goals and strategies to reach them.
Protect yourself and your assets from disaster with insurance, and lock-in more favourable terms when you’re younger.
Life insurance is a great example: getting older sees the cost go up while the amount you’re covered for goes down.
Don’t squander your super through neglect or mismanagement – it’s your money after all.
You can afford to take bigger risks while you’re young, which may pay higher dividends, while still leaving time to recover any losses.
- Estate planning:
A current will and nominated beneficiaries within your super ensures your wishes are respected should you die prematurely and minimises disputes among surviving loved ones.
And what about those who may be leaving an inheritance to you?
- Seek good advice
Forget finfluencers – which are illegal now – and the get-rich-quick mantra of unqualified authors and podcasters.
Anyone can write or speak into a microphone, but not everyone knows what they’re talking about, is qualified on the subject, or has your interests at heart.
And well-meaning friends and family will offer advice – but from their own experiences, not yours.
Good advice should be from qualified, reputable, independent professionals – and is tailored to your particular needs and circumstances.
A good financial adviser, accountant and mortgage broker can possibly save you far more in unnecessary tax, spending and lost earnings than it costs you to consult them.
- Get on the property ladder
It doesn’t have to be flashy.
Or near where you currently live.
Nor do you necessarily need to live in it.
But getting onto the property ladder may put you strides ahead of your peers.
You can DIY basic improvements such as a lick of paint to add instant value.
It should build equity over time that you can use for other things.
And owning property is a major factor in reducing homelessness, especially later in life.
Don’t overextend yourself, especially in an environment of rising interest rates.
But a smart property purchase may open many more doors for you down the track – no pun intended.
- Invest in yourself
Don’t underestimate the benefits of investing in yourself.
While you’re young, you have few liabilities, perhaps no kids yet, and (hopefully!) few if any debts.
So, focus on bettering yourself and your earning power.
- getting extra qualifications and experience to go for better-paying jobs.
- looking after your physical and mental health to reduce healthcare costs, make smarter decisions and perform better – at work, with money and in life.
- meeting new people – you never know what they may mean to you in future, personally or professionally.
- Start now
It’s much easier to develop good money habits when you’re young.
Plus, the sooner you start managing your money and investing it wisely, the more wealth you can build.
Remember back to your maths teacher banging on about compound interest.
The same is true of investment earnings reinvested so your total wealth grows at an exponentially faster rate.
While there are few certainties in life, I can guarantee you one thing – no one ever reaches retirement and thinks ‘I wish I began taking money seriously later than I did’.
They’re usually kicking themselves for not starting sooner.
*Helen Baker is a licensed Australian financial adviser and author of the new book, On Your Own Two Feet: The Essential Guide to Financial Independence for all Women. She can be contacted at www.onyourowntwofeet.com.au