Money Tips Explained (#MoneyTips)
I love tips!
If you are American, or one of the many other countries that abuses the idea of tipping, I hate tips. Pay your staff a decent wage and let tipping be a smaller amount or for genuinely exceptional service. The tips I am talking about are succinctly encapsulated ideas that provide insightful information. Or as Google puts it in the third usage as a noun under the second definition: “a small but useful piece of practical advice.”
I think there is nothing better that a good short sharp piece of practical advice that accurately encapsulates an entire idea or concept into just a few words. I don’t think I am alone in this as Twitter currently has over 500 million users with over 300 active each month, although I am not sure that all tweets meet the “practical advice” requirement! That is a lot of people. Australia has a population of 23 million people. In fact, it is so few that when I searched for “Australia population” to check we had crossed the 23 million mark, Google felt sorry for me and decided to add Canada along side to boost our numbers. Lucky they didn’t add the US, China or India to the graph or you wouldn’t be able to see the Australian line down the bottom. Interestingly when I search for “Canada population” they included the population of California, which just so happens to be both growing faster than and be larger than Australia.
Anyway, I have been posting my thoughts on money to Twitter (using the hash tag #MoneyTips) and found that some of them were very hard to keep within that magic but annoying 140 character limit. So far I have managed it, however sometimes a little of the meaning seems to get lost and occasionally I wanted to add a little more explanation.
Enter this page – a place where I will keep my money tips and expand on them with some additional information and thought. Not all of these will apply to everyone of course. But they are tips that I use from time to time in my own life. As I have mentioned before, I am always open to changing my position on things as my understanding grows – so hit me up if you have a different position on some of them. Also tweet @RememberToWater if you have any of your own tips you want to share.
The Money Tips
Tips number 1 to 10:
See the original explanations over on the Money Tips 1 to 10 Explained post.
So these are the first ten tops explained. I attempted to start out simple and so the first ten are just a few simple ideas that came to mind first. There is no real order to them; which is strange as there is normally order in most things I do. Ah well, you can’t win them all!
- Build up 2 or more months of living expenses in an emergency account.
- An emergency account will allow you to pay unexpected bills without going into debt. It will also greatly reduce your worry around whether you will have enough money to pay a bill. Just remember to top back up the account if you use it.
- Ask the bank for a better home loan rate – take examples, even banks price match.
- Almost all banks will come to the party on interest rates. Shop around and find the best rate. Then shop around to find the best few banks (branch locations, loan features etc) and see which will come closest to matching the best rate you found. Most banks managed to get within about 0.1% of the lowest rate we found for a comparable loan.
- Consider selling your items rather than throwing them out – some of it will sell.
- $10 here and $20 there can quickly add up. There is nothing better than having an extra few bucks at the end of the month for items that you were getting rid of anyway. If you know what they are worth list them on sites like Gumtree (no fees), if you don’t and haven’t got time to research go for an auction site like eBay.
- Rent a less expensive place while you are looking to buy.
- Bring a reusable water bottle. You will snack less and pay less for drinks out.
- Drinking more water is not only healthy, but can help minimise snacking. It also means that if you need to buy lunch out you don’t have to get the overpriced drunk with your meal.
- Never shop on an empty stomach – everything will look so tasty.
- I am guilty here. I want just about every food item I see when hungry. If you don’t have a list, or can’t stick to one then make sure you have eaten before shopping. That way you won’t be tempted by those salt and vinegar chips and sweet chilli cashews when you see them.
- Buy a deep freezer and buy cheaper in bulk – some math may be required.
- Buying in bulk can save you money. The problem is that you need a way to store that bulk. A chest freezer will allow you to buy larger amounts of perishable items and freeze them.
- Move your emergency money to a high interest online savings account.
- One problem with having an emergency account is that the money is just sitting there not earning much interest. Why not move it into a high interest online savings account. You can still get at the money almost instantly – just make sure you have a transaction account with the same bank.
- Take public transport. Compare extra time costs vs parking & petrol costs.
- Only once in my life has it been cheaper to drive rather than catch the bus. Even then it was close and required free parking. You should consider how much the convenience/time savings from driving a car to work is worth to you. Then compare that amount with the savings you would get from taking public transport.
- Bring your own snacks on budget airplane flights.
- The price for snacks can be more than double on inflight menus. Bring some snacks with you and enjoy the instant 50% saving you get. Not to mention the expanded choice from a full-sized supermarket.
Tips number 11 to 20:
See the original explanations over on the Money Tips 11 to 20 Explained post.
And yes – I really did buy my lunch today. You can’t win them all!
- Use a balance transfer to pay off your credit card rather than for a break.
- Many credit cards will give you a balance transfer rate of 0% for the first six months. Use this time to pay off your debt and to start saving for your emergency account to break the cycle. If you can’t pay it off in six months, give it a good shot. Try and find another 0% transfer and keep going. Make sure you reward yourself for your wins along the way, but preferably something with no (or minimal) financial outlay. Also make sure to have a larger celebration once the cards are paid off and you have your emergency account.
- Use LED light bulbs. They use 10 times less electricity (costs more every day).
- LED light bulbs may cost more upfront, but they last much longer and use a small fraction of the electricity. Not only will you be helping the planet, you will be helping your wallet. There is no need to rush out and buy heaps of them to replace everything at once. Rather, as bulbs need replacing choose an LED one. Just watch our for very cheap imported ones as they may not comply with Australian standards.
- Have as few cars as you can afford. Do you really need a second car?
- Do you really need a second car? Do you even need one car now that companies like Uber and GoGet exist. Even a regular Taxi once a month, rather than a second car, could save you a lot of money over a year. Cars are one of the worst things for a persons finance. However if you do need a car (or a second car) buy a good second-hand one and keep it for as long as you can.
- Don’t be afraid of moving to a different higher interest online savings account.
- Opening a new bank account used to be annoying. Now many can be done in a few minutes online – especially high interest online savings accounts. Shop around for better interest rates once every few months to see if you can find one. Just check that you can meet any requirements for the “bonus interest”.
- Buy insurance for anything your emergency account can’t afford.
- Having an emergency account is great for unexpected problems or bills. However larger events (a car crash, medical bills, or a house fire) could easily wipe out the your emergency account many times over. For any of these large events consider appropriate insurance to cover the costs. You can often decrease your premium by choosing a larger excess if you have enough in your emergency account to cover the larger excess.
- Ask your bank to wave all fees on your home loan.
- Banks typically have two types of fees on a home loan: those they charge you and those they pay to others. Ask your bank to wave all the fees, after all you are going to be paying them a lot of interest over the time they hold your loan. At the very least get them to wave the fees that are internal – every bank should be able to do that. Just make sure that you don’t cross off a smaller bank with a lower interest rate if they refuse to wave the fees. A small fee upfront may be better than a higher interest rate over a year or two, let along twenty or thirty – but you will have shopped around for a new loan before then anyway – right?
- Aim to buy items at a supermarket rather than more expensive convenience stores.
- Just like a captive market on a flight, a late night convenience store has a captive market – those who must have something now. As much as you can try to plan ahead and make enough time to buy items at a normal discount supermarket. On most items you will save 20-50%. Some cities have supermarkets open 24/7, some don’t, but it won’t take long to find the opening hours of your nearest one.
- Only use coupons for items you would actually have bought.
- A 50% discount on an item you were not going to buy still costs 100% more than you would have otherwise spent. Don’t let a good coupon entice you into a purchase that you would not otherwise have considered just because it is inexpensive now. I always think of Marge Simpson with this one – “Ooh, that’s a good price for twelve pounds of nutmeg.”
- Give up or limit expensive habits like drinking, smoking, posh restaurants.
- Everyone needs to have fun and I am not trying to say don’t drink. But if going out every Friday night for drinks is going to cost you $50+ each week, is it really worth it? It is a value judgement that you need to make for yourself. Just make sure you really know how much it is costing you when you make that decision.
- Make your lunch at home (preferably in bulk) rather than eating out.
- Even the cheapest lunch you can buy needs to allow for the cost of the staff salaries, the rent of the building/space and the profit of the store owns. If you are after a simple way to cut some costs, making lunches at home can save you a bunch. One strategy is to cook a big meal and then package and freeze it in lunch size portions. You could also consider a deep freeze.
Tips number 21 to 30:
See the original explanations over on the Money Tips 21 to 30 Explained post.
And while I have backed off in the level of detail in my tracking, I still track just about everything; just with the cash amounts rounded.
- Save at least 10% of your net income each pay – invest it.
- Even with Australia increasing the required superannuation it is still not enough. Take responsibility for yourself and build your own nest eg. I consider 10% a minimum savings rate that everyone should achieve. So don’t let a 10% recommendation stop you from aiming for 30%, 50% or even more.
- If you earn under $50k, put extra into Super, the government will chip in too.
- The government has a co-contribution scheme in place that will prove additional super contributions if you ear under $50k. In the best case it is currently 50%. No where else will you find a virtually risk free way to earn 50% on your money in one year. Over a 30 to 50 year working life that could be the difference between a good and great retirement. It could also mean the difference between retiring at 50 and 65.
- Keep your car serviced and tires inflated – you will use a lot less petrol.
- A well serviced car with correctly inflated tyres will not only keep petrol costs to a minimum, it will also help to prolong the life of your car. If there is one simple thing that everyone can do to better use their money it is to keep a car for as long as you safely can.
- Discuss financial plans with friends, they should tell you if it’s a dumb idea.
- Not all friends are suited for in-depth financial discussions. However some will be. Find one who is happy to talk about finance, money and your plans and ideas. Get their input around whether they thunk it is a good idea. Seek out people with more experience that you have. An easy way to save money is not to lose it in the first place from a bad idea.
- Have short (< 1yr), medium (1-5yr), and long (5yr +) financial goals.
- Financial goals are just like any other goals in your life. Having them doesn’t mean you will be successful, but not having them (whether written down or in your head) means you can’t reach them. Set realistic goals and try to break them into smaller goals. Start crossing off some of those smaller goals, and before you know it you will reach you larger goals. Give it a few more years and you will reach goals you previously thought you may never reach.
- If you buy your lunch, check for cheap deals if you buy before 12 noon.
- Firstly I am not saying these are always a healthy options, but they are good financially if you were planning it already. There are multiple shops around me that sell a normal lunch for $9.90 after 12 noon, but only $6 if you get them at 11:59am of before. When I don’t bring lunch, simply eating a little earlier caves me almost $4 that day. If you did that twice a week that is $400 saved. Not bad for just eating a few minutes earlier!
- Salary sacrifice into Super. If you can’t max it out, aim for 15%.
- There are two large benefits with additional super contributions. Firstly you get to put it into super using pre-tax dollars, so your tax rate on the money will be only 15% (rather than 30%+). Secondly you are forced to keep the investment for years which when combined with the lower tax rate supercharges the compound interest effect.
- If you don’t track expenses, start with the larger ones and slowly get smaller.
- Tracking the $2.50 you spend for a can of coke feels like too much effort, but tracking the $300 you spent on a new tennis racket or $800 on a new mobile sounds easier. Starting big will mean less work to capture the largest parts of your spending. You can then work your way down until you feel it becomes unproductive. There are also online tools that can help (when I find a good one I will let you know).
- Always consider the big picture when looking at financial details.
- People often say the devil is in the details, and it can be. But you can save yourself a lot of time if you focus on the larger picture aspects first. For example when comparing finance rates for two car loans where one has a 0.15% lower rate, but the other has an upfront fee, step back and look at whether you could just pay cash for the car. That is what we did.
- Talk to your partner monthly about finances and try to get on the same page.
- Your partner will have more impact on your finances than any other person. It is not enough to agree on things once as life changes. My partner and I discuss finances at least once a week, but aim for at least once a month. Look at how you are going, whether your goals are still realistic, and check if there are any signs of differing directions. Divergence in finances is much easier to fix early (just like almost everything in life).
Tips number 31 to 40:
See the original explanations over on the Money Tips 31 to 40 Explained post.
Also head on over for a quick story of when #38 was a big win for one of my friends.
- Save first, spend later. People spend whats available, so limit that amount.
- Uni students manage to live off peanuts because it’s all they have available. If you commit to putting 5% of your pay into a savings account each month (and don’t touch it), your lifestyle will adapt. Slowly increase that figure until it hurts and then back off a little (you do need to live your life). As a general rule I would try to aim for at least 10% to 20%.
- Save 100% of your next pay rise for 3+ months before changing your lifestyle.
- We have all seen stories of people on high incomes that can’t make ends meet. I am not sure I agree with “the Globe’s financial advice remains the same: work more”. In my mind the reason for this is simple – spending too much. In our consumerist society there is always something new you can spend you money on. So rather than jumping on the band waggon try saving your pay rise and not increasing your standard/cost of living. Try to save it for (at least) three months. Not spending a pay rise is probably the easiest and least painful way to save a nest egg or start an emergency fund.
- Find a cause you care about & give 10% of your income. You appreciate the rest.
- This tip can be polarising, but giving is something I care about. I aim to give 20% to 25% of my after tax income to various good causes. Just like with saving I recommend aiming for around 10%. Knowing where the money is going and that it is actually making a difference to people’s lives is an important part of this. Giving doesn’t just have to be about money, if you don’t like the idea of giving money,m time and goods are two other common methods.
- Your partner is your biggest asset & liability, agree on financial goals.
- With two people you can achieve your financial goals twice as fast or more. You probably have two incomes, but don’t have two times the living expenses (of course the opposite is true – you can also get into debt twice as fast). The problems come where one person is trying to save/invest as wisely as they can and the other is enjoying spending the hard-earned money. If you can get on the same page (that may mean compromising in both directions) then it will not only help your relationship, but also your finances as you will be working together.
- If you don’t like finance get a fee for service financial planner to help.
- Not everyone likes finances, or more specifically managing finances. If you have made it to this tip then you probably do, but I am sure you have friends or relatives who don’t. I like the idea of those people using a fee for service financial planner. The main reason is that if you are paying the fee you have a better chance of the advisor working for you. However if the advisor gets commission from products (such as insurance) that they sell you, who are they really working for? MoneySmart has some nice simple starting guides around financial advice, choosing an advisor, and the costs associated with it.
- Limit your lifestyle increase to 50% of your next pay rise. Save the rest.
- Similar to tip 32, this is about not spending pay rises. However this one is intended to focus on longer term saving (or investing). After you have saved the pay rise for 3+ months you may want or need to increase your spending. After all, the cost of living keeps going up. If you do, limit it to 50% of the pay rise and save or invest the rest. The first 50% will help to ease any overly stressing or problematic financial burdens, whereas the second 50% will help to make sure those burdens don’t come back in the future.
- Pay off high interest debt first, but don’t miss other payments to do that.
- Even if a debt is small, a high interest percentage will hurt you more in the long run. When you are saving, you want a bank account that has the highest interest possible to make as much money as you can. This is you loaning the bank money. When the bank loans you money, they also want to make the interest rate as high as they can (without you moving to another bank). The higher the interest rate the more the bank is making off that loan (and others like it). Typically this means you should pay off credit cards first, then personal loans, then car loans, and finally a mortgage.
- Pay off small debt first. It will give you a sense of accomplishment.
- If you have been paying off debts for what seems like ages, it can often start to feel like there is no end in sight. So, while paying off higher interest rate debt first is the ideal choice, sometimes motivation can be more beneficial than saving a few extra dollars. If you only have a small amount left on a lower interest personal loan, but a long way to go on your high interest credit card debt, the morale boost you can get from wiping out a debt completely can be worth it. The worst thing you can do is give up. So if you worried you may give up, pay off the small debt, have a (small) celebration, and get some renewed vigour to attack that debt again.
- Pay your bills annually if it gives you a discount.
- One of the best things about having an emergency account is that you can use it to pay larger bills annually. This often comes with a discount. Car registration is an example. The cost of 12 months is less than double 6 months. So if you are planning on keeping the car for over 6 months (which most people do) you will save money by paying the 12 months. It’s not rocket science, but you need the cash up front. This is a perfect reason to dip into that emergency account – as long as you remember to top it back up again.
- Look online for any lost Superannuation accounts you may have.
- If you are keeping track of your money then hopefully you won’t have lost any of it. However many of us had jobs when we were younger and not thinking about super. So head on over to the ATO lost super website (or just log straight into the myGov site) to check if you have any super in your name sitting unclaimed. You can then roll it over into your existing super account and potentially avoid an additional set of fees.
Tips number 41 to 50:
See the original explanations over on the Money Tips 41 to 50 Explained post.
Also head on over for an R2-D2 coffee press and a 4.5kg Toblerone (if you actually want to buy them)…
- Start investing early and small. Learn from mistakes. Grown your investments.
- This tip is true both for investing and for any work you have to do. If you do a small bit regularly then over time it will add up. Like cleaning a house one room at a time, you can start investing one bit at a time. Start with an index fund or listed investment company. The benefit of investing early in life is the amount of time your investment has to grow. Unlike cleaning a house, where things start to get dirty again as you move to the next room, investments tend to keep getting better over time. Years ago I purchased $1500 worth of shares in a small company. That investment is currently worth over $3000. I invested some more in that company recently as I think it has further up side, however that additional (and larger) investment is currently sitting about $800 down. At least I still have time on my side.
- Control impulse buying – buy it another day if it is over $50.
- This one can be hard to do, and there are defiantly situations where you have to get something now. Those situations are what your emergency fund is for (just remember to pay it back). I am talking about items that you don’t need immediately (and yes, I really do mean need). For example, I love shoe shopping, but when I go I leave my money at home. Then I spend the time going from store to store finding just the right pair (or pairs normally) of shoes. I make a note of what they are, and go home. After that I will sleep on it. In the morning, I will either decide I don’t need them, I do need them (and will go and buy them), or may decide to wait until an upcoming sale.
- Calculate how many hours work an item costs. Is it worth that time?
- If you are earning $50/hr (a nice $100k if you are working full time) then buying that new $52 AUD Star Wars R2-D2 Coffee Press or a $160 AUD 4.5kg Toblerone may seem like an easy buy. However when you consider that you have to work over an hour for the coffee press and over three for the Toblerone, would you think again? What if you were only earning $25/hr ($50k per year), then that Toblerone now costs almost a full day of work!
- Be careful with subscription services. Monthly bills add up fast.
- Your gym membership may only be $16 a week, but that is over $800 a year. Once you start to add up weekly and monthly subscriptions things can get out of hand. Mobile phone, NBN/ADSL, 4G dongle, iPad sim, gym membership, blog hosting, Netflix, Stan, Foxtel, Amazon Prime, Spotify, Office 365, Apple iCloud, Dropbox etc. And that is ignoring bills like water, electricity, insurance, loan repayments, petrol and public transport. Try taking the cost of buying something outright, and divide it by the amount of time you will keep it for. For some things, it is better to pay monthly and upgrade, for others, a one-off payment is the best choice.
- A car can be your largest financial money pit. Aim for reliable & inexpensive.
- This one should not be news to anyone. The cost of a car can really add up. When you add up the cost of buying the car, servicing, insurance, registration, petrol, and tires, it can be much better to take a Taxi, Uber, or Go Get. This is especially true for families who need a second car, but only use it occasionally.
- If you don’t flaunt your wealth people won’t expect your actions to be wealthy.
- I have a friend who moved up from Melbourne about 5 years ago now. We all knew that he had a good managerial job that paid very well. We knew this because he had a fancy apartment, a fancy Audi Q7, and was always eating out. Unfortunately, the company he worked for was forced to fire staff and reduce salaries by around 30%. He was one of the lucky ones who kept his job as his niche industry was flooded with unemployed people. Unfortunately people had all become accustomed to him shouting drinks or dinner quite often when they went out. This “norm” seemed to lead to a pressure for him to keep doing it. It took almost a full year before the cracks started to appear and take over his life. Thankfully he managed to turn things around, but had a hard time and lost many friends in the process.
- Fine a good IT person. Computers can last many years these days.
- I am typing this on a computer I bought in 2012. I believe it will last me at least another 3 or 4 years (possibly longer). The main reason for this is that I have a good IT person. They set me up without all the useless bells and whistles that new computers often have.
- Buy your mobile outright and get a cheap BYO plan. Keep the phone for 3+ years.
- If one of your little pleasures is the ability to upgrade your mobile every year or two, then defiantly consider a contract, as you can find some where the phone and plan cost less than buying each individually. However if you are willing to keep the same phone for 3 or more years, then it is probably best to buy it and then get a cheap BYO mobile plan. WhistleOut is a great place to compare plans. You can get 5G of data, unlimited calls and text for under $24 per month!
- You will never know your true risk level until you have made a bad investment.
- This is a good reason to start early and small when investing. You have time to make smaller mistakes and learn your real risk level. I saved up a lot of cash ($40k of term deposits, and online savings) and then put almost $30k of that into shares (managed funds). Unfortunately, this was just before the GFC, and before long that $30k was down to $15k. That defiantly highlighted not only my risk tolerance, but also the need for better diversification.
- Slow and steady doesn’t always win, but they never die in a fireball half way.
- When I was young I used to play share market games. They give everyone a set amount of fake money for you to invest in shares over a fixed timeframe. I have played 11 of these between 10 years old and university. Of those 11, I went all out in 3 of them, and invested in a more “real life” was for the other 8. From the 8 “real life” games I lost a little only in one of them, and made 3% to 10% in the other 7. Finally, the 3 where I went all out, I made about 30% in one, and lost around 40% and 70% in the other two. This is one more reason why the bulk on my investments are boring, long-term, “safe” investments.
Tips number 51 to 60:
Explanations coming soon.
- Expensive and cheap can swap places when quality or time get involved.
- Shop around for big purchases and frequent purchases. Ask for a better price.
- You will never full appreciate diversification until a downturn.
- If you don’t understand financial advice, find someone to explain it.
- When comparing products focus on the features you need, not the “extras”.
- Just start with 1 bad financial habit and replace with a good one.
- A side hustle brings in money when you may have been spending it. Double win!
- Research salaries before you have your next remuneration review. Ask for more.
- Your close friends have a huge impact on your financial life. Pick good ones.
- One new good financial habit a year can change your life forever.
Tips number 61 to 70:
Explanations coming soon.
- Use good deals to help with the cost of holidays.
- Don’t tell your employer your expectation first. Let them set expectations.
- Take a holiday with friends sometimes. Half the price and twice the fun.
- Save loose change, it wont change your finances, it will change your habits.
- Make sure you know whether salary numbers include super or not.
- Don’t try and save a cent if you might lose a dollar.
- Convenience costs money, save it by buying in bulk and being prepared.
- Try and upgrade technology a year or two later, it will save you a lot.
- Don’t be afraid to haggle, especially on larger items.
- Cheap is not the aim, value for money is. Sometimes quality costs.
Tips number 71 to 80:
Explanations coming soon.
- Food with friends doesn’t have to cost a lot. Eat at a friend’s house.
- Make use of attraction (e.g. zoo) year passes when you have children.
- If you see a discount code box when shopping online, do a quick search first.
- Keep an eye on GumTree for free items near you.
- When buying shares start simple and work your way up.
- Check your super balance at least once a year to check everything is ok.
- Younger people can get away with riskier investments if held long term.
- You don’t have to get a tax accountant to do your taxes. eTax is free.
- Find a nice relaxing place to walk or run and invest the gym membership fee.
- Choose the risk level of your Super based on time till retirement.
Tips number 81 to 90:
Explanations coming soon.
- The only dumb financial question is one you don’t ask.
- If you pay for a gym membership, make sure you use it. Stay accountable.
- When it comes to financial advice, you can trust, but you must verify.
- You are responsible for your taxes, not your accountant. Understand them.
- If you find yourself spending money, put it somewhere you can’t get at.
- If you don’t understand a financial product, keep asking questions.
- Pets can be expensive if anything goes wrong. Consider pet insurance.
- Dividend reinvestment plans can save you a lot on brokerage.
- After holding a share for 10 years you wont care what happened the day after.
- Pet insurance can often have large exclusions. Know what they are.
Tips number 91 to 100:
Explanations coming soon.
- If buying shares for the long term, focus on the company, not just the stats.
- Dividend reinvestment plans are like compound interest for your shares.
- When buying a fund, make sure to check the management fees.
- Minimise items you buy on debt that don’t appreciate over time.
- Risk = opportunity, but check the reward is proportional to the potential loss.
- Fund management fees are the opposite of compound interest.
- High risk is not bad if you understand it and accept the potential loss.
- With your #finance, simple tends to be safe.
- With your #finance, complex can be high risk, but not always with high reward.
- Just like you water your plants, don’t forget to water your finances!