A few simple things done regularly can make a real difference...
Put yourself in charge.
Have a plan for your money and stick to it.
Prepare a budget for yourself and keep it up to date.
Take control
There’s more you can do, too:
• Take a hard look at your loans and credit cards and see what scope there may be to consolidate them or adjust some of your spending habits.
• Look for opportunities to make your money work harder by investing, and check if you’re contributing enough to your superannuation.
• Think about strategies for protecting your money, such as making sure that you have the right insurance.
• Shop around and get information and advice if you’re not sure about managing your money or if you need help.
This pocket guide will provide information on these and other issues to help you better understand your money.
Know Where Your Money Goes
Do you find that your money seems to slip through your fingers?
Have you ever thought about preparing a budget plan, but put it in the ‘too hard’ basket?
Doing a budget and having a plan for your money isn’t difficult, and it can help you do the things you really want.
Start by writing down all of your income and all of your expenses. You’ll need to decide whether your budget will be weekly, fortnightly, or monthly.
Some people like to match their budget to their pay period. Once you’ve decided, make sure all the numbers you write down are for the same time period.
When you’ve worked out your income and expenses, you’ll be able to see how much regular income you get and where that money goes over your chosen time period.
Take away your total expenses from your total income to get your result.
TOTAL INCOME – TOTAL EXPENSES =?
Your result will show whether you’re spending more than you earn, or if you have money left after your expenses to use for other things.
Be realistic. Write down your actual income and what you spend on things, not what you think you should earn or spend.
Is the result what you were expecting? If you’re spending all of your income (or even more), your budget can show you areas where you might be able to change your spending.
If you need to make a change, you might like to sort your expenses into two groups: essentials and extras. It’s your budget, so you can decide what you think is essential and what you might be able to spend less on.
If you have money left over, consider how you could use it. Getting debt under control is essential, and you might choose to increase your loan or credit card repayments.
Or you could organise a regular deduction into a separate savings or investment account. Whatever you do, make sure that you put any extra money to good use.
Tips to help you spend more wisely
Make a grocery shopping list and stick to a limit.
Leave your credit card at home.
Take your lunch to work.
Consider prepaid options for your mobile phone.
Think about renting a product before you buy it – you may find it’s not what you expected.
Begin Budgeting First
It’s essential to understand how much money you have and how much you’re earning, so you can understand how much you have to spend and save.
Budgeting is the foundation for saving money. Using a budget teaches financial discipline and ensures you avoid developing negative spending habits.
To help you understand budgeting, start by identifying your sources of income.
This could be from incomes or allowances, part-time jobs, or gifts.
Then, categorize your spending into needs, wants, and savings. It is the most straightforward approach.
Use the 50/30/20 rule as a guide.
Break down how you allocate your money this way:
50% for needs: This includes essential expenses such as school supplies, bus fare, and personal hygiene items.
30% for wants: This category covers money you spend on things like entertainment, shopping at the mall, or dining out with friends.
20% for savings: Even a small percentage of our money should be allocated to savings, whether to fund future purchases or build an emergency fund.
A key component of budgeting for young adults is awareness. You should track your spending and know exactly where your money goes.
This can be done through budgeting apps or a simple Google Sheet. There are banking apps that come with features for monitoring income and expenses.
With a budget, you can hold yourself accountable for the categories you’re spending and saving in.
A budget can help you ensure you stay within your financial means, so you don’t spend too much money in a category that doesn’t align with your financial goals.
Tracking your spending in a budget can also help you understand your spending habits. Seeing where you spend your money most often can help you think about easy ways to save more, without sacrificing the things you want to do.
As we move from school to university or school to work, our income rises, but so, typically, do our expenses.
Budgeting can help prevent people from falling into debt, but if debt becomes a problem, charities can help. Their details are easily found online.
What do we mean by saving
Saving means setting aside small sums of money regularly or occasionally.
Think for a moment. What have you saved up for in the past? Are you saving up for anything now? Why do you think people save?
Is there an alternative to saving
Not everyone wants to save. Nor is everyone fortunate enough to be in a position to.
Some people feel comfortable not saving, preferring to borrow money if they need anything they cannot afford.
For others, borrowing is their only option. Borrowing can be expensive. Whereas banks and building societies reward their savers with interest, lenders charge interest on money borrowed.
The amount of interest charged will vary depending on how likely the lender feels the borrower is to repay the loan on time. Those that the lender feels are most likely to get into financial difficulty are charged the highest rates.
Set Money Goals
When you learn to save with purpose, you’ll not only understand the value of money, but you’ll also develop a stronger motivation to save.
This involves setting both short-term and long-term goals. When you write out your financial goals, you become more aware of them and may be more likely to achieve them.
A study by Dominican University of California found that people who wrote down their goals accomplished significantly more than those who didn’t.
Short-term financial goals are for smaller purchases or experiences you’d like to make or have within a few months of the year.
For example, short-term goals could be:
♦ Buying a new phone, game console, or clothing
♦ Saving up for concert tickets, a special trip, or a new hobby
Long-term financial goals could include things that require more time and patience, like:
♦ Creating a savings account for college tuition or educational courses
♦ Saving up for your first car
♦ Building an emergency fund, or saving for future housing needs
To help you define your financial goals, it’s essential to go through a goal-setting process.
This involves:
♦ Specificity: Be clear about what you’re saving for. For example, instead of saying, “I want to save money,” say, “I want to save $500 for a new laptop computer.”
♦ Creating a timeline: You should decide when you’d like to reach your goals. This helps break savings into manageable mini-goals, such as “I need to save $50 a month for 10 months.”
♦ Tracking progress: As you save toward your goal, track how far you’ve come. This not only keeps you accountable, but it also provides a sense of accomplishment when you hit milestones.
Use your budgeting app and/or savings account to monitor your savings progress. If you’re not saving as much as you need to to reach your goals, you can decrease your spending, increase your income, and/or increase your savings to get back on track.
Delay Gratification
We live in a time of instant gratification, where online purchases can be made with a single click and entertainment is available on demand.
Learning the value of delayed gratification can help you spend more wisely and save more money throughout your life.
Delayed gratification is the ability to resist the temptation to accept an immediate reward in favor of a larger, more valuable reward later.
This concept is not just crucial for financial success, but also for cultivating patience and thoughtful decision-making.
Use the following tips to develop your delayed gratification skills.
♦ Start small: One of the most effective ways to learn about delayed gratification is to start with small goals. For example, if you want a new pair of headphones, save up for a month or two, rather than buying them immediately.
♦ Pursue incentives: Sometimes, adding an incentive for waiting can be powerful. Consider participating in savings challenges where, for instance, if you save a certain amount by a specific date, you get a bonus – whether that’s extra allowance or a matching contribution from a parent.
♦ Learn trade-offs: Delayed gratification also involves understanding trade-offs. When you know that by spending less on small, impulsive purchases, you’ll have more money for something bigger and more valuable, you’ll start weighing the pros and cons of each purchase.
You can reinforce the positive aspects of delayed gratification by constantly reminding yourself of your long-term goals. For example, you could create a vision board that features your long-term goals.
Using a poster board, you can cut out pictures from a magazine of things you want to purchase in the future, such as a house or car, or add photos of places you’d like to take a vacation to. Also, check in with your budgeting app every day.
If you’re staying on track with your budgeting goals, you can more smartly manage how much you have to spend in your “wants” category, so you don’t overspend and take money out of your savings.
Use Compound Interest
Speaking of savings accounts, one of the most potent financial lessons you can learn is the magic of compound interest.
Unlike simple interest, where you only earn interest on the initial amount you’ve deposited (called the principal), compound interest allows you to earn interest on both the principal and the interest that has already been added to your account.
Over time, this can lead to exponential savings growth, especially if you start saving early. Here's an easy way to understand compound interest.
Imagine you deposit $100 into a savings account with an annual interest rate of 5%. After the first year, you’ll have $105. In the second year, you’ll earn interest not just on the original $100, but on the $105, meaning you’ll have $110.25 by the end of the year. Over time, this process continues.
What started as a small savings account can grow significantly.
To put the power of compound interest into perspective, here’s an example of how to save money at a young age.
♦ If you save just $50 a month starting at age 15, and that money earns an average annual return of 6%, you could have more than $25,000 by the age of 35.
♦ Conversely, if you wait until you are 25 years old to start saving, you’d have to save nearly twice as much per month to reach the same amount by the age of 35.
When you’re comparing savings accounts to open, ask about compound interest. You may be able to open a high-yield savings account to earn more money in compound interest over time.
How to Use Compound Interest
A happy life is about balancing responsibility and having fun. For low-cost entertainment and savings on purchases, consider the following tips for spending.
Ask about student discounts: Many retailers and event-driven entertainment vendors offer them. Ask about student discounts when you’re purchasing tickets for things like movies, theme parks, and events to take advantage of savings. It never hurts to ask, “Do you offer a student discount?” before you pay.
Seek out free entertainment: You don’t have to spend money to have good times with friends. Look for free events in your local newspaper online to find cool activities like concerts, poetry slams, outdoor movies, book clubs, and other no-cost entertainment.
Other free activities you can do with friends include exercising outdoors, going for a walk in a park, and volunteering at a food bank or animal shelter. Use cash instead of plastic:
While a debit card offers convenience when you need it, one way to keep your spending in check is to use cash for your purchases. A 2024 study by Forbes found that people are twice as likely to spend more when using plastic or digital payments than when using cash.
Having cash in your hand gives you a sense of the money you have, so you may be more likely to delay gratification rather than tap your phone or swipe a plastic card.
Loans and credit cards – be in charge of your debt
Loans and credit cards can be very effective tools to help you achieve what you want in life.
Debt isn’t bad as long as you can afford it. In fact, most people wouldn’t be able to own a home without getting a loan.
A few key steps – such as shopping around for the right loan and paying off your credit card as soon as possible – can ensure that you have control over your debt, and not the other way around.
A few debt basics. There are many types of debt.
Different forms of debt have different interest rates, fees, and conditions, including the length of time you have to pay off the debt (this is known as the ‘term’)
Tips before you get a loan
Work out what you can afford. Include a buffer to allow for a rise in interest rates.
Work out a limit to borrow and stick to it.
Save as much as possible so that you have a bigger deposit and don’t need to borrow as much.
Choosing a loan
First, look for a loan with the lowest interest rate. This will make a big difference to how much you pay, particularly with long-term loans. Make sure you understand all the terms and conditions.
Some loans offer ‘honeymoon’ or introductory rates, which may sound good but can be more expensive in the long run.
You may also need to choose between fixed and variable interest rates. Under a variable rate, your payments will rise and fall as interest rates change.
With a fixed rate, you’ll know exactly what your payments will be over a set time. You should also check whether you can make extra payments without paying additional fees.
Compare the fees – these can vary significantly between loans.
All loans advertised have to show a comparison rate.
This lets you compare the cost of each loan, including interest payments and most fees.
Check magazines and newspapers, and use the comparison rate to compare different loans. There are also online services that compare loans, or you can ask ChatGPT or Gemini.
Pay off your loan as quickly as you can. Paying off your loan over a shorter period can save you thousands.
Credit cards
Credit cards are just another form of debt. They can be very convenient, but remember that you’re paying your credit card provider to use their money
Tips to manage your credit card
Don’t get a credit card if you can’t handle the repayments.
Shop around for the best card for you.
Make sure you compare the interest rates, administration fees, and the repayment interest-free period.
Try to pay the balance off before the end of the interest-free period.
Don’t increase your credit limit if you can’t afford it, can’t handle it, or don’t need it.
Do you need to get your debt under control?
If you’re not sure whether you need to tackle your debt, start by writing down the value of what you own and the total amount owing on your loans and credit cards.
If you owe more than you own, you may have too much debt.
If you’re struggling to make your repayments, that may be a signal that you should try to reduce your debt.
It can also help to sort your debt into ‘good debt’ and ‘bad debt’. Good debt is debt that’s used to buy assets that are likely to pay you income or increase in value over time, like your house or an investment.
On the other hand, bad debt is used to buy items that generally depreciate, such as cars and TVs.
If you decide to reduce your debt, you should plan which debt to pay off first. This is generally debt with the highest interest rate, such as credit cards or personal loans.
Also, try to pay off any ‘bad debt’ first. Interest payments on some loans are tax-deductible – these are generally lower-priority payments.
Tips to help you control debt
Try not to use your credit card – leave it at home.
Make loan repayments fortnightly instead of monthly.
Make extra payments if you can.
Do a ‘debt check’ at least once a year to keep track of how you’re going.
Cancel all your credit cards except the one with the lowest rate.
See if you can get a better deal by refinancing your home loan.
Having trouble paying off your debt?
If you think you can’t repay your debts, talk to your financial institution as soon as you can. They may be able to vary your repayment plan.
Remember, if you’ve borrowed money, you have a legal responsibility to repay it.
Not-for-profit financial counsellors can provide information to people struggling with debt.
Investing Your Money - Make your money work for you
You don’t need to have lots of money to invest – it’s all about making your money work harder.
Some people start with a small amount of savings they’ve built up, while others invest regular amounts.
The trick is to start and then keep adding to your investments as you can. Don’t put all your eggs in one basket.
You might worry that investing is risky. In general, the higher the earnings or return you expect from an investment, the riskier it will be.
Investments that offer lower returns are generally less risky. You can reduce your risk by spreading your money across different types of investments – this is called diversification.
This is a good way to help protect your money, as it’s unlikely that all your investments will perform poorly at the same time.
What can I invest in?
There are lots of different investments to choose from. The four main areas – also known as asset classes – are shares, property, bonds, and cash.
You can invest in some of these asset classes directly (such as by buying shares or starting a term deposit).
Others can be indirect – for example, where you buy shares or property through a managed fund.
With a managed fund, your money is pooled with other investors' money and invested on your behalf.
The right investment for you will depend on several factors.
Ask yourself:
How long do I want to invest for?
Do I want an investment that can be sold quickly if necessary?
What level of risk am I comfortable with, and what can I afford?
What’s my plan? What do I want to achieve from my investments?
If you need your money for emergencies and don’t want to lock it away for a long time, you might want to choose investments that can be cashed in easily, like a higher interest savings account. If you’re willing to invest for a longer period, you might choose property or shares, where values may fluctuate more but returns are generally larger.
If you’re new to investing, you can learn more by reading financial books, magazine,s and newspapers. You can also get financial advice to help you choose the best investments for your situation.
Fees, charges, and taxes
Most investments have fees, charge,s or other cost,s and they’re not always obvious. Make sure you do your homework and factor in fees before investing, as these costs can really affect the size of your nest egg. Your investments may also be taxable. Make sure you understand the tax effects of your investments. Talk to a registered tax agent if you’re unsure.