It’s not just the traditional Aussie battlers who have trouble with money; these days, it can be pretty common to have that friend who’s on an easy six-figure salary but always seems to be struggling in the days until the next paycheck comes in.
As CEO Of the Financial Planning Association, Mark Rantall says he’s seen a lack of foresight have high-income individuals struggling with big purchases and, eventually, retirement.
One woman had difficulty pulling together enough money to buy a house after spending $50,000 on clothing in a year.
“I have seen people like doctors with high incomes end up retiring on the pension,” Rantall adds. “That is close to the poverty line and is not a pleasant way to spend your retirement years.”
Here are 5 signs that you’re bad with your money:
1. You leave credit card bills unpaid. Although some credit card providers offer low interest rates for a fixed period to try win customers over, credit card debt is usually very expensive, with interest rates at 20% or higher.
2. You rack up unnecessary debt. According to Rantall, credit cards are best used to earn frequent flyer points for purchases you can already afford. While it can be okay to borrow money to buy a house or long-term shares, debt for day-to-day purchases or depreciating assets – like a car – is bad.
3. You indulge in ridiculous lifestyle expenditure. Rantall warns against buying cars, clothes, shoes or eating out to keep up the people you hang out with by borrowing money or at the expense of saving.
“I know of one person that spent over $50,000 in clothes in one year and now is regretting it because she is trying to buy a house,” Rantall says. “The clothes now sit in the wardrobe as they are out of fashion but she can’t bear to throw them out.”
4. You neglect to save money. Savvy savers have short-, medium and long-term savings goals. The former may be used to fund things like a holiday or car; medium-term goals could help fund a house and family and long-term savings are for retirement.
Rantall recommends people contribute about 20% of income to their superannuation accounts, which is about double the mandatory rate. “If you can contribute up to the maximum amount that is concessionally taxed which is $25,000 that is a good goal,” he notes.
Ideally, he says retirees should own their own homes and have enough superannuation to provide for 75% of the salary they retire on to avoid too many lifestyle changes. Prospective homeowners should aim to put aside at least a 20% plus stamp duty if possible, he says.
5. You consistently spend more than necessary on gadgets and phone plans. Rantall warns that recurring costs like phone plans “can suck your cash away” if call and data charges are left unchecked. “Resist the urge to snap up the latest gadget released,” he says.
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