22 Jun 2021

Seven trategies to get money savvy

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With the new financial year knocking on our door we've teamed up with Betsy Westcott of Ladies Finance Club to share her 7 strategies to get money savvy. Read on, you've got this girlfriend!

Cyndi Lauper said that girls just wanna have fun but to do that, a girl has got to have funds. Sure, working 9-5 will make you a living but unless you’re growing your overall wealth position you’ll be stuck in that 9-5 for a very long time.

Women are taught to save, be frugal, don't buy the coffee, do your own nails, while our male counter parts are being told to grow their wealth and invest. This along with pay gaps, a propensity to work part time and time out of the workforce lead to women having less wealth on average than men but it doesn’t have to be this way. You don’t need to earn a huge salary to be able to build financial security for yourself. By implementing some money savvy habits you can enjoy the freedom and choices that being financial secure offers.

Growing wealth is about long term good solid financial habits. It is about investing through the good times and the bad times and sticking with the plan. Not sure where to start or what habits you could be implementing? Here’s seven strategies from Betsy to get you there:

1. Resist Lifestyle inflation as your salary goes up
You’re moving up in the world and that includes a pay rise (self high-five!). The temptation most of us face is to increase our living expenses to match our shiny new pay packet, also known as lifestyle inflation (hello designer handbag!). In fact, for most of us this just happens unconsciously but what if we decided to do something different? What if we diverted some of that new income toward growing our wealth by putting it towards savings and investments? As the saying goes, if you live fake rich now you’re gonna live real broke later. By all means reward yourself with a bit more discretionary spending to go with that pay rise (you don’t need to be a total Frugal Frannie) but also direct a portion of it to increasing your investments and savings to make you wealthier tomorrow.

2. Make a financial date with yourself at least every 6 months.
Check in on your finances every six months to see how your tracking with your goals. Are you moving ahead? Do you need to top up your emergency savings? Are your investments performing according to plan? Could you get a better deal on your insurance? Checking in on your finances need not be akin to a trip to the dentist, make it fun! Pour yourself a glass of wine, throw on some of your favourite beats and (my favourite) decide how you’ll reward yourself if you’re on track. The truth is that focus plus action equals achieving your goals. Ignore your money and it will ignore you. So get busy and make a date with yourself.

3. Automate your money
This is the best kept secret for keeping your money house in order - automation! It takes a little bit of work to set up but it makes sticking to your goals a helluva lot easier going forward. Ready? Ok.

  • Work out what you earn, what your are you fixed expenses (rent/mortgage, insurances, bills, groceries, memberships) & flexible spending (entertainment, eating out, gifts, holidays) and how much you are putting aside for savings/investments. Open an appropriate number of accounts for your automated system so you can keep your fixed expenses, flexible expenses and savings separate.
  • When your salary hits your account, pay yourself first! That means, immediately send money to you savings/investment account before you do anything else.
  • Put money aside for your fixed expenses. I like to set up all my bills to direct debit out of this account for simplicity. Sorted. Done.
  • Spend whatever is left over on things you want. I like to call this my ‘Fun Fund’ whilst the Barefoot Investor calls it the ‘Splurge Account’. Whatever you call it, this is your account to spend. When it runs out, you stop spending until next pay day.

4. Start with your goals
Contrary to popular belief, Investing is not about beating the stockmarket, the bulls and the bears, it’s not about the latest and trendiest tech stock or even your uncle’s brilliant investing tip that he shares over Christmas Lunch - it’s all about your goals. We don’t build wealth for money’s sake, we do it to create the freedom, choices and comfort it buys you. Being really clear about what you want to achieve, by when and how much you’re going to need to do it makes formulating an investment plan super easy. When you know what your goals are, you then know how much time you have to invest, how much you need to be investing and what assets or portfolios will give you the best chance of achieving your goals. Also, by having clear goals it’s easier to stay on track and stick to your plan. 

5. Begin building your wealth today.
There is an old Chinese proverb that says, ‘The best time to plant a tree was 20 years ago, the second best time is today’. This applies to investing and building wealth too. Get started today, do a little and do it often. The reason why superannuation works so well is because your employer is investing a small portion of your income, every pay cheque throughout your entire working life. The end result? A swag of cash to support you through your twilight years. Your superfund doesn’t have to be the only one doing the heavy lifting. You can build wealth outside of your superfund too. You can start investing with as little as $50 and smooth out the ups and downs of the market by investing regularly over the long term.

6. Make the most of the relationship between risk, return and time.
We often pride ourselves on our ability to save money. The perceived wisdom is that 'cash is king', but savings alone won’t cut it when it comes to building wealth over the long term. Particularly, if the interest earned by your savings is less than the rate of inflation the ‘risk’ is that your money today will have less buying power in the future. Risk is the possibility that you may lose some or your original investment. When you invest, risk can’t be avoided completely, the key is to identify risk, then diversify to manage it. As the risk of an investment increases so does it’s potential for returns through capital growth and income. Essentially, by being too risk avoidant you miss out on the potential of higher returns. Understanding how long you have to invest helps determine how much risk you can take on. Any savings you need to spend in the next three years needs capital protection so taking on a risky investment doesn’t make sense. If however, you have an investment horizon beyond 4 years then you could consider taking on a riskier investment to grow your wealth faster.

7. Diversify, diversify, diversify.

You know the saying, ‘Don’t put all your eggs in the one basket’? Well the same goes for your investments. Diversification is when you spread your wealth across different investments and different asset classes - cash, bonds, property and shares. By doing this investors reduce the volatility of their investments, enjoy smoother returns and getter a better overall balance of risk and reward against their risk profile and investment timeframes. Diversification can be tricky to achieve through direct investments (we all know how much a house costs!) so many investors turn to managed funds and exchange traded funds to help them achieve diversification in a smaller investment portfolio

Bonus strategy: Find your tribe

Hang on, I thought there was only going to be seven strategies? Well here’s a bonus tip! Find people that you can share your experience with - find your tribe. Find some friends who also want to up their money game and build good financial habits. The name Ladies Finance Club is a nod to a group gal pals in Sydney who would to take turns hosting dinner, bringing over a bottle or two of wine and learning all things money, investing and business together. You can do this too. Sign up to newsletters, follow financial experts on your social channels, read books, listen to podcasts and join facebook groups that support your goals to get money savvy.

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