Money Is Your Friend, No Really
Newcastle Herald
Tuesday November 21, 2006
Is crunching your bank numbers too painful? It pays to be clued up, writes Stephanie Bradley.
MONEY can be a wonderful thing.It can buy you the latest iPod, a flash car, some new threads, perhaps a plush sofa. Then there are some great nights out on the town, a couple of concerts, and suddenly you are paying for your weekly groceries with your credit card. Maybe you need to borrow $10 from a mate so you can put petrol in the car to get to work for three days before payday.Financial adviser Noel Whittaker, of Whittaker Macnaught Pty Ltd, says the first thing to learn about money is how to not spend more than you earn. He says most people in generation Y, aged up to 26 years, have a car loan, a mobile phone, perhaps a personal loan, and $2000 on the credit card. But don't despair just yet because there are things you can do to improve your situation, and the first thing is to understand the different types of debt.Mr Whittaker says there are two different types of debt: good debt and bad debt.Good debt is the type that increases in value, like property and shares, and that the Government helps pay in part through negative gearing or tax breaks. This type of debt has a low rate of interest, for example 7 per cent.Bad debt is the debt from buying consumables that decrease in value over time. Borrowing to buy a computer, car, or new lounge suite, is an example of bad debt. To buy these types of things you could pay a considerably high interest rate, around 20 per cent. Get in the know about your bad debts because there are ways you can reduce these if you are clued up.Mr Whittaker said credit cards and mobile phones were the worst to keep under control."Often credit card providers will not refuse a transaction, although you have gone over your limit, and they will charge you a $30 fee," he said.It is easy to rack up a high mobile phone bill so a pre-paid plan could save your bacon. If you choose a capped phone plan read up on the fine print because you could end up paying more for calls than you should be."It's not how much money you have got it is how you manage it that counts," Mr Whittaker said.Mr Whittaker recommends setting a financial goal and working towards achieving it.If you are saving for a house look into high-interest online savings accounts that are fee free and set up a budget to achieve your goal."BankWest has a savings account that earns 6.8 per cent. I think that is the best in the business," he said.Motivating yourself to achieve your goal could be quite easy."When I got my first home loan I stuck the bank statement on the pantry door so every morning as I got out my corn flakes I saw it. You need to make a goal and do it."If you have a goal you won't be distracted by borrowing $2000 to go and buy presents for everyone for Christmas," he said. And there is one last word of advice from Mr Whittaker who says with Christmas just around the corner there will soon be an enormous amount of pressure through advertising for you to go into debt.So remember your goal and keep your eyes on the prize.If you want to find out more about how you can become smarter with your money log onto understandingmoney.gov.au.How to roll in moolah? Get in the know about all your bad debts, like your mobile phone or credit card, and see if you can improve your situation. For example, switch to a pre-paid mobile phone plan if long phone calls are your weakness, and budget to pay more than the minimum on your credit card.? Set a financial goal be it buying a house, paying off your house sooner or just paying off your credit card in full.? Draw up a budget that helps you achieve your goal.? Set up a fee-free savings account with a direct debit every month from your normal account. A good rule of thumb is to save at least 10 per cent of your wage, but save more if you can. ? Pay for things using cash, not credit. If you don't have the money to hand over, hold back until you do it will save you fees, charges and interest.
© 2006 Newcastle Herald
