I’ve often thought that ‘personal finance’ should be a subject taught in school. Surely understanding how to efficiently file our tax return would’ve proved more useful than knowing that the Latin word for dog is canis; that the square root of Pi is 1.777; or that Rome’s era as a monarchy ended in 509 B.C. Our games of Trivial Pursuit may become more amateur but at least we’d have a financially savvy population. Instead, we meander into adulthood with little more than an awareness that super doesn’t just mean great, and soon learn that it pays to be on top of our finances (literally).
So, if you’re raising your hand (and scratching your head) because you know little about investing, budgeting or dealing with debt, read on. We spoke to Damon Rasheed, CEO of rate comparison site, Rate Detective, and former economist with the ACCC, to find out how to manage our finances like a boss. Here are his top five financial tips that all successful women follow.
Research has shown that women are much less likely to ask for a pay rise than men, which is one of the contributing factors to the pay gap between the sexes. “As a general rule, bosses don’t hand over money! If you want to get paid what you are worth the only way to achieve this is to ask for it,” says Rasheed. “The discrepancy also arises when women first start jobs. Financially successful women negotiate the best package they can at commencement and make sure they have regular pay reviews.” Find out how to negotiate a killer wage here.
Creating a budget these days has never been so easy with a number of great apps and resources online. However, Rasheed warns us that the key to creating a successful budget is accepting that you won’t always stick to it.
“This may sound counterintuitive but strict budgets without any flexibility often don’t succeed. If you break the budget one month, it’s not the end of the world as your budget is just a guide, but the closer you stick to it the better off financially you will be. Just try to catch up in future months if you get behind. Also, ensure your budget includes a provision for some aspirational items such as holidays or luxury goods.”
Rasheed assures us that even the process of creating a budget and thinking about your finances will put you in front of most people who don’t take the time to do this.
Unfortunately there is a significant super gap between what women retire on compared to men and this gap has been widening over time. In Australia, women on average retire with $90,000 less than men, but Rasheed says there are 4 simple steps you can take today which can help reduce this gap.
Step 1: Consolidate your super into one fund
“Often women have several superannuation accounts and the flat fees and default insurances erode super balances. Companies like Rate Detective offer a free service to find lost super.”
Step 2: Consider a higher growth investment
Next examine your investment profile. “Most Australians have a default super fund but this option can leave up to half your money invested in low-growth, fixed-interest options for years. For younger women in their 20s and 30s, in many circumstances a better strategy may be to fully invest in growth assets. This can result in a significantly higher balance in the long term, even if you change your investment profile to a more conservative one as you approach retirement. To make this change, just call your super fund and say you want to switch to high growth.”
Step 3: Consider voluntary super contributions
“The main reason why women retire with lower super balances is that during the years where they are raising children, contributions are non-existent or lower if working part time,” says Rasheed. He suggests counteracting this by making concessional contributions (usually done via salary sacrifice) over and above the guaranteed amount during the times you are working.
“If you can afford to put a little more in your super during these periods, then it can make a considerable difference come retirement. If you are working full time there is generally a significant tax advantage when making these contributions. To do this, speak to your employer or financial planner about salary sacrificing.”
Step 4: Spousal contributions
“Your partner can make a spousal contribution to your super, which can give them a tax benefit and your superannuation a boost if you are not working or working part time. The amount is up to $3000 and can give your partner an 18% tax-offset. This is an especially good strategy if you are at home raising a family.”
Even if your significant other is managing the household bills and investments, Rasheed says it pays to be across them yourself. Above all, he recommends staying on top of debt and looking to refinance it into a lower cost option.
“When is the last time you had your home loan reviewed? Most Australians go directly to their bank to get a home loan, but through a mortgage broker you can have access to 40 or more products and are likely to find cost savings that could add up to thousands over the years.” Compare your home loan rate, against the market to see if you can save.
Sadly, things can happen that we would least expect or that are out of our control. Savvy women ensure they are protected for such circumstances with adequate insurance. According to Rasheed, “If you have a home loan or a family you should be considering life and income protection insurance for yourself and your partner. If cash flow is an issue, premiums these days can be funded out of superannuation, which also attracts a 15% tax rebate if structured through super. To get you started Rate Detective compares life insurance quotes from 11 of Australia’s largest insurance companies.”