When it comes to personal finance there are a lot of different approaches and ideas out there and often it can be hard to tell what is good advice and what isn’t.
Below are 5 of the most common myths around personal finance.
Often people confuse these two concepts as being the same thing. Surely people who earn a lot of money are wealthy right? Well that’s not always the case.
Many people earn more than enough money to become wealthy they simply do not hold on to the money they earn and end up spending it on various unnecessary things.
Likewise even on a low income, if most of the money is saved or invested that person can find themselves with a very healthy bank account.
There is a fantastic article on this very myth here.
You might have been warned about credit cards in the past by friends or family. They usually tell you some horror story about a person getting into mountains of debt at a high interest rate.
Now that scenario can definitely come true but with some financial discipline you can make credit cards work in your favour.
First of all, having a credit card and paying it off in full every month, not only incurs zero interest for you, but also helps you build up a healthy credit history that can help you with getting finance in the future like a car loan or a mortgage.
A second use of credit cards that not many people are aware of are their ability to earn you rewards points. Certain credit cards come with a rewards points scheme such as a frequent flyer program or flybuys.
How this works, is every dollar you spend on the credit card usually translates into 1 reward point.
So one strategy you might use is if you purchase everything on your credit card that you would’ve usually purchased on your eftpos card you will now be getting rewards points which build up very fast.
But wait, won’t that cost me interest!? If you pay off your credit card in full every month, you do not get charged any interest at all. That means as long as you stay disciplined, you will be earning rewards points absolutely free!
Often people say, that because they have a low income, there is no point in saving money. This couldn’t be further from the truth!
Even saving $20 a week would leave you with just over $1000 at the end of the year. Imagine how many presents you could afford with an extra $1000 at Christmas time.
Saving money, like anything else, is a habit. Once you get in the habit of putting money aside every week, it quickly snowballs and you end up building quite a healthy savings account.
A good strategy can be to put aside a certain percentage, say 10% of your pay into a savings account then as you earn more money, you maintain the same percentage. So if you earn $500 a week now, that’d be $50 into savings.
It’s never to late to start saving money and the sooner you do, the more wealth you will create.
This myth has been hanging around for many generations. It stems back to when the housing market was in very different shape and it often was the case that buying a home was a good investment.
In reality, people do not factor in all the additional costs to home ownership such as interest payments, repair costs, legal fees, rates and insurances, the list goes on.
Renting on the other hand, puts all that responsibility on the land lord and the person renting the house simply has to worry about paying the rent.
If you don’t like the house or the area anymore, you can simply up and move in a relatively short time frame. Selling a house can take a minimum of 30 days up to many months, if you can’t find a buyer.
Your monthly rent is also often much cheaper than the monthly mortgage payment for the same house. This allows you to use that saved money to put into better investments.
Only wealthy people invest in stocks or own investment properties right? Wrong.
Anyone can invest their money and you can start with a relatively small amount too. Often the first and best place to start, is investing in a whole market instead of a single stock.
This allows you to spread your risk and over the long term, usually beats a savings account interest rate. This can be done by purchasing shares in an ETF (Exchange Traded Funds), there is a fantastic guide here on ETF’s.
Like saving money, investing is a habit. As you form your good savings habit, you can easily move into investing as well.
Watching your money grow overtime is very exciting and even if you are only growing $100 you will still get great satisfaction out of watching it grow bigger!
Posted in Business Loans, Car Finance, Debt Consolidation, Mortgages, Personal Finance
Getting your first loan can be an exciting time, whether you are getting it for your first car, a holiday or even to consolidate some debt.
But this time can also be a cause of stress if you are not prepared for what is involved in applying for a loan.
The main thing you need to do before applying for a loan is checking if you meet the criteria. Every lender has different criteria, so it is important to understand this before you send in an application.
Usually you would have to meet the below:
Now of course some of these criteria can be by-passed in certain situations. For example, if you do not have an appropriate weekly income, sometimes a co-borrower can be used to meet the criteria instead. But more on that later.
The amount of money you want to borrow is another big factor on whether or not a lender will give you the money. Personal loans are supposed to help you out in the short term but not harm you in the long run.
If you wanted to borrow $50,000 but only earn $200 a week as a part time employee, the lender would not approve the loan as you would unlikely not be able to afford to pay it back.
A quick rule of thumb here is once you have calculated the repayments per month, if you still have at least $900 left over after all your expenses (food, rent, power etc), the lender will likely approve your loan.
You may have heard before that you need a good credit history in order to apply for a loan, but what is a good credit history and how do I get one?
An easy way to build up a credit history is to have a monthly utility bill in your name that you always pay on time. For instance you might have a phone bill for your mobile phone that you pay every month.
This shows to a potential lender, that you are reliable at paying money that you owe and gives them more confidence in lending you the money that you want to borrow.
Is no credit history a good thing? Unfortunately it doesn’t help you get a loan as now a potential lender has no way of seeing if you have been reliable at paying bills in the past.
So if you currently do not have a credit history, that is something you will need to start working on.
When you apply for a loan, most times a lender will want to see your last 3 months of bank statements. This is so they can see your spending habits and your general approach to finance.
In order to help them see your good money habits, make sure you have your salary always put into the same account so it can easily be seen you are getting paid the amount you say you are.
Make sure you do not overdraw your account, this way you show you have good budgeting skills and know how to manage your finances well. This will give a lender even more confidence in your application.
Have a savings account and show a good history of putting money aside into this account. This shows your budgeting skills and that you are able to plan ahead.
If you think you have all the above covered, you are ready to apply for a loan. Here at Finance Today we have an expert team that can help you get the finance you want at a fantastic rate.
