Smart Money Tips
Its your money … make sure you pay yourself first!
Life is hectic and full of so many interruptions. Far too often we see people that receive their hard earned pay, handing a portion to the supermarket, paying for their bills, putting fuel in their cars and so on. By paying for their expenses first sometimes it is a reality that there is nothing left until the next pay packet. Remember to always put away a portion of your wage for investment BEFORE you pay for your other expenses – you worked for your money!
Compound interest is a powerful thing.
It is never too early to start! It is a common mistake people make to commence a regular savings plan only to give up because they feel it is not working for them. The idea of compound interest allows you to earn interest on your previous years interest in addition to any new contributions you have made. This means your investment will continue to grow exponentially, year after year. (The secret to saving is … start now!)
That old saying … don’t put all your eggs in one basket.
Remember, not all investments provide equal returns at any given time. A well balanced diversified portfolio with a mix of shares, property, cash, and fixed interest investments will assist to reduce volatility and provide smooth returns over the long term. During market downturns cash may look attractive, however, over a longer time-frame a well balanced portfolio may be more appropriate.
Risk vs. Return.
You have no doubt heard the saying; “The greater the risk, the greater the return”. For some, this may be too much to handle and investors are becoming more and more worried about the prospect of losing their total investment balance. Greater risk may not mean the total loss of capital but simply the volatility of returns over the investment period. Therefore, if you are prepared to invest for the longer term, you should be prepared for some volatility in expectation of higher returns. Remember, there’s no such thing as a free lunch!
Retain emergency cash.
You should always be careful that you have enough available cash funds to meet any unforeseen expenses or circumstances. By doing so, you’ll avoid being forced into selling an investment at the wrong time simply to pay for the one-off expense. By not having the cash buffer it could end up costing you a lot more.
Think about your reason for investing.
Around tax time every year there are always a great number of seemingly attractive investments that offer 100% tax deductibility. Remember your reasons for investing in the first place – to make a return on your money. Given this, an investment should be judged on its overall growth potential, not solely its tax deductibility. A tax deduction is of little consequence if you have lost the capital of your investment.
It’s the time in the market not timing the market.
Constant share trading or switching of your investments can be a lot like punting. Those involved can often overstate their winnings and understate their losses. If you are going to try and time the market (swithcing to cash and back at exactly the right moment), you are not investing – you are speculating. That being said, there is nothing inherently wrong with this, provided you speculate with money you can afford to lose. Serious investors who invest for the long-term understand that the secret is time, not timing. Think back to the power of compound interest.
Think twice before you guarantee.
In this difficult time we live in it is becoming harder and harder for first home buyers to enter the property market. You may find yourself confronted by a friend or family member who has been declined by a bank or lender and asks you to go guarantor for them. Essentially this means if they can’t meet the repayments on the loan, you have to. Remember this saying and consider your decision carefully; ‘There are no secrets kept, nor guarantees not called up’. If the lender has deemed them unable to repay the loan then perhaps they cannot afford it. Your best advice may be to recommend considering a cheaper property within their price range or to continue to save more funds for a larger deposit.
Ensure you are insured.
Insurance can cover everything from your life to your house and contents, your business, your car, and even your income. But remember, insurance should be bought, not sold, and should be tailored to your individual needs. Consider what would happen to your house or family if you were sick or injured and unable to work. Who would pay the bills?
Pay down non-deductible or high interest debt first.
Your aim should be to reduce non-deductible debt, such as home loans, car loans and credit card debts. Leave deductible loans until last, since the Government is footing part of this bill.
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