Step One: Spend money you don’t have

First of all, you probably want to spend lots of money. More money, in fact, than you’ve got in the bank.

Let’s say you’ve got a good job and you’ve found a place to rent in the Sydney or Melbourne market and you’re happy with your lifestyle. Why not crank it up to the next level by moving out of your flat, buying a bigger car on HP and maybe going on that overseas’ holiday. You know, the one you can’t afford. It’s OK because that’s what credit cards are for, right? Get some new luggage, and hit the road for the highlife. Don’t worry about paying off the card, get another card and use that to sort out the first card and you’ll be away laughing. Sure you’ll be paying for it later, but that’s what Tomorrow You has to worry about, right? Live for the moment.

Step Two: Spend money on things you don’t need

Have a think about buying some more stuff while it’s on sale. If you’re going on holiday, don’t forget to buy lots of things you just can’t get back home. OMG did I tell you the trick about taking a suitcase inside a bigger suitcase so you’ve got two for the return trip? Guaranteed winner every time.

Also, if you have more stuff than you’ve got space, get yourself a lock-up container to store your extra couches, beds, dressers, dining room tables and exercise gear in because one day you might need that extra furniture and hey, it’s only money, right?

Step Three: Join the gym

And get a wine club membership and subscribe to some online services that automatically renew every month or year and which you hardly use and get pay TV and never check your mobile phone bill or your electricity bill to see if you could get a better deal. Just don’t worry about that stuff. You’ll be happier not paying attention.

Step Four: It’s all too hard

Remember, you’ve probably got 20 or 30 years to go before you retire so you’ve got heaps of time left to sort that out.  Or if you’re already in your 40s and saddled with a mortgage and car repayments and those credit card interest rates it’s still OK. You can just say it’s all too late and there’s no point starting now. After all, a little bit goes a long way when you’re old and surely the government won’t let you starve, right?

Step Five: I don’t really need to retire anyway

And let’s not forget, you probably won’t get to retire anyway, the government won’t let you. It’s all ages away so you’re sure they’ll have it all figured out by then and besides, your great uncle told you once that he hated retirement and missed going to work every day so y’know, this is the perfect excuse not to retire. Instead, you can always get a second job and deliver pizza or something like that in the evenings. Yeah, that’ll be fun.

Anyway, retirement planning is boring and it’s a long way away and I’m having far too much fun spending money now so let’s not look too closely at that bank statement, OK?

The post Five ways to screw up your retirement: a lifelong project appeared first on Credit Simple.

If I were a millennial today, I would strive to save and invest, and limit my extra spending for really nice to do things. It sounds obvious, but many people, young and old, don’t manage their finances well, and this sees them less well off than they should have been.

Saving and investing sounds like no fun when there are so many spending choices for young people. The millennial cohort of the community are increasingly well qualified to take the high-profile and generally well-paying jobs in a modern and growing economy. They’re often caught between the pull of spending now on things such as holidays, glorious food and keeping up with the latest technology versus what seems the boring alternative of saving a deposit for a house and even more remote, saving for retirement.

Since I was young – and yes, I was young once – the world has changed markedly, but some key fundamentals remain when it comes to financial management and security.

I’d do anything and everything to get into the housing market

It’s still important for a young person to buy property as a means to build financial security. If I were young, I’d do anything and everything to get my foot in the door of the housing market. In cities like Sydney and Melbourne, this would involve a period of reduced spending and higher saving, and it would mean buying something less desirable than I’d like in terms of location, ambiance and size. But I’d have a 10-year plan to reduce the principal so I could eventually upgrade to a more desirable property.

The good thing now is that interest rates are currently low and credit isn’t too hard to obtain. It might be scary to take on a big mortgage, but think about the following example of how the decision to buy pays off.

Over 10 years, your wage is likely to rise by 50 per cent or more. Your income relative to the size of the mortgage will shrink as a result of this. And even at a low 3 per cent annual growth in house prices, the value of the property could be as much as 40 per cent higher and some principal will have been paid off in 10 years and when this happens, your financial security could be set in stone.

For a young person, buying a property can be the ticket to financial security so beg, steal and borrow to get your foot in the door. It might be boring but within a few years, the benefits could be material and obvious.

I’d also pay close attention to super

The other financial issue for millennials is to pay attention to super. While retirement is many, many years away and the amount of money in superannuation in the early years of working is relatively small, pay attention to where the money is invested and the fees the fund manager is charging. A fund that can deliver even a 0.5 per cent higher return with fees 0.5 per cent lower could yield a massively different return by the time your reach your 50s and start to get interested in your retirement income.

In a nutshell, a young me would bend over backwards to buy a house, I would watch my superannuation fund for performance and fees and of course, where possible, spend up on a few nice things even though a key goal would be to reduce the mortgage.

The post Stephen Koukoulas: What I would do right now, if I were a millennial appeared first on Credit Simple.

Let’s have a quick talk about the meaning of life. Well, maybe not the whole nine yards, but do you have moments in your cubicle when you wonder if the way you’ve got your life planned is the smartest way to go at it. What are your plans for financial security, and where do you hope to be when you retire? And how soon do you want it to happen?

Here’s an unnerving thought: is it possible your plans for working and putting some money aside for your retirement are the worst way of going about it?

Writer Jack Parkerson thinks we’ve got it all wrong. In The Easy Way To Retire Early he says we’re taught that we can retire once we have a certain amount of money stashed away. We decide the amount of money we need by calculating how much we’d be able to withdraw each year until we die. If that number lines with how much we think we’d be able to live on, then that mean we’re probably safe to retire, he says.

Parkerson has his doubts about that. He thinks you can get it wrong, and that plugging away at saving is the long slow hard difficult way to do it.

So if you want to retire early, he says, you have just two options that will actually work for you: passive income and frugality.

Passive income vs frugality

Passive income is money earned without actively working for it (maybe a few hours a month will be needed for maintenance and so on). You might earn it from dividends, interest from share investments, or rental property. Then there are the more creative possibilities: write a book, create an app, sell a course, really, anything that you can create digitally once, and then sell. And the tried and true option: start or buy a business that can operate without you in it.

And then there’s frugality. When your monthly expenses are lower, he says, your passive income goals can be reached sooner. How much would your monthly expenses decrease if you didn’t have a car payment or you gave up that nice place you’re living?

This is actually an idea people are talking about more and more: minimalism; living on the bare necessities; cutting out excess in your life; stepping off the consumer treadmill. It’s not for everyone, but if you can do it, you’ll transform what happens to your money. And the less you’re spending, the more you have available to invest in creating passive streams of income.

How are you planning for your future? Is Jack right? Is passive income and frugality your only realistic option for retiring early? Join the discussion on our Facebook page.

The post Two easy ways to fast-track your retirement appeared first on Credit Simple.

Before we had the Kardashians to keep up with (yes, there was life before the Kardashians), we kept up with the Joneses. The Joneses were more figurative than literal and didn’t have their own TV show; they represented the people next door who owned more (and better) gadgets than you.

The Joneses and the Kardashians – along with social media, celebrity culture and reality TV – are responsible for creating the #YOLO attitude: You Only Live Once. It’s a lifestyle choice that millennials often buy into, and is epitomised by the @richkidsofinstagram. (Haven’t seen them before? Go on, have a look. We’ll wait.)

YOLO culture says, don’t worry about later on, just live for the present. It’s all about pursuing great life experiences, and you don’t want to end up with FOMO (Fear Of Missing Out).

Many young Aussies in met centres buy into YOLO culture, for example, because they’re locked out of the housing market. Owning property is an impossible dream, so why even bother trying? I know one guy who does actually own, but he doesn’t think he’ll ever be able to pay off the large mortgage, so he spends all his available cash after mortgage payments on frivolous holidays to Vegas and eye-wateringly expensive bottles of wine.

There’s an emphasis on taking on debt to fund your lifestyle, which leads to sometimes unnecessary student loans, maxed out credit cards and high-interest consumer debt.

So how do you deal with YOLO and FOMO culture?

Envision your YOLO future and pay your future self first
It’s not necessarily having a YOLO approach to life that’s bad, but the lack of acknowledgement that your choices today create the life you live tomorrow. Sure, you do only live once, so you need to make sure that your whole life is great, rather than screwing up your future.

Use a future-oriented mindset to stay focused on your spending and think about what you’ll want later in life. Rather than doing something now, ‘buy’ it for yourself when you’re older. Instead of buying a bottle of wine now, put that money away and that’s a bottle of wine for later in life when you’re not earning.

Start seeing debt as a disease
Tackle your debt as soon as you can. No amount is too much! Start with the smallest debt and it will create a snowball effect; you’ll feel proud and achieved for having paid off even a tiny debt and it’ll motivate you to keep going.

Say no, not YOLO
Start living within your means and practice saying no to expensive outings, holidays and possessions. Just because someone else can afford it doesn’t mean you should have to keep up. Got a friend who likes to go out for dinner and split the wine bill equally but you only ever drink a glass? Push back. Don’t be afraid to say, “I can’t afford it”. There’s no shame in being financially sensible.

Downsize your expectations of greatness
Do you really need the latest and greatest of everything, or can you trim your possessions and spending? If your paycheck doesn’t allow you to spend freely, figure out what’s really important to you and put your money towards that. For example, say you don’t care about clothes but you love wine and music; stop buying new clothes and start visiting op shops. Or if you don’t care about wine, grab a cleanskin.

YOLO within your means
Budgeting is key here. Split out your paycheck into expenses, super/retirement, building your emergency fund, your ‘saving for X’ fund, and what you have left is your YOLO money. Go wild!

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