The Commonsense Money Book

THE

COMMONSENSE

MONEY

BOOK

Other books by the Author

The Commonsense Money Book (1988)

Being Smart with Money (1991)

THE

COMMONSENSE

MONEY

BOOK

Timeless tips

for managing your money

GAIL TERRASSIN

Information regarding financial products and services are constantly changing. While every care has been taken to ensure the material within this book is accurate at the time of publication, neither the author nor the publisher can be held responsible or liable for any action taken by any person or organisation regarding the information contained herein. This book is written as a guide only and should not replace independent and expert advice, which you should always seek to confirm the appropriate action, product or service for your individual situation.

Copyright © 2010 Gail Terrassin

All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without prior permission in writing from the publisher. The Australian Copyright Act 1968 (the Act) allows a maximum of one chapter or 10 per cent of this book, whichever is the greater, to be photocopied by any educational institution for its educational purposes provided that the educational institution (or body that administers it) has given a remuneration notice to Copyright Agency Limited (CAL) under the Act.

Allen & Unwin

83 Alexander Street

Crows Nest NSW 2065

Australia

Phone:    (61 2) 8425 0100

Fax:        (61 2) 9906 2218

Email:     [email protected]

Web:      www.allenandunwin.com

Cataloguing-in-Publication details are available

from the National Library of Australia

www.librariesaustralia.nla.gov

ISBN 9781742372198 (pbk.)

eISBN 9781742690902

Typeset in Australia by Bookhouse  

This book is dedicated to my husband Guy,

a friend and great supporter,

our dear son Sacha and all the family.

Contents

Introduction

Part 1 Money management

1 What is a money plan?

2 What are your true needs, wants and financial goals?

3 Your money plan

4 Some everyday saving ideas

5 Credit—it’s not magic money!

6 Money scams

7 Insurance

8 Your will

9 Dealing with financial difficulties

10 Looking for employment

11 Getting the job interview right

Part 2 Life stages

12 The young, single person

13 The new couple

14 Children and responsibilities

15 Avoiding relationship breakdowns

16 The cost of separation

17 The juggling act after separation

18 The contented years

19 The pre-retirement years

20 Retirement

21 The loss of a partner

22 Optimism, hope and happiness

Conclusion

Acknowledgements

Resources

Introduction

The Commonsense Money Book is a guide to understanding your money, and how to deal with financial challenges at the stage you are at now in your life. It is written to provide information about personal budgeting and money management, and your relationship with others, such as your partner and your children, who are involved in your financial affairs. Also taken into account are the various phases that may occur throughout your life and the skills that will help you cope financially with these stages. For instance, a young person starting out in life is in a different financial position from that of the pre-retired couple, who are hopefully living a more comfortable lifestyle with fewer family commitments and, in many cases, two incomes.

When this book was first published twenty years ago the world was not as we know it today. We did not have the internet so readily available in homes around the world, or ATMs, mobile phones, digital TVs, CDs—the list goes on and on. So I am updating The Commonsense Money Book for today’s world. But, even though the technology has changed, with new devices to make life so much easier, the basics about how to handle your money hasn’t. Just ask anyone aged in their eighties or nineties about how they handled their money during the Depression or the world wars and they’ll tell you it is all about not getting into debt, and that still holds true today.

My experience in the financial sector includes working in the industry, setting up and running a financial counselling service, as well as working as a financial counsellor for many years. I have a Bachelor of Adult Education and for the past two decades I have been involved within that industry and taught people from all walks of life, running my own company for the last ten of those years. This diverse experience has given me an insight into many facets of business and other people’s lives in general. Being married and having had a child, and now with grandchildren, I well recognise the different stages and the highs and lows people go through as their circumstances change. That’s why the second part of this book covers the different periods a person may go through during their lifetime.

Each life stage requires the development of appropriate skills in order to cope both financially and emotionally. For example, the first time a young person leaves home they are confronted with the challenge of trying to survive alone, learning the importance of paying the rent or board on time and working out such things as the cost of living, plus attempting to save a little money for entertainment and luxuries. Taking the time to plan and think about your situation helps you tackle these challenges more logically. If you have never considered how you would manage financially as a parent, for instance, you may be in for a surprise. Expenses increase dramatically—baby furniture, nappies and clothes, education costs—and continue until your child leaves home. Sometimes, too, the household income decreases when the mother does not work immediately after the birth of the baby, so trying to manage with less income and more expenses can put a great deal of pressure on a couple. With a little forethought, though, you can make this time easier if you have managed your money well to prepare for what will be this new and exciting time in your life.

You do not need to be an accountant or spend hours labouring over columns of figures to be a good money manager. Basically you just need a simple plan that is designed for your income, and the determination to make it work. Successful money management develops financial security and peace of mind, knowing you are in control of your money and life. This of course brings great things like houses, cars and travel, and the knowledge that, with a workable money plan, these are achievable goals.

When I speak to people regarding their financial situation they are often extremely embarrassed about their current state because they feel they should automatically just know how to deal with it. The fact is you have to learn the skill of money management—it is not an instinct you are born with. Generally, and this is an unfortunate truth, people learn from the school of hard knocks. But sensible financial management is an easy skill for all of us to conquer without taking the hard road. It will enable you to take control of your life by helping you to cope with the difficult financial situations that sometimes occur during our lifetime. The Commonsense Money Book will take you through tried-and-true steps so you can learn how to do this and lead the life you want rather than just making do.

Being financially aware is important so you can enjoy your life to the fullest. It is neither hard nor time consuming. It simply needs you to make a commitment to gaining the maximum benefit from your limited income. So start today!

PART 1

Money

management

1

What is a

money plan?

A ‘money plan’, a ‘plan for spending’ or a ‘personal budget’ are all exactly the same thing. What you call it depends on how you like to think about it. I have met a number of people who love spending and so they find the term ‘plan for spending’ easier to deal with than the word ‘budget’. For them, budget means doing without, or restrictions in their lives. For others, budget means getting down to business, facing their financial responsibilities with the structured approach they need.

As a teacher in the communications discipline, I’m well aware that how we label jobs, relationships or events can colour our feelings about a situation. If you feel unhappy about something because of the way you perceive it then that will influence how you approach the circumstances. So by using terminology and labels that you are comfortable with, you will feel more committed to seeing something through from the start simply because you relate to the task in a better light.

Take a minute now and decide which term you feel most comfortable using when talking about a simple, flexible way to manage your money. Once you have decided what word or phrase suits you, then call it that. For the sake of using just one term throughout this book I am going to use my personal favourite, money plan. So whenever I say money plan substitute that in your mind with your chosen term.

Where does it go?

Most people say to me, ‘If I only had $100 to $150 a week more, I would be able to manage my money better’. But unless you are very strict with your spending and know full well where your money is going, extra income you earn is usually absorbed into your spending without any trouble at all, and you are back to square one: needing more. It’s a habit most of us fall into at one time or another—the more you have, the more you spend. If you want to save money, though, then it comes down to taking stock and working out where you are spending your income.

If you do not make a concerted effort to save effectively, any extra money goes on many little and relatively unimportant items. The secret to saving and making that little bit extra work for you is to save first, before you receive the money. The only way to obtain the most benefit from any increase in your income is to plan how you will save that additional money. When you receive an extra payment or an increase from anywhere—wages, Centrelink payments, shares—put it in an account that you do not use for your day-to-day expenses. It’s that simple.

Most financial institutions can organise a regular payment to be transferred into another account from your pay. Say you received $60 extra a week from a pay increase, take note of the fact that you have been living on the lower pay up until now and transfer that $60 into a savings-type account and continue living on what you previous earned. It is amazing how this saved money will soon add up ($60 per week equals $3120 per year—very handy at Christmas time or for an unexpected bill) even if you have to delve into it on occasion. Most often people just absorb any extra income into their spending and, hey presto, they are no better off.

Take the time to plan!

Usually we go along without much thought for planning our income. Taking the time to think about your money can make a dramatic difference in achieving what you want from your life. Consider these two questions:

• How many hours does it take you to earn your income?

• How long do you take to plan how to spend it?

Let me tell you, it will only take approximately 45 minutes to fill out the money plan proposed in chapter 3. Not long, you will agree. But you will need to do some research before you fill in the plan, but it is time well worth investing. Once your plan is complete you will just need to update it annually. The only other times you may wish to adjust it is if your bills increase or your income changes. It is pretty simple once the plan is up and working for you. The big challenge initially if you haven’t done a money plan before is to just do it and stick with it. The incentive of saving for something special in mind is always a good way to start.

Money management is an individual thing as everybody’s priorities are different. Simplicity and flexibility are the essential ingredients for a workable money plan. If a plan is difficult and time consuming, most people will give up and their chances of succeeding diminish. Flexibility is essential because you do not want a financial straightjacket! You have to be realistic and need to spend the time necessary to make your money plan work. Your plan must bend and stretch with your life. When unexpected expenses arise, with a carefully thought-through money plan you will be able to absorb them.

Learning from others

The more information you can find about how other people succeed in achieving what they want from their life, the better able you will be to design a money plan that suits your requirements. When talking to others, bear in mind that people on larger incomes generally have a higher living standard; for example, they may spend more on holidays and entertainment. We all have different priorities about where to spend our money, depending on our income and our preferences, so be realistic about your own situation.

People from different cultural backgrounds to you may spend more or less on the housekeeping or food bills as they may have many relatives and friends visit them during the week. Some couples might dine out several times a week, while other people go out only for special occasions. This is why it is good to speak with a number of family, friends or acquaintances about how they have found ways to save money or manage their finances better. For instance, a person that dines out may know of great places that are good value, or the people that often entertain may know excellent places to buy good fresh fruit, vegetables and meat for less. As we all love a good bargain, this information can assist us when we are trying to keep to a money plan and not going without.

Passing it on

Just as your friends and family give you tips return the offer and give them any you come across. This is how we all learn, by passing it on. Especially if you are a parent and have learnt some of the basics about financial management, you definitely owe it to your children to try and teach them about how to handle their money. This is their key to independence, which is a life with less stress and more choice, and being able to ultimately survive without their parent’s financial assistance. This is especially important for adolescents. Even if your teenager only realises that they are a terrible spendthrift, this can be a big step towards them understanding they might need help managing their money.

If parents are good money managers they usually try to teach their children, however, not all parents know how to manage their money. Some adults have not found a satisfactory way of working out their income and expenses, therefore they find it very difficult to get ahead in life. Because of this, the children of those people are less likely to learn this skill. On the other hand, you probably know of someone whose parents were always in financial difficulties, even trying to keep a roof over their heads and food on the table was not easy. That someone may be determined not to fall into the same traps their parents did, so they buckle down early