We all do it – fall into money traps without even knowing. Life is so busy today, there are so many pressures on us, that sometimes making fast decisions is all we believe we have time to do.
However, making decisions quickly around money can lead to long term pain. After 25 years of working in the finance industry, I have learned a thing or two from some of the best money minds in the country. One of the biggest traits they have all shared is being deliberate in their strategy, and patient.
Here’s how to avoid the three biggest traps around money and think like a money master.
1. Avoid the impulse purchase.
Whether shoes are your thing, or whether it’s a new car, spending money without having a prior plan can often lead to trouble. While it sounds like common sense, a lot of the time we are buying things to give ourselves a short term ‘high’. This high does not last however, but what usually is the credit card debt, or hole in our bank account. Be deliberate in your purchases. That’s not to say you can’t have it. But plan it, do your research, find the best deal and THEN enjoy. Oh, and if you are buying it in on credit card without a firm plan and timeline of how to pay it off, best to give it a miss. Credit debt = trapped.
2. Don’t keep your money in one account.
It allows you no control or visibility about where it’s going and what you are doing with it. Rather, set up at least three accounts, for which money is moved every time you get paid. The first is your working account (bills, everyday living) the second is your TREAT account (what have you been wanting that makes life fun?) and the third is the rainy day, don’t touch, hands off account. The third account is the one that will help you sleep at night. Make it a high interest, hard to touch account. This give you the peace of mind that if the worse happens you are ready. How you split the amounts is up to you – but at least 10 per cent should go into your rainy-day account.
3. Value investing over consuming.
Think about assets that are rising in value – like your home. Vs things that are falling in value – like your car. Start to think of your purchasing in terms of what can you buy that rises in value. If you have never bought a share, ETF or managed fund, you can do so through your super, or outside of super. Oh, and speaking of super – are you putting enough in? You can put up to $24,000 a year in super at the lowest tax rate of 15%. It’s crazy not to take advantage of this tax saving, and prepare for your future. After all, according to research from Griffith University, up to 80% of Australians that are generation X and Y may fall short of a comfortable retirement.
Money traps are everywhere, and the older you get, the more you realise that having patience, being deliberate and becoming prepared are sure fire ways to avoid most of the traps and get ahead.
Vanessa Stoykov is a money expert and financial storyteller, who believes that unlearning money behaviours is the first and most important step in building a wealth plan and have the life people deserve. Her website vanessastoykov.com has tips and resources to guide you on your path. Her debut novel, ‘The Breakfast Club for 40-somethings’ is the beginning of thinking about your financial future. You can find it at all good bookstores.