By Jo & Car Violeta
Often, people find it hard to know exactly what the next best thing is to do to future-proof their family’s financial situation. Should they invest in shares? Do they get rid of credit cards altogether? How do they build up their savings? We’ve talked to three financial experts who give us their views on the common financial mistakes made by families, and how you can avoid them.
Sam Keats is a Chartered Accountant and the Director of Keats Accounting.
Mistake: Not keeping proper records
It may seem like a hassle but it’s really important to keep copies of all receipts for things work-related, so you can claim them at tax time. You can’t claim without the receipts, and you’ll miss out on money that you’re entitled to.
You also need to look after your receipts properly. Thermal receipts will fade if exposed to heat, kept near plastic, or if you use a highlighter. Take physical or digital copies to ensure their longevity.
Mistake: Not talking to an accountant before making big financial decisions
If you’re starting a business, buying an investment property, or buying a big asset like a car, it’s a good idea to talk to your accountant first. You need to make sure that you get the structure right from the start because it might be too late for us to fix it after the fact.
For example, last week a client called me about a planned vehicle purchase and we did a review of the documentation, made some minor adjustments, and this has saved the client’s business over $15,000 a year in tax.
THE FINANCIAL ADVISER
Kristopher Meuwisssen is a Financial Adviser at Ability Financial Planning.
One of the most common mistakes families make when planning their finances is not automating their bills, debt repayments, savings and investments. The consequences? People often end up spending the amounts they had intended to save. This mistake often occurs because they assume that they’re better than they are at controlling emotional spending and sticking to a budget.
Avoid this mistake by setting up automated bills, savings and investments that get taken out on payday. This will leave you with the amount that you have budgeted for to spend on whatever you like.
Mistake: Not Investing as soon as possible or consistently
The consequences of not investing your hard-earned income can be the difference between being able to send your kids to private school (if you choose to), retiring early or not being reliant on the aged pension. By investing early and consistently, your family will receive the benefit of compound interest (growth on growth) and passive income.
People often make this mistake because they don’t know where, when or how to invest. However, this is an easy mistake to fix. You can start investing your money very quickly into assets like shares and property. Your family can and should get expert advice when you’re looking to invest so that you can be sure you’re on the right path and that you understand the risks involved.
THE MORTGAGE AND FINANCE BROKER
Carl Violeta is Viloleta Finance’s Mortgage and Finance Broker
Mistake: Having large credit card debt and car loan debts
A lot of families come to me looking to buy a home, but unfortunately they are already harbouring large debts in the form of either car loans, credit cards or personal loans. When you go to apply for a home loan these kinds of debts can really limit your borrowing capacity, which therefore restricts the type of properties you can buy.
If your goal is to buy a home, prioritise your spending now! Wait until you’ve secured your home loan, then assess your budget before buying a new car for example. Also, try to avoid large credit card limits.
If your debts are getting in the way of buying a home, you may need to clear them before applying for a home loan. This could include selling your car to clear your car loan.
Mistake: Not having the right structure for genuine savings
If you apply for a home loan, particularly if the loan is for more than 80 percent of a property’s value, you may need to prove to the bank that you have a satisfactory amount of savings. This is called ‘genuine savings’.
The bank account that your genuine savings is kept in should be separate from your everyday account, preferably an online account that you can’t touch. It’s best not to take money out of that account regularly.
Your genuine savings must sit in the account for a minimum of 3 months and needs to be at least 5% of the purchase price of the property you would like to buy.
Do any of these mistakes sound familiar? Financial mistakes can be costly, but in many cases, with the right knowledge and guidance they can be avoided or fixed.
***This information is of a general nature only and does not take into account your personal needs, financial situation and objectives. This information should not be relied upon as a substitute for personal financial or professional advice.
Jo and Carl Violeta are self-confessed numbers nerds, parents of an energetic toddler and a super switched-on teenager, and co-founders of the award-winning business, Violeta Finance. They are a husband and wife team who are passionate about empowering their community with financial education, love the odd glass of wine, and get a kick out of helping families achieve their homeownership and financial dreams.