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Why money smarts matter

Financial literacy isn’t just about understanding good money management. It can also help us recognise the tell-tale signs to avoid getting ripped off.

We all like to think we can pick a great deal from a dud. But when it comes to money matters that’s not always the case.

As a guide, only two out of five Australians feel confident enough to choose the home loan that’s right for their situation[1]. Yet a home loan is typically the single largest financial product we’ll ever use.

 

A shortfall in financial literacy can also impact the choices we make with our money.

 

The majority of us don’t set a weekly or monthly spending budget[2]. That makes it challenging to keep cash under control, and one in ten households admit to spending more than they earn each month[3].

 

Just as worrying, 51 per cent of Australians are clueless about basic cyber security practices that help to keep our identity – and our money – safe online[4]. It could go a long way to explaining why Australians collectively lost nearly $300 million to scams last year alone[5].

 

Knowledge is strength

Having some key money management skills under our belt isn’t a matter of impressing mates or family members. Financial literacy gives us the tools and insights needed to make smart choices. And that can go a long way to boosting personal confidence about the future.

 

Simple skills like knowing what to look for when comparing home loans, credit cards or personal loans helps us narrow down the best deal with the potential to pocket big savings on fees and interest charges.

 

Using a personal budget planner is a critical step to avoid living from pay day to pay day. With better cash control comes the ability to build savings for emergencies and even investing.

 

Perhaps most importantly, money management skills help us recognise when an offer is ‘too good to be true’ to avoid becoming a victim of the latest scam.

 

 

Room for improvement

None of us like to admit we could brush up on money matters. But in an ever-changing and increasingly complex financial environment there is always room for improvement.

 

The good news is that there is a feast of free, high quality information available to boost your money mind-power.

 

Among the options worth checking out is the Federal Government’s MoneySmart website and ME’s online school of money, ed.

Make a commitment

At the very least, make a commitment to reviewing your banking products annually in the same way you cast an eye over your electricity or mobile phone contract. And be prepared to switch if you’re not getting a good deal. It’s easy once you know how.

The bottom line is that we make financial choices every day. Acting on a hunch or a guess can be an easy way to end up paying more than necessary. The best decisions are based on facts, and understanding how to better manage your money can see you regain control of your finances and enjoy a brighter fiscal future.

 

Members Equity Bank Limited ABN 56 070 887 679.

 


[1] http://www.mebank.com.au/media-articles/home-loan-literacy-at-alarmingly-low-levels,-26-june-2015/

[2] http://www.mebank.com.au/media-articles/key-reasons-why-your-savings-are-going-backwards/

[3] http://www.mebank.com.au/media-articles/me-latest-report-on-household-financial-comfort/

[4] http://www.mebank.com.au/media-articles/half-of-australians-at-risk-of-cybercrime/

[5] https://www.scamwatch.gov.au/news/australians-lost-nearly-300-million-to-scams-in-2016

 

 

Save or splurge? How to use your tax refund

In a sign of increasing austerity, only 13% of Australians are intending to fritter away their tax refund on goods and services such as clothes, entertainment or a holiday, according ME’s new Tax Back Survey. ME’s Tax Back Survey was completed by 1,000 Australians expecting a tax refund in June 2017.

Meanwhile, 64% are expecting to save and 42% are planning to pay off debts such as a home loan.

For many Australians, a tax refund is a significant financial boost. In 2014-15, the Australian Tax Office issued an average tax refund of $2,564, and out of 13.2 million taxpayers, 10.3 million received a refund.

ME’s findings suggest many Australians are using their tax refund to get their financial house in order and improve their financial security. Rightly so, because a tax refund is money you haven’t factored into your household budget and can make a big difference to your long-term wealth when used wisely.

Below are four smart ways to put your tax return to good use:

Reduce debt stress

Paying down debt is a great strategy as it reduces an ongoing cost, freeing up your monthly budget. Start with higher rate bad debt first, like credit cards.

While a home loan has one of the lowest rates of any type of debt, it’s also a long-term affair and any lump sum you tip in today can knock years off the term and save you a bundle in interest along the way.

Add to your super

Using a tax refund to grow your retirement savings is also a smart move. Around 31% of households worry how they’ll maintain their standard of living in retirement, according to ME research. Given the power of compounding returns, the more you contribute now to super the more you’ll have for retirement.

Futureproof yourself

A tax refund is a great opportunity to establish or bolster your emergency savings. Ideally you’d have reserves to cover at least six months of expenses. But even having a small stash of cash can help you weather life’s unexpected events or outlays.

A tax refund can also be a good opportunity to maintain assets like your home, car or health – by servicing your car or going for a medical check-up, for instance – which can postpone bigger expenses in the future.

Save it

“If you just leave your tax refund in a transaction account, it's too easy to dip in, even unintentionally, for non-essential expenses. Consider locking it away in a separate savings account or term deposit to help you achieve your savings goals.

 

Members Equity Bank Limited ABN 56 070 887 679.

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5 reasons your savings are going backwards

If the halfway mark of 2017 sees your savings looking a little lean, you could be caught in one of five money traps. We identify the hurdles reported by Aussie savers and how to overcome them.

As the end of the financial year approaches, now is the ideal time to check your savings progress.

If you’re on target with your goals, give yourself a pat on the back. If it turns out you’re falling behind, you could be falling into one of the five key traps that keep pushing the goalposts further out.

Trap 1: You’ve been thrown a curveball

An unexpected event is the single biggest reason we lose savings momentum. Yet, the solution can be simple. Get started with an emergency savings account. Add a little to your slush fund on a regular basis, and enjoy peace of mind knowing that a surprise bill doesn’t have to be a financial shock.

Trap 2: You set the bar too high

Aiming to save too much too fast can be a recipe for disappointment, and saving often works best with a slow but steady approach.

By this stage of the year you probably have a good idea how much you can comfortably afford to set aside from each pay packet. Use this as your savings guide, revise the date to achieve your target figure, and relax knowing you’re working towards a realistic goal.

Trap 3: Reality caught up with your budget

It’s easy to underestimate regular living costs, and if overspending on budgeted items is holding you back from your savings target, review your spending and look for fresh ways to save. Try replacing a few branded grocery items with generic products. Make a habit of shopping around for the best deal on big ticket expenses, like personal health or car insurance.

Trap 4: You’re giving in to ‘restraint bias’

Restraint bias describes the situation when someone wants to save but gives in to temptation when they see, say, a brilliant new outfit on sale. We all have limited willpower and the easiest way to curb restraint bias is to automate your savings.

Choose a dedicated savings account, preferably one without ATM access, and set up an automatic transfer of funds each pay day. The less you have to think about saving for tomorrow versus spending today, the easier it is to enjoy savings success.

Trap 5: You’ve lost your saving mojo

By the time June rolls around, the savings goals you set in January can start to lose their lustre. If that sounds like you, it’s important to reignite your savings mojo.

Try breaking down longer-term goals into short-term targets, and plan a small celebration for each milestone. If savings burnout is becoming a real possibility, take a short break, revitalise and hit the ground running with your saving goals refreshed.

The important thing is to keep tracking your savings progress, and understand which trap could be holding you back. A change of tack can be all that’s needed to start kicking those saving goals.

 

Members Equity Bank Limited ABN 56 070 887 679.

 

Tracking your spending can change your life, ME study reveals


New ME research confirms that tracking spending has a powerful influence on your ability to save and set money goals.

ME put four participants to the test by asking them to track their spending for the entire month of February using ASIC’s award-wining TrackMySpend app.

Overall, all participants agreed the exercise empowered their money management in three major ways:

  1. Provided them a more accurate picture of their monthly expenses, including unexpected emergencies.
  2. Allowed them to identify areas or behaviours where they could cut back and save, in some cases up to $600 per month.
  3. Increased their confidence in their ability to save, inspiring them to set realistic savings goals.

These benefits were amplified among those less savvy or confident in managing their money.

Being aware of where your money goes, and knowing where and how to cut out unnecessary expenses is a fundamental step to setting a realistic budget. Only then can you take charge and make progress towards realising your money goals.

According to previous ME research, 59 per cent of 1,500 households surveyed did not record their monthly expenses, and 53 per cent failed to set a weekly or monthly budget in the past six months to December 2016.

In addition to identifying savings, understanding your expenses can be beneficial in other ways. For example, credit applications such as home loans require these details. Or you may want to make informed lifestyle decisions, such as changing to a lower paid job or starting a family.

There are a number of ways you can track your expenses, including apps, excel sheet method or the old-fashioned notebook method.

Whatever you choose, the most important thing is to do it, and keep it up for a period of time so you can identify key patterns. Only then will you be able to make informed decisions and take charge of your money.

 

Members Equity Bank Limited ABN 56 070 887 679.