How much do you know about managing money?

All / 06.05.2021

How much do you know about managing money?

It might be safe to say that we are accustomed to the reality of having to work for a living. In fact, many of us are unlikely to know any different; because, since we can remember, Mum, Dad and other family members have been toiling to make ends meet and to provide for their loved ones.

At the same time though, we cherish the thought of reaching financial independence; that is, to adequately provide for our living expenses from our own accumulated resources. And, the quicker, the better, most might agree.

But, I hear you ask, how do I get from being a mere salary or wages earner, to a position where my wealth will be enough to cover my financial needs and dreams? This requires a focused and dedicated mindset; one where – by diligently taking control of your money – every cent of your earnings that is not spent elsewhere, is put towards reaching the goal of financial independence.

Are you financially diligent? Find out by answering our simple quiz.

Saving and investing is the same thing.
a) agree
b) disagree
c) sometimes

Using public transport is generally more expensive than having your own car.
a) agree – the longer journey time makes public transport more expensive
b) agree – my car is an asset, therefore it’s not an expense
c) disagree – after the ticket price, there are no further costs on public transport

Is taking lunch better than buying lunch?
a) yes – because it costs less to make your own
b) no – because buying lunch saves us time
c) no – because the ingredients cost the same anyway

Interest-free credit costs you nothing.
a) disagree
b) only if you pay the debt off in the interest-free period
c) agree

Rent-to-buy is the same as ownership.
a) sometimes
b) agree
c) disagree

Interest is the only expense when buying a property.
a) disagree
b) agree
c) it depends on the value of the property

By always paying the minimum instalment on my credit card, no interest is charged.
a) disagree
b) balances below my card limit are always interest-free
c) agree

Personal insurance is only important to older people.
a) agree
b) disagree
c) young people should avoid unnecessary costs like personal insurance.

ANSWERS & CALL TO ACTION

Saving and investing is the same thing.

disagree

Savings is the portion of your disposable income which you managed to put away without spending it. Investing, on the other hand, is the distinct and separate activity of purchasing an asset with the intention of receiving an income from it; or, to sell it later at a profit.

Using public transport is generally more expensive than your own car.

disagree – after the ticket price, there are no further costs on public transport

A study – which includes all the capital cities of Australia – found that driving was more expensive than taking public transport. However, the outcome may differ on a case-by-case basis depending on services available where you live.

Operating your own vehicle generally includes costs like fuel, CTP, registration, insurance, repairs, maintenance, and parking fees. Public transport, on the other hand, is highly subsidised in an effort to reduce traffic congestion on the roads; which effectively means that the government is paying a substantial portion of your travel costs.

Is taking lunch better than buying lunch?

yes – because it costs less to make your own

Reports show that ready-made meals could cost you as much as 47% more than making your own. And you will actually pay less tax by making your own lunch. There is no GST on most foods bought from the supermarket but that smashed avocado from the café gets hit with an extra 10% GST every time!

Interest-free credit costs you nothing.

disagree

Check the credit contract and you will find it stipulates that other fees can be payable; such as an application fee, monthly account fees and sometimes payment processing fees.

Be aware that if you don’t pay the balance in full before the interest-free period expires, interest will be charged on the outstanding amount and can be as high as 29% per annum.

It’s also important to remember that if you pay only the minimum amount stated by the lender each month, you will not repay the entire balance before the deal expires. Work out the actual monthly payment required to clear the debt in the interest-free period, then set up automatic payments every month to pay out the full amount. Remember to include any monthly fees in this amount.

Rent-to-buy is the same as ownership.

sometimes

You are effectively the owner of the item or item from the beginning of the rent-to-buy contract. There is also a corresponding legal commitment on your behalf to make the contractual repayments to the supplier as agreed. If you don’t make all the payments in the agreed time, the supplier can repossess the item.

Check the repayment schedule before signing a contract. In most cases, you will end up paying more than the cash price of the item. There will also usually be fees and other charges associated.

Interest is the only expense when buying a property.

disagree

In addition to the interest payable on a home loan, there can also establishment fees, ongoing monthly or annual fees, stamp duty, discharge fees, and, if you don’t have a big enough deposit, lender mortgage insurance – to name but a few – that need to be considered when applying for property finance.

By always paying the minimum instalment on my credit card, no interest is charged.

disagree

The minimum instalment is the lowest payment that you are allowed to make within your credit card contract rules. However, even if you pay the minimum instalment, interest is still charged on the outstanding balance.

The only way to avoid interest being charged to your credit card account is by paying the full closing balance on your credit card statement by the due date every month. If you can’t do this, set up a payment schedule to pay more than the minimum instalment every month until the balance is cleared, but be aware that the outstanding balance will accrue interest every month until the card is paid in full.

Personal insurance is only important to older people.

disagree

The type and level of personal insurance required depends on your age and commitments (including dependants). As such, age is not the sole determinant for personal insurance cover – for example, as you get older and financial commitments decrease, your insurance needs may also reduce.

Specific types of personal insurance, such as income protection, should be reviewed to help ensure you can still meet your commitments should you become ill or injured and unable to work.
Basic insurance cover is provided through most superannuation funds, but it may not be sufficient for every person’s needs. This is a key area where individual advice is recommended.

As the quiz may have highlighted, there are often factors which warrant closer attention as you go about making everyday financial decisions; and, perhaps more so when you are committed to reaching a goal of financial independence.

By taking control of your money, you often need to review the options to ensure that your choices and actions are aligned with the best possible financial outcomes.

However, with the high and ever-rising costs of living, saving more may be easier said than done. Replacing a propensity for spending with the habit of saving can often seem unattainable; yet, through determination and a focus on diligent budgeting, even from a seemingly insignificant start, your savings can soon grow into a substantial amount.

And, by leveraging the power of compound interest, your money works harder, forcing savings to grow faster.

There are many options available. By consulting with a qualified and licensed financial adviser on your journey to reaching financial independence, you will be better placed to ensure your decisions are better informed and aligned with the most appropriate investment opportunities to suit your specific needs and objectives.

Don’t wait another day – get started on the road to financial independence now!

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.