Money is an important topic for everyone. Particularly if you have just finished school and starting out in the world. Dr Adrian Raftery, senior lecturer in Financial Planning and Superannuation at Deakin University, provides some of the basic money tips that you need to know (and those that people invariably get wrong):
Use excel to do your budget
Doing a budget is not easy for the best of us. But it can do a whole lot easier by using one of the budget templates that Excel has created for its users. I like ‘Monthly College Budget’ which was created specifically for uni students.
Stick to your plans
Whatever you do, don't spend more than you earn. The simplest way to stay ahead financially is to always have enough money in the bank to pay your bills. Do not over commit with expenses if your budget says that you can’t afford to. Smooth your one-off (or annual) bills such as car registration by putting a set amount aside out of each pay packet. Your grandparents probably had jars or envelopes, but in this day and age of internet banking, consider having up to four separate bank accounts to fund the different parts of your lifestyle. Make sure one of those accounts is a rainy day savings accounts. Whatever you do, don’t live beyond your means.
Don't get a credit card
It may be very tempting for to apply for a credit card (and easy to get approved) but it is the devil with the national credit card debt currently sitting at $52 billion. And let’s not talk about their 24% interest rates if you don’t pay on time. You don’t want to be forever chasing your tail by paying for things months after you have already consumed them.
Get a TFN
If you are planning on doing some part-time work whilst you study and you don’t have one yet, then you will need to apply for a tax file number (TFN) from the Australian Taxation Office. Without one and you will be taxed 49% on your income.
Don’t sign your life away
Avoid being pressured into signing any financial documents - if you don’t understand what you are getting into then make it a rule that you don’t sign anything until you understand the implications. This is particularly important if you go guarantor or a joint party for someone else’s commitments. Many an innocent person has been burnt financially after being blinded by love. Just like your good name, don’t let someone else take away your good credit rating.
Hold onto paperwork
Get yourself into the good habit of keeping all of your paperwork that relates to money. Things like bank account statements, contracts, policies and receipts for tax deductions should be kept in special files. Don't throw them away.
It is never too early to start putting money into superannuation and whilst you are on a low income, you are encouraged to put up to $1,000 per year into super and the Government will match it to a maximum of $500. Money within superannuation will benefit in the long run due to the effect of compounding. Money makes money.
Risk v return
If the Global Financial Crisis taught us anything it was that the higher the investment return then the higher the risk associated with losing your money. Just like you don’t drive forward by looking in your rear view mirror, don’t judge an investment by its past returns alone. Watch out for scams. If you have not heard of the investment before, do a simple internet search to see if the investment is legitimate. Sometimes if it sounds too good to be true, then it probably is.
Don’t put all your eggs in one basket
If you do elect to dabble in shares, the key is to diversify to reduce the chance of picking a dud investment. Spread the risk but beware of high brokerage costs which can rapidly eliminate any profits made on paper.
Limit those bank charges
To reduce bank charges, pay your bills via internet banking. Set up direct debits as soon as you receive your bills but always make sure there is enough money in the account to avoid those expensive account overdrawn fees. If you do take cash out from ATM’s, use ones that don’t charge you a $2 fee for each withdrawal.
Cars cost money
Don't be tempted into getting a flash car just to impress someone. Cars are expensive to run and they are a depreciating asset. A new car today is worthless in ten years' time. Use public transport with your student concession card or car pool where possible.
Keep a track of super accounts
Did you know that there is $17 billion in lost super in Australia today? And it is simply because people don't update their super funds when they change jobs or move address.
Lodging a tax return
Every taxpayer is required to lodge a tax return by 31 October each year. Get a qualified accountant to help you with your first few returns so that you get an understanding of what you can claim.
Written by - Associate Professor Adrian Raftery
AFA, B.Bus, CFP, CPA, CTA, FCA, FIPA FFA, F Fin, MBA, PhD
Financial Planning and Superannuation
Department of Accounting, Deakin Business School