Your Money

It’s time to rethink these misleading money tips

- August 5, 2021 4 MIN READ
Misleading money tips

You’ll have heard these misleading money tips doing the rounds everyday like they’re gospel. It’s definitely time to hear some better advice!

How often has someone told you to avoid credit cards at all costs? Or to start saving for your kids’ education the minute they’re born? These are both common misleading money tips that will probably end up costing you plenty.

Some misleading money tips keep doing the rounds because they were once true, but new evidence has proved them wrong. Others are misleading because times have changed and what worked for your granddad no longer applies.

Whatever their reason for existing, these seven money tips need an immediate rethink. Even if you hear them on a daily basis.

1. Save 10 per cent for retirement

Saving 10 per cent may have been true at one time, but experts agree that we need to set aside much more than 10 per cent of our net income to retire. Anything less means our options will be reduced, especially now that we’re all living longer.

How much you’ll need in your super fund when you retire is dependent on the lifestyle you want to lead and the big costs you’ll incur during your retirement. Most Australians can expect to live well into their eighties. So, if you retire at 65, you’re looking at funding at least 20 years or more.

ASFA estimates that to retire comfortably, the average Aussie couple who owns their own home outright (that’s a big one) and is relatively healthy (another big one), needs $62,828 per annum. The lump sum you need in your super to support that lifestyle is $640,000, assuming you’re eligible for a partial age pension.

Will 10 per cent of your income get you there? Chances are it won’t be enough. That means, your employer contributions into your super fund won’t be enough. Time for a rethink. How much extra can you put into your super each month, starting now?

More tips here: 6 strategies that can supercharge your super

2. Avoid credit cards at all costs

Financial gurus have long tagged credit cards as a beast. But it’s not the credit cards themselves that are the problem, it’s the way we use them.

Credit cards offer rewards programs, most offer travel and rental insurance, and all offer fraud protection. Sensible use of credit cards also fast tracks you towards a good credit score.

The key is to establish smart habits like taking advantage of the interest free period and always paying off your debt on time.

A word of caution: Sandy Milne, the national manager of financial security at Good Shepherd, a charity that helps disadvantaged women and girls, told CHOICE that they “often find that what’s tipped people over the edge [and into debt] is… a change of circumstances”.

“What we’re already starting to see now with COVID disadvantage, is an increase in people who have been using credit card debt,” said Milne. “And it’s been largely working for them, but now their income’s reduced… [they] can no longer pay.”

Make sure you always have a significant buffer in place between what you’re paying for with credit and what you can afford to pay back.

3. Rent money is ‘dead money’

Buying their ‘dream home’ is increasingly becoming out of reach for many Australians. But all is not lost.

While property has historically been a good investment in Australia, you don’t have to buy property in order to build wealth. In many parts of the country it costs substantially less to rent than to buy. In Sydney, for example, it’s cheaper to rent 95 per cent of dwellings than pay down a mortgage on them. Which hopefully leaves you with some surplus cash to invest elsewhere.

That’s the key, of course. Saving money by renting is only good if you invest the money you save elsewhere. If you blow it on lifestyle choices, effectively its dead.

4. You need to save for your child’s education

This is one of those big misleading money tips that people start offering the second your child is born. The fact is, education in Australia doesn’t have to cost a lot at all. So unless you’re planning to put your kids through a top private education, chances are you can afford to educate them without saving.

Instead of saving for their education, it might be worthwhile saving to invest on their behalf. It’s even worth considering having enough money to pay them some decent pocket money so they can start learning key financial habits as young as possible. The earlier they start, the richer they’ll most likely be throughout life.

You might want to consider saving for university fees. Changes to government funding mean they are rising fast, particularly for humanities degrees. That said, HELP debt (formerly known as HECS) is considered ‘good debt’. Unlike mortgages, credit cards and other personal debt, HELP debt doesn’t incur interest. It only rises with the inflation rate. You also don’t need to start paying it back until you’re earning above $47,014 (click here to check the latest).

According to Market Index, Australian share market has historically returned an annual 11.8 per cent including dividends. That’s much higher than the 0.6 per cent indexation rate applied to HELP debt last year.

So you’re most likely going to be significantly better of investing elsewhere, rather than in your kids’ education.

5. You need a financial adviser

If your financial affairs are uncomplicated, chances are you won’t need a financial adviser.

When your assets are modest, you have no debt, you’re managing your own investments just fine and your savings are all in your super, why hire someone to tell you what you already know?

This is especially the case if you’re already retired and what you’ve got set up is working for you. You’ve got plenty of time on your hands to keep up to date with the markets and economy and plan your finances accordingly.

6. Retire as early as you can

Early retirement suits some of us, but not all of us. If you love your job it makes no sense to plan for an early retirement just so you can show off your golf swing. Keep working for as long as you’re comfortable.

There are plenty of health benefits attached to staying in work, too. Harvard Health reports that working past the age of 65 can improve your overall health and even increase your life expectancy. The mental stimulation and problem solving needed for work help keep us mentally stimulated as well.

It therefore makes sense to consider your health as well as your finances when deciding what age you will retire at. If you’re keen to keep working, you might find that your older age is the perfect time to monetise a side hustle, or even start a new online career.

This article contains general information only. It should not be relied on as finance or tax advice. You should obtain specific, independent professional advice from a registered tax agent or financial adviser in relation to your particular circumstances and issues.