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Save For Child's Education

Education is expensive.  Even if you have no intention of sending your child to a private school, the costs associated with your local public school soon add up.  There are books, shoes, uniforms, excursions and after school activities.  The costs seem endless.   This is not even to start thinking about costs of higher education should they choose to go on to university or TAFE and you want to help them out.  So how do you afford to pay for it all?

The keys to success to save for your child’s education is to start as early as you can and save regularly.  Time and having a regular savings plan help to harness the most powerful wealth building tool ever: compound interest.  Compound interest is when you earn interest on top of your interest.  When you save or invest your money earns interest, so you then earn interest on your original investment amount and also on the interest you have already earned.  This makes your money work for you and helps to turn a little bit of money into a lot over time.

Next you need to set your goal.  Figure out how much you would like to save and how much time you have to do it in.  From there you break it down into a much smaller weekly, fortnightly or monthly savings goal.  So maybe your savings goal is $10 per week, so you have $1040 dollars to deal with extra expenses when you child goes to school in 2016.  Breaking a large goal into a small regular goal makes turns something large and daunting into something far more manageable.

To supercharge your savings think about adding any windfalls you might receive to your education fund, for example tax refunds.  Or you could look into charitable schemes such as Saver Plus, which matches your savings for your or your child’s education.  You need a healthcare card and a regular income.  Click here to find out if you meet the criteria.

It also pays to be aware of whose name you put the investment in.  Prohibitive tax rates can apply to investments in your child’s name in certain circumstances, so it pays to think about it.  Click here to find out more.

Once you have saved the money, there is no ‘one size fits all’ answer to how you invest it.  The answer is different for each individual family but here are some of the options:

(1)    Pay down your home loan and redraw

Using this strategy you make extra repayments on your mortgage or offset account then withdraw the money when it is time to pay for the costs.  Most people on variable mortgage rates are paying about 5.5% per year, so the money put into the mortgage is earning a effective tax free return of 5.5%, without taking any risk. The key with this one is it takes discipline as the money saved is part of a broader pool, so you have to make sure you don’t spend it on anything else.   To read more about this strategy please click here.

(2)    Invest in cash

This strategy doesn’t always give you the highest return but it relatively risk free.  Find an online fee free account with a high interest rate and direct debit in your regular savings amount.  Have the direct debit come straight out of your pay so you ‘pay yourself first’ and watch the savings build.  If you are anything like me, make sure the account has limited access so that temptation is minimized J  Watch out for ‘bonus rates’, where an account has a high rate of interest for 3 or 6 months then reverts to a low rate.  There is nothing wrong with taking advantage of these rates and then moving if there is a better offer.  Also watch out for term deposits that are paying good rates if you are happy to lock away your savings for a while.  The problem with this strategy right now is that interest rates are low, so returns are not very good, and with inflation starting to rise your return after accounting for inflation (rising prices)  is not very good.  Click here to get some extra tips on how to get the best savings account.

(3)    Invest in higher risk assets such as property or shares.

The advantage of investing your child’s education savings in these types of investments is that they generally have higher returns over time than just investing in cash.  The disadvantage of investing in these types of investments is that they are higher risk.  This means the return you might get in any one year might vary dramatically, from big gains to big losses, but over time you should make more money than cash.  I will be writing a post with more detail on the pros and cons of on investing in shares in the coming weeks.

(4)     Investment bonds

An investment bond is a tax structure through which investments are held.  They can be started with as little as $1000 and allow you to invest small amounts regularly into Australian and International shares.  They have several tax advantages, only 30% tax is paid on earnings (useful if you are in the highest tax paying bracket) and the capital gains are tax free if they are held for longer than 10 years and the proceeds are used for educational purposes.  They are offered by life insurers and friendly societies, and investors can choose from a range of underlying investment options ie. mixes of cash, bonds, shares etc.

(5)    Education funds

Education funds are special funds to help you save for your kid’s education.  There are some tax benefits around this type of investment but there are also plenty of rules, so be wary and make sure you read all the fine print.  For example what happens to your investment should your child choose not to go to university?  Or your circumstances change?  Also, quite often fees on this type of investment are quite high, so make sure you compare it to all your other options and be very clear on all the fine print so you don’t get caught out.

Educating your child is a big responsibility.  The two keys to success are to start early and save regularly.  There are many different options for investing the money.  Which is right for you depends on many factors so make sure you get proper financial advice and read all the fine print before you decide.

If you liked this you might also like:

How To Create A Budget

5 Financial Tips You Need To Know Now You’re A Parent

How To Pay Off Your Mortgage Faster

3 Things You Need To Know When Saving And Investing For Your Child

How I Saved On My Electricity Bill

Disclaimer:

The information contained in this post is general in nature and does not constitute financial advice.  Please see your financial advisor for advice specific to your individual circumstances.

 

30/01/2014 21 comments
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Save for Christmas

I know what you are thinking!  Hasn’t Christmas been and gone?  Yes, but I have decided that if the stores can start stocking Easter eggs and hot cross buns in January!  I can talk about saving for Christmas 2014.  Besides, the best time to start saving for it is now!

So, to get ready for Christmas 2014, the first thing you need to do is to set your goal.  You need to know how much money you would like to have saved by a set date in 2014 when you would like to hit the shops.

Next you need a plan.  As the saying goes, “a goal without a plan is just a wish”, so break your goal down into a weekly, fornightly or monthly savings amount.  So if your savings goal is $300 for Christmas by the 3rd of December 2014.  This calculates to 48 weeks from the 1st of January or $6.25 per week.  $6.25 per week is not much, hey?  So you give up a couple of coffees a week?  Just doing that one small thing can result in $300 for Christmas!

Next you need to figure out where to put your savings.  This is where it is different for everyone but here are my top 5 suggestions for how to save, not just for Christmas but for any goal.

(1)    Find an online fee free account with a high interest rate and direct debit in your regular savings amount.

Have the direct debit come straight out of your pay so you ‘pay yourself first’ and watch the savings build.  If you are anything like me, make sure the account has limited access so that temptation is minimized J  Watch out for bonus rates, where an account has a high rate of interest for 3 or 6 months then reverts to a low rate.  There is nothing wrong with taking advantage of these rates, then moving if there is a better offer.  (Click here to see extra tips on how to make your savings work harder).  This method should give you the highest pot of cash at the end of the period as you compound your savings using the best interest possible.

(2)    Put your regular savings amount in a jar.

It is certainly fee free and you can even stick Christmas pictures on it to remind you of your goal.  However, you do not get any benefit from earning any interest.

(3)    Regularly purchase gift vouchers.

If having money around the house is too tempting, why not try regularly buying gift vouchers from your favourite stores.  For example, if every two weeks you buy a Woolworths or Coles gift voucher you will have $520 in vouchers by the end of the year.  Make sure you stash them somewhere difficult to get to and watch expiry dates.  Most vouchers have a one year expiry but it pays to check.

(4)    Start a Christmas Club account.

Many of the big banks don’t offer these types of accounts any more but many credit unions and building societies do.  They allow you to squirrel away your regular savings amount, with access to the funds often not allowed until November, which helps to keep your savings goals on track.  Interest rates on the accounts are small but many the accounts are fee free.

(5)    Leave the money in your mortgage offset account.

The advantage of this is that the money will be earning the equivalent of 5% tax free (see my post on how offset accounts work here for a full explanation).  The key here is to keep a diary of the money set aside and the trick is to not give into the temptation to spend it.

Saving for Christmas is not difficult.  The keys are to start early, save regularly and to make sure you do not touch your savings during the year.  These easy steps will help you sail through to a stress free Christmas 2014!

If you liked this you might also like:

How I raised An Extra $910 To Pay For Christmas

How I Saved Big On My Electricity Bill

How To Create A Budget

5 Financial Tips You Need To Know Now You’re  A Parent

How To Pay Off Your Mortgage Faster

Disclaimer:

The information contained in this post is general in nature and does not constitute financial advice.  Please see your financial advisor for advice specific to your individual circumstances.

21/01/2014 3 comments
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Household budget

It is the start of the year and so it is time for those darn New Years resolutions.  Exercise more?  Drink less?  Lose weight?   All noble options but none of these are it for me this year.  (Mind you, I could probably do with all three!!!)   However, this year my New Year’s resolution is to develop a budget for the Money household.  What?!!?  I hear you gasp, surely with a name like ‘Money Mummy’ budgeting is second nature?  Well, actually no.  It is not to say I haven’t thought about it, but this year is the time to actually do it.  So this is how I have gone about making my family budget from scratch……

The first step to developing your budget is to figure out what you spend.   There are lots of ways of doing this from writing it all down, to using an app on your phone or keeping all your receipts in a plastic bag.  In our case most of our transactions are done on card (either credit or debit), so I simply downloaded 3 months of transactions from internet banking into Excel and put each month on a separate sheet.  I then used Excel’s ‘sort’ function to put similar transactions from each month together and added them up.

Next I went to the MoneySmart website and downloaded the Excel version of their budget planner (see it here).  MoneySmart is run by the government.  The budget planner is very comprehensive and the best part is it is free!!!  This planner allows you to figure out exactly what you earn then gives you all the main categories you need to sort out your spending.   From there I just filled in how much we earned and how much we spent in every category that was relevant to us, using the data downloaded from internet banking.  For variable expenses (those that change from month to month), such as the supermarket shopping, I looked at how much was spent on each of the 3 months, then took an average.   For expenses that occur once a year, I simply put the annual figure into the planner and it calculated the monthly amount.  Really simple.

Once all the numbers were in, we discovered that we were spending more than we were earning!  Ouch!  Not by a huge amount but it is still not where we want to be.  So the hubby and I sat down and discussed what changes we thought we needed to make to get us back on track.  You can’t argue with the numbers so having them in front of us was a great tool to open up honest, frank and factual discussions on money.

We decided to choose four areas to focus on which we think will make the greatest impact to our financial position.  These were:

  1. Cash:  through the budgeting process we figured out we were spending a lot of cash, which is difficult to track.  Instead of tracking that spend, we decided to give ourselves a limited weekly cash budget, substantially less than we are currently spending and see how that works.
  2. We spend far too much on takeaway and eating out.  We have decided to limit ourselves to one takeaway meal per week and one meal outside the home on weekends.  This hopefully will do our bank balance and our waistlines some good!
  3. We are going to review our grocery spend and look for ways to reduce our expenditure.  Ideas on how we will do this will be outlined in a future post.
  4. We are spending a lot on utilities, particularly electricity.  I went some way to rectifying this when I changed provider late last year (read about it here) but now we are all going to focus on usage.

Creating a budget was a far easier process that I ever expected.  Though, I will admit at times it was quite confronting, especially when I figured out how much we were spending on eating out!!!  However, knowledge is power and I feel it is better to actually know where our money is going.   An additional benefit is that having the numbers in front of us meant Mr Money and I had a great platform on which to base our money discussion and make joint decisions about our money issues.  This process has certainly put us on the same page money-wise and has given us the facts about what we actually spend.

Now we know where we are at and what we want to do about it, it is time to follow through with action.  A budget is not a static thing to be left in the corner.  Every month I will be checking our spending and seeing how we are going and talking it through with Mr Money.  I expect given we have just started there will be a fair degree of ‘tweaking’ involved in the coming months, but I will keep you all informed on how we go.

If you liked this post you might also like:

How I saved On My Electricity Bill

How To Pay Off Your Mortgage Faster

Is Costco Membership Worth It

10 Easy Ways To Save Money

Disclaimer:

The information contained in this post is general in nature and does not constitute financial advice.  Please see your financial advisor for advice specific to your individual circumstances.

 

15/01/2014 33 comments
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Hamper King

Ok I will admit it!  I am a little bit obsessed!  But after being horrified that Chrisco charges 28% more than Woolworths for the same hamper of goods (click here to see the post) I wondered whether Hamper King would be better value.  So I decided to do the numbers on Hamper King and find out.

I chose the ‘Traditional Feast’ Hamper with Hamper King (click here to see what it includes), which was the closest comparable I could find to the hamper I used for Chrisco.  The ‘Traditional Feast’ hamper is valued by Hamper King at $348 or $7.57 per week.  The methodology I used was exactly the same too.  I found out from the Hamper King website what was included in the hamper then simply went on to the Woolworths internet shopping site (which could have just as easily been the Coles site) and found out the value of each product in the hamper.  If I could not find an exact match for the product I chose another brand with the same size or for some things I found the same brand but a different size (these are all annotated in my spreadsheet, us finance geeks love a good spreadsheet!)

So what did I find out?  I was blown away to find out that Hamper King actually is worse value than Chrisco on the hamper that I looked at!!!!!  The hamper I examined at had products in it to the value of $204 according to Woolworths compared to the $348 that Hamper King were charging.  A whopping 41% difference!  Horrifying!!!  Yes I know their prices include delivery but Hamper King would be getting the goods for the hamper at wholesale rates so I cannot see how such a difference can be justified.  Not to mention they are earning interest on the money they collect from you during the year before they pay the suppliers at Christmas!

I also have no doubt that you could easily do better than the hamper cost I came up with by using sales and buying from a combination of Coles, Woolworths and Aldi.

A further look around their website shows more price differences.  Hamper King sells regular vouchers to places like Flight Centre or Target or Kmart with a 10% mark up.  So for a voucher worth $100, you pay $110 or a voucher worth $500 you pay $550.  These vouchers can be brought for their exact worth directly from the store or for example a Flight Centre voucher can be brought on the internet for it’s face value plus $7.95 for postage.   So a $500 voucher would cost you $507.95 rather than $550 through Hamper King.

Easy Save Holidays is affiliated with Hamper King

It really does pay to do your numbers on these sorts of hampers and it is so quickly and easily done using the internet shopping sites of the likes of Woolworths and Coles.  I would urge anyone considering getting one of these hampers to check the value first and then to have a look at other ways to save the money for themselves.  From the hampers that I have looked at it certainly seems you will get far more bang for your Christmas buck doing it yourself.

If you would like to check out my spreadsheet with the calculations please click here.

If you liked this post you might also like:

Chrisco Hampers: Are They Good Value?

10 Easy Ways To Save Money

How To Pay Off Your Mortgage Faster

15/12/2013 15 comments
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Save Money On Your Wedding

This post is brought to you by Bride.com.au

Planning your wedding is a super exciting time but it is so easy to get carried away and have your budget blown out of the water.  There is a whole industry set up to help you spend your money on a raft of things to make your day ‘perfect’.  Add the ‘W’ (Wedding) word to any conversation and it is amazing how fast the costs escalate.  So what is the best way to have the day you want without being saddled with debt that lasts far longer than the big day?

Firstly, you need to set a wedding budget (or spending plan if you like that term better :-)).  Sit down with your partner and anyone else who is helping you pay for the wedding and be clear who is contributing what and how much the total budget is.  Discussing money is difficult but it is better to have these conversations up front, as you do not want any money resentments to creep in and harm your relationship, especially when you are just starting out on your new life together.

No one has an endless budget, except maybe Kim Kardashian, so the next thing is to figure out your priorities.  What are the things that you and your partner feel are most important to make your day what you want it to be?  Everybody is different so for some people it is all about the dress or the venue or the cake.  Make sure you rank your priorities.  This ranking will give you guidance on how to spend your budget.

I got married in 2007.  We wanted a relaxed, fun wedding, that wasn’t too traditional and reflected us as a couple.  Our priorities were the food at the reception, the cake and some photography.   Lesser ranking priorities were the invites, flowers, bonbonniere, bridesmaids outfits and transport to the wedding.  Our budget was $10,000 and these are the ways we made our budget stretch further:

(1)    Avoid getting married in the big cities if you can.  We had a choice of getting married in Sydney or my husband’s home town of Rotorua in New Zealand.  Rotorua, despite being know as ‘the smelly town’, was an easy choice.  He had more family than me and everything was a lot cheaper than Sydney.  The favourable Australian dollar/New Zealand dollar exchange rate gave our budget an extra 20% boost!

(2)    Keep the guest list down.  My husband is Maori, so he has a tonne of relatives.  We could have had a cast of thousands but we decided to talk to his family and find out who we absolutely had to invite.  In the end we invited 29 people, mind you 36 turned up but that is another story!  Keeping the numbers down is a big money and stress saver.  You actually have time to talk to your guests as opposed to being on some tour of duty!!!  We were lucky as we were paying for the wedding it meant that we had more control over the guest list, which made it easier.

(3)    Skip traditions that don’t work for you.  We totally dumped the idea of bonbonniere.  We figured none of our guests would want another candle or packet of sugared almonds.  It saved us time and money.

(4)    Get your craft on.  Making things your self can save you money and give a real personal touch.  We had a friend make our wedding invitations for us.  Friends of mine have made their own head-pieces, wrist- pieces and table settings.

(5)    Say ‘Yes to the dress’, but keep it in perspective.  You don’t think it at the time but your wedding dress is something that you will probably never wear again.  Mine was worn once and has sat in the closet ever since.  Given the dress was never a major thing for me, it was a great place to keep costs down.   I did look into renting, but they tended to be the more ‘princess’ style dresses not really my thing.  I thought about going non-traditional, but in the end I settled on a simple dress and got 10% off for paying upfront.  Then a further 10% off when I took it out of the country to my wedding!  One of the advantages of getting married overseas!

(6)    Figure out if there is something your bridesmaid/s can wear that they already own.  Yes I really did this!  (Check out the photo above!) My bridesmaids wore black and something they already owned.  Yes they didn’t match but that was not important to me.  I wanted them to be comfortable and happy and not roped into wearing some dress that they never liked or would wear again.

(7)    If you hire a photographer, don’t have them for the whole day.  Photography is crazy expensive.  We had a fantastic photographer but we only hired her for a few hours around the ceremony.  For the reception we just had friends and family take pictures and we put some disposable cameras on the table for some very funny selfies!

(8)    Skip the video all together, we just had a couple of friends video the ceremony for us on their hand held cameras.

(9)    Shop around.   It pays to shop around and if you are spending a lot of money don’t be afraid to ask for a discount.  You might be surprised what suppliers will do to get your business.  Check Facebook and Esty for many wonderful small businesses that might be more affordable.

(10) Keep it simple.  Try and keep it as simple as possible so that you enjoy it and your budget will thank you for it.

Weddings can be expensive affairs.  Make sure you set your budget and stick to it.  I always remember what my mother told me when ‘financial problems walk in the door, love flies out the window’.  So make sure you don’t fall into the trap of starting your new married life with an unmanageable wedding debt and make sure most of all that you relax and enjoy your big day.  It goes really fast!

This sponsored post is brought to you by:

Bride.com.au: the best place to find inspirational wedding ideas, competitions, advice and the latest in bridal fashion and style.  Click here to visit their website or here to follow them on facebook.

If you liked this post you might also like:

10 Easy Ways To Save Money

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03/12/2013 15 comments
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Save Electricity Bill

I hate to think about it, but our electricity bill is high, really high.  I opened it recently and was shocked to find it was $1400 for the last quarter!  Ouch! Okay our house is all electric with no gas, but really?  It is not even a big house, it is a small house.  We don’t even have hordes of people living with us.  It is just the 3 of us.  Yes, the bill was for over the winter period but even then it seems ridiculous.  Surely I could get a better deal?

With my mission set, I went off in search of more spark for my buck.   My first stop was the Australian Government website called ‘Energy Made Easy’ (click here to check it out)   This site is designed to help you compare all the electricity and gas retailers in your area to see if you are on the best energy deal for your needs.  All you need is a recent bill and they will give you a run down on the most appropriate deals for your location and usage levels.

From the bill I needed:

(1)    The time period for the bill

(2)    The total amount of electricity we used (usually on the second page)

Then the only other things I needed were my postcode and what type of tariff you are on (they help you figure out that).  The results came back that there were 3 providers that had the best deals for me and interestingly they were 3 companies that I had never heard of!!

Next I visited the individual company’s websites.  As it turned out one of the companies was in Tasmania so they were out of the running given I lived in New South Wales!!!  So I contacted the remaining two companies and got them to give me a call.  It is a bit of a pain to have to go through all the rigmarole of talking to the companies – but nothing beats leg-work when it comes to getting a great deal!  Besides you learn a lot about how your bill works and how electricity is charged.

In the end I went with a company that gives me:

(1)    A rate structure that is far more favourable than my current provider.

(2)    5% off the total bill for paying on time.  This is an easy win for us as I always pay on time using direct debit.  This discount alone is worth $70 a quarter off my bill as with my previous energy company I did not get any discount.  (Note: If you have a Healthcare card you are also eligible for a further discount so make sure you tell your electricity/gas or telephone company if you have one).

(3)    No surcharge for using my credit card to pay by direct debit, unlike my previous provider.

(4)    It is a two year contract but with no break fee if we leave the house.

My guesstimate this change in supplier will save us $160 per quarter or $640 per year.  Not a bad payoff for a couple of hours work.

Now my next project is to get our electricity usage down 🙂

p.s always contact your current provider before making a change and find out any costs that may be involved in switching.

If you liked this post you might also like:

10 Ways To Save On Your Electricity Bill

How To Create A Budget

How To Pay Off Your Mortgage Faster

5 Financial Tips You Need To Know Now You’re A Parent

How Much Can You Save By Shopping At Aldi?

 

03/12/2013 19 comments
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Chrisco Hamper

To be honest, I have always wondered whether it is worth purchasing a Chrisco hamper.  Every year around Christmas time when the glossy Chrisco TV adverts appear, I wonder whether it would work for me and my family.  You see, there are many parts of the Chrisco concept that really appeal to me.  The simplicity of choosing your hamper at the start of the year, then making automated payments weekly/fornightly or monthly and then ‘ta da’ a bunch of branded food products arrive at your door just in time for Christmas.  It does sound like it takes some of the hassle out of Christmas.  Yet, I have never done it.  So this year, I decided to do the math and figure out whether the value really stacks up.  This is how I went about it and what I found out.

I went on to the Chrisco site and I chose the “Traditional Christmas” hamper (click here to check it out).  It includes a range of sweets, a ham, a couple of chickens, ice cream, frozen veges, loads of sauces and of course the all important Tim Tams!  It might be a little bit big for my small family of 3 but my mother and sister join us for Christmas day and then the relos from New Zealand pop across on boxing day so I think it is the type of hamper that would get us through the Christmas/New Year period relatively well fed :-).  Now Chrisco say that the total value of the hamper is $426.40 or $8.89 per week.

It was really easy to check the value of the hamper, I just went to the Woolworths internet shopping site (which could have just as easily been the Coles site), typed in each product and found the Woolworths price.  If I could not find an exact match for the product I chose another brand with the same size or for some things I found the same brand but a different size (these are all annotated in my spreadsheet, us finance geeks love a good spreadsheet :-)).

To my surprise, the hamper valued at $426.40 according to Chrisco was only worth $306 according to Woolworths!!!!  Which means I save $120.40 by buying the same goods direct from Woolworths!!!   A whopping 28% difference!!!!   I thought there might be some difference, but I had no idea that the difference would be that big.  On their website Chrisco admit that they “do charge a little more than some supermarkets because of all the extra costs”, including the costs of collecting payments, special packaging and distribution.  But to me 29% is a whole lot more than “a little more”.  So, I am sorry Chrisco, in 2014 you will not be getting any of my hard earned cash,  as the value of your hampers simply does not stack up.

Note:  If you would like to check out my calculations please click here.  Interestingly, my blogging buddy Elise from Mummy Hearts Money looked at her Chrisco order in 2012 and came to a similar conclusion.  Click here to see her post.

If you would like to read more from me in 2015 don’t forget to sign up to my weekly email using the form below:



If  you liked this post you might also like:

How I raised An Extra $910 To Pay For Christmas

Hamper King: Are They Value For Money?

How To Create A Budget

How To Pay Off Your Mortgage Faster

Is Costco Worth It?

 

 

 

21/11/2013 65 comments
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How to teach your kids about money

There are so many things I want to teach my daughter but money smarts is very close to the top of my list.  It is an essential life skill and I am very aware that it is my responsibility to teach her.  Many parents feel the same way, and I often get asked “What is the best way to teach my child about money?”   The truth is, like with many things, there is no one correct way.  Each child is an individual and some ways will work well with some kids, but not with others.

I believe there are two essential elements you need to help your children learn about money: you need to talk to them about it and you need to show them about it.  The following are some practical ideas of how you can combine talking and showing, to give your children a solid real-world foundation in the art of handling their own finances.  Here are some ideas are roughly split by age group but some ideas span ages groups and some children might be ready for older concepts at a younger age.  It is an entirely individual process so take the ideas that suit you, your family and your beliefs about money.

3-5 years old

  • Buy them a money-box in which you put some spare change.  Take out the money do some basic counting.  Talk about the differences between the coins, shapes, numbers.   Once they are a bit older, introduce notes and discuss the differences between notes and coins.
  • Play shops.  My daughter loves this.  We even use loose coins from my wallet to “pay” for things.  I ask her how much things cost.  Mind you everything costs either $2 or $30 according to her!  We will work on some more realistic pricing when she is older 🙂
  • Explain why you, your partner or both of you, go to work.
  • Give them $2 or $5 to spend at the supermarket, so they can see how much they can purchase.  This used to be a lot more fun when lollies were 2c or 5c at the local Milk Bar!
  • Start to talk to them about the difference between the things they need and the things they want.
  • Start to talk about how much things cost, they are still very young and they won’t really understand it for a while but it helps to start the conversation.
  • Introduce the idea of pocket money when you think they are old enough to understand it.  You could set age appropriate tasks and have a chart to tick off when a task is done.
  • Help them to start thinking of saving for something they want to buy.  Get them to put aside some money in a jar or money-box to work towards their goal.
  • You are probably like me and you rarely visit a bank branch.  However, opening a bank account for each child and taking them to the bank to make deposits, is a great opportunity to explain to them how the bank works.  (Remember beware of the high tax rates on kids savings after certain thresholds.  Click here to find out more)
  • Start to talk about the ATM and where the money actually comes from, that it doesn’t just magically appear from a hole in the wall.

5-13 years old

  • Consider saving as a family for something fun like a visit to the zoo or local theme park.  Figure out together how much you need then create a plan to save for it.
  • Set up a business for a day such as a Lemonade Stand, or help them set up their own small business for family and friends such as dog walking, babysitting or lawn mowing.  This allows them to understand some of the mechanics of earning money in the real world.
  • Bring them to work for a day.  It gives them a better understanding of where the money actually comes from.
  • Have a garage sale or car boot sale, where your child sells a small number of items that they have chosen.  Help them to set the prices and then they decide what happens to the money once they have earned it.  Talk through their options in terms of spending versus saving.
  • Talk about purchasing items without cash, how items are paid for and where the actually money comes from.  Parents often use their cards so it is difficult for children to understand the relationship between physical money and putting a card in a machine.
  • Give children a set daily allowance for holiday spending and get them to figure out how much things cost, whether they can afford it and how much change they should expect.
  • Understanding the value of money – talk about making choices with your money, buying things on sale versus paying full price, spending versus saving, bringing your lunch from home versus buying take-away.
  • Get them to write a list of things that they need and things that they want.  Explain that sometimes you have to wait to get the things that you want and save for them.
  • Discuss ways to save money around the house such as turning off the lights or the heater.

13-18 years old

  • Once they are old enough encourage them to get a job part-time job or work over the summer holidays.  My husband dug graves and cleaned offices during his formative years and I worked in a library.  Having a job teaches you not only about money but more importantly about the politics of the work place, a critical life lesson and one I did not learn fast enough!
  • Give them a budget for them to cost and plan their own birthday party or major event.
  • Give them a budget to plan, cost and cook a family dinner.
  • Don’t restrict their spending.  My husband always tells me that the best money lesson he ever learnt was spending all his money on the spaceys (as they were known in those days) only to have to survive the rest of the week with no cash.  Let them make mistakes now.  It is much better now than later.
  • Sit them down and explain to them how to read a bill.  Explain to them about different payment options and that some bills are monthly, some quarterly etc.
  • Run them through the amounts of money involved in paying different household bills,  especially the hidden ones such as  insurance and electricity.  Let them know how much things cost, so they don’t get bill shock when they move out of home.
  • Tell them how much your mortgage repayments or rent is every month.
  • Explain how a credit card actually works.
  • Talk about mobile phone plans and how they actually work.

Last but not least, I believe absolutely the BEST way to teach your children about money is to be a good money role model yourself.  As they say actions speak louder than words, and we all know our children are sponges for everything that we say and do.  Let’s face it who hasn’t been shocked by something our child has said or done and thought to ourselves “where on earth did they learn that?”  Model the money behavior that you want your children to learn and you will be successful in creating a confident, financially savvy member of the next generation.

If you liked this post you might also like:

Why Money Is Just As Important As Sex (When Talking To Your Children)

5 Financial Tips You Need To Know Now You’re a Parent

How to Pay Off Your Mortgage Faster

Winter Family Meals On A Budget

Disclaimer: The information contained in this post is general in nature and does not constitute financial advice.  Please see your financial adviser for advice specific to your individual circumstances.

10/10/2013 32 comments
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Talking to your children about moneyTalking to your children about moneyTalking to your children about money

Most parents see it as part of their role to have the birds and the bees talk with their children.  They expect that at some point in time it is a conversation (or in most cases, several conversations) that that they will have to have.  It is seen as an integral part of the parent job description, crucial to bringing up a well rounded child.

But why is it not the same with money?  We talk openly with our children about sex but shy away from something that will be just as an integral part of their adult lives.  Think of how many money related things you do every day – go to work, buy the groceries, pay bills, use a credit card, pay the mortgage or the rent.  Whether we like it or not money is an integral part of our daily lives.  I don’t mean this in a “money is the be all and end all” kind of way because it most certainly is not.  But you have to admit understanding your finances is pretty important and the consequence of poor financial decisions can be dire.  So why isn’t it up there with sex when it comes to talking to our children?

I think part of it is that our own parents never spoke to us about money.  When I was a kid I owned the 70s classic book “Where did I come from?” but my parents never spoke to me about money.  I didn’t know about the benefits of saving or how a credit card worked, let alone how much it costs to live away from home.  In my household, all of these things were unspoken.  Maybe they thought they were shielding me from their adult concerns, but all that happened was that when I left home was that I was totally unprepared for the financial realities of the real world.  As a consequence I spent everything I earned and then some!  The result was that I had a mountain of credit card debt, a zero bank balance and little to show for my hard work.  However, my first money lesson was learnt.  Don’t spend more than you earn.

Parents need to educate their children about money and most importantly instill a positive attitude towards money.  It is something that they, like us, will have to deal with almost every day of their adult lives.  Teenagers today have far more financial decisions to make than we ever did, from which phone plan to choose to how to manage their credit cards.  In fact, in the United States they have Justin Bieber and Hello Kitty credit cards aimed at tweens!  It will be only a matter of time before we see them here.

I want my daughter to have a positive relationship with Money.  So with her third birthday we have decided to start now.  Of course it will be at a level appropriate for her age, much like the way I explain to her differences between boys and girls and why she has to sit down when she goes to the toilet!  However, it will also be an ongoing conversation for the rest of her childhood, right alongside the conversation about the birds and the bees.

If you liked this post you might also like:

How To Teach Your Children About Money

5 Financial Tips You Should Know Now You’re a Parent

How To Pay Off Your Mortgage Faster

3 Things You Really Need To Know When Saving And Investing For Your Child

 

 

18/09/2013 38 comments
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How to Use An Offset Account

For those who missed part one of this series on how to pay off your mortgage faster, please click here.

Ok, now on to the second part of how to pay off your mortgage faster, and this week it is all about how to use an offset account.  Many of you probably have one of these accounts as part of your home loan package, but it never ceases to amaze me how many people don’t really understand how it all works.  Most of the time I think it is because the banks don’t want to explain it to you properly because it is not in their best interests for you to pay off your mortgage early.  They would prefer to charge you the fees for the facility and not have you use it!  So here is my attempt to explain it all fully.

First of all, I have to declare this is one of my most favourite strategies to pay off a mortgage and it is the one my husband and I have used to banish ours.  But be warned, it is not for everybody.  Using an offset account is a strategy that requires oodles of financial discipline.  If this is not you don’t be concerned, just make regular repayments off your mortgage as outlined in part 1.  Easy.  However, if you have solid financial discipline then an offset account can be a great way to turbo-charge your repayment strategy.

So what is an offset account?

An offset account is a transaction account that is linked to your mortgage. The positive balance of your account is offset daily against the money you owe on your home loan.  This reduces the amount of interest you have to pay on your home loan.  For example, if your loan is $400,000 and you have $100,000 in savings, using an offset account will mean you only pay interest on the outstanding home loan balance of $300,000  ($400,000 loan minus the $100,000 savings).  This can cut years off your home loan term.  And remember your savings don’t have to be that big.  Keeping a balance of even $3,000 in the offset will make a difference in the long term.

Ok, so the aim of the game when you use an offset account is to keep as much money as you can in the account to reduce the interest charged on your loan.  This is where the financial discipline comes in.  You see the catch with an offset account is that it is like a normal bank account.  You have access to the money all day, everyday.  So if you can’t handle the temptation to spend, do not use an offset account!!

As the aim of the game is to keep your offset account balance as high as possible it is a great idea to have all your income paid into the account.  Wages, dividends, tax refunds, the lot.  Also, to take the strategy to a new level, many people then use their credit card to pay for their expenses.  This means that your income hits the offset account straight away and reduces your interest bill.  But by using your credit card it means that your costs for the month do not get paid for until the end of the interest free period.  Therefore, keeping the balance on your offset account as high as possible for as long as possible.  The key to using your credit card in this strategy is that you MUST pay off the balance EVERY SINGLE month.  Which is easily organised using an automatic debit through internet banking.  If you cannot pay off your credit card every single month, do not even think of using this part of the strategy as paying 20% interest on your credit card does not make sense to offset a mortgage which is only charging 5% interest.

Other tips for using an offset account:

(1)    Make sure it is a 100% offset account to make sure you are getting the full interest offset on any money you keep in the account.  That is if your interest rate on your home loan is 5% then the money in your offset account will offset the full 5% interest.

(2)    Make sure you link the offset account to your home loan.  Believe it or not you can have an offset but if you do not link it to your mortgage it will not be offsetting anything, regardless of how high your balance is.  Friends of mine had $100,000 in their offset account, only to find that they were being charged full interest on their mortgage because the two accounts were not linked!!!  &*^^%% (insert appropriate swear word here) banks!

(3)    Check how much the fees you are being charged for your offset account are and make sure it is worth it, given your guesstimate of your running balance in the account.

(4)    Offset accounts often come with a higher interest rate to pay for the flexibility.  Check the how much extra interest you might have to pay and make sure it is worth it.

(5)    Using an offset account can be seen as more tax effective than keeping your savings in a bank account.  This is because if you have a savings account with 4% interest and say you are getting charged 37% tax this is equivalent to roughly a 2.5% after tax return.  With the offset you get the benefit of offsetting 5% interest without any tax as you are not earning any interest, as such.  It is the equivalent of a 5% return tax-free.

Using an offset account can be a brilliant strategy to reduce your home loan.  Just be very sure you have the financial discipline to pull it off.  As without financial discipline, this strategy could send you backwards fast.

If you would like to read more from me in 2015 don’t forget to sign up to my weekly email using the form below:



If you liked this post, you might also like:

How To Pay Off Your Mortgage Faster

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Should I Fix My Mortgage Rate?

How I Saved On My Electricity Bill

5 Websites That Will Help You Make Or Save Money

Winter Family Meals On A Budget

Happy Investing!

 

Money Mummy

* Please note this is for your general information only and does not constitute financial advice.  Please see a financial planner or accountant to get advice specific to your individual needs

10/09/2013 55 comments
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