Recently, researchers offered a test with five basic financial questions to average Australians. A startling 50% of those test-takers couldn’t answer the questions successfully, and this points to a dangerous lack of financial understanding amongst our population today.
Unfortunately, we live in a world that seems to be split into two camps: money experts and novices. The experts have been studying money, the economy, and financial wellness their entire lives. Meanwhile, the rest of us have to figure things out on our own.
Fortunately, learning new personal finance lessons is not as complicated as it sounds. You can take matters into your own hands, and there’s no advanced degree or fancy classes needed. The more you understand about how your finances work, the better equipped you’ll be to make smart choices about your own money, savings, and beyond. Here are the most valuable personal finance lessons to remember today.
1. How Credit Works
More Australians have credit cards than ever before. In 2015, Finder discovered that 53% of Australian adults are currently in debt, and 10% of those are likely going to live with this debt for the rest of their lives. What does this say about our understanding of how credit works? Mostly, it says that Australians are way too complacent about debt, and they’re also starting to accumulate debt at a younger age than ever before.
It’s important to realize that credit itself isn’t the monster here. Credit is a great tool when used wisely. It’s how our society determines if someone is financially responsible, dependable, and open to additional credit. You’ll need credit when you apply for a mortgage, a car loan, or even just a regular credit card.
So what do you need to know about your credit? There are three main things to be aware of:
- You have to pay back everything you owe
- Your interest accrues daily anytime you carry a balance
- Your interest rate will drive up your monthly bill if you’re not paying off your entire balance
You shouldn’t avoid debt, but you also need to understand that it isn’t a way to spend money you don’t have. While debt will be necessary for major life purchases like buying a home, it shouldn’t be a part of your daily life.
2. Budgeting Basics
Another important financial lesson to learn is how to make a budget and stick to it. This is one of the most important personal finance lessons you’ll ever learn as an adult, and unfortunately, many people learn only after they’ve let their finances get out of control.
First, realize that nobody does budgeting for pleasure. In a perfect world, you’d never have to intimately look at your income and expenses to decide what you can actually afford. However, unless you have endless disposable income, you’ll need to make budgeting work to your advantage. Did you know a startling 86% of Australians don’t know how much money they’re spending every month? According to the UBank, only 28% of Aussies actively budget their own spending.
You don’t have to do anything fancy to manage your budget. All you need is to keep track of your incoming and outgoing money. You can even automate this process with a budgeting smartphone app. It might not be fun, but it doesn’t have to be complicated.
3. Understanding Wants vs. Needs
On a base level, you probably know the difference between wants and needs. Needs are things that are necessary in order to live a comfortable, healthy life. Things like food, water, shelter, a job, and transportation all count as needs. However, the line can sometimes blur if you aren’t careful.
For example, getting a nice car might straddle the line between a need and a want. You need a reliable way to get around, but do you need the latest car model? Probably not. You might need to eat a healthy lunch at work, but does that mean you also need to go to the expensive salad shop across from your work? Once again, probably not.
The sooner you learn to separate needs from wants, the better your savings will be. One of the more important personal finance lessons is being mindful of your spending. Budgeting will help you get a grip on this habit, but so will doing research before you make a financial decision.
Start small. Maybe you’ll research easy healthy lunch recipes to pack your own lunch for work. Maybe you’ll spend more time shopping around for a used car you like. Considering the pros and the cons of your purchase decisions will lead to better money habits and fewer financial regrets.
Bonus: Financial Advisors Are for Everyone
Finally, let’s talk about one of the biggest misunderstandings about getting financial help. Many people make the mistake of thinking only the wealthy need a financial advisor. The reality is financial advisors are for anyone, whether you’re struggling to get out from under your debts or you just want to gain a better understanding of your finances and have somebody teach them valuable personal finance lessons that they will use for the rest of their lives.
The best way to get started is to simply talk to an advisor. The professionals at Debt Busters have over 15 years of experience helping Australians manage their money and make smarter choices. It doesn’t matter where you are on your financial journey, there’s an expert who can help you elevate your own money management skills. Contact Debt Busters today on 1300 368 322 to get started on your journey to financial freedom.