6 money mistakes men make
posted on 7/10/2016 3:08:00 AM
6 money mistakes men make
What you could be doing wrong and how you can fix it.
WORDS JOE GARDINER
Although men typically are accustomed to accepting responsibility for their career and their families’ wealth and financial wellbeing, many men make common mistakes with money that can put them behind.
The mistakes are simple and quick to fix — but they do require engagement with your money. After all, it’s your money — you’ve put in the time, added the value at work or the office, and now it’s time to have that cash work for you and make some consistent returns.
Let’s have a look at some of the common mistakes we make with our money and how to correct them. Some mistakes may be familiar to you, while others you may have already overcome. Remember, mistakes happen. If you recognise any, accept them, forgive yourself and give yourself the opportunity to secure a better future for your family and yourself.
- We overcomplicate and trade: Our genetic makeup can lead men to take more risks and overcomplicate money management and investing. Our egos tell us we are smarter than the financial markets. Seeking big, quick profits brings major risks. I had an experience where I lost my first property deposit by going to a seminar and getting suckered into a foolproof ‘trading system’, which promptly lost my money within a few short months. Having learnt my lesson very painfully, I now stick to bigger, blue chip companies for my share investing — running a marathon and not a sprint. Remember, you are not a hedge fund manager, a property shark or a budding Wall Street tycoon. Keep it simple, create a consistent income surplus, save three months’ expenses, and then start investing (not trading) the rest. Save yourself major pain — no trading, no seminars, no self-declared money gurus. As billionaire investor Warren Buffet says, “There are two rules in investing. Number one, don’t lose money. Rule two: see rule number one!”
- Buy property: Naysayers will always say a crash will come. However, most property owners do very well in the long-term. There’s a saying, ‘don’t wait to buy real estate; buy real estate and wait’. Remember, buy in solid, not speculative, areas. Your family home is a capital-gains-tax-free asset — meaning it is protected from taxation if you sell and realise a profit. That’s a huge tax loophole to take advantage of. Engage an accredited mortgage broker to help you get started or to review your home loans regularly (every two years).
- Make a budget, know your number and work backwards: Very often we hate budgeting. However, we may desire an elusive sense of future financial security or the financial freedom to quit the day job, without knowing a concrete ‘how much do I need?’ Budgeting can help you achieve your ideal financial situation and give you a powerful goal. How? By working out your annual expenses, you can set a goal to create an investment portfolio that will pay some or all of your annual expenses via the income returns in the portfolio (usually income via the share dividend payments). For example, a $500,000 diversified portfolio earning 10 per cent will be able to pay you $50,000 per annum in income, while the $500,000 capital continues to grow. My personal marker is an $800,000 portfolio. The lesson here? Financial freedom can be methodically worked toward, and often you can do it for less than a million. Don’t want financial freedom earlier than retirement at 67-70 years of age? No worries. See the super tips below.
- Engage with your super: Too many men ignore their super to their long-term detriment. However, getting engaged with your super is a big win, because after the family home, a person’s super account is often their next-biggest asset. As a minimum, you need to know the following about your super: who it is with, what investment type it is invested in, how much insurance you have in super, and what fees you are being charged (any more than 1.2 per cent and you can do much better). If you have less than $200,000 in super, it is vital that you consider joining an industry super fund. Australian Super is the biggest and is very reputable. Industry super funds are typically the best funds (net of fees) out there, and fees can really eat into your net performance. High-fee funds prey (or pray!) on your ignorance and inaction. Most financial advisers will recommend high-fee funds as they pay the biggest commissions to them. Don’t be a sucker; unhook yourself from high-fee super accounts and typically savings can easily total $2000 per annum. Over 25-30 years, this boost can add up to $200,000 to $300,000. Boost your super and reduce your tax further by salary sacrificing $50 per week into super. Your future self will thank you — loads.
- Neglecting insurance: Many men can feel ‘invincible’ and that no accident could possibly happen to them. Insurance is like a bet you hope you lose. Growing up, I had the experience of one day having a successful entrepreneur father and then the next day hearing he had been nearly killed in a car accident. His busy printing business folded without him at the helm. Our family’s main breadwinner was severely disabled and, as my father wasn’t privately insured, we had to instead rely on the public disability insurance scheme. As you can imagine, this was not a recipe for great financial outcomes. Don’t let that happen to your family. Each Aussie father needs about $600,000 to $1 million-plus in life insurance and enough to cover all mortgages and debts and provide for your family and yourself should you ‘win the bet’ and suffer a catastrophe. Buy life and TPD insurance in your super fund, and buy income protection insurance outside of super for maximum tax deductibility and efficiency. Get an independent financial planner if you are uncertain about these terms.
- We procrastinate: It’s always going to be easier to go have a coffee and watch some sport than dedicate regular time to financial matters. However, when you are 60, you won’t remember that coffee or sports game or the round of drinks at that bar or the next article in the magazine. You will, however, be affected by your financial position. Minimise those regrets and do your future self (and family) a favour by acting on financial matters this article brings up for you. Once you have acted on the above, give yourself a pat on the back for taking care of your financial matters.
For further reading, Get a Financial Grip by Pete Wargent and The Barefoot Investor by Scott Pape are excellent Australian-specific reads that expand further on the above topics.
With more than 10 years’ experience in the mortgage and finance industry, Joe brings a wealth of knowledge and experience to his role as director and mortgage & finance adviser at Profy. Joe started his career in mortgages at ANZ in New Zealand and has worked for some of the world’s largest financial institutions, helping improve operations, business performance and deliver strategy. On returning to Melbourne from London in 2012, Joe saw a wide gap in the mortgages market between what was offered by banks and bank consultants, and what could be offered by a well-trained, digitally-enabled and well-organised finance broker – and the idea for Profy was born. Joe is an ASIC licensed credit representative, a full member of Mortgage & Finance Association of Australia (MFAA) and a Southern Cross broker network credit representative. He holds qualifications in finance and IT. With a keen interest in property and finance, Joe enjoys having a career that is immersed in the finance industry. He is also a keen traveller, reader and artist and lives in Newport with his partner Claire. For more information visit www.profy.com.au
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