Mathematics, English, social studies, science, and physical education – I recall learning these subjects in school but I don’t remember any lessons in the classroom covering how to build wealth or adapt good saving habits.
In fact, I’m astounded at the amount of people I meet who are well educated, well paid yet money poor. With the availability of simple lines of credit, it is very easy to be caught in the deadly cycle of buy now and pay later. I was once one of those happy consumers who had to have the latest product right away even when I couldn’t afford it. That’s ok, I thought, I’ll put it on my card now and pay it off during the 55 day interest free period. That worked for a while but like many people who fall into this trap, I ended up borrowing more and more and being able to pay back less and less. I knew things weren’t going well when I was placing large amounts from each pay on my credit card to then use that same card to pay for all my basic bills and essentials resulting in a spiraling cycle of debt and misery.
The fault and onus was entirely mine. I chose to purchase those items with money I didn’t have. I acknowledge this and learned an expensive lesson by doing so. My gripe is that I feel we aren’t given the tools to properly manage money early on in life. You either need to be fortunate to have mentors such as parents teach you these skills or be the type of person who seeks out these lessons on your own. When you purchase a vehicle, it comes with an instruction manual, and the operator is required to hold a license before being eligible to use it. There wasn’t a course to attend to learn how to use a credit card when I first received it.
Poor spending habits and the need to impress others led me down a rabbit hole of bad and unnecessary purchases. In my early twenties, I landed a well paying job which I commenced at the same time as a colleague of a similar age. Several years later, I had racked up a bunch of useless toys and bad debt while he had made his first real estate purchase. Several years after that, I had more useless toys and debt while he had his second property.
While time is finite, you can’t compound zero either. Many people will have an all or nothing mentality with money – ‘I want to enjoy my life, not live like a pauper’. What these people fail to realise is that being in control of your finances gives you freedom. The freedom to spend more of your time as you please. The freedom to work the type of jobs you want to with your life. It doesn’t provide your purpose in life but it does give you many more options and possibilities than otherwise would be available to you.
I recall a study conducted a while ago which measured happiness relative to wealth. It concluded there wasn’t much of a change in happiness once household income exceeded $80k pa. I believe the reason for higher stress levels below this figure was due to households not being able to easily replace essential items such as a fridge breaking which would add further costs and stress to the household. A common folly people fall in to is that as their wage increases they believe they deserve a more luxurious version of their every day items. This could be the house they live in, car they drive, school their children attend or so on. While there are certain benefits to each of these, the stock standard version of these things is perfectly adequate for most of us.
One of the nicknames which the Minister for Finance calls me is Tight-arse Terry. I’m actually proud of this name as she uses it when I’m being cautious in how money should be spent. Sometimes my money saving techniques may seem drastic such as when ordering a burger to eat at home. Sometimes, I’ll order it without cheese and add that at home to save a buck – Nickname Nessy HATES that! I can see this is an almost ridiculous notion to saving money but this is the type of mentality I’ve adopted to change my mindset and my family’s views on money. I’ve invested dozens and dozens, if not hundreds of hours in developing my comprehension on money management. Again, with the internet at your fingertips, all that is required from your end is an investment of time (and an internet connection or a library card). A few great books to start with which are easy to digest are Rich Dad Poor Dad by Robert Kiyosaki, The Barefoot Investor by Scott Pape and my personal favourite, The Richest Man in Babylon by George Clason.
Some of the greatest principles I’ve incorporated into my financial habits are from an American radio host named Dave Ramsey. One of his ideas which I took to heart was ‘if you can’t afford to buy four of them then you can’t afford one of them’. Whenever I’m deciding if I really want or need a particular item, I’ll review this principle, I’ll also walk away and think about it as I hate the feeling of buyer’s regret. My desire to buy excessive and opulent items ceased when I stopped trying to impress others with possessions. I made some stupid purchases earlier in life because I wanted to appear successful to those around me without actually putting in the time or effort in being so. When I understood this wasn’t necessary, I removed much of that useless mental baggage which freed me up to just be me.
Some of the habits I practice today which have really worked for my family and me are not owning credit cards, we have debit cards and pay for items with them. We pay our bills fortnightly, so bills such as rates, electricity, gas and so on are typically in credit and we’re never shocked when opening the letter box. 20 per cent of my paycheck goes into superannuation and a further 10 per cent goes into a personal investment account – if I could only pass on a single financial tip to my children it would be this as compounding interest is regarded as the 8th wonder of the world by many wise people. A couple of other things I like to do are buy items such as phones outright rather than on a plan. Monthly plans can really add up over the life of the contract. Our last vehicle was paid for without finance which was a great feeling. Ensuring you have enough money set aside so when ‘life’ happens, you won’t be stressed out about how to pay for it. Having money saved saves you from also worrying about the financial burden when these situations occur.
Briefly going back to teaching children about money, to try and teach my children the value of money, I tend not to buy them toys apart from Christmas or their birthdays. If they want a toy outside of these times, they usually have to work for it. I want them to understand that things aren’t just given to them. Last weekend, I took my seven year old daughter to the bottle recycling centre. She had collected 235 bottles and after all was said and done, she had earned herself $23.50. I was very proud of her but asked she try a different venture that didn’t require three hours of our Sunday afternoon. Each of the kids have shares in ETFs which I teach them about. They don’t care at the moment but hopefully it will peak their interest in time. They also had these great money boxes which had three separate holes – one for saving, one for spending and one for donating. Allowing them to choose how they wanted to manage their funds was a fun and valuable lesson though I noticed money that was in the donation section would somehow end up in the spending section when we went to the shops.
As my financial status changed so too did my goals. In the early days, the goal was to get out of debt. When I was out of debt, the goal changed to saving money. When I felt I had a decent habit of saving money, I looked into superannuation and how to have an adequate retirement fund. When that was on track, I moved on to learning about how to invest money to have it build more efficiently. While these events continue, I am now looking at how to trade money to free up available time. While the Tight-arse Terry side of me dislikes it, we now have a person who assists with the ironing and another person who assists with cleaning the house, the financial cost is offset by providing my family and me more time to spend together without stressing about time or housework. I also feel good that I am helping others make a living for their families as I do with mine.
As times may soon be getting even tougher, use your time and energy to get wiser and develop the types of habits that will serve you and your family well. Teach yourself and those you care about what is important and don’t ever think you’re too old to learn something new. As my father used to say ‘a fool and his money are soon parted’.