Are you kuripot (stingy) or galante (generous)? If your Filipina blood runs thick, chances are you’d rather break the bank than see the look of disappointment on your loved one’s face when you shopped at Target, not Tiffany. No wonder knock-offs are a big industry in the Philippines. If we can’t afford it, we fake it.
I figured for any finance advice to be effective, it has to involve absolutely no sacrifice on my part. Zilch. Nada. I put my hand up for reading finance articles that tell me if I don’t buy that $3.50 cup of takeaway coffee in the morning, I’ll be able to save $875 in a year.
Excellent! But then I’ll be miserable for the entire year too so that advice ended in the bin, right next to a discarded coffee cup.
This article will tell you how to save money you don’t see. There are many ways to do that but I’m keeping it to three, based on your age bracket.
If you’re 20 and under
Tip no. 1: Honestly? Don’t even worry about it. Chances are you’re working at a fast food chain earning about $15 or so an hour. By the time the weekend rolls in, your pay cheque will be just enough to buy that t-shirt you’ve been eyeing for ages. What’s the point? Squander $40 on a t-shirt that’ll make you feel good while you’re wearing it? Or put it in the bank and feel miserable? Hey, that make-up kit is on sale … bargain!
So the tip is if you decide to live your teens with no financial compass whatsoever, you’re not alone. Besides, you’ll have your 30s, 40s, 50s and 60s to be financially responsible. So make the most of your youth while you still have it!
Tip no. 2: Alright, so you’re one of those who do want to save up. Brilliant! Use the power of compound interest. Put simply, the sooner you start saving, the better off you’re going to be.
For example, if you save about $10,000 by the time you’re 18, then you will have 100 times as much, or around $1 million, by the time you retire (as long as you make 10% per year). The calculations get complicated because you need to factor in a lot of things but the bottom line is, the sooner you start saving, whether it’s $1,000 or $10,000, all you have to do is let time work for you.
That’s the lazy girl’s guide to saving. Don’t scrimp. Just put money in the bank and promise to yourself that you won’t cash it in until you’re in your 50s. Let the power of compound interest make you a millionaire.
Tip no. 3: Study hard. It’s going to be tough asking you to come up with a finance strategy when you’re trying to sort our your relationship strategy or ‘how to move out of home’ strategy. Studying hard means you’ll be setting yourself up to get a high-paying job straight out of university. Or at least have more options ahead of you.
Studying hard also means you’ll be cooped up at night rifling through reams of notes instead of being out with your friends – and spending money.
If you’re in your 20s and 30s
Tip no. 1: Stop thinking of your tax return day as shop-till-you-drop day. Put the money aside and consider it your savings for the year. Easy. When your savings hit $5,000, put it in a high interest savings account and forget about it.
If you happen to be earning so much that you have to give the Australian Tax Office (ATO) more money, don’t worry. It just means you’ll have more money to make through tax-deductible investments or through some form of salary package. But that’s the subject of another article.
Tip no. 2: Buy a property as soon as you can. Talk to your parents if they can help you. Shop around for a good home loan deal. Go on a ‘chicken noodle soup’ diet for six months for the deposit if you have to.
One of the best decisions I made was buying my first property at age 24. I wasn’t ready but circumstances forced me to sign the dotted line. You don’t have to be 100% sure that you can afford one. Even if you’re only 70% there, the rest will work itself out. The key thing is that property prices, on average, double every seven years so even when house prices are high, they can only get higher.
Of course given the housing prices are down right now, you could wait awhile until they hit rock bottom. You could save tens of thousands if you got the timing right but all that waiting might make you change your mind. Mortgage boots today or tomorrow is no less painful. Just bite the bullet and see the fruits your labour in seven years.
Tip no. 3: Have at least one business failure under your belt. If you look at BRW Rich200, a list of the country’s wealthiest families and individuals, you will notice one trend: most of them are not rich through inheritance but through hard work. One thing most of them have in common? Bankruptcy at some point in their career or at least one business venture that failed before they struck gold.
Your 20s or 30s are the best time to dream big because even if you fail, you still have time to recover and pursue something else. If you leave it any later, you might not be foolish enough to brave the odds. Nine out of 10 businesses fail, but the one business that does might just put you on the Rich200.
If you’re in your 40s and 50s
Tip no. 1: Check your super. In the early 90s, the government introduced a new law that requires all businesses to set aside the equivalent of nine per cent of their worker’s salary in a so-called superannuation fund. The rationale at the time was that millions of Australians weren’t saving enough for their retirement and their future pension might not be enough for their needs. Not enough for a country that rates itself as first-world.
While you may regard super as ‘invisible’ money because you can’t get your hands on it until you retire, it is ‘real’ money. More importantly, the government has introduced new rules last year which gives people better tax rates and more money (under a so-called government co-contribution scheme) if they divert their savings out of their savings bank account and into super.
The tip? Find out if you have one or more super funds and merge them into one account. Check the website of your current super fund to find out more. You’ll cut down your fees and have more savings come retirement.
Tip no. 2: Check your super. This is not an error. It’s worth saying twice because statistics have shown 90 per cent of people don’t bother. Do two things: find out what your superannuation account balance is and find out if you have one or more super funds.
Your decision to ignore this advice can make the difference between watching polar bears aboard an Alaskan cruise or watching polar bears at Taronga Zoo.
Tip no. 3: Stay away from ‘get rich quick’ schemes. Statistics show that those in their 40s and 50s are the main targets of con artists simply because many baby boomers have ‘lazy’ assets lying around. This could mean the main home, investment properties or shares inherited from working in a company. By this time, many would also have tens of thousands in the bank just waiting for an ‘investment’ home.
In the last two years, many Australian investors have been caught out by the collapse of property companies such as Westpoint, which promised much higher interest than its rivals. It turned out the company was using the money from ‘new’ investors to pay off the ‘old’ investors. It didn’t help that some financial planners were getting a lot of commission for recommending the company to their clients.
The lesson? Don’t squander your life savings on investments that sound too good to be true.
Money tips for all ages
Managing money is complicated. Studies show that the Australian tax system could be simplified. Superannuation is too complex to understand. Saving money is difficult when there are many products to choose from and fraudsters only too eager to con you.
Against that environment, there are three things you can do to get rich slowly but safely: let ‘time’ do all the hard work, buy an asset as early you can and, as unexciting as it sounds, find out more about your super. Oh yeah, don’t max out your credit card. But who am I kidding?