6 things only nerds would understand about personal finance
Personal finance sounds like one of those jargon terms that is relevant only to bank managers, accountants and other personal finance nerds. However, it’s a hugely important aspect of our lives – one that dictates many of our lifestyle choices – so it’s something that everyone should learn to navigate well.
Understanding your personal finances can be challenging, especially if you’re not used to money management or haven’t had any education around handling your finances. So here are some of the major aspects that only a nerd would know about personal finance, which will benefit you.
1. They understand personal finance
This one is obvious, right? You can’t practise good personal finance without knowing what it is.
Essentially, personal finance refers to how individuals handle their money and looks at aspects like their income, expenses and savings. A good personal finance plan will also consider investments, insurance and retirement, as well as things like credit cards, mortgages and other financial products.
While there are many various aspects of personal finance, the most important are budgeting your expected cash flow, paying taxes, growing your savings and/or investments and planning for your retirement.
2. They budget and organise
Proper personal finance management requires a certain amount of organisation. You cannot be successful in this regard if you aren’t organised.
This includes things like knowing your bank balance, being aware of your income and budgeting that amount carefully to ensure you’ve got everything covered, from upcoming bills to your morning coffee run.
If you don’t know where to begin, a good first step is to track every dollar you spend for a month, then sit down and collate the information. This will give you a solid idea of where you can start allocating your money.
Luckily, technology has made this process much simpler so if you’re a budgeting newbie, there are plenty of apps and programs that can assist you.
3.They plan and set goals
Once you’ve tracked the majority of your expenses, you can estimate how much you spend each month then put that amount aside.
Setting goals is equally important. Not only can setting goals act as motivation to ensure you stay on the right path with your money, it also helps you quantify your progress to see whether your system is as efficient as it can be.
A personal finance nerd also recognises the importance of allowing for time, because they understand that financial success doesn’t happen overnight. It takes patience and a good plan.
4. They limit debt
Some "good" debts, like the debt on an income-producing property, can be a positive thing. Other debts, like car loans, can be an unavoidable part of our lives at certain times. However, things like credit cards can be financial death traps, so if you do have one, use it wisely and sparingly.
By implementing a clever personal finance plan, you can get your debt levels down and learn from any mistakes you make.
5.They know their credit score
Many of us don’t know our credit score but it’s such an important part of our finances.
Credit scores are simply a way for lenders and banks to determine whether someone is fit for a loan. Having a good credit score means you’re a trustworthy borrower and are less likely to default on a loan. On the other hand, having a low credit score means you’re more likely to miss payments and renege on the loan.
While you can still get a loan with a poor credit rating, your interest rates might be higher and you likely won’t be able to borrow much.
6. They’re not afraid of tax time
Tax can be a scary concept if you don’t really understand it, and many of us don’t. However, it’s important to stay on top of your taxes and know what you can and cannot claim because this can come back to haunt you down the line.
Whether you do your tax yourself or you enlist the help of a professional to do it for you, it’s essential to lodge a yearly tax return including all your income, assets and liabilities.
Don’t exaggerate or underestimate any of your figures; you’ll find yourself in hot water and could end up owing the ATO a fair amount if they catch you. Also, ensure you stay on top of claimable expenses, keep receipts and track your income.
While the idea of mastering your personal finances may seem overwhelming, boring or simply too hard, it’s really not that difficult once you get started. Begin with baby steps – getting your budget in order is the ideal first move, then slowly build your financial foundation. From this, you can create an investing strategy that sees you acquire property assets and build lasting wealth.
Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author and one of Australia's leading experts in wealth creation through property, and he writes the Property Update blog.