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If I was 25 again I would…

This article offers several suggestions for financial habits that you should consider implementing sooner than later.

We asked ourselves “if I was 25 again what would I do differently?” We hope these suggestions help you form good habits, no matter your age.

…buy less stuff and pursue more experiences

We all need to buy things, particularly in our 20s when setting ourselves up for life outside the family home. But the buzz that comes with buying stuff is often short-lived. Clothes go out of fashion. New cars quickly become old cars. The latest electronic gadgets soon lose their appeal.

On the other hand, the warm glow of fondly remembered experiences can stay with us for a lifetime. That sunset in Santorini, the noise and excitement of the Grand Prix, or the magic of drifting silently in a hot air balloon over an iconic city. And experiences needn’t have a high price tag. How about being the first to catch a sunrise from a local peak or volunteering with a charity food van?

There are thousands of ways to create the memories that will sustain us every bit as much as our future savings and physical possessions will.

…be wary of investment fads.

Today it’s crypto-currencies like Bitcoin. In 2000 it was technology shares. In 1987 it was shares in general, and way back in the seventeenth century investors were going nuts over tulip bulbs.

When it comes to investment, fads occur when asset prices are driven up by irrational excitement, greed, and ‘FOMO’ – the fear of missing out. The fundamental rules of valuing an investment fly out the window and speculation dominates trading as hoards get caught up in the frenzy before experiencing a crash.

While it may be difficult to resist the temptation to join in I would, instead, put my money only into investments that I understand; those with values based on a more realistic capability of generating long-term income and/or capital growth. I wouldn’t rule out the occasional small flutter on a ‘speckie’, but it would come out of my entertainment budget rather than being part of my core portfolio.

…pay extra off my mortgage.

If I could find just $100 extra per month – less than the proverbial cup of coffee every day – and added this to my repayments on a $300,000 mortgage with an interest rate of 3.75% per annum over a term of 25 years, I would save $17,466 in interest, and shave more than two years off the term of the loan.

If I couldn’t make the extra payments regularly I’d aim to use any windfalls to pay down the loan. An additional $1,000 paid at the start of the same mortgage would save me $19,795 in interest over the term!

In practice, the easy way to do this is through a mortgage offset account. This would ensure all my savings, including the extra amounts I can find here and there, are working to reduce my total interest bill. And if interest rates rise, the savings will be magnified.

…pay off my credit card in full every month.

While convenient, credit cards can be a real trap. Touch and go technology in particular makes it easy to spend without thinking of the growing debt. If not paid off in full within the interest-free period each month the carry-over balance will start to accumulate interest at well over 10% pa, sometimes up to 20%, magnifying the debt and making it harder to repay.

Instead, I’d use that interest-free period to my advantage. Paying all of my expenses with the same card would allow me to keep my cash in a higher interest account or mortgage offset account and earning (or saving) valuable interest until the credit card payment date. Or if I was too easily tempted, I’d either reduce my credit limit or use a debit card to help make sure I didn’t spend more than I could afford. My credit rating would love that!

…buy a pre-loved car.

As soon as you drive that shiny new car out of the showroom its value drops by thousands of dollars. You don’t notice it, but that’s real money down the drain. That’s why one of the great and often quoted financial tips is to buy the cheapest car your ego will allow you to.

Cars are now far more reliable than they used to be and the remainder of the new car warranty, which can be up to seven years, will often transfer to the new owner. Much of the loss in value on new cars – the depreciation – occurs in the first three years.

Going for something with a few k’s on the clock would save me thousands. I’d also check out the service costs of the car I was thinking of buying. They vary enormously with the make of the vehicle and can really add up over the years.

…pay more attention to my super.

I would take mental ownership of it rather than thinking it’s just something for old people to worry about.

First up I’d consolidate all of my super into one account to avoid paying multiple sets of fees. I’d also check to see if I was paying for insurance that I may not need at the moment, and if it offered the best deal on income protection insurance. I’d seek professional guidance to review the investment mix and whether it was appropriate for my long-term savings goals.

And despite all the other things I want to do with my life before retiring, over the years I’d keep a close eye on my contributions to ensure my employer is paying what they should, and watch the balance grow to a big enough nest egg to give me financial independence by the time I eventually retire – if I ever want to!

…love budgeting!

I wouldn’t be scared of the ‘B word’ – budgeting. In fact, I’d make a bit of a game of it, tracking where my money was coming from and cracking the mystery of where it was going. There might not be much I could do about my income, so I’d focus on the spending side; working out how much I had to spend and what was ‘discretionary. Chances are I’d be shocked by what I discovered – spending on things I really didn’t need or particularly want, and not spending on things that are important to me.

I would also set some short-term goals such as saving for overseas travel, a home deposit or supporting a good cause, while leaving room for fun in the here and now. Without being too rigid my goals would help me to prioritise my discretionary spending, support a considered savings plan, and help me get more, not less, enjoyment out of life.

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