Finance Your Budget Five things you need to know to be financially literate

Five things you need to know to be financially literate

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Navigating the technical world of credit, debt, insurance and superannuation can be daunting for anyone, especially when you’re hiding from your credit card balance.

• Ten rules to control your credit card
• How to negotiate tough money conversations

The New Daily speaks to the experts about what it really means to be financially literate.

Create a budget

Hillross Bendigo principal financial advisor Ash McAuliffe says to focus on money management.

“The most important thing that I stress with my clients is money management and making smart decisions with your money,” Mr McAuliffe says.

“If you focus on what you’re spending, what you’re saving, you’ll have greater financial success.”

Australian Securities and Investments Commission’s senior executive leader for financial literacy, Miles Larbey, also emphasises having a budget.

“Have a good sense of what’s coming in and what’s coming out,” Mr Larbey says.

Money conversation

Plan your budget with the ASIC MoneySmart budget planner

“It also might help you identify spending or money areas where you might be able to cut back, if you want to put money toward something else,” he says.

Understand your credit card

Having a good understanding of your credit card, its fees, charges and repayment cycle is essential.

While avoiding debt and paying the balance off in full monthly is ideal, Mr Larbey says Australians have an average of $5,000 credit card debt, making it important to ensure you’re in control of payments.

“Paying more than the minimum can really slash the amount of time that it will take to pay off that balance,” he says.

“If someone with a $5,000 credit card debt – which is around the average that people are carrying on credit cards – if you stopped using that card and if you just paid the minimum, that could take you about 30 years to pay off that loan.”

“Whereas if you pay off more than the minimum, say around $200 per month, you could pay that balance off in two years.”

Use superannuation wisely

The first step is to make sure your finances are in order for retirement with one low-fee superannuation account.

Then if you can afford it, putting more into super, and making sure that your superannuation investment option is right for you, can really maximise your quality of life in retirement.

“Something we would encourage people to think about, for those people who can afford it, to consider making additional contributions to super,” Mr Larbey says.

Mr McAuliffe agrees that a strategy for superannuation is key.

Check if your super is on track with the MoneySmart retirement planner

“The product that you use, such as which super account, they do have an impact but it’s very minimal,” he saysInvestment graph

“What strategies you use have a more meaningful impact, such as how much you contribute to super.”

Choose the right mortgage

Choosing the right mortgage can save you thousands of dollars a year, and extra repayments can dramatically reduce the life of your loan.

“If you’ve got a mortgage, whether it’s large or small, it makes sense to try and make extra payments above the minimum that’s required from the lender,” Mr Larbey says.

“Someone with a $400,000 mortgage over 25 years, if they can afford to pay around $500 more than the minimum payment a month, they’ll pay that loan off in 16 years, so they can save nine years and more than $100,000 in interest by being able to pay more on the mortgage.”

Cover yourself with insurance

To avoid footing a huge bill in an emergency, insurance is one of life’s must haves – even if you think nothing is going to happen to you. Compare providers to get the best deal and don’t be caught out by exclusions by not reading the fine print, and always be upfront with your insurer from the start.

“We often see cases where people find an insurance claim has been denied because they didn’t understand the exclusions in the policy. It really does pay to read the fine print,” Mr Larbey says.

“It’s really important to be honest with the insurer, because if you’re not, and you need to make a claim later, you could find that that claim could be denied.”

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