Paul's Insights: Three money danger zones to avoid
A ‘financial fitness’ study by Mortgage Choice and CoreData found Australians generally take a sensible approach to money management. However, the research sheds light on three potential danger zones, which left unchecked, have the potential to unravel our positive money behaviours.
Debt shame
The study confirmed that just over one in two Australians have some debt. That’s not necessarily a problem. A home loan for instance is essential to get into the property market, and it comes with a very low rate and the backing of an asset that should rise in value over time.
However, 43% of people with debt see it as a source of shame and embarrassment. One in three even attempt to hide the fact they owe money.
Trying to create a debt-free façade is not the solution. If you’re keen to become debt-free sooner, take a look at your budget to see how much extra you pay on top of the minimum regular repayments. Then make a habit of paying a bit more.
If you’re happy to go cold turkey, consider ditching the high interest credit card or buy now/pay later apps that make it easy to overspend.
Keeping up appearances
Whether it’s peer pressure, fear of missing out or just wanting to be like the Joneses, 35% of Australians say they feel under pressure to keep up appearances and maintain their lifestyle.
This pressure can be a real financial millstone, encouraging us to spend beyond our means.
It pays to remember that appearances can be deceiving. Those friends who take regular holidays or drive expensive cars? They could be deep in hock.
One of the best things you can do for your money health is to lead the lifestyle you can comfortably pay for. The concept of ‘If I can’t afford it, I can’t afford it’ may sound old-fashioned but it can help your finances stay in the black.
Keeping money secrets
One-third of us keep at least some of our financial habits – especially the bad ones, hidden from our spouse or partner.
Apart from undermining the sense of trust in a relationship, keeping money secrets from your other half can hold you back financially.
After decades in the money business, working with all sorts of clients, experience has taught me that two people genuinely working towards shared goals can achieve impressive results.
If you’re not comfortable having to explain your spending, think about allocating a fixed amount to a personal account for ‘treat’ spending each month. It can work as long you stay on top of household bills and remain on track to achieve shared goals.
Paul Clitheroe is Chairman of InvestSMART, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.
Frequently Asked Questions about this Article…
The study highlights three potential money danger zones: debt shame, the pressure to keep up appearances, and keeping money secrets from partners. Addressing these issues can help maintain positive money behaviors.
To overcome debt shame, it's important to acknowledge your debt and focus on managing it. Consider paying more than the minimum repayments and avoid high-interest credit cards or buy now/pay later apps that encourage overspending.
Keeping up appearances can lead to spending beyond your means due to peer pressure or fear of missing out. It's crucial to live within your financial limits to maintain a healthy financial status.
To avoid the pressure of keeping up appearances, focus on living a lifestyle you can afford. Remember that appearances can be deceiving, and it's more important to stay financially secure than to impress others.
Keeping money secrets from your partner can undermine trust and hinder financial progress. Open communication and working towards shared financial goals can lead to better financial outcomes.
Couples can manage finances transparently by setting shared financial goals and allocating a fixed amount for personal spending. This approach helps maintain trust and ensures both partners are aligned financially.
A practical step to become debt-free sooner is to review your budget and consistently pay more than the minimum required on your debts. This can accelerate debt repayment and reduce interest costs.
Leading a lifestyle you can afford is important because it prevents financial strain and ensures long-term financial stability. It helps you avoid debt and maintain a positive financial outlook.
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