There’s really no strict definition of financial maturity to benchmark ourselves against, but there are certain things we should be able to check off.
How many times are we told to “act like an adult”, “grow up” or “get a bit of maturity”… whatever that means.
Whether it’s behaviour, humour, manners or lifestyle, there’s a level of expectation which governs the opinions of others. To make grown-up decisions.
It’s the same with money. Financial adulthood means taking ownership of your money, rather than just letting it happen. Financial maturity means using your money to match your values and to finance your dreams.
Just like with growing up in general, there’s no really strict definition of financial maturity to benchmark ourselves against. So here’s my checklist of what I think you need to reach monetary adulthood. In my view, financial maturity is really about doing what’s needed to fund the lifestyle you want.
1. You have a credit and a debit card
Be able to pay your monthly credit card balance on time and in full is a sign of financial maturity. That means without going into overdraft on your transaction account!
2. You know your credit score
It’s pretty easy to learn what your credit score is and check your credit report at least annually. Knowing your score gives you power to negotiate better deals and checking it ensures there are no costly mistakes.
3. You’ve only got one superannuation fund
Financial maturity means you’ve consolidated all your superannuation into one super fund and you understand and check regularly. Ideally, you’d be making extra annual contributions up to the limit. Remember, superannuation is the second biggest asset of most Australians (their home being the biggest).
4. You’ve built an emergency fund
As a general rule, the ideal is to have six months worth of salary in a separate savings account to use in case of a financial or medical emergency. At a bare minimum, you should have $2k in this emergency fund – many Australians say they couldn’t raise this amount even in a dire situation.
Tips to help: 5 steps to build your emergency money stash
5. You have adequate insurance protection
That means, insurance for you (life, income protection), your health, car and home. The amount of cover you need depends on your age, commitments and circumstances. Often it’s best to get expert advice and recommendations.
6. You have some form of a financial budget… in writing
There are so many budget templates out there and a huge number of good smartphone apps. There is absolutely no excuse not to have a killer budget. True financial maturity means you’ll have time marked in your diary to review and update it weekly, monthly, quarterly and annually.
7. You know exactly what your take-home pay is
I know this can sound a bit simple, but you’d be amazed at how many people don’t know the amount they earn after tax. Add in any regular overtime, part-time jobs or money you make from a side hustle. Your total income is the cornerstone of your budget.
8. You know your net worth
Your net worth is simply the value of your assets (house, investments, superannuation balance, car, etc) less any debts you owe (home loan, credit card balance, personal loans, etc). Do this calculation annually as it provides a concise barometer on whether your personal wealth is improving or not.
9. You spend less than you earn
Living within your means is the absolute foundation of financial maturity. It’s not complicated. Don’t spend what you don’t have.
Get out of the rut: 3 simple tips to stop overspending
10. You’ve got a system for paying your bills on time
Whether that’s setting up a direct debit for regular costs or a calendar alert in your smartphone, you shouldn’t be forgetting about bills, or leaving them unpaid. If you automate payments, regularly check the statements are correct.
11. You know when you’re going to be debt-free
Financial maturity means you know exactly when you’re going to have the house, car, investment and any other loans paid off in full. A rule of thumb is that if you have consumer debt you should have no savings… it should be used to pay off your debt. That doesn’t include your emergency fund, though (see above) – keep that separate. Credit card debt (and to a lesser extent personal loans) has extremely high interest rates that should be paid down first.
12. You’ve got financial goals and know how you’ll achieve them
Looking after your money better can be pretty boring if there are no goals you want to achieve. Could be buying a house, going on a big holiday, paying off the car, putting the kids through school, retiring in style… the goals are endless. Having a goal provides an automatic map of how your finances will be used to make your life better and more enjoyable. It also gives you an incentive to stick to your plan.
13. You plan your tax better
Everyone has to pay tax to do our bit for keeping Australian society and services the way they should be. The aim is to pay the right amount of tax and not more than necessary. Start by improving your record keeping, use good tax software or meet with an accountant or tax agent.
Start here: Tips and tricks to maximise your tax return
14. You’ve organised your important documents
We have what we quaintly call our “death file”. One spot where all the important documents are kept in case one of us (or both) die. The deeds to the house, wills, bank details, investment records, etc. In other words, records of your financial life should be kept in the death file. Many people digitally scan the documents into a folder and email them to their loved ones for safekeeping.
15. You’re confident negotiating a better deal
Negotiating for a better deal (or even challenging an existing one) isn’t easy, but being able to stick up for yourself is an essential sign of financial maturity. If you don’t speak up for your money, no one will. For example, never automatically pay an insurance premium without asking for a better deal, or question an unknown expense on your credit card statement. It also pays to negotiate for a pay rise, or a better interest rate on your mortgage. More negotiation tips here.
16. You can say no to expenses you can’t afford or don’t want
Confidently being able to say no to things you don’t want in life is critical. On the other hand, know when it’s most important for you to be able to say yes, and figure out how to afford the things that mean the most to you. Being a savvy spender is crucial to financial security. Determining which is an important expense and which is frivolous can save you a fortune.