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This book is for you.
We hope to kindle your interest in the world of saving, investing and learning to be a good money manager.
You might be surprised to hear that most people never learn much about financial matters. Most people go right through school without any formal lessons on finance. They are not taught much about it at home either!
What a shame! As you go through life you’ll need a basic understanding of money matters to buy or sell a house or a car, to insure yourself or your home, to generate extra income such as dividends to supplement your salary, to prepare for retirement one day, and much more.
Managing money is a necessary and unavoidable part of life.
Generating capital gains and dividends to supplement your income can be important. We can’t all be high fliers on stupendous salaries, but if you can learn to live within a budget and discover the benefits of saving and investing then you can look after yourself quite nicely. If you turn out to be a high flier as well then so much the better!
Your money management skills can be important in other ways.
For example, you will cope better with a medical emergency if you have the resources for private health cover with your choice of doctor, and you can pay for any extra charges, and can afford time off work. Most importantly, you’ll cope much better if you can avoid waiting lists.
While health issues and accidents can present you with an unexpected need for money, if you have been a good money manager you’ll worry less about the expense.
Another example? Suppose that you want to work for a year in London or Beijing? If you have been a good money manager you will find it much easier to take full advantage of every opportunity. It’s nice to have a choice.
Some folks don’t want to talk about finance or money matters. ‘It’s boring,’ they say.
Yet these same folk are most likely to end up paying twice as much as they need to for a TV set, or a car. Being aware of the true cost of interest will change your attitude. With a little practice you will quickly learn to calculate the total cost of a purchase including all extra charges, interest, penalties, depreciation, maintenance and more.
How many hours will you have to spend at work to earn the money to pay for this purchase? The sales posters may scream ‘Interest Free!’ but there is no such thing as a free lunch and at the end of the day you would not be the first to pay twice the necessary price on such things as a TV set or a car.
Understanding financial stuff also helps to protect you from being ripped off. Without some knowledge of financial matters all your money may soon belong to someone else – or simply be lost.
The Westpoint debacle mentioned later in these pages is a tragic example of people putting all of their savings into the one bad investment and then losing the lot.
Some of these people took a superannuation lump sum of as much as $250,000 and invested it all in Westpoint. This company is now out of business and the investors have lost their money. Instead of a comfortable retirement they have had to go back to work – as much as age and health issues will allow – or live on a bare old age pension without the comforts they had hoped for.
We can’t say, ‘Silly people, should have gone to see a Financial Planner’, because it may have been a Financial Planner who suggested the investment, and got a sizable commission cheque when the money was lodged.
It is often harder to safeguard your savings than it was to save them in the first place.
The shock value here is that the investors seemed unaware of risk and had no plan to manage risk.
The $250,000 should have been split into, say, ten or more separate investments so that if one investment went bad it would not affect the others.
With such a large sum of money we would have sought advice from a Financial Planner at one of the banks. Then, being careful, we would have sought a second opinion. If, at that point, the advice was to put all the money into one single venture we would have made our excuses and left in haste. You can’t be too careful!
We would have checked that not only was the investment broken up into a number of parcels or smaller investments but also made sure that it was not all invested in the same industry segment. It may not help to split the total sum into ten parcels if they are all invested in coal mining, because then they will all be tied to the fortunes of coal.
So you will need to learn how to save and invest, how to balance risk with potential reward, and how to minimise risk.
It can be a tedious process to save up the money required for the deposit on a house, or for the price of a car. All too often inflation carries your target further away from you faster than you can save.
This book offers you a step-by-step example of how to cope with such a challenge and how to stay reasonably safe along the way.
If each of you begins to follow the plan when you turn eight years old you will learn the value of saving and investing, and in the process you’ll learn about dealing with the bank, buying and selling shares, budgeting and saving, planning ahead and the satisfaction of realising the benefits.
This is not a textbook. It is not designed to offer detailed financial advice. It does not deal with any subject exhaustively. It makes no attempt to cover all the options. It does not take into account your financial situation or objectives because that is still too far into the future.
More to the point, we have left a great deal for you to discover for yourself. For example, we mention that you should prepare your own tax returns, but left you to find your own way through the maze. (However, the Australian Tax Office phone number is included.)
So this book is meant to start you thinking. By its very existence it is also meant to act as a constant reminder that the entire plan depends on being a persistent saver and never stopping.
If it helps you to become a successful saver and investor it will have achieved its purpose.
But it will stop well short of telling you what to think and what to do. We hope to provoke a response and encourage you to think for yourself. We hope to encourage you to become aware of risk and include it in your plans.
This book puts a narrow argument – that you should put aside some of your income each week (become a saver) and at regular intervals invest your savings in growth assets such as shares (become an investor).
It suggests a plan to make it possible for you to buy a good second-hand car for cash when you get your licence, and then to continue on saving and investing towards (perhaps) a reasonable deposit to buy an investment property in your mid twenties, an investment property that can pay itself off while you are doing other things.
Along the way, your knowledge and understanding of financial matters will grow along with your extra wealth.
It is not difficult. You can make it happen. There is a substantial reward!
Your parents and grandparents should be able to help. As you get older you can take more responsibility for the program yourself and re-read the tips in this book before making the annual investment decisions.
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