The road to financial stability
The question of who is responsible for teaching financial literacy has been a topic of debate for a very long time, and I still don’t think there is a clear answer.
Should it be taught in schools? Is it up to parents? Should the government be more proactive? Is it the community? Websites like Sorted.Org, and the Retirement commission are great. Local Budget advisors and various other community groups are also very active and doing the best they can with the resources that they have. But are the people who really need the help accessing these resources to learn how to manage money utilising them? Or do they feel too ashamed and embarrassed to ask for help before they reach crisis point?
It doesn’t matter what age or stage of life you are, money can trip you up, so the earlier you can ask the questions and take the actions the better you will be in the future.
When does financial stability kick in? For some it is never. For others it is in their 20’s, particularly if they have been taught good financial literacy skills from their parents.
But for many the ideal time for it to kick in is in your 30’s and 40’s, generally this is the time you are hoping to be in a stable relationship, your career path is clearer, and your income is increasing, you might be looking for a home to purchase, or already have one. And, children are on the radar.
Sadly, we are seeing more and more people losing their financial stability in their 50’s and 60’s through relationship breakups, business struggles and losing their jobs and not being able to get another one.
Whatever age it is for you, it takes focus and energy and time, and I also believe a want to be financially stable.
There are some practical actions you can take to build financial stability and the sooner you start doing them for yourself, (whatever stage of life), or help your children learn to do, the better your financial future will be.
Track your spending
I know this sounds incredibly tedious, and it is. But is also one of the easiest things you can do to start your financially stable journey. Writing down what you spend in a money diary for a few weeks, helps you realise what you are spending, it takes you off auto pilot. Those habits that you didn’t realise you had are there in front of you in black and white (or your phone screen). In a perfect world you would do this for life, but as life if never perfect, keep a money diary for a period of time, then get into the habit of looking at your online banking transactions, and if you feel you are going a bit off track do the money diary again.
Slow down and think before you pay
It takes 10 seconds for our rational brain to catch up with our emotional one, so give yourself that time before you purchase and then challenge yourself on why you are about to do this. Be aware of the Money Bias that allow us to rationalise and justify our spending. Learn to say No, to yourself and others. Make it a game, see how often you don’t purchase something that you wanted, just by slowing down and thinking about it more. For larger purchases, take 24 hours.
This is a really good habit to get into, it can help save a lot of clutter as well.
Know the difference between investing in assets and in liabilities
In other words, know the difference between good debt, and bad debt. I don’t really like the term good or bad debt, but it is what we know, so I’ll run with it.
If you think of the definition of an asset, this is something that increases in value over time. A liability is something that decreases. I like to add that an asset is also something that can help you generate income as well.
I’m not going to get into the ‘is your family home an asset or liability’ argument, but typically we think of a mortgage as good debt, whereas a consumer debt is bad.
I have no problem using ‘bad debt’ to utilise some of the interest free deferred payment deals. I did that a couple of months ago to recarpet my house. At the same time, I also set up the automatic payment to my savings account, so that one day before the interest free term ends, I will pay off that debt.
Bad debt becomes really bad, when you don’t have the resources to pay the debt off by the due date.
Your lifestyle is moderate
What do I mean by this? It means that you aren’t super frugal and deny yourself everything to save for your retirement.
You aren’t at the other end of the scale either, where you blow everything to look good.
You are somewhere in the middle. It’s what is right for you. You might love to have high end designer brands, but right now, you are happy to have a second-tier label. You might want to drive a brand-new car but are also happy to drive something that is one or two years old.
You’ll plan an overseas trip once every five years, and holiday close to home the other four years.
You are enjoying life, you are meeting your needs and are comfortable with your financial state.
You are balancing your needs and wants now, with the needs and wants of your future self.
You continue to learn
Once you have the basics of financial literacy under your belt, don’t stop there. Continue to learn and grow your knowledge about different types of investments for examples. Talk to financial advisors. Read the autobiographies of Warren Buffet, and anyone else who interests you. Learn about behavioural economics and other money mindset literature. It’s a fascinating area.
The more you continue to grow and learn yourself, the more your financial stability will grow as well.
My list isn’t exhaustive, there are a lot more areas you can explore on your journey to financial stability, but if you haven’t started yet, then give a few of these ideas a go. If you are well on your way, maybe use some of them as refreshers.
If something has worked really well for you, please tell us in the comments, as you may well help someone else on their way to financial stability.