Published On: Thu, May 3rd, 2018

Dale Gillham: Mastering Your Money – How Millennials take control and retire early

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When you are young, getting a good start in life is important as it sets you up for the three most important areas for your future: health, work, and family. However, when your parents finally let you loose on the world, it is also important to enjoy life whilst you are young.

So how do you get the best of both worlds—having fun while also taking control of your money?

One of the main concerns that many Australians, especially young Aussies, constantly battle with is cash-flow and whether or not there is enough to cover the bills due at the end of the month.

Over 50 percent of young Australians are experiencing some form of financial pressure.

Furthermore, only 5.4 per cent of young Australians aged 15 to 24-year olds and only 12.7 per cent of 25 to 35-year old’s save money regularly.

I find these statistics alarming as we are seeing a generation growing up living under financial pressure with poor money management skills. What is worse is that when you look at older generations, the statistics do not get a whole lot better.

Managing your money is a vital skill for all as it can determine the quality of life that you live now and into the future. Some people say money can’t buy happiness, but it can give you security. So, managing your money early on in life will reap greater rewards later in life.

Here is a list of simple techniques that you can apply immediately to start managing your money more effectively and give yourself the best start in life.

Budgeting

This seems like quite the obvious one but in allocating a portion of your pay – whether weekly, fortnightly or monthly – to certain areas can have a major impact on your savings and your lifestyle. Budgeting will free you up to spend money on what is important in your everyday life while still allowing you to work towards your bigger life goals.

When budgeting, it is important to track your spending and make sure you stay disciplined– it only takes an hour a month to manage a budget once it is established.

In order to make things easier, I suggest you focus on what you want and where you are going (goals) rather than what you might perceive you are giving up. Changing your view on budgeting could be the difference between being able to afford that new outfit, new device that you have always wanted or a deposit on that house.

Below (Monthly Budget Breakdown graph 1 & 2) is an example of the average budget breakdown for a millennial working full time.

 

 

 

 

 

 

 

There are also some great tools that can help you manage your money such as ASIC’s money smart calculator and various apps such as Miny, You Need a Budget and Wally.

Cash flow

Be mindful – budgeting is great but it is not flawless. A survey conducted by the Commonwealth Bank of Australia found that 56 per cent of people would not have enough savings to handle a temporary loss in income. Further, one in three Australian households would be unable to find $500 if an emergency arose—which is alarming.

There will be time when you can’t avoid unexpected expenses and something is guaranteed to happen that will put a dent in your efforts. That’s why it is a good idea to have three months of income saved up in the bank so that you have a cushion for any unexpected situation—meaning you don’t have to worry about money on a day-to-day basis. It also means that you don’t have to scurry to find money to pay bills or use your credit card each month. Having adequate cash flow also eliminates the possibility of defaulting on payments and being charged interest.

Pay yourself first

One of the fundamental rules of budgeting is investing 10 per cent of what you earn – every money book out there will tell you this. This can be as simple as putting it in a high-interest account or investing in shares. The most important thing about paying yourself first is that you do it without fail even if you have something you want to purchase or a bill coming up. Remember you are more important than anyone else, so pay yourself first.

Most young Australians who try and save money are in one of two boats. They either do not save or they save, but they are inconsistent. Many people save by putting away set figures. For example, you have $160 and you decide to save $60— you will have $100 to cover expenses until the next time you get paid.

However, what ends up happening 99 per cent of the time is that the $100 you had to cover expenses is not enough. So, you dip into your savings and do not end up saving at all. By allocating a set percentage rather than a dollar amount you should not run into this problem.

Compound Interest

Warren Buffett, arguably the greatest investor of all time, has been preaching about compound interest for years. It is what he did to make his money and guess what, you can to. Compound interest is interest you receive on money you have deposited into an account.

According to the Australian Securities and Investment Commission, compound interest is interest paid on the initial principal as well as the accumulated interest you have invested. So, you earn interest on the money you deposit, and on the interest you have already earned— which means you earn interest on interest. An online savings account paying monthly interest is an example of an account that earns compound interest. Putting aside 10 per cent of what you earn to have the interest compound can make you a lot of money in the long run.

If you would like to learn more about compound interest visit, ASIC’s Money Smart website

Superannuation: Choose your Fund wisely

How many of you actually know what your super fund is? The super fund you choose can be as significant as doubling the amount of money you retire with. Superannuation funds are managing your money for retirement. So, surely it would be worth spending a couple of hours to choose the right super fund if it meant you would have double the amount of money come retirement?

The investment fees and strategies that super funds used can be the difference between retiring financially free or retiring with barely enough to get by. Therefore, it is important to know which fund is best for you.

Another strategy you can use to increase the amount of money you have come retirement is contributing extra money to your super every time you get paid. It does not have to be a lot, but every little contribution adds up. Again, I would highly recommend spending a couple of hours looking for the right fund for you—it could mean retiring 20 years earlier.

Most important of all is getting started. Unless you take action and start using a budget, paying yourself first and saving for investment purposes (meaning you don’t touch it) nothing will change. Educate yourself about your options around your super, set yourself a target and hold yourself accountable.

 

Happy saving.

Chief Analyst for Wealth Within, Dale Gillham

About the Author

- Kizzi Nkwocha is the editor of My Entrepreneur Magazine and publisher of My Making Money Magazine, the net’s fastest growing wealth creation publication. Kizzi Nkwocha made his mark in the UK as a publicist, journalist and social media pioneer. As a widely respected and successful media consultant he has represented a diverse range of clients including the King of Uganda, and Amnesty International. Nkwocha has also become a well-known personality on both radio and television. He has been the focus of a Channel 4 documentary on publicity and has hosted his own talk show, London Line, on Sky TV. He has also produced and presented both radio and TV shows in Cyprus and Spain. Nkwocha has published a number of books on running your own business and in 2011 his team won the Specialized Information Publishing Association (SIPA) award for best use of social media. In the UK he runs a successful consultancy called Social Biz Training which trains people on how to use social media for business.

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