Learning how to manage money is a skill that is vital for everyone who intends to live a safe, healthy life, but unfortunately, it’s not something we all learn about at school. You could be incredibly successful but still struggle to know how to manage your money.
Whether you’ve studied a diploma of IT online and started your own business, or you’re just trying to manage the family’s finances, most of us have more to learn when it comes to money.
In this article, we’ll cover some of the most basic concepts when it comes to financial literacy, and hopefully, you’ll get to the end feeling a little more qualified to manage your financial endeavours going forward.
Banking
Finding a trustworthy bank is the first and easiest step towards a healthy financial life. Luckily, there are a few very safe options for Aussies that are hard to say much bad about. The big ones are Commonwealth Bank, NAB, Westpac, and ANZ. These are known as the “big four,” and as the biggest banks in the country, they’re always a safe choice: they’re reputable, well-capitalised, and have accessible online banking and a strong network of branches and ATMs, both corporate-owned and partners. Having an account with one of these means that your money is safe, and you’ll always have easy access to it.
But big and safe isn’t necessarily the best option for everyone. These banks, as the biggest and therefore least competitive, tend to offer lower interest rates on savings accounts, and may not necessarily offer the best rates on personal or business loans. They also tend to have less personal customer service.
Smaller banks, on the other hand, often offer more competitive interest rates on savings accounts as a way to draw customers away from the big four and will be more likely to offer more flexible terms or rates on loans for a home, personal spending, or to a small business if you have a history of doing business with them. They also tend to be more responsive and attentive in terms of customer service. If you think you might need a home loan someday, or are considering opening a small business, smaller regional banks like Bendigo Bank or the Bank of New South Wales have stronger incentives to treat you with deference and work more closely with local businesses, and will sometimes offer benefits to keep their smaller customer bases intact.
Some of the biggest banks that operate in Australia are not necessarily the most popular, or even managing the most assets in-country. International banks like HSBC, Deutsche Bank, or Chase dwarf even the largest Australian banks, but have much smaller customer bases down under compared to their own domestic markets. While these banks rarely offer the same level of domestic service as Australian-owned banks, having accounts with these larger multinational banks might have benefits if you travel frequently or do business with overseas clients.
It’s not just about choosing the right bank, though — the account you choose matters, too. Not all accounts are created equal — some, like every day or access accounts, are designed to facilitate easy access to money for day-to-day spending via a debit or EFTPOS card. Savings accounts are geared towards holding money for longer periods of time to earn interest, and as a result may require a minimum balance, or impose fees for too much activity over a certain period. Every bank structures these accounts differently and often offers multiple types of each account.
Credit
Credit is a powerful but potentially dangerous tool. Spending beyond your means is a trap that is all too easy to fall into. But a line of credit with a reasonable interest rate can not only enable you to make purchases you might not otherwise be able to afford — it can also help you build credit and enable you to borrow money to buy a home or start a business.
Picking the right credit card or loan is careful work. Some credit agreements will bake in unfavourable terms and conditions that will allow them to change your interest rate under certain conditions, or demand payment on terms that might be unfavourable to you in the future. It’s essential to read the terms and conditions of any line of credit of any type carefully before signing up and spending on it. Canstar is a great resource for information when you’re making your decision.
Investing
Everyone will retire someday, some sooner than others, depending on their career or financial situation. And that means everyone needs to invest. You’ll most likely encounter investment accounts in your first job, specifically your superannuation account. Often referred to as ‘super’ for short, superannuation accounts are a special type of savings account that your employer is required by law to pay into to help you save up for retirement. Your super is paid to a super fund, which is a large investment company that manages these accounts for a large number of people. They invest the money from your retirement account in a variety of ways, including stocks, bonds, fixed-interest accounts, diversified investment funds, and property portfolios in order to ensure that it not only stays safe but also grows over time. Super funds are run by experienced investment bankers and have many special rules that apply to them to ensure that your retirement savings are invested safely and securely.
If you become wealthy, or if you just feel like luck is on your side, you may also someday choose to invest in the stock market and other assets like property or equity in private businesses on your own. Some investments can be risky, and there are things to consider like tax implications, so it’s recommended to leave investing to the pros and consult a certified financial advisor, or perhaps invest in exchange-traded funds (ETFs) to ensure your portfolio remains diverse and risk-tolerant.
What we’ve covered here are just the basics. Each topic is complex and unique and requires much more in-depth research in order to gain a complete understanding. With the basics we’ve given you in this article, we hope that you feel a little more confident when it comes to money, and that you can continue to grow your understanding and involvement in your finances.