Calculators

In this section, you will be able to see the true cost of credit using the calculators provided. These calculators will make the interest you're paying seem more real and the give you the knowledge to see a way out of debt. By making the costs real, it will hopefully be another factor in enforcing the belief that you need to do something different and that you can do something different. As Bob from 'The Biggest Loser' said "I decided to stop trying to lose weight and do it" - this is a great change of mindset enabling him to go from not succeeding to seeing losing weight as the only acceptable outcome. The same can be true in getting your finances under control - stop trying to save (and making excuses for not doing so) and start doing, the outcomes and rewards will be very different. You will learn here:

• How credit card debts spiral out of control and how "minimum payments" benefit the lender, not you.
• How making additional payments makes a huge difference in the time taken to pay down a debt (and reduces the total interest bill astonishingly).
• How to avoid the common mistakes when consolidating personal debts into your mortgage.

Calculators - Credit Cards

Credit cards are one of the most convenient ways of paying for everyday items, yet they have quickly become one of the most problematic financial devices for many people. The ready availability of large credit limits and the relatively low 'minimum payments' have lured people into large levels of debt at high interest rates. A card that is paid off in full every month is a useful tool and a good monitor of your spending. If you cannot pay it off then you should really consider whether you'd actually be better off without a card.

Think of the real cost when using your card, impulse buying at sales and then paying high interest rates (typically 15-20% pa) on those items is not worth it. Remember when the credit card issuer offers you a higher credit limit that all they're trying to do is earn more interest from you in unpaid balances, they're not doing you any favours.

Prepare yourself for a shock! Suppose you have an outstanding credit card balance of $5000 (this is less than the Australian average balance, by the way) on a card with an annual interest rate of 18% (this is a fairly typical rate, even though the base interest rate is currently very low, and reflects the higher risk attributed to credit card repayments). On your statement, there will be a phrase like "your minimum payment will be 2% of the balance or $10, whichever is higher" and it is often the case that, unless you specify otherwise, the card issuer will only take the minimum payment each month. So, how long do you think it will take to pay down the $5000 if you stick with the minimum payment (the maximum of 2% or $10) each month (and also do not add any further spending onto the balance)? A couple of years maybe? Five years? Not quite - it would take over 46 years, with a total interest bill of almost $14000!

The calculator below lets you do the numbers for yourself - based on your credit card balance, its current interest rate and the minimum payment amount. Enter these values into the fields on the left and press the "Calculate" button to see the total amount of interest you will pay and how long it will take to reduce your balance to zero. You can use the calculator in a number of ways:

• To work out how long it will take you to pay off a balance using the minimum payment method (preferred by your credit card issuer!).
• To work out the reduction in the amount of time (and interest) to pay down your balance by paying off more than the minimum amount each month - to do this, enter the amount you can afford to pay every month into the "Minimum payment ($)" field and see how this affects the time to repay the balance. In the scary example above, paying $100 per month off (instead of the 2% or $10 minimum) reduces the time from 46 years to under 8 years (and reduces the interest bill down from $14000 to about $4000)!

Balance:	$				Interest charges ($):
Annual interest rate:	%				Number of monthly payments:
Minimum payment:	%				Number of years:
Minimum payment:	$

Budgeting - The Basics

Let me ask you - why do you think you should create a budget? Think about it for a moment. Some excellent reasons are:

• So that you can clearly see where your money is going - this probably sounds obvious, but do you really know where all of your weekly/monthly spending actually goes? I can guarantee that after creating your budget, you will find surprises!
• So that you can see where money is being wasted - without a budget (and hence not knowing where your spending is really going), you can't identify where money is being wasted or could be put to other, better uses.
• So that you can think about financial planning - it's hard to plan if you have no facts to base the plan on, so a budget (even a very simple one) gives you a basis to build a plan for your financial future.

Create your first budget

The first step is to create a simple budget based on your current income and expenses. Try using a simple method of recording this information to start with (otherwise, if it's over-complicated, you'll be more likely to give up on it or use complication as an excuse to give up), maybe just a basic Excel spreadsheet (see the Example section for some simple starting points). You must truthfully review your current situation, you're only hurting yourself by under/overestimating the real picture.

Start with a very simple budget

Make sure you remember to include all of your 'income', so don't forget any bonuses, tax refunds, interest, dividends and so on. Hopefully by the time you've created your first budget you can answer that most important question - "am I spending more than I earn?" (i.e. do my expenses exceed my income?)

Use the budget

With a budget in place, you're in a position to review your spending. Split your expenses between essential and luxury items and decide what you can do without from both lists (are all the 'essentials' really essential?). Eliminate the expenses that are not required by making adjustments slowly but regularly. Update the budget every week or month to see how you're decisions are affecting your bottom line. For the essential items, it's worth reviewing whether you can reduce those expenses by getting better deals - common 'essentials' that are worth researching for better deals include:

• Mortgages - if you're a homeowner paying off a mortgage, then one of your biggest expenses is likely to be interest on that mortgage. So, review your mortgage to make sure it's at a competitive interest rate and doesn't burden you with unnecessary fees. Often all it takes is a call to your bank to say you're thinking of moving to another lender for them to offer you a reduction in rate or removal of monthly fees.
• Phones - most people are on a phone plan that is not optimal for their needs, so use one of the online phone plan comparison sites to make sure you're getting the best deal based on your typical call patterns. (Be careful of exit costs from your current plan, but sometimes they're worth paying if you can secure a much better ongoing deal elsewhere.) This applies to both landline and mobile phones, as well as internet access!
• Utilities - shop around for other gas/electricity providers, you might get a cash bonus and/or reduced rates by moving to a new company, but always be careful of terms and conditions (especially signing long contracts).
• Insurance - never pay your renewal until you've asked the insurance company whether they can do a better price. Savings of 10% from a short phone call are common, not a bad return on your time when you add up how much you spend on various insurance products over a year (house contents, buildings, cars, life insurance, etc.).

Review outgoings to make sure you're getting the best deals on the everyday essentials

Hopefully by now there is some money left over every week/month after covering all expenses out of your income.

Cut your expenses until your income exceeds your expenses!

With surplus funds every week/month, you are now in a position to improve your financial future, by being able to save rather than spend. Some ideas for getting started include:

• If you have outstanding debt, use some of your surplus to reduce it as quickly as you can. Always pay down the debt with the highest interest rate first (maybe a credit card balance or a personal/car loan), but repaying extra on your mortgage is also fantastic saving. To illustrate this, imagine your mortgage is at an interest rate of 7% - to beat this, any investment you make using your surplus needs to make at least 10% to do better (since you need to pay tax on any interest or capital gains you make) and very few low risk investments will achieve this.
• When you get paid, automatically transfer a certain amount to a saving/investment account. You know how much you can afford to save thanks to the budget you have, so make the effort to save regularly and watch your savings grow quickly over time thanks to the power of compounding.

One last thing that should always be part of your budget is some amount set aside for charitable donations. Don't say you can't afford to donate anything, because it's not true. That single coffee bought every day for a month would easily cover a child sponsorship through World Vision for example. Giving is more rewarding than receiving and there are always those worse off than yourself. Even the tax man will reward you for it as all charitable donations (of over $2 to registered charities) are tax deductible!

Start planning

With a budget in place, you can plan for the future based on that budget. Now is probably a good time to speak to a financial planner. Don't make the mistake of only thinking planners are for the rich, as most people will benefit from good advice and the cost of that advice is likely to be much lower than the benefits you will receive. A financial planner will be able to offer you options to save on tax, make the most of your investments and suggest longer term plans to achieve your financial goals. The planner will benefit greatly from the work you've already put into your budget and you should also be prepared to let them know any current saving plans you have as well as what your ultimate financial goals are (e.g. retire by 55, own a holiday house, be debt-free by 45, etc.).

Explore the benefits of using a financial planner

When planning, it's important to be realistic but also to have an attainable dream, whatever that might be for you. Think both short and long term and remember to enjoy the fruits of your labours. Plans for the next 3-6 months will help you focus on the near term, with longer term plans (say, 5 years) being useful for the bigger picture ideals (such as a new house, major holiday or other lifestyle change). Having attainable goals will help you stick to your budget and other financial plans as there is some sort of reward coming if you do do. Of course, there will be times when you stray from the plan as not everything is foreseen - but learn to take the setbacks in your stride, remember the long term goal and adjust to get back on track.

Summary

Create a simple budget Review your spending to identify savings Pay off debts for good Save and invest Have short & long term goals (and reward yourself along the way)

Budgeting

For most of us, the idea of spending time working out a budget doesn't sound very exciting - but it's time that will probably be rewarded more than any other time you will spend on financial matters. Even a very simple budget can help you see where your money is going, so that you can see where it's being wasted and where spending can be reduced. Armed with the knowledge the budget provides, you can then form realistic financial plans around that budget to help you move forward.

In this section of the site, you will learn:

• Why you must have a budget and how it can help you
• How having a budget can help you make financial plans
• How to create a simple budget

Saving - The Power of Compounding

We all learned about "compound interest" at school and it sounded so simple - and maybe that’s the problem, it was too simple and we never bothered putting this simple practice to work. There are always reasons not to save but really they are just excuses and saving can be made easy if you want it to.

The following story sounds unbelievable, but is actually true. A young guy leaves school at 17 to undertake an apprenticeship. He figures he can save $100 a week from his pay and is very regimented in always putting this away. He has decided to put it into a managed fund that can be added to on a monthly basis (so he is not tempted to touch the money). He also decides to take the distributions from the fund as units rather than cash (building his holding and earning income on his distributions). Over the next 10 years, he sticks to his saving plan and the fund achieves a return of 8% - his balance then stands at almost $80,000. As he approaches 30, his income has increased but so have his outgoings as he has bought a house and started a family, but he decides to stick with his simple "$100 per week" saving plan.

His friend goes to uni and is 27 before he decides he is in a position to start saving. He starts off in a well-paid job and has few outgoings, so decides to stash away $300 a week into an online savings account. He manages to stick to this high level of saving for 10 years, with his savings account paying 8% pa - at age 37, he checks his balance and it sits at a very impressive $239,000.

Now, back to our $100 a week saver - he also checks his balance at age 37 (after his fund maintains its 8% pa return) and he now holds $257,000. By starting early and maintaining his level of saving, the $100 per week chap stays ahead of the high saver who starts just ten years later. This is the power of compounding, making money on both the money you put in and also the interest you earn along the way.

Saving $100 per week for 20 years at an interest rate of 8% yields you over a quarter of a million dollars!

The above illustrates that it's not how much you earn, but what you do with what you earn. There are a lot of people out there earning well above the average wage, but they have the expensive lifestyle to go with it and believe the money will always be there. They may have the luxurious house but in some cases also the huge mortgage and the money earned gets spent on interest bills to maintain their wonderful lifestyle. So don't envy others as you don't know their true position. You've heard the stories of the person earning below average wages but being money smart and making the most of the money they do earn by saving and then investing to have their money work for them.

Summary

Slow and steady wins the saving race, thanks to compounding Start early - saving a small amount earlier always pays off compared to trying to make up time later

Saving - Teach The Children

Kids pick up your patterns, they observe the way their parents are with money and, as with anything else, it just becomes natural for them to do the same. Teaching children about the value of money will help them as young adults and stay with them throughout their lives.

A lot of people will not discuss the subject of money. I find this amazing, I think it's important to talk about money especially around kids, otherwise where else do they learn it from? Money isn't everything but you can't survive without it so it's an extremelly important part of your child’s future and you would like them to be able to cope knowing they are financially savy. Make money matters a family exercise - kids are pretty intelligent creatures and this could be one of life's most beneficial exercises. We place so little importance on teaching kids - even grown-up kids - about money and then send them off to work with no real sense of the value of money. In effect, this is one of the things that has the highest impact on their life and the way they are able to lead it. Why is it the subject is taboo? Let your kids learn from you, teach them the value of the dollar, teach them the benefits of saving and teach them what spending is really about. Talk to them about your mistakes and ways that can enable them to be financially secure rather than bankrupt.

Make earning pocket money a valuable learning experience that will set them up for life - buying their own things that they so desperately need. When they have to buy for themselves or contribute to these 'essential' things, it's amazing how quickly they revalue what is important. Encourage them to put a portion of their pocket money into a savings account - the benefit of saving can even be encouraged by having a system of what they save, you will match.

Another great idea is to have children learn about donating. If they learn this as children this will help to turn them into very compassionate adults.

Ridi's parents have decided to match her bank account balance as a reward for saving, so she is encouraged to save by knowing her efforts will be rewarded.

Xavier, after always wanting things while shopping with his mum, has been given pocket money and he now has to consider what to spend it on. He quickly discovers that it's not so important to have those little things that he once thought so important.

Darcy wanted a bike worth $400 so his parents decided that if he saved half the money, then they would contribute the remainder. This would give him a reason to save and teach him a valuable lesson by achieving a goal.

Summary

Make money fun Set your children up for life with money sense

Saving - Motivations

Have a reason to stop excessive spending. Aim to save, start small and see the benefits of paying off personal debt then start putting money away from each pay packet. It really is amazing how quickly it adds up. By starting small and working towards it, you'll feel like you're achieving something and will be motivated to continue!

Do a review of your spending and your loans. Once you honestly look at these and acknowledge the true cost of your purchases and the interest you're paying for the privilege of having these items before you can actually afford them. Decide to pay these debts down, knowing that the money that was going to the banks in interest can now be going into your savings account for your own benefit.

Save!

You can't change the past but you can change your future. So what better time than now to start planning your future? You will need to make changes but by having a plan and seeing the reason for the changes, it should enable you to change your present path to the one you want to travel on. Stay motivated and believe you can save your way out of trouble!

By starting a shopping diary, you will soon find it interesting when you have your purchases recorded how quickly your money dissappears without you even realising it. Monitor your spending in this way for a couple of weeks, then look back and review if the purchases were really required, Look back in a couple of months and be in for even more of a shock - and will make you think more in the future about buying things you once believed you really required. Then try not spending for an entire week except the essentials like food (do this in one trip) and you'll see how accustomed you've become to just wandering through shops - buying things along the way that you never really needed.

Summary

Reward yourself along the way Be positive and believe in your future

Saving

There are no "miracle cures" - no get rich quick schemes. Like anything else, saving requires hard work but if you are committed it is possible to achieve the desired results. Following sensible advice will ensure you reach your goals with the risk/reward tolerance you're comfortable with. It's the old tortoise and hare story, slow and steady wins the race. Save and slowly but surely you’ll accumulate more wealth than you imagined possible.

In this section, you will learn:

• Why people ignore the importance of saving.
• The amazing benefits you will get from saving.
• Why it's so important to instill the idea of saving in your children.
• How to organise your shopping to minimize spending and maximize saving.
• How to save on the everyday basics, such as household cleaning products, transport, and eating out.

Common Mistakes - Spending More Than You Earn

Spending all you earn plus more will always lead to trouble, no matter which way you look at it. You have to turn your current spending habits around, it sounds logical but not exactly the easiest thing to achieve in such a materialistic world.

To achieve this, you need to have a reason to save rather than spend. If you can't see what you're going to get out of it then you're less likely be motivated to change your ways from spending to saving. Look at why you spend and where you spend, the benefits of changing this should outweigh your current spending patterns. The money currently going on interest should be a huge incentive to spend less than you earn, goods are costing you more than they should and that money could go back into your pocket. It's time to review your current spending patterns and then aim to save. Start cutting back in small ways, making small easily achievable targets enabling you to stick with it and not be disheartened. Once you have started saving you can then see how simple it is and that it doesn't have to be difficult to achieve big results. Once you've started saving, you can then find other ways to alter your current spending, thus enabling more savings.

If you need to see a benefit in paying off credit cards in full, remember that what you were paying in interest could be your bonus spending or saving money. Start putting money away from each pay, it's amazing how quickly it adds up. Have an aim (maybe a family holiday), start small and work towards it, then you'll feel like you're achieving something and will be motivated to continue.

Don't try to live someone else's lifestyle, you don't know their situation. Know your position and live within it, you'll eliminate added stresses from trying to live beyond your means. "Keeping up with the Jones's" may well result in you owing just as much as they do! By saving you'll establish a solid foundation that will set you up for life. Have you ever heard the saying "save for a rainy day" - well it makes sense now as well as then. Saving now, enabling your future to be brighter and you'll be rewarded for the things gone without in the past. Credit is not a good way to live, buy things knowing you can afford them. Why would you want to be paying something off way after you've stopped using it (already relegated to the cupboard)?

A lot of fun can be had for free or for a little cost - picnic, riding the bike, going to the beach, climbing mountains, walking, joining the library. Seek alternatives to spending the weekend at the shopping centre as it's really not a great hobby. It's a hard habit to break but boy it's worth it, as you can then enjoy doing other things on the weekend. There's a lot to be said for the so-called "simple pleasures" in life.

When shopping, prepare a list for grocery shopping - buy in season or sale items but only what you require. Shop at your local fruit and veg shop or market, often a lot cheaper and fresher produce - and the personal service you receive is a great reward. Monitor what you waste every week and adjust your list to avoid wastage, helps your wallet and the planet. Remember when you shop at the supermarket, it is only a convenience thing and not always cheaper but that's the benefit - it's a one stop shop and it may suit your needs. Remember that Coles and Woolworths are two of the most profitable companies in Australia. Try different supermarkets as prices can vary greatly - sometimes it might be worth checking out items in a place such as NQR or Aldi to add to your cupboard. There are a lot more players in the supermarket game now, so don't be afraid of trying somewhere new.

For larger items, do your research first (maybe online) so you know what you want and the price you'll need to pay and don't be afraid to ask for a discount. Clothes can often vary in price greatly, it's important to take pride in your appearance but unless you're earning an enormous disposable income surely you can't justify spending hundreds of dollars on just one article of clothing? Buy a few essentials and add to them.

Do you monitor your current spending habits? Try a diary!

Time for you to review your current spending habits. Ready?

Before joining anything, think about the benefits - do you really require it, are you committed, will you use it, what does the company get out of it compared to you, who is the real winner? Break down your spending into essential and luxury items, then you need to cut out the luxury until you're in the position to afford these. Essential items can also be reviewed for cheaper alternatives or better deals from the supplier.

A lot of things cost you money promising unrealistic results - do you have the ability if you put your mind to it to achieve the same results without joining, is it worth the money or does the subscription just offer common sense details that if you really thought about it you already know? Can you achieve the desired results yourself? - if not do your research and join what suits your personality, make sure you'll use it. Spending less requires changes and there is no magic cure, so if you join something don't expect immediate results without work by you. As in looking after your health - you should eat well mainly fruit and veg - so therefore cut out too much junk food - exercise = fit and healthly but the amount spent on diet areas is mind-boggling - can I achieve the desired results by myself without joining a club? We often know the right things to do but doing it requires us to really want to! Sometimes it pays to be part of a group on the same mission but as with anything you are in control and have to want to achieve the required results and be prepared to do the hard work, same as with finances. Nothing changes if you continue on the same path.

Avoid get rich quick schemes - if it sounds to good to be true, it probably is. If you are going to join an expensive programme ensure you are committed otherwise you are just throwing money out the window and helping fund someone else's lifestyle.

If you spend all you earn plus more, this is going to cause more debt and more stress than you probably envisage. Is it worth working so hard to have all your hard-earned cash go directly to paying off purchases that you've since forgotten about, is the interest you're paying worth the joy you're getting from the products? Think about the interest, wouldn't you rather buy what you could afford rather than the bank taking a huge chunk for their own profits, wouldn't you rather have that money growing in your bank for a nice purchase for yourself?

To spend less than you earn - this is a key lesson to breaking the credit trap. When buying a car, do you need the most up to date model? If you buy a reliable car at a reasonable price, you can save the funds first then pay cash, this will save you a lot of money in the long run, it might be a pain waiting for it but it will take the pain from the other end!

Summary

Start saving now, it's surprising how quickly it can add up Save first, then live on the remainder Pay cash

Common Mistakes - Debt Consolidation

Should I consolidate all my existing debts into my current mortgage?

Think carefully before rolling all your personal loans into your mortgage. Adding to your mortgage and then forgetting about it (because the interest rate is low) and taking 25 years to pay it off will actually cost you much much more. If you need evidence of this, visit the Calculator page about debt consolidation. There is also the temptation to spend again because it now appears you don't have any personal debt - it's on the mortgage but it's still debt to be repaid. People often think differently about their mortgage.

A different approach is to put all personal debt into one loan, then with this all in one central place aim to pay that off quickly as possible. Then cut up credit cards. Don't fall into the same trap again. By still having the debt but in one place and committed to paying it off you will see the benefits of your hard work in reducing the loan and with your new mindset will think carefully in future before taking on new credit. It's not a set and forget solution.

Once out of debt, break the cycle and don't fall back into old habits. If banks offer you credit cards, say no - you are in control of your destiny so stop blaming others and fix the situation for good.

Don't ever take money from your home loan for luxury items however tempting it may be, ensure you keep your home loan for what it is intended.

Now you have one consolidated loan seperate from your home loan, your priority should be to pay this off as quickly as possible. Pay at least the minimum amount due each month ensuring the loan doesn't increase in size and then slowly make adjustments in other areas so you can free up funds to pay more than the monthly minimum therefore reducing the balance more quickly.

Summary

Work out the real cost before rolling all debt into your mortgage Consolidate all personal debt, aim to pay it off and don't put yourself into that situation again

Common Mistakes - Sales

Do you love sales? Are you addicted to buying bargains? Do you buy, buy, buy and then work out how much you've 'saved'?

Isn't it interesting that $200 'saved' feels good until you realise you didn't really want any of the goods purchased - ummm, saved nothing and spent way too much!

Remember that sales are just a marketing ploy. Companies are smart at enticing consumers to buy their products. If you really need something then it's the best time to shop for bargains galore, but if you're just buying because it's on sale have you really saved or has the shop conned you out of money you wouldn't have otherwise spent?

Be prepared to be tempted and have the will-power to stay on the mission for only the goods you require. Don't get sucked into buying more than you need - remember that's money from your pocket into someone else's. If you can't resist the temptation avoid sales like the plague.

Stop receiving junk mail - help yourself and the environment!

Advertisers try to encourage you with certain specials in an attempt to have you spend, spend, spend. By stopping pamphlets being delivered to your letterbox, you are elimating one source of temptation and you are also helping the environment - less paper to be thrown away (and also how often do you see these pamphlets blowing around the streets, not a nice sight for the neighbourhood). When you want something most catalogues are available online (e.g. Lasoo.com.au) and you can then look with a specific item in mind.

If you need something these days, there are constantly sales around so yes - this is the time to shop. Don't fall into the trap of buying something because it's on sale - you haven't actually saved anything if you've spent money on something you didn't require.

If you are paying on credit, be careful as you may not actually be saving. Avoid sales/shopping if you can't control your spending. When shopping always think of what you want or require because the shops have techniques of enticing you to spend - remember they need to make money from people buying (living a nice lifestyle thanks to you!). If you see something you like, go home and think about it - if you still really want it, go back the next day and buy it. This is a great habit to get into as often you can change your mind and don't end up with impulse purchases. Get out of the habit of going shopping for fun, it's not a great hobby.

Always make a list in your head or on paper of what you actually need to buy, stick to a budget on all purchases and learn to window shop - look but don't buy, you get to enjoy looking and it won't cost you a cent!

There is nothing wrong with spending but not to the extreme, buy with thought. Keep track of your spending, often an eye-opener to how much money you really are spending as all those small amounts quickly add up.

Summary

Don't fall into the sales trap Keep track of your spending

Common Mistakes

We're all human and we all make mistakes. Ironically, one of the most critical areas of our lives - our finances - is one of those areas in which we continue to make the same (expensive) mistakes over and over again. These include:

• Not believing you are capable of changing your current financial situation
• Not having a financial plan
• Not being fully aware of where your money is going (i.e. not budgeting)
• Living the good life - but unfortunately on credit
• Wanting to be an investor but never having the courage to take the first step
• Living for today with no thought of tomorrow
• Focusing on the negatives in your life rather than the positives
• Accepting your situation and not looking for a way out

By reading the advice in this section of the site, hopefully you'll learn some ways to help you avoid making the most common mistakes.