Money and Life
(Financial Planning Association of Australia)

What's holding you back from taking control of your financial future? Discover the five mind tricks that can stop you from achieving financial success and what you can do to avoid them.

Fear of failure

Earning and saving money from your salary is all very well. But setting up an alternative income stream from an investment portfolio can help you make the most of your personal wealth potential. So what is it that holds people back from taking their first steps into investing? According to recent surveys, 70% of millenials would rather keep their savings in cash1 instead of investing it and getting the benefit of compound interest. And one of the main reasons for their reluctance is their fear of losing what little money they have.

Fear is certainly one of the biggest reasons for avoiding the risks, large or small, that come with investing money. And no-one has a magic wand to eliminate these risks altogether. But with advice from a professional who understands your financial circumstances and goals, you can get off to a successful start in investing that builds your confidence as well as your wealth.

Waiting for wealth

It's all too easy to just wait for someone else to sort out your financial future. You might keep saying that you'll start building your savings and wealth when that golden goose lays its egg for you. And that egg you're counting on whether it's a higher salary, bonus or redundancy payout for your employer or a gift or inheritance from your family may never arrive.

If this is the fairy story you've been telling yourself, it's time to rewrite it with yourself as the hero. By sticking to a budget, coming up with your most important goals and creating a financial plan to help you reach them, you'll soon become your very own golden goose.

The high price of inertia

We're all busy people and we all have a comfort zone. And that's why inertia can so often stand in the way of spending less and saving more. In fact, inertia is seen as such a big problem for personal financial security in the UK that a new Institute of Inertia has been established at the University of Sheffield to study behaviour that's estimated to cost the nation £7.6 billion2.

Inertia can mean spending more than you need to on your energy or grocery bills. It could also be stopping you from tracking down lost super and/or bringing together all your super savings in a single fund to save on fees. Or it could mean sticking with the same mortgage when you could be saving thousands in interest by switching. Whatever it is that you're not getting around to doing to save money, having a financial coach personal or professional can keep you accountable in taking small steps towards big savings.

The lifestyle inflation trap

The "earn more, spend more" phenomenon has been dubbed "lifestyle inflation" and it's something that can really get in the way of preparing for a better financial future. The dangers of behaviour that comes from lifestyle inflation are twofold. The first is what's known as the Diderot effect3. This happens when you buy something new, stylish and beautiful and it makes all your other stuff seem shabby and old. So you start to replace everything else as well.

The second issue is your new level of wealth can't last forever. Even if you keep earning more a time is going to come when you'll stop. We call it retirement and if you're not saving and planning for it, the fall in your spending and standard of living is going to be very steep indeed. So if you're finding it hard to save even when you're earning more, try looking into the future and imagining how much you'll be enjoying life when you have to budget carefully to pay for food and other essentials, let alone buy anything new.

Winging it won't work

Leaving your finances to chance won't bring you the peace of mind that comes with prosperity. Having the money to back future choices for your career, family and lifestyle isn't going to happen by accident. People who make it look easy have probably put in quite a lot of time and effort to ensure they're in a good place financially.

If you're naturally a happy go lucky kind of person you're probably well-liked for your carefree generosity. Especially when you're the first among your friends to open your wallet and pay the lion's share of the bar or restaurant bill. Sticking to a budget doesn't have to mean being stingy. It's more a case of picking and choosing your generous moments so you can still cover your day-to-day expenses and put some of your money towards providing for your future.

Whatever obstacle you're trying to overcome on the path to financial success, a CERTIFIED FINANCIAL PLANNER® professional can offer valuable advice on making changes to get you in control of your finances.

For more tips and tricks on how to manage your money, avoid mistakes that can derail your financial future, and secure your financial freedom, download our free eBook.

Footnotes

1. Nerdwallet, "Fear keeps millenials on investing sidelines", Brad Sherman, 2 August 2016,https://www.nerdwallet.com/blog/investing/millennials-fear-investing/?trk=nw-wire_305_283020_24452
2. The University of Sheffield, "Britain's psychological inertia contributes to 'financial hardship'", 23 September 2015, https://www.sheffield.ac.uk/news/nr/psychological-inertia-contributes-to-financial-hardship-1.510235
3. Lifehacker, "The 'Diderot Effect' Turns You Into A Weak, Mindless Consumer," Kristin Wong, 16 September 2015, https://www.lifehacker.com.au/2015/09/the-diderot-effect-turns-you-into-a-weak-mindless-consumer/

Money and Life
(Financial Planning Association of Australia)

Want to boost your financial wellbeing without giving up completely on being spontaneous?  Get on top of your finances and enjoy life more at the same time with our five step guide to living in the moment while saving for the future.

Don't be a slave to your savings

Mastering money starts with a budget and there's no doubt that feeling in control of your money is linked to your overall wellbeing. But you might be reluctant to set a budget when it makes you feel like all your money is spoken for. Life can seem very limited if you've already decided on the exact destination for each and every dollar.

So instead of becoming a slave to saving for the future, here's a five-step approach that keeps your options open for doing some spontaneous spending once in a while, without losing out on your future financial stability as a result.

1. Get cash flow savvy

Figuring out just where your money is going right now night seem like a hassle. But it's absolutely necessary if you're going to achieve your goal of saving and also spending a little just for the sake of it. Understanding your spending habits and patterns can shed some light on where you're spending more than you need to, so you can start to make better choices with your dollars in step 2.

Doing this weekly makes it much easier to take control of cash flow. A week of overspending can be balanced out quickly in the following week simply by making a few small sacrifices.

2. Budget based on what matters

Now it's crunch time for making good on those cash flow lessons you've been learning. By looking at where your money has been going, you've got the knowledge you need to stop spending on things that are less important. This frees up more dollars for your savings and what you really value.

Let's take dining out for example. If you have your heart set on an overseas holiday once a year, ask yourself if weekly restaurant meals are as important?  By cooking at home for three out of every four Saturdays and saving that money towards travel instead, you're directing your budget towards what matters to you.

3. Limit fixed commitments

Having more to spend in the present also depends on limiting how much of your income is already spoken for. Mortgage and loan repayments, utility bills, insurance premiums, memberships and subscriptions are all regular payments that can add up to a big chunk of your outgoings. While some of these are essential, avoiding buying things on credit or using a loan can reduce your ongoing costs and free up money to save towards your goals or spend spontaneously.

4. Automate your savings

Whether it's saving for a new car so you won't have that long-term commitment to paying off a loan plus interest a holiday, or just a rainy day, setting up separate accounts for these goals helps you see that you're making progress. And making automatic deposits from your income into these accounts is the ideal way to ensure you're making regular contributions towards your goals.

5. Plan to spend spontaneously

As these savings balances start to grow, it can bring a sense of freedom in your current and future spending choices. Knowing your goals are getting closer allows you to spend money freely and still be financially responsible for your future. And if you want to look forward to a guilt-free splurge, think about dedicating one of your savings accounts to spontaneity. With a pot of cash on hand to spend at will, you can enjoy 'live in the moment' experiences now and again without your future goals or cash flow taking a hit.

(Australian Associated Press)

Small businesses will get an extra tax break with the Morrison government again extending the instant asset write-off to mid-2020.

The tax break will also be lifted immediately to cover assets worth up to $25,000, up from $20,000, Prime Minister Scott Morrison announced on Tuesday.

"Businesses who go out and invest today, whether it's a vehicle, whether it's a piece of plant or equipment, all of it, up to $25,000 immediate write down," he told an audience in Brisbane.

"We are so serious about small and family businesses and we have put our money where our mouth is."

This is the third year-long extension to the measure, which was set to finish at the end of the current financial year.

It allows firms with a turnover of up to $10 million a year to instantly claim tax deductions on all equipment purchases worth less than $25,000.

Mr Morrison said it would mean more than three million eligible small and family businesses could keep $750 million of their own money and reinvest it in their business and support the jobs and wages of their 5.7 million employees.

The change needs legislation, which the government intends to pass once parliament returns in February.

The small business ombudsman has previously urged politicians to boost the tax break to $100,000, saying the $20,000 level was too low for capital-intensive businesses like farms.

Last March, Labor announced it would make the tax break permanent if elected.

"The extension of the instant asset write-off announced today is welcome but goes nowhere near Labor's Investment Guarantee, which is available for all investments over $20,000," shadow treasurer Chris Bowen said.

Your home may be looking minimal and serene in 2019 thanks to author and TV host Marie Kondo. But could your finances do with some decluttering too? Find out how to go about it with our guide to simplifying your budget, bank accounts, super and debts.

Ready to discover the life changing magic of simplifying your money management? Taking the lead from minimalism guru Marie Kondo, we bring you a step-by-step guide to applying decluttering principles to your finances.

Less really is more

Of course, we're not talking about giving all your money away to make life simpler. But simplifying your finances will almost certainly make it easier to stay on top of money matters. When you're dealing with too many bank accounts, bill payments, super balances and debts, you're far more likely to lose track of what's going on with your money. And that means things can fall through the cracks, which leads to missed opportunities as well as long-term problems.

So paring back your finances is the first step to feeling capable and in control. And once you've simplified things, it's that much easier to keep money matters organised, through automation and regular monitoring.

1. Budgeting based on your values

Just as Marie Kondo lays down the challenge to only keep things that bring you joy, it's just as important to prioritise things we value when spending money in the first place. Understanding what you value most, and then taking a good look at where your money is actually going can be a powerful way to shift your spending habits.

This is something John Purl, Senior Financial Adviser for Affinitas Capital has found to be true for his clients. "You'll struggle to get anyone to stick to a cash flow, budget or savings plan, if it does not align with their true values," he says. "The values conversation has the greatest impact on motivation to make changes."

Hear more from John on how to worry less about money

2. How many bank accounts?

Although it can help to have different bank accounts for savings goals, and another to make sure all your regular expenses are covered, keep multiple accounts to a minimum to save time and effort. Monitoring balances, interest and outgoings for so many accounts just makes things complicated.

Having four separate accounts should be enough for you to manage income and expenses with ease and keep everything simple and smooth with your cash flow and savings. The majority of your money will go into the household account for everyday expenses, with two savings accounts, one for short term goals, like saving for a holiday, and another for your financial future. Funds from this third account might go towards a rainy day fund, your super or some other type of investment. And having a fourth account where you can channel about 10% of your monthly income to spend on yourself, guilt-free will allow you to save for the future without missing out on enjoying yourself, here and now.

Read more about budgeting and saving on Money & Life

3. Simplify your super

Over a lifetime your super balance has the potential to become one of your biggest financial assets. So making sure you're receiving all the super contributions you're entitled to and knowing where they are is an important part of financial housekeeping. It's not unusual to lose track of super if you've changed jobs or moved house a few times. The MyGov portal and ATO offer a free service to help you find lost super.

The fund you're with now can also help you track down super balances held in your name and consolidate them into a single fund. Not only will consolidating super give you fewer funds and statements to keep track of, it can also save you a fair amount in fees. Before you decide to close any of your existing accounts, it's important to check whether you'll still have the right level of insurance cover as you'll often have personal insurance policies such as life or income protection insurance arranged and paid for through each super fund.

Find out more about making the most of your super with the right type of fund and investments

4. Do away with debt

Clearing multiple personal debts once and for all can seem like an impossible task. As you struggle to get back to zero, temptation can creep in to just borrow more and become resigned to debt as a permanent part of your financial situation. One option is to consolidate your personal borrowing into a single repayment to make it easier to chip away at the outstanding balance. Your mortgage provider may be able to refinance your home loan so you can bundle debt repayments with your mortgage and benefit from a lower rate of interest as a result.

But if you don't have a mortgage or you're looking for a simple way to pay down personal debts faster, Peter Foley CFP® and Director of Thirdview suggests trying one of two tried-and-tested approaches. "The avalanche method is probably better known and involves paying as much as you can towards the debt with the highest interest first," he says. "The thinking here is that you're saving yourself more in interest. Then you have the snowball method which prioritises debts in order of size, putting more of your repayment budget towards the smallest balance first. When this debt is settled, you can redirect more of your cash flow to the next smallest so you build up momentum and that's where the snowball effect comes in. The satisfaction and sense of achievement you'll get from having one less debt to deal can also give you the motivation you need to keep going on your mission to get completely debt-free."

Hear more about the pros and cons of different ways to manage debt

Looking for more advice on keeping your finances spick and span? Read our 5 tips for getting on top of financial housekeeping.

When it comes to spending money, your brain has a whole A to Z of biases steering you towards splashing out instead of sticking to your budget. Find out how these mind habits work and learn hacks to help you get the better of them.

Anchoring bias

Your brain has an extraordinary knack for grabbing on to information and making assumptions on this limited knowledge. It's a great time-saver, but doesn't serve you well when it comes to deciding how much to spend, whether it's a kettle or a wedding dress. Anchoring bias is the all-too-human habit of pouncing on the first price you see and using it as a yardstick for what you should be paying. And this can lead you to get comfortable with the idea of paying more than you need to or can afford.

Doing research is by far the best way to overcome anchoring bias. Having a range of prices in front of you can help you get the best value for money. If you're buying a second-hand car for example, don't snap up the first one you see without comparing lots of others available with the same year, make and model.

Bandwagon effect

Humans are social animals and that means we want to fit in. When making buying choices, it's not unusual to look to those around us for cues on what to buy and how much to spend. So when you're in the market for that second hand car and discover others are getting a loan to buy brand new wheels, you might be tempted to do the same.

Again, it's doing your homework that's going to help you talk yourself out of jumping on the bandwagon with spending more on your car, mobile phone plan, holiday or any other purchases your peers are enthusiastic about. Getting to know all your options and weighing them up to determine what works best for you is an important part of make buying choices you won't regret later.

Choice-supportive bias

Buyer regret is something everyone gets a taste of now and then. Like the designer couch that's actually really uncomfortable or the state-of the-art kitchen appliance that's so hard to clean it never gets used. Thanks to choice-supportive bias (also known as post-purchase rationalisation, or 'buyer's Stockholm syndrome') you let yourself off the hook for your mistake and miss out on a learning opportunity.

Humans hate being in the wrong so much we'd rather convince ourselves we made a good decision and seek evidence to support this view. And this can lead to similar mistakes in the future where you fall for special features or a slick design instead of seeking out something that's good value and better suits your needs and budget. By treating every purchase you make as a new opportunity to choose wisely, you can consciously avoid any rose-tinted view of your previous retail blunders.

Framing bias

A close cousin to anchoring bias, framing bias helps sales staff the world over upsell their customers to a more expensive product. By presenting you with three or more products ranging in price from low to high, they're carefully guiding you towards choosing a mid-priced option that could, in fact, be relatively expensive.

Writer and broadcaster Claudia Hammond describes the solution perfectly in her book Mind Over Money: The Psychology of Money and How To Use it Better. "If you are buying a product and the shop gives you a choice of three, don't let the expensive one sway you towards the middle one." In other words, there's no harm in choosing the cheapest, as long as you still end up getting what you need from your purchase.

Ownership bias

This is a budget busting habit that's even harder to avoid since online browsing became possible. It's the tendency we have to see an object and then imagine it as a part of our lives. Whether it's a rug or a handbag, in your mind's eye, you already own it and that can make it much easier to click buy, even when that means parting with more money than you can afford.

If you have the willpower to steer clear of this sort of temptation, so much the better. But avoiding window shopping altogether whether in bricks and mortar shops or online is a lot to ask. It might be more realistic to save some money into a spontaneous spending fund instead. By having a little of your budget dedicated to impulse buys, you can indulge in some wish fulfillment now and again, as long as you've built up enough to cover the cost upfront rather than borrowing to make it happen.

Present bias

This is a totally natural tendency we generally have to value our present experience too highly when we're weighing up spending now vs. saving for the future. The 'When in Rome' shopping story we tell ourselves for overspending on while on holiday is one example of this bias. You may never visit this place again so you may as well buy that amazing artwork or outfit, even though you'd normally consider it way beyond your price range.

Of course, you don't have to be on holidays to talk yourself into spending instead of saving. One way to short-circuit our present bias is to automate savings and be very clear about the relative value of what you're saving for. If you've decided on a holiday with the family overseas as your most important priority for the year, figure out how much to put away each month and arrange a direct debit to make sure that amount is taken from your salary every week or month.

Status quo bias

We humans are creatures of habit and making changes can be something we find hard as a result, especially when it takes a little time and effort. This is why we make such loyal customers, even when the product or service we've been paying for, year after year, may not be the best value.

There are a couple of approaches you can try to nudge yourself out of your comfort zone and push against status quo. The first is to make small changes, a little at a time, so you're more comfortable in making the switch and less overwhelmed by the research and decision-making involved in choosing the best provider for your insurance, mobile, utilities, etc. On the other hand, it can be very motivating to take care of these tasks in all one go and have the satisfaction of making significant savings across the board. If you're someone that gets a kick from bagging a bargain, this second technique might be ideal for you.