MOST children learn their money habits from observing and listening to their parents and relatives.
Scary, isn’t it?
And those habits can often last a lifetime.
Break the bad money habits
That’s great if your parents were money savvy. But if they weren’t then your inherited money habits could be wrong, dangerous, costly and probably all three.
So let’s put to bed some of those bad intergenerational habits that need addressing.
* All loans are bad *
There is good and bad debt. Bad debt is when credit is used to buy a consumable item that disappears or rapidly depreciates. Borrowing for luxuries like fancy clothes, flash dinners, a new upmarket boat or car is bad.
Good debt is borrowing to invest in an asset that appreciates in value to build wealth.
* Spending a windfall rather than saving it *
Every little bit counts. That tax refund, bonus from the boss or birthday money from grandma can make a big difference to reaching a financial goal.
However, so many people pick up the signal from their parents that, because the money wasn’t expected or planned for, then it can be splurged. Break the habit by setting up a separate “windfall” account to deposit these bits and pieces to see how quickly it can grow.
* Paying the minimum monthly balance *
Years ago, paying the minimum monthly amount on your credit card was a good idea during tight periods because it usually covered the interest owed and a little of the amount owing. It was an easy way of funding big-ticket purchases that could only be paid off over a couple of months.
The rules have changed so that the minimum monthly repayment on credit cards doesn’t even cover the interest incurred on any purchases.
It means you keep getting further into debt. Pay off as much of the monthly balance as possible because it’s very expensive debt.
* Inflation reduces the value of debt *
This is correct in times of high inflation. But there’s none now and the opposite is now true.
Many parents lived through an extensive period of double-digit inflation that did indeed reduce the purchasing power of money and eroded the value of repayments.
But with inflation so low, and likely to go lower, the repayment pendulum has swung the other way and paying down debt quickly is more sensible.
* Property never, ever goes down *
What a crock. You just need to ask anyone living in southeast Queensland, parts of Victoria, Perth or the US and the majority of Europe.
Property goes through up and down cycles like any other investment and needs to be approached with the same type of care and research.
The big difference is that you know the value of your shares every day but with property a sale is the only time you know the real value of it.
* Negative gearing is king *
“Let the taxman pay half” used to be a common marketing slogan for investment promoters flogging the concept of borrowing to invest.
The rationale is that the interest earned on debt used for investing is tax-deductible.
Negative gearing works best when inflation and income tax rates are high.
But over recent years the negative gearing advantage has been watered down because inflation and personal tax rates have fallen.
* Ignore money problems and they will go away *
Ignorance is not bliss. In the old days you could hide problems from the bank or be tardy paying bills without anyone really knowing.
But today every financial transaction is captured electronically. Sophisticated computers flag financial problems to banks, retailers, credit card companies and an array of other providers.
* Financial blemishes are recorded on your credit rating and can stalk you for years.*
If you expect a refund, the ATO won’t care if you are late in lodging a return Wrong. This is such an old wives’ tale that was burst a few years ago when a prominent AFL footballer was convicted for not lodging six years of tax returns even though he ended up receiving a refund.
Be sure to lodge your tax return on time every year and, if you’re a few years behind at the moment, catch up now before the taxman catches up with you.
— POOR PARENTAL HABITS TO AVOID —
– Being a compulsive money tracker.
– Shopping for self-gratification.
– Overusing interest-free term deals.
– Too generous with gift giving.
– Investing too conservatively.
How do you know if it’s time to refinance or consolidate your loans? Let me ask you another question. When is it a good time to put money back in your pocket? EVERY YEAR you should take a home loan health check to find out if the loan you have is still saving you money. A lot can happen in a year, life circumstances can change, you may have taken on extra debts and rates may have moved substantially so you owe it to yourself and your cash flow to check your home loan and debt situation every year.
What reasons have other people like you, refinanced for?
Every client at Assured is unique, just like you. The reasons to refinance or consolidate are unique also. You may be looking to;
- Invest in a new car to keep the family safe on the road
- Install a new pool so you can holiday at home
- Gain some extra funds to secure your children’s education
- Put in that new bathroom you’ve always been talking about
- Pay off your home quicker and gain financial freedom
- Build an extension for the new family addition or just gain some extra space.
- Increase your cash flow to give you a little breathing space
- Landscape your yard and create a great place to relax and play
- Reduce financial stress
- Use the savings you create each month to put away for a rainy day.
- Change to a home loan that has different term which work better for you eg. No monthly account keep or redraw fees. 100% offset facility etc.
- Take a well overdue holiday
- Increase the term of your mortgage so that you can reduce the monthly repayments and free up cash flow
- Getting cash out of the equity in your home loan for whatever reason you feel is needed.
- Roll all your payments into one so you have one convenient payment and interest rate.