How SMH economics writer Jess Irvine turned her financial life around

As my career blossomed in my late 20s and early 30s, I thought nothing of dropping $ 400 on a new designer suit jacket, a meal at a posh restaurant or a night at a fancy hotel.

I remember spending about that much to have my childhood copy of The Lord of the Rings rebound in an expensive, fabric-clad hardcover by a specialist antique book store.

Pretty cool, right?

But then, one day, you find yourself pushing 40 as a divorced single mum who doesn’t own a home, has never invested in shares or property, and has no idea if she’s on course for a comfortable retirement.

I’m the classic example of someone who knows a lot about something in theory, but was pretty crap at applying it in practice.

But, as the dust began to settle on my new life, I did start to slowly pick myself up and put my financial life together.

Underpinning all my progress, I believe, is a budgeting system I created to sort, organize and track my money: the system this book is ultimately designed to teach you to use yourself.

For two decades, the authors of the Australian Unity Wellbeing Index survey have asked Australians to rate, on a scale of 1 to 10, how satisfied they are with their life. Their clear conclusion is that it’s not money, per se, but “financial control” that matters most. “People with lower incomes can actually achieve higher wellbeing than those on higher incomes, so long as they have a higher perceived control over their financial position,” the study authors concludes.

Indeed, financial control forms one part of a golden triangle of happiness that predominantly determines our wellbeing, alongside personal relationships and a sense of purpose.

In my career as a finance journalist, I’ve observed the way lots of people – such as readers, editors, fellow journalists, politicians and voters – think about money.

Overwhelmingly, I see people stuck in a pattern of thinking money is just too complex – too overwhelming – to understand. It’s also common to believe that money is boring (this one hurts my soul!) Or that it’s just the case that some people suck at money.

The good news is that if you’re one of those people who believe these things, honey, you’re wrong. Don’t feel too bad about it. An entire financial system exists that profits from your overwhelm. To fight it, you need to learn to manage your thoughts and emotions about money.

Flashback to 2020: Jessica Irvine records a podcast with Commonwealth Bank CEO Matt Comyn and Treasury Secretary Steven Kennedy (appearing remotely from Canberra).

Flashback to 2020: Jessica Irvine records a podcast with Commonwealth Bank CEO Matt Comyn and Treasury Secretary Steven Kennedy (appearing remotely from Canberra).Credit:Dominic Lorrier

Because, let me let you in on a little secret. At its heart, money is dead simple.

Ultimately, money is just a medium for exchange. You give up your time and skills to your employer and, in exchange, they give you money. You then take this money and exchange it for all the goods and services you need and want to live a happy life.

There it is: money explained in just a few easy sentences.

The nifty thing is, if you can learn to curb your spending desires over your lifetime, you can reduce your need to work as hard or for as long. Alternatively, you can work harder and upskill to get more money to exchange for more of the things you want to buy. You get to choose.

Only problem is, across your lifespan you’re likely to encounter periods of time when you’re less able to exchange your time for money. You’ll still need to buy stuff, of course, but you won’t have the money coming in to fund it. Economists call this the “life cycle hypothesis” and it necessitates a process known as “consumption smoothing”.

When you’re very young, it’s likely your parents will spot you the difference, paying for your food and accommodation until you move out of home.

Jessica's Irvine's new book.

Jessica’s Irvine’s new book.

In early adulthood, when you’re either studying or not earning much money, it’s likely, however, that you will incur some debts in order to fund your income shortfall. Borrowing to fund your education or to travel can be a good decision if, over your lifespan, it broadens your horizons and boosts your future income-earning potential.

At some stage, however, you’re going to have to pay for the stuff you bought and pay the debt back.

To do this, you need to keep earning money and start scoring some pay rises. This is the time to start thinking about paying off your debts and starting to set a little extra money aside to support yourself in the future when you’re older and either can’t work, or don’t want to work.

And that’s really all there is to personal finance.

Many personal finance books get you to start out by dreaming up your individual “money goals”. But I reckon there’s really only one goal that people need, and that’s to generate enough lifetime income to fund their lifetime wants and needs.

If I had to summarise personal finance (for non-retired people) in just once sentence, it would be this: Spend less than you earn; invest the rest.

TOP 10 SAVING HACKS

  • HOUSING: Price check your mortgage in less than a minute by googling ‘MoneySmart mortgage calculator’. It defaults to the average interest rate on new home loans. Lenders reserve all their best rates for new customers, so check to see how yours compares!
  • HOUSEHOLD: Check local council websites for regular ‘hard rubbish’ or ‘household waste’ collection days. I once scored a sofa worth about $ 3000 for free from a neighbor moving interstate. It’s recycling and saving at its very best.
  • UTILITIES: Shop around for the cheapest energy provider in your area. Victorians head to the Victorian Energy Compare website and everyone else to Energy Made Easy.
  • TRANSPORT: Shop online for great price deals on tires. Find your tire size, usually displayed on the side of your tire. For example, mine is 215/65 R16. Punch these details into google for some good deals.
  • FOOD: Shop your pantry first. You’d be surprised how long you can last without restocking. Set yourself a challenge to last as long as you can before you head to the shops!
  • HEALTH: Only pay for ‘extras’ health insurance if you actually receive more in claim benefits than you pay in premiums. You’re only required to have eligible hospital cover (not extras cover) to avoid paying the Medicare levy surcharge.
  • EDUCATION: Download your local library’s app to access a world of free books and audio on your iPhone. BorrowBox is a common one.
  • APPEARANCE: Space out your beauty appointments. If you usually go every eight weeks, try 10 weeks instead.
  • LIFESTYLE: Try giving up alcohol for a period of time. Start with a week and see if you can stretch it out to a month. Alternatively, experiment with only drinking on weekends or when you’re out of the house.
  • PROFESSIONAL FEES: Take advantage of zero per cent credit card balance transfer deals. Just beware any high fees or revert interest rates (and aim to have the card paid off before the interest free period ends).

Many people believe the money myth that “I’ve left it too late and I’ll never have enough money”.

The reality, however, is that most Australians do retire with enough money to live off when their private savings are combined with the full or part age pension.

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According to a report by the Grattan Institute, many Australians can, in fact, expect to enjoy a higher income in retirement than they had during their working lives, due to the relative generosity of the age pension compared to other working-age welfare payments.

The age pension for singles today is about $ 25,000 per annum and $ 38,000 for couples. The unemployment payment JobSeeker, by contrast, pays just $ 16,367. So many Australians actually get a pay rise in retirement.

Which is not to say that living on the age pension alone is going to fund a particularly lavish lifestyle, and particularly not if you don’t own a home. But it’s something. And it’s not going anywhere.

Of course, the only real way to know what income you might want in retirement is to track and project your actual spending habits.

How much do you spend on food each month? How about trips to the doctor? How much is your health insurance? How much do you spend on petrol?

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If you want to buy a home, retire comfortably or borrow to build wealth, you’re going to need an idea of ​​your annual spending. You’re going to need a “budget”.

I believe the reason many people recoil when they see or hear the word budget is because it signals something overly restrictive, akin to a diet. That word diet also gets a bad rap. That’s because it’s usually associated with a particular kind of diet – that is, one in which the amount of food consumed is restricted to less than a person’s daily calorie requirement, with the goal of achieving weight loss.

A budget is simply a statement of what you earn and spend over certain time period, along with some calculation of the resulting surplus or deficit.

A budget can be as simple as a piece of paper on which you write your estimated income, expenses and resulting surplus or shortfall. Yes, this information will show you if you’re saving money or not. But the budget itself is agnostic as to whether you should be saving, or by how much. That’s entirely up to you.

The real purpose of a budget is to give you a picture of your overall financial situation. You might be scared about what that picture could ultimately reveal, but a budget can’t hurt you. In fact, I believe it can only help by giving you the clarity you need to start making better decisions about where to allocate your precious money.

I firmly believe that creating a budget is the foundation stone upon which all good money decisions are built.

My name is Jess and I’m good at money. Bloody good, in fact.

And you can be, too.

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