As host of the My Millennial Money podcast, there’s a heap of short random myths, hacks and other things that I often get asked about. Here are three of my favourite money myths:
‘I’m not smart enough to be wealthy’
I once had a client earning $350,000 per year at a top-four law firm, but their credit card debt was around $50,000 and they “just couldn’t shake it”. It basically didn’t matter how much they earned, they had a debt proportionate to their income that derived from their spending habits and behaviours.
To me this is no different from someone earning $70,000 a year with a much smaller credit card debt of $3000, derived from their spending habits and behaviours and also proportionate to their income. The consistent issue for both individuals is habits and behaviours — it has absolutely nothing to do with IQ. You don’t need to be ‘smart’ — you just need a spending plan that covers your costs (by spending less than what you earn) and keeps your habits and behaviours in check.
‘Rent money is dead money’
A roof over your head is a basic necessity, so the money you spend on accommodation is not dead money: it provides you with much-needed shelter.
It’s only dead money if you have zero plans to build wealth for the future, spend more than 30 per cent of your net household income on it or are just cruising through without any plans or goals.
Like I say, have a plan — however small. It’s OK to rent. I know it’s not for everyone, and in some instances it’s just a temporary thing.
‘I can just claim it back on tax’
Getting something ‘back on tax’ doesn’t equal the government turning around and giving you that money straight back cash in hand. The government (in Australia) doesn’t give out money for free (unless it’s a stimulus situation).
As an extreme example, let’s pretend your income has you at a tax rate of 50 per cent (made up for illustration purposes); you purchase an item for $1000 and ‘claim it on tax’. The effective wash-up is you only get your tax rate back — that is, only 50 per cent ($500) of what you spent.
This example would have you at a loss of 50 per cent. Your tax rate might be closer to 30 per cent. So, buying things just to get the ‘tax back’ still has you at a loss, particularly if you don’t need the item.
I have helped hundreds of people to make their money work for them. Can you take one of my ideas and change it to work for you?
Here are three of my top money hacks:
1. Stick with any spending plan changes for at least six pay cycles
Good things take time. Sit on any money system changes you make for a while to see how they perform before tweaking them again.
A money system’s sweet spot, I find, is about six pay cycles into use — this is when the creases are ironed out, you’ve stockpiled some cash in certain accounts and the rhythm has begun.
2. The bigger the purchase, the more time needed between purchases
Personal finance is so personal to the individual. Everyone earns and spends differently, so set thresholds for spending amounts in your life that suit your income and expenses.
I use a 1 per cent rule: if I’m looking to spend 1 per cent of my income for a single purchase, I must sleep on it. This does slow me down for day-to-day items. An example could be if you have a $60,000 take-home wage, you might decide that any item not planned for over $600 needs to be slept on.
3. Always have a goal
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You will do better financially if you have a goal to keep you on track. Even if it’s a short-term goal to start, while you consider your longer term goals. Chat with your accountability partner about what interests you, what you’d love to see happen, and perhaps how you could get there financially. Don’t do it alone, but don’t do it without something to aim for — set a goal.
The major element to overall success with your money is to celebrate the wins along the way. Don’t be solely negative about your money journey and where you’ve made mistakes in the past. Look to the future, set up a money system and sit back to wait for the start of success!
Edited extract from Sort Your Money Out & Get Invested by Glen James (Wiley, $32.95).
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