When it comes to money, everyone has an opinion. People tell you why you should buy shares, shouldn’t buy shares, why property is best, what you should do with your super, and the list goes on…
With all this noise, it’s easy to fall into the trap of thinking there’s one set of steps you should follow to be ‘good’ with your money. There isn’t.
And the reason there isn’t one pathway to money success, is because the right moves for you depend on you.
What’s best for you depends on what’s going on with your money today, how your situation is going to change over time, and what’s important to you.
While there’s not one set of actions that will deliver money success for everyone, there are three key areas everyone needs to get right to nail it with their money.
This area is all about how you spend and save, and how you manage your money. Success here means having your money set up in a way that makes it easy for you to save consistently, and managing your money in a way where you know exactly how much money you have available for saving, investing, or paying down debt.
A good budget is the starting point, where you’re clear on how much money you need to do the spending that’s important to you. But as important as your budget, or maybe even more important, is having a good bank account structure.
You want to make sure you have the right money in the right place at the right time to cover your spending while you hit your savings targets. This way you can spend guilt free on the things that are important to you, knowing you’re on track to make the progress you want.
Budgeting and banking isn’t the most exciting area to focus on with your money, but it is the foundation for everything else - if you don’t nail this area you will always fall short of your financial potential.
Nailing it with your strategy means understanding the different paths that can take you from where you are today to where you want to be. Do you save in cash, invest into shares, buy property, pay down debt, or crank your superannuation? Each of these different options have different advantages and disadvantages, and the choice you make will dictate your rate of financial progress and how your money journey plays out into the future.
Each of these options can be good for one person and not so good for someone else, and the right choice for you really depends on how the money move you’re considering fits in with your finances today and into the future.
The best way to assess your options and choose the best one for you is to map out the different options, looking at how they impact your finances - specifically your cashflow and how your assets/wealth levels grow over time. Then you need to consider the risks and trade offs of the different options, and choose the strategies that give you the best balance between financial results and risks.
For example, buying a good investment property will deliver a strong uplift in your wealth position into the future, but will typically reduce your spare cash from the need to fund mortgage payments. If your spare cash is strong over the years ahead, this may be a great option for you. But on the flip side, if you’re just about to start a family and expecting cash to be tight over the next few years, buying a property could be a total disaster.
If your situation is simple, you can probably map this out in a spreadsheet. If things are complex and you have more moving parts, consider getting some quality professional advice - it will likely pay for itself many times over.
Here I’m talking about the investments and products you use to back up your strategy, and success is that you get reliable, consistent progress over time and importantly that you avoid investing setbacks and momentum killing mistakes.
When you invest, it’s easy to fall into the trap of thinking you need to ‘shoot the lights out’ with every investment you make, but you don’t.
For example, if you were to invest just $5,000 in the next year, this money would grow to be worth $248,022 in 40 years time based on the long term Australian share market return of 9.8%. Calling out that this is based only on the average sharemarket return, which is something that’s easy for any investor to access through a market linked index fund - and it doesn’t rely on picking the next big company that takes off.
Most people don’t realise that when they’re investing looking for big returns, this comes with much higher risk. And as you can see from the figures above, you don’t need this risk to make serious money.
Instead, you want to choose quality investments that will grow for the long term, and invest consistently over time. This way you avoid the noise and hype, and can focus on sticking to your strategy consistently over time - which is where you’ll make the real money.
Everyone wants to be successful with money. We want it all, the epic lifestyle, being able to work the way we want, and being able to help the people and causes we care about. These things all come at a cost, and the downside of living in an amazing country like Australia is that these things don’t come cheap.
Particularly in the early stages of your money journey, getting to where you want to be can seem like an impossible undertaking. You doubt what’s possible, and question whether there’s some secret better way to tackle things. The noise online and from the people around you can lead you to fall into the trap of thinking there’s some secret pathway to money success.
This leads to doubt and uncertainty, which kills motivation and can lead to inertia and inaction. Ultimately you miss out on the opportunity to drive the progress you want, creating an opportunity cost that will compound for decades to come - don’t fall into this trap.
While there isn’t one money path that works for everyone, there is one right path for you. Focus on your structure, strategy, and solutions so you make the best moves for you at each stage of your money journey - your future self will thank you for it.
Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.