moneysmart Archives

Mistakes new investors should avoid

18 August, 202113 August, 2021 Updated on13 August, 2021 Education, Investing

You’re young, expecting a satisfying future brimming with friends, family and a comfortable lifestyle. You’re a Next Generation Investor, likely aged between 18 and 25, and you’re starting to think about financial security. According to an Australian Stock Exchange study, nearly a quarter of all investors over the past two years were Next Generation Investors. Additionally, some 27% of surveyed people under age 25 intend to invest over the next year. The excitement of embarking on a journey toward financial freedom is common, as is confusion, after all, in the rush of enthusiasm, how can you ensure you get the decisions made for the future, right today? What are the rookie mistakes to watch out for? Here are a few that can be easily avoided. Not clearing debt first Loans and credit cards have a knack for eating away income. It is recommended that you clear as much debt as possible before committing to serious investments. Track your spending to spot potential savings, then channel that cash towards your debts. Every little bit helps. No strategy Desire to build wealth through investment is not a strategy. The end game determines which investments will be most suitable. Consider how you feel about risk and whether you’ll need access to your money. Successful investment strategies are planned. If it feels overwhelming, seek professional advice to help you build your strategy. You’ll be surprised at how inexpensive a financial adviser can be. Not diversifying Generally speaking, the higher the potential return, the higher the potential risk. Market-linked investments, like shares, can be big-earners, but you’ll have to ride economic ups-and-downs to get there – sometimes for ten years or more. If this worries you, consider lower-risk investments. Conservative in nature, their returns are generally lower. Decide how much risk you’re comfortable with. You may be better off minimising exposure to high-risk assets by diversifying your portfolio with a variety of investment types. Trying to predict the market Investment markets are notoriously unpredictable. Buying shares at the wrong time can mean you pay more than you should, similarly, selling at the wrong time can result in losses. Short-term buying and selling might seem exciting, but it’s a fast-track to losing money. The way around this is, research, diversification and being prepared to stay the distance. Review No investment is a set-and-forget scheme. Always keep track of your savings and your ongoing investment plan, ensuring that it continues to align with your goals, particularly as they change over time. A new car may be your priority today but fast-forward a couple of years and perhaps marriage and children are your priorities. As your goals change, so must your investment strategy. A few other things… Fees and taxes are unavoidable and various investments attract different expenses and tax structures. Find out what you’re up for before making financial decisions. Feeling lost? The Australian Stock Exchange offers free online courses and the Government’s MoneySmart website has a free info Starter Pack to get you underway. Of course, nothing beats professional advice tailored to your needs. The Financial Planning Association of Australia will put you in touch with a qualified adviser suitable for you. Strategic investing sets you up financially and helps create a savings habit for life. Your financial future begins today. The information provided in this article is general in nature only and does not constitute personal financial advice.

When was the last time you paid cash?

7 July, 202130 June, 2021 Updated on30 June, 2021 Budgeting, Education

Prior to COVID, we were steadily moving towards a cashless world. Post 2020, even the most resilient of us has made the leap to tap-and-go payments sooner than we expected. From the morning coffee to filling up the petrol tank, we wave that plastic with little thought to the impact on our account balances. In fairness to us, many retailers are now adopting the ‘no-cash please’ trading regime, but we Australians have a reputation for embracing technology and touchless shopping is no exception. According to the Organisation for Economic Co-operation and Development (OECD), Australian household debt is currently sitting at around 210% of net disposable income. That places us fifth in the world, behind Denmark (257%), Norway (240%), Netherlands (236%) and Switzerland (223%). Compared with countries with spending habits similar to our own – the USA with (105%) and the UK (142%) – we’re quite high. If your debt level is pushing northwards of your preferred limit, here are a few ideas for getting, and staying, on track: – Pay your full card balance off every monthSure, it’s an oldie but a goodie. You know what you need to do; if your current balance is too high, pay more than the minimum amount. The first step in breaking the credit cycle is to get off it, which leads into our next point: – Create a realistic budgetThis will identify where your money is going and how much extra you can pay off your credit cards. The government’s Moneysmart website has a free budget planner to help you. Alternatively, chat with your financial planner and work with them to develop a payment strategy to get your debts under control, and stay that way. – Keep your tap-and-go receipts and reconcile them against your account each weekThis is one of the best ways to see exactly how much you’re shelling out, and on what. You’ll identify areas of unnecessary spending, and you’ll spot any errors or dodgy transactions. – Instead of a credit card for your touchless transactions, consider using a pre-paid cardAvailable from banks and other financial institutions – even Australia Post offers one – you load it with your own money and use it for in-person or online shopping. It’s just like a credit card but without the risk of getting into debt. – Consider your subscriptionsYou know, streaming services, magazines and memberships, etc. Many renew automatically and the first you’ll know about it is an unexpected – often expensive – transaction on your card. Do a stocktake to see what subscriptions you have and decide if you really need them. For those you no longer need, change your subscription settings so they don’t automatically renew. Don’t worry, they’ll alert you when the renewal is due in case you change your mind! We’re definitely living in an interesting time. Our lives have altered in ways we’d never have imagined and we Australians, in our typical way, are adapting to these ‘new-norms’. This is a good thing, just as long as we stay in control! The information provided in this article is general in nature only and does not constitute personal financial advice.