Whether they’re 3 or 23, if you impart these words of wisdom to your child now and they practice them in everyday life, they’ll be better prepared to deal with those future rainy days. In fact, they might manage to find far more financial sunshine from a much earlier stage in life.
1. If you can’t afford it, you don’t need it.
How tempting is it to succumb to ‘easy credit’? You know the kind; buy that couch, TV, washing machine or Xbox now with no money down and no interest for 36 months. It’s always advertised in months because that sounds psychologically better than 3 years – 3 years is a long time to repay a bed, but 36 months is a walk in the park!
The problem is, there’s no such thing as ‘easy credit’. These companies pray on our impatience and desire to fill our mental, emotional and physical cups with lots of ‘stuff’ until they runneth over. Teach your children the joy, accomplishment and sense of self-fulfilment that comes from saving one’s pennies and ‘earning’ our way through life. And imagine how much more fulfilled your child would feel giving all that interest they risk handing to a faceless credit card company, to a worthy charity they choose to support.
Let’s face it, there’s more to life than ‘stuff’.
2. Good debt versus bad debt.
Breaking this down simply, one will lose you money; the other one will potentially make you lots of money. I think you can guess which is which. And don’t you wish someone had explained this simple concept to you in your formative years? Imagine how much money and stress we could save our children throughout their life, just by teaching them about the perils of high interest retail credit and the positives of investment debt, like that on your own home or a property investment.
3. Protect your profits.
Once you have financial freedom, you don’t want to lose it due to that ‘unknown quantity’. Whether it’s a prolonged illness, loss of employment, relationship breakdown, or looking at the positive changes we often experience…a better job, marriage, or an impending addition to your family…life can throw us numerous curve balls.
We can never really prepare for these in truth, because of the very fact that most of the time, we don’t see them coming, or there is no way to know what the change may bring with it. However, you can set aside that ‘rainy day’ cash buffer somewhere – the offset account attached to your mortgage perhaps? And you can insure yourself and your income, as well as your portfolio assets.
4. Know your relationship with money.
I don’t think there would be any one person on this planet not harbouring some kind of financial regret. And if you’re one of the many financial ‘victims’, who takes having no money or constantly ‘losing it’ personally, then you need to rethink your relationship with it.
The fact is our own frivolous tendencies with money – buying lots of things that we don’t really need in order to have a happy and healthy life – are what trap us in a cycle of debt – the bad kind. Money cannot make us into economic victims, but our relationship with money can.
5. One for me, two for my bank account.
The less you spend on stuff, the more you have to SAVE! When you get paid, make sure you have already set aside a portion of your wages for your savings account. Even if it’s only 10% each fortnight; if you receive $1500 net per fortnight, that equates to $150 in savings, or $75 per week, or $3,900 in a year.
While that may not seem like a lot, the effects of compounding, natural inflation and a consistent savings habit will see that grow into a deposit on your first home within three to five years. And once an investor, always an investor!
6. Shop around for the right products.
Not all savings accounts are created equal. Some pay more interest, others have more flexibility but pay less interest, some require minimum deposits and others will charge you penalties on interest for too many transactions. It’s important to teach your children that in the financial landscape of Australia, there are more than just four banks to select from.
Even better, we are lucky enough to have access to some of the best financial and property investment information, right at our fingertips. There are also numerous professionals who specialise in product selection to help us make more informed choices. So finding the best product for your needs – once they have been properly established – is totally do-able.
7. Invest your pennies where they’ll make the most returns.
Savings accounts can be fantastic when it comes to demonstrating your sound money management to the lenders you will later approach for your first home loan.
However, they are not that great when it comes to paying decent investment dividends. You stand to make around 10 to 15% per annum returns, on average (combined rental yield and capital gain) from a property asset. Then there’s the negative gearing. Whereas a savings account might net you 3 to 5% maximum once you finish paying tax on the annual interest.
The bottom line…
Saving and investing should go hand in hand for the next generation of Australians. We know far too much and have experienced so many lessons as to what happens when we mismanage our money on every level – personal, corporate and public funds – that we really should take the lessons on board and then teach them to our children. After all, prevention is always better than cure.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).