Tips for Managing Money

Step One: Work out where you stand

There is no getting away from actually sitting down and doing a quick budget. You need some idea of what your bills are and where you're spending your money.

There are some great tools on the MoneySmart website that can help with this, including a budget planner and an expense tracker. (This website is run by the Australian Securities and Investments Commission).

Step Two: Work out what your money goals are...

Where do you want to be in the next 12 months, five years, 50 years? Being clear about your money gials gives you a sense of purpose, while at the same time, helping to change mindsets and behaviours about money.

Step Three: Work out your own personal money management strategy

After you've got some idea of where your money is going, and what your goals are, the next step is to make sure you manage your money - and not the other way around. You need to find a money management strategy that works for you.

We're all different and different people have different strategies. Some people like to track their expenditure against their budget and can keep meticulous records. But that strategy doesn't work for everyone as it requires a fair bit of time and effort.

Lots of people use what is sometimes call an 'anti-budget', which is essentially putting aside funds each pay period for the big, important things like regular bills and savings and then having the peace of mind knowing that you can spend the rest. An example would be to something like this:
  • 1. Work out what you need to set aside each pay period to cover your fixed bills (rent, electrivity, car registration and so on). Set up a separate account to cover these bills and organise to put that money aside each pay period (eg. by automatic transfer).
  • 2. Open a second and separate account for regular savings. A good rule of thumb is 10% of your net income. Again, put in place some form of automatic transfer.
  • 3. Any money left over is for day-to-day living expenses.
But a word of caution - this strategy won't work if you instead use a credit card to spend more money than you have.

Watch out for debt traps

As consumers, we're very conscious of the need to only buy safe products. You wouldn't buy a car that had bald tyres or was so risky there was a good chance of an accident.

We need to think about financial products in the same way, through a product safety lens. Safety, there are too many dangerous financial products in the marketplace and we need to steer clear of them. Financial products can also be complex and hard to understand, and unfortunately you can't rely on the lenders spruiking them to always act in your best interests. Some tips to stay safe are below.
  • Avoid high cost credit products such as 'rent to buy' for goods like fridges and washing machines, as well as short term cash loans (payday loans). Because these forms of credit are so expensive, after making payments many people find that they're 'caught short' and can never get out of debt.
  • Resist 'Buy Now- Pay Later' products such as interest free deals. If you don't repay the debt in the agreed time period, it could be 'Buy Now - Pay Forever'! Deferred payment products, where you take the goods at the checkout and then pay them off in say four equal installments can also be a trap. You'll be much better off saving up instead.
  • Don't assume that because a bank or finance company will lend you money, they know you can afford it - their assessment processes can be very poor.
  • Be wary of balance transfer offers on credit cards. If you don't close off your new card, you'll just end up in further debt. And once the interest free period on the new card ends, the deal may not look quite so good.
  • Credit card debt is expensive - for example, if you only paid the minimum monthly payment on a debt of $10,000 at 18%, it will take over 40 years to repay - see the calculator here on the ASIC MoneySmart website.
  • Don't sign up for anything that you don't fully understand whether it's a mobile phone, a credit card, insurance or a refinance of your mortgage - ask questions until you do understand - take a day to think about it - take the contract away with you - get independent advice.
  • If you are going to buy on credit, shop around for the best deal for the credit just as you would for any other goods. And remember that credit offered by department stores and car dealers usually have higher interest rates. Always get another quote.
  • Car dealers will also try and sell you lots of additional products, often of very little value, compared to the price, such as interior protection. Car dealers will also try and sell you lots of different forms of insurance - car insurance (always shop around as you are likely to get a better deal) as well as various 'add on' insurances, such as consumer credit insurance or tyre and rim insurance. Add on insurances are almost always poor value for money.
  • If it sounds too good to be true, it probably is! 12 months interest free, no payments for 2 years, pay off your home loan in 5 years - there's likely to be a sting in the tail. They want to sell you the product but they won't tell you what's in the fine print.
  • Be wary of 'credit repair', 'credit fix' or 'debt solution' companies that say they can improve your credit report. They usually charge large fees for services you can do for free.

Credit Reports

You can get a FREE copy of your credit report by contacting any of the credit reporting agencies listed below. The information in the report may vary depending on the agency. It's a good idea to start with the largest, Equifax.

Be aware that if you request your credit report, your current contact details will then become available to any lenders, creditors or debt collectors who check your report.

Equifax (formerly Veda Advantage)
Complete the online form or follow the steps on the website, or write to Equifax.

Illion (formerly Dun & Bradstreet)
Complete the online form called 'Application for personal credit report' and tick the box marked 'standard service', or call Illion and request an application form.

Experian Credit Services Australia
Refer to their website.

You are entitled to a free copy of your credit report once a year, or more often if you ask within 90 days of being refused credit. Your credit report must arrive within 10 days.

If you are in trouble with debt - seek help - ring the National Debt Helpline on 1800 007 007 and talk to a free, non-judgmental and independent financial counsellor.

© Financial Counselling Australia 2017