What do you wish you could advise your younger self or more importantly what advise would you like to see your own children receive ?
Here are 5 common Traps we see with the younger generation.
- Buying an Expensive Car
This is probably the biggest mistake people in their early working life. It is certainly good practice to save the cash to but your first decent car, but circumstances do not always allow that. If debt is needed make sure it is a debt that can be repaid in 12 months (2 years at the most). It does not need to be Brand new. Second hand cars in the 5+ year age category provide good value. New cars depreciate quickly
2. Unpaid credit card debt.
Credit cards are the most expensive form of debt any of us deal with in life. If you learn to avoid this interest charge early in life it holds you in good stead for the long term. If you cannot clear your credit card monthly you shouldn’t have one (replace it with a Debit Card). I’d like to think the government will one day make it illegal for the banks to charge 20% interest rates on credit cards, but until then we need master this lesson as early as possible. I recently read a statistic, where people under 35 with too much credit card debt account for 49% of personal bankruptcies.
3. Oversized Home Loan
Over reaching on your first property purchase can be a lifestyle killer. This risk is at its greatest in Australia today with interest rates likely to start increasing soon. We have had 20 years of falling interest rates so this will take some adjusting to. The new home owners need to be aware their current mortgage repayments WILL INCREASE, so doing the maths on affordability is more important than ever. If you purchase well inside your repayment capacity you can accelerate mortgage repayments and be ahead on your home loan which then provides you a buffer should you hit stormy waters (eg unemployment for 3 months), you will have some wiggle room with the bank.
4. Not Maintaining a Cash Buffer.
If you don’t have ready access cash put aside for emergencies, you’re more likely to be forced to take on costly debt if you run into trouble, such as the loss of your job. A good rule of thumb is to have at least 3 months worth of living expenses in a high-interest online savings account. If you are unable to build cash up to this level it is also a good sign that you are not ready to take on debt.
5. Uncoupled Finances
A joint plan for couples in finance could go a long way to keeping a marriage out of hot water. Many studies have found that arguments about finances are by far the top predictor of divorce. Talk about your monetary situation, set financial goals together and make a savings plan. A holiday funded by joint savings plan makes for a better holiday. Setting financial goals and what is and what is not acceptable spending behavior (to each other) could avoid a lot of arguments. Weddings themselves can sometimes represent the start of this journey as they can be lavishly expensive events starting a couple in debt adding unnecessary stress to your relationship. A well planned and well funded wedding makes for a good start your coupled finance journey.