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Money columnist Nicole Pedersen-McKinnon shares the simple advice she gives friends at major life trigger points, covering financial psychology, goal setting, salary sacrifice, micro-investing and automation.
There is a certain tone, and maybe head tilt, friends give me when they want to talk about money. It is usually accompanied by a: Hey, Nicole.
It often happens at trigger points in their lives, the points where most of us suddenly get serious, or at least curious, about savvy financial strategy. Graduating and starting work, getting married, definitely, having a baby, are some. Divorce, turning 50, the scary realisation you are not far from drawing down your super and it is looking sad, are others. No matter what the trigger, there is a simple piece of advice I give first, before going into detail.
Take Control of Your Money
It is this: You control your money, it does not control you. A sense of empowerment versus impotence is vital, and that is especially so in a cost-of-living crisis where interest rates are going up and property prices falling. Although you have more influence over that than you may think. In fact, it is possible you can make positive changes today.
Forget the Reserve Bank rates or shock taxes in the budget. The real financial obstacles to overcome may be inbuilt psychological saboteurs. Here, as almost everywhere, your childhood plays a big part. Think about your attitude to money.
Is it an absorption or a reaction to your experiences and observations about money growing up: anxiety over bills, fights perhaps? What about holidays or nice things? Maybe you had insufficient money to do fun stuff. Or our parents uttered possibly even more destructive words: But we will do it anyway.
Recognise Your Money Influences
These formative experiences are subsumed into your own financial fabric, and you need to recognise that to overcome them. Effective thinking for good wealth is the same as for good health. Start thinking of it like this and your finances may get more focused. You should not seek money for money's sake, but for the options and opportunities it can bring you to create the life you want to lead.
All of us need strong motivation to resist instant gratification. That is a human condition. The reality, though, is that some of us are better at a long-term focus than others. Successfully managing money is easier if you can project forward to the gain, not the pain.
Which brings me to the crux of the matter: How are you ever going to arrive financially if you do not know where you are going? Only the most disciplined person can stash cash purely for stashing's sake. The rest of us mere money mortals need a reason, and that reason needs to be so sweet you can almost taste it.
Build Motivation Through Clear Goals
That might be saving to take a year off to travel through Europe, buying a new car loan-free, or doing whatever floats your boat enough to mobilise and prioritise your money. Figure out how much your goals are going to cost. Determine when you want to enjoy them, and then divide the cost by the number of pays in the interim period, to see if it is feasible to hit your target date.
If your saving schedule is not feasible, you may have to delay a little. There may also be concurrent, competing goals requiring decisions about what to prioritise. And only at this point when chatting to friends about finances do I give specific money intel. Salary sacrifice into super.
Super's tax treatment means more money goes in than you would receive in the hand. Start micro-investing outside of super. Fractional investment apps like Raiz and Sharesies let you regularly invest small amounts that you will barely miss. Left alone, returns quickly grow by harnessing the power of compounding.
Automate Super and Debt Strategies
Pay down debt fast. It will stop the power of compounding working against you. And finally: automate your affluence. You can do this with all of the above points, by salary sacrificing to super through your employer or scheduling direct debits to micro-invest or pay down debt.
Try to remove the possibility of life's busyness getting in the way of your long-term goals. If you understand how to direct and determine your financial future, everything can be a bunch easier. Advice given in this article is general in nature and is not intended to influence readers' decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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smh:This story was compiled and edited by the HeadTopics newsroom and HT AI from the reports above.
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