Advice that stands the test of time
Recently I was perusing a friend’s bookshelf via video chat. They were going through their books, as you do in lockdown, and wanted to know if I might be interested in having any of their still pristine financial books.
Now, I should just say, these books were written by some of Australia’s best-known personalities on money and finances. Some of the front cover claims included ‘Australia’s leading financial adviser shows you how to prepare for the rest of your life’ and ‘practical advice on investments and superannuation’. Clearly, my friend had been interested in preparing financially as best she could. And technically, I should have been thrilled at the offer of these books – especially as they’d not even been read.
Except…now they were 20 years old and so was the advice.
That got me thinking about which financial advice was time immemorial, what might have been ‘trendy’ at the time and what is just now (with hindsight and legislative changes) downright incorrect. Could the financial advice in these books stand the test of time?
So let’s start with the 7 money tips that stood the test of time. Next blog we’ll look at those that didn’t.
7 money tips that stand the test of time
- Have a plan – even though your life will change over time and your finances might go up and down, having a rough plan of what you want financially, even if you’re only in your late teens/early 20s, helps guide the way. If you really want to own a home, you’ll find a way to do it. If you really want to travel the world with a backpack (no matter what age you are), you can find a way to do it. It’s all about the choices you make to achieve what you want – and there are always choices to be made. A good tip: Whatever you’re planning, write it down and put it somewhere where you can see it.
- Spend less than you earn to achieve your dreams – yep, this one is a no brainer. If you want to have money to spend on your dreams and let’s face it, your life’s dreams are usually bigger than a Netflix subscription, the next car or night out, then you need to put money aside. If your dream requires $5000, then you need to put away $100 a week, every week for a year. If $10,000, that’s $200 each week. Or if that’s too much to sacrifice each week, maybe stretch out your timeframe to two years at $100/wk. You’ll still get your dream. And the beauty of it taking two years, is that you’ll be much more in the groove of saving money each week. If you’re looking to purchase property, carefully look at how much you’re likely to have to pay each week/month for the mortgage you think you’d likely incur at 7% (yes, that’s where mortgage rates traditionally sit – I kid you not) and save that each and every month, without fail. If you can do that, not only will you put away a significant amount of money, but you’ll know that you’re likely to be able to afford your dream property even if interest rates start moving up (which they will at some point – probably sooner rather than later). A good tip: auto direct debit that money out of your account as soon as you get paid to somewhere without easy access.
- Buy your own home if/when you can – whilst renting can seem easier especially in the short term or when trying to get into the housing market, over the longer term it becomes dead money. Every dollar you pay, is money in someone else’s pocket. Sure, lots of people will tell you they’re making different investment decisions with their money (and you can too). But that takes a whole heap of commitment for decades to not spend the money you’re accumulating (that you’ll likely have access to). Buying a home on the other hand enables you to make a capital gain over time, to pay off more and more of your home and if you’ve managed to pay it off by the time you retire, it makes your retirement savings go much, much further than if you were still paying rent.
- Time and compound interest can make you wealthy – since there’s been money, money lenders and banks, this one holds true. Of course, you want to be the one with the money earning the interest, not the one paying the interest. This is where superannuation comes into its own. Your money makes money…over time. What your return was this year (unless you’re already retired and drawing down), is not that big a deal. Rather it’s what you make over the course of your working lifetime and how that compounds year on year on year. Not only does the money you pay in earn interest, your interest and returns earn interest. This is where finding the right super fund for you can make a real difference.
- Avoid get rich quick schemes – again, this one is also a no brainer. If it seems too good to be true, most likely it is. Or someone wants you to pay them for access to their ‘system’, then clearly their financial advice hasn’t worked well enough for them to get rich all on their own. The rule of the more risk the higher the reward still holds true. But you need to understand how much risk you’re willing to bear. If the rewards were significantly above market average, but you risked losing $10K,100K or $1M, could you weather that storm? If not, best to look at a lower risk investment, the rewards might not be as great.
- If someone promises you high returns, run! That person is either likely breaking the law (think insider trading) or telling you a lie. The thing about investing is there are no real guarantees. Even if you buy real estate, the market fluctuates up AND down. And whilst that might not seem true at the moment, history shows for every upcycle, there’s a downward one at some point. Not very many people can actually pick when those cycles will take place. So if anyone is promising you a ‘sure thing’ when it comes to financial returns or rewards, best to leave well enough alone.
- Protect your assets – if you own a home, chances are you have home insurance (and if you had a mortgage, the bank would insist upon it). But your home/property is not your biggest asset, it’s your health. If you were injured and couldn’t work for a significant period of time think months or years, think how that would impact your ability to pay your mortgage or how you or your family would live. We all think stuff like that will never happen to us, but it can and it does. So you’ll want to consider taking out life and income protection. Some of you may have this as part of your superannuation, but as with everything, you’ll want to have someone look over the fine print as their exclusions or limits might not be enough to cover your needs should the worst happen.
Finally, one last time-honoured piece of advice that continues to ring true, if you’re working outside your area of expertise around tax, super or finances, especially the legislative parts of it, which change frequently, seek professional, arm’s length advice.
And that’s where we can help. Whether it’s tax advice, financial planning around superannuation or your business financials, we’d be delighted to help. You can call us on 6023 1700.