Any advice about financial planning?
Asked by
Haleth (
18947
)
January 25th, 2015
I just got a hefty raise (all right!) After some thought, I’ve decided to take a wine class that starts in May. It’s a lot like the sommelier certification, but with a more educational focus. Graduates end up as wine educators and writers, that kind of thing.
Anyway, the first level of the class is $1400, which is a pretty significant chunk of change to someone like me. I’m used to thinking of that kind of money as WAY out of my reach. But now I can suddenly save up for it. In fact, it should be pretty easy.
My employer offered to help pay for classes once I found one. That’s awesome, but not the point of this question. Thinking about $1400 made me realize that I’m in a whole new financial ballpark. A lot of stuff that I’ve been wanting to do will be possible if I can manage my money properly. (My biggest wants are to pay off my car, get an education, move to a new city, and travel.)
I already do a lot of the stuff you’re supposed to, like packing leftovers for lunch, buying clothes on clearance, and never going out for coffee. Seriously, “stop going to starbucks” is like the most obvious piece of financial advice there is. I plan expenses for each coming month and divide up my paycheck for it. Bills and savings come first, spending money comes last.
Even so, on my old salary it was hard to ever get together more than a couple hundred dollars. Some emergency (usually car repairs) would always come along and wipe it out.
What’s a good strategy for managing your money in the long term?
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7 Answers
Invest as much as possible while you’re young and take risks. There are 2 major factors for building wealth: starting early and taking on risk. If you can start early, the magic of compounding interest could leave you with 2 times (or more) money when you retire than starting later.
Risk is the other major component. When you’re young, you have the luxury of taking on much higher risks. If you buy something and it tanks, you can hang onto it for many years while it recovers. Whereas if you buy something when you’re retired and the stock tanks, you may be forced to sell it at a very steep loss to buy your groceries.
As far as debt, pay down things with the highest interest rates first. If your rate is really low, you may actually be better off investing that money rather than paying off the low interest loan.
It sounds like you live very frugally when possible. That’s an excellent mindset. Try to resist expanding your standard of living, and instead focus on really building your investments up. I.e. try to pretend you never got the raise (or that you got a smaller one than you did) and invest the rest.
Even though you live frugally now, as we earn more, people can often find they start to spend more. You know you can live on a smaller amount so pay yourself first. Have an amount of money taken out of your pay immediately. Start by using it to pay off any debts unless you can claim them as a tax deduction.
Beyond that, I totally agree with @gorillapaws. Get rid of any debt, then establish investments. Do it so a set figure goes straight out of your pay immediately.
Perhaps see if you can get a recommendation about a good financial planner who can help you to established an investment plan. Also, put a small amount into superannuation. Not too much because if your super is like it is here, you can’t access it again until you retire. So keep it to a small, but regular amount. However, starting to pay even $20 a week or even month into a super fund now will make a huge difference when you get to the other end of your working life.
If you want to get a mortgage (investment or otherwise), you’ll need to show you can save. Even if you’ve paid off your debts, banks will look for evidence of regular savings, so setting up a regular payment into a high income savings account will be beneficial. Once you’ve accumulated some money you can then invest it. You don’t need thousands of dollars to start.
I would say save up a nest egg first just a small one of 1k or so. Then pay off the car and any debts.
Then I agree take risks with money. When you are young you have the cushion of time. However very few people can play the stock market successfully and it is a time investment. Money market account is where I would start.
Get back to me when you have saved enough in a boring savings account to maintain your lifestyle for year if you lost your job tomorrow.
If you have not, create an emergency fund that would replace your salary for three to six months if you lost your job.
Start putting away small amounts for retirement. It is never too early!
Pay off all credit cards and loans first.
Build a savings account as @marinelife and @johnpowell suggest.
If you have any dependents and own a home, get a term life insurance policy (ten years) for the value of two years of salary.
When you start a savings plan put the money into “no-load” mutal funds like these.
1. Pay off all your debts first. You will be lucky to find investments that have returns as good as the interest you’re paying on debts.
2. You seem disciplined, so use a credit card with an interest free period of 40 days or so for all possible spending (avoiding surcharges). This will help you keep track of your total outgoings, and you will earn interest by keeping that money in a savings account until the bill comes.
3. Invest in your own skill set. Becoming a more marketable employee is the best way to increase earnings even further.
4. Avoid the stock market like the plague. Algorithm driven high frequency trading has made the stock market a minefield for human investors, which act far too slowly. Only invest in stocks if you’re really good at it, and you have a long term outlook.
5. Invest any spare earnings in managed funds. A good fund will invest for you, and get returns better than any term deposit. But only invest what you can afford to lose, because it is also higher risk. If you have enough to cover the minimum value for two funds, spread your investment between the two to minimise risk.
6. When it comes to tax time, be sure to get every deduction you possibly can. A good accountant can be worth the cost if you aren’t well versed in the deductions you can claim (a $120 accountant saved me $6k year before last).
Congrats on the raise!
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