I’m in my 30s with no idea how to manage my finances. Where do I start?
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I’m in my 30s, and I’ve been working since my mid-20s. I’m currently single. My problem is that I have no idea where to start with my finances. I save a good chunk of my income, but other than that I don’t know what I’m supposed to be doing, and every time I try to figure it out I feel overwhelmed by the enormous amount of information out there. My family keeps telling me to buy a property, but I don’t know anything about real estate. Can you lay out simply what I should be doing?
You’re not alone in feeling overwhelmed about where to start. There’s a lot of conflicting advice out there, which can make it hard to figure out how to move forward. So, let’s break it down into some simple steps.
Ignoring your finances when you’re young can put you at a disadvantage later in life.Credit: Simon Letch
1. Get clarity on where your money is going. The first thing to get clear on is how much you spend and where you spend your money. Even if you save well, getting clear on where your money goes is important for planning purposes.
So, print out your bank and credit card statements for the last 3 months, and categorise your expenses into 10 to 15 categories (like food, entertainment, clothing). This will give you a good idea of what your monthly expenses are.
You can then start to ask questions like: am I happy with how I’m spending? Are there areas I’d like to cut back on or spend more on? Am I saving enough to meet my longer-term goals?
2. Review life insurances. This step is the most overlooked because it’s not very exciting. There are four main personal insurances in Australia – life, total and permanent disability, trauma, and income protection. Often these are provided through your superannuation fund, so it’s worth checking what insurance your super offers.
Your ability to earn an income is your most valuable asset.
These insurances are separate from private health insurance. While private health insurance may cover some of your medical expenses, it wouldn’t help fund any other costs that can come up with chronic illness, death or disability.
For example, private health insurance doesn’t help if you need to take a significant period of time off work (or if you can never work again), or if your partner has to take time off work. However, depending on the circumstances, one of the personal insurances could help here.
Your ability to earn an income is your most valuable asset. The goal over the long term is to invest in assets so that, at some point in the future, you can rely on your assets to fund your lifestyle. But that depends on you having an income to buy assets with.
3. Take control of your superannuation. Most people underestimate how important it is to take care of their superannuation from an early age. For many people, superannuation will be one of the biggest assets they ever own (outside their home), and it presents one of the best wealth-creation opportunities they have.
Part of the reason for this is that the government provides tax incentives for people to contribute to their superannuation. This means that the money that is invested into your super fund, is usually taxed at a lower rate than the money you might invest outside superannuation.
So, what does it mean to take control of your superannuation?
Firstly, you want to do some research to find out which fund to go with. The default fund you’re in right now may not be the best option. Secondly, you should research the different investment options within the fund to select one which is the right fit for you. Lastly, you want to understand the different types of contributions that you can make and their respective tax implications.
4. Explore investing options outside superannuation. The good thing about taking control of your superannuation first is that you’ll also learn about investing, because superannuation is just a fund that invests your money on your behalf.
So, hopefully, by the time you come to this step, you’re starting to understand the basics.
Contrary to what many people think, real estate is not really a beginner-friendly asset class. Firstly, there’s no way to start small, you have to put a lot of money into it upfront. Secondly, you usually buy a single property putting all your eggs in one basket.
That doesn’t mean you shouldn’t buy a property. But it’s good to know the different options available to you, so you can make a more considered decision.
Index funds and ETFs are comparatively a lot more beginner-friendly. Not only can you start small, you reduce your risk by getting exposure to a pool of companies, instead of a single one.
As you build your knowledge and confidence in investing, you can then start to branch out into different asset classes or investment products, based on your experience and interests.
Paridhi Jain is the founder of SkilledSmart, which helps adults learn to manage, save and invest their money through financial education courses and classes.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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