I'll be honest...I've never been that flash with managing money. And life hasn't helped my cause, what with moving around the world, bringing up kids which is a very expensive process, and hubby being in low paid jobs at times.
It absolutely goes without saying that there are a hell of a lot of people in this world who are way, way worse off than I have ever been and to them, I am a millionaire. It is in that context that I acknowledge I am writing this post for people who live in resouce-rich countries and even then,
for those of us who are privileged to be employed, own property, have good health etc.
All that being said, none of what I am about to say hasn't already been said time and time again, not least by people like Scott Pape, the Barefoot Investor. I read his book last year and it has really impacted on me, and led to my hubby and me making changes to our finance management. I do not necessarily agree with everything he says or even understand it, but the main principles he espouses hold true. Obviously, readers outside of Australia have different issues and may not have systems such as our mandatory superannuation scheme. Nevertheless, I hope there is still content here that you can relate to.
1. Move your operational and savings money to low/zero cost bank accounts
I was doing all my banking with one of the big four which was costing me $400 a year. This included fees for an off-set account which was marketed to me as a way of managing my mortgage. But to be honest, because my money was going in and out, my off-set was making no impact on my mortgage payments. I am better off having a no-frills, no cost operational account, and paying all my mortgage payments straight into my mortgage.
If you are not sure if it is worth having an off-set account, have a look at the calculators that are around the place to do some financial working out, like this one from ING: https://www.ing.com.au/home-loans/calculators/offset.html
I have moved my banking to HSBC who offer no-cost accounts. Their banking app is rubbish and it took ages to set up online banking, but hubby enjoys having physical banking offices where he can go and speak to someone face-to-face. The ING Orange account also is no-cost, and I believe is an account that Scott Pape recommends.
It goes without saying that you must always check terms and conditions, and it is worth doing a comparison of accounts and check for hidden costs.
2. Review your need for a credit card
The Barefoot Investor advises that you get rid of your credit card all together because, put simply, it traps you into debt. The rewards you receive are not worth the interest you pay if you do not wipe your balance every month.
I know there are some people out there who are real wizards at managing their credit cards to get free travel, but you've really got to know your stuff to do this, and be really disciplined. And you have to be mindful that in Australia since the banking commission, mortgage lenders are really cracking down on any sort of credit when deciding to give you a mortgage. I had to go through all sorts of hoops recently to show that I had closed down a credit card when re-financing our mortgage, and this was even though we had more than enough capacity to service a credit card on top of our mortgage.
We have now got rid of our credit card which was more accidental than a conscious decision - we closed it because our bank were charging excessive fees, but that's another story. I do not entirely agree with Scott Pape about not having a credit card, because I think having one is useful for coping with emergencies. We have elderly parents in the UK and we never know when we will have to literally drop everything and fly back, which has already happened to us this year. Scott's strategy for coping with emergencies is to have emergency savings. But I don't want to have heaps of money in a saving's account not earning much interest, when it could be on our mortgage. A credit card is also useful when traveling because some hotels will not accept a debit card for bonds/deposits - I got into real strife over this issue the last time I was in Bangkok.
For the time being, we're going to try to manage without a credit card and see how we go. If we need one, we'll apply for a no-frills, low interest card with as low a limit as possible.
3. Make sure you are getting the best interest rate possible for your mortgage
Needless to say, The Barefoot Investor has some very strong views on how to manage your mortgage. The key things I have taken from what he says and recently enacted are:
- have a no-frills mortgage which reduces cost
- pay additional payments to pay the mortgage back sooner and thus reduce interest
- move from fixed to flexible rate mortgage which not only is cheaper than fixed rates, but also allows me to make extra payments.
4. Manage your superannuation
I have to say that my understanding of the superannuation system in Australia has been woeful since moving here in 2012. And it's only in the last year that I have really understood how it works. This is a real worry because I am 57 now with potentially only 10-13 years left to work full time (god willing), and it is very clear that I have to be a self-funded retiree.
The Barefoot Investor spends a lot of time talking about maximizing superannuation. This is probably the area of financial management that I feel least confident with. The actions he recommends that I have taken are:
- pay the maximum amount I can afford under the pre-tax salary sacrifice scheme
- amalgamated my various super schemes into one
- reviewed the fees I pay to my superannuation company
- increased my life insurance to an appropriate level through my superannuation.
And despite being happy about the life insurance I have at the moment, I am conscious that it ends when I am 75 years old. I do not want to take out additional life insurance with an insurance company because it will be expensive - my hubby is paying way more than I am with an insurance company because he wasn't able to increase his insurance through his super scheme. But his life insurance continues until he dies, whatever age that is. So I am dithering about the issue of life insurance.
Resources that I have found useful
- MoneySmart which has all sorts of resources such as superannuation calculators, and reiterates all the principles that the Barefoot Investor talks about
- The Joyful Frugalista - Selina gives great practical advice on her blog and has recently published a book - it was she who put me onto Mortgage House.
- Barefoot Investor Australia Group for Over 50s - there are various communities on Facebook for people interested in BI