I’ve heard the phrase “If only I knew that back when I was younger”, time and time again over the years.
While it’s too late for many of us, understanding the personal finance tips we all wish we knew at age 18 might help the younger generations who are just starting out on their financial journey.
After all, one of the most important things we can do as an adult is to equip our younger generations (and for parents, we can equip our children) to manage their lives more effectively by sharing with them the lessons we’ve learnt along the way.
Whether the topic is relationships, life, career or finances, we have all learned lessons over the years which, if we knew back then, would place us in good stead for the future.
While we all made mistakes and gradually learned through life's experiences, the lessons that have made us who we are today.
Did you know that most Australians don’t teach their children anything about money?
It means that we are raising our children to be financially illiterate.
Is it any wonder that most Australians live pay cheque to pay cheque and accumulate more debt than assets?
What’s worse is what our children are being taught by their parents, the school system, politicians and the media.
But they are teaching our children that the wealthy are greedy, have too much money and that this wealth needs to be redistributed.
What kind of a message do you think that sends to our future generations?
To help break the cycle, here are 13 personal finance tips I wish someone had told me back when I was 18.
1. Educate yourself
When it comes to your personal finances, education is what will set you apart from the rest.
As I mentioned previously, most Australians are financially illiterate.
And financial literacy is key to making informed decisions.
So, read books, subscribe to blogs, listen to podcasts, or follow experts to learn about budgeting, investing, taxes, and saving.
The more you know, the better equipped you are to grow and protect your wealth.
2. Start saving early
Compound interest is your best friend.
Even small amounts saved consistently from an early age can grow significantly over time.
To bump up your savings, you may need to learn how to create a budget.
You should also get into a habit of making regular deposits into a high-interest savings account so you can show your lender that you have financial discipline.
3. Create a budget
Budgeting is one of the most important financial habits you can develop.
It’s about knowing where your money is going each month, so you can make informed decisions, avoid overspending, and plan for the future.
First, you should track your income and expenses, including rent, bills, groceries, entertainment, subscriptions, and even smaller purchases like coffee.
You can use budgeting apps, spreadsheets, or simply a notebook to track your spending.
Then, separate your ‘needs’ from your ‘wants’.
Essentials like housing, utilities, groceries, and transportation should take priority in your budget while things you want but aren’t absolutely necessary should be pushed further down the list.
The next step is to allocate a portion of your income for savings, whether it’s for an emergency fund, future goals (like a house or travel), or retirement.
The recommendation is that you aim to save at least 20% of your income if possible (the 50/30/20 rule is a good guideline: 50% for needs, 30% for wants, 20% for savings).
Next, set up a plan to repay your debt.
If you have loans or credit card debt, budget for consistent payments - prioritise paying off high-interest debt first to avoid being trapped by compounding interest.
4. Learn the difference between good and bad debt
Taking on debt isn’t the problem, but not being able to repay debt is an issue.
And that means that cash flow management is a critical part of wealth creation.
Here are the three types of debt:
- Necessary debt. This is the debt you need to take out against your home.
- Good debt. Good debt is ‘efficient’ as it helps you buy appreciating assets such as income-producing investment properties, business loans or even a student loan.
- Bad debt. ‘Inefficient’ debt can keep you poor forever. This is what you’re left with then you buy depreciating assets that decline in value over time.
From buying luxury items to gadgets and toys, bad debt includes things like car loans, credit cards, payday loans or buy-now-pay-later services (BNPL).
The problem is, that a lot of this type of debt usually comes with high interest rates, so if you only pay the minimum, you’ll be falling deeper into debt for an item that won’t go up in value or generate an income.
5. Don’t waste your money on depreciating assets
This is a good follow-on tip from the point above.
A depreciating asset is something that declines in value over time, meaning you will continually lose money on it.
These include things like cars, electronics, gadgets, appliances and even fashion and clothing items.
So while it might be tempting to spend your money on the latest gadget, the newest car or the expensive wardrobe items, remember that these are sure-fire ways to lose your money.
Instead, when making financial decisions, it's important to consider how certain purchases will lose value over time and how that affects your overall financial health.
In personal finance, being mindful of depreciating assets can help you avoid excessive spending on items that won't hold their value, and focus on investing in things that can build wealth.
Instead, all Aussies should focus their attention on appreciating assets like property, stocks, shares, business, collectable items or precious metals.
These appreciating assets are valuable because they can generate wealth, either by selling them at a higher price in the future or by generating income (e.g., rental income from property, and dividends from stocks).
These assets are often seen as a form of long-term investment, and understanding which assets are appreciated helps people make smart financial decisions.
Investing in appreciating assets is a key strategy for building wealth, as their increasing value contributes to growing net worth.
6. Build an emergency fund
No matter how hard you try, and however robust your budget is, sometimes unforeseen circumstances happen.
So, you need to budget carefully to allow for contingencies associated with your income-producing asset.
For example, what if you suddenly lose your job, are faced with a large medical bill or your car breaks without warning?
If such incidents occur, you need to ensure that you have enough funds during the interim to cover repayments and other expenses.
The federal government’s Moneysmart website suggests you aim to have enough in your emergency savings fund to cover 3-6 months of expenses.
And it needs to sit somewhere that you can get easy access to it if, or when, the time comes.
7. Live below your means
Ultimately, the rule is that you should always spend less than you earn, and invest the difference
Just because you can afford something doesn't mean you should buy it.
Practice delayed gratification and only spend on things that truly add value.
The ability to save and practise financial discipline is a crucial part of financial success.
It’s easy to put expenses on your credit card and take on extra debts.
Learn to sacrifice and don’t ever bite off more than you can chew and borrow more than you can afford.
8. Understand the basics of investing
Understanding the basics of investing is crucial for building long-term wealth and achieving financial independence.
Learn about stocks, bonds, index funds, and other investment vehicles.
You don't need to be an expert, but investing early will grow your wealth over time.
Investing allows your money to work for you by generating returns through interest, dividends, or capital appreciation.
Investment knowledge helps you avoid common financial mistakes, like falling for get-rich-quick schemes or putting all your money into a single, high-risk venture.
Knowing the difference between short-term speculation and long-term investment helps you stay on track for your goals without making impulsive decisions.
9. Avoid lifestyle inflation
Lifestyle inflation (also known as lifestyle creep) occurs when people increase their spending as their income grows.
While it’s natural to want to improve your lifestyle when you earn more, it’s important to resist the urge to quickly upgrade your expenses.
Falling into the trap of lifestyle inflation can prevent you from building long-term wealth, even if your salary significantly increases.
As your income increases throughout your working life, resist the urge to upgrade your lifestyle too quickly.
Keep your expenses in check and continue saving and investing.
10. Build good credit
Building good credit is crucial because it directly affects your ability to access loans and credit products, such as mortgages, car loans, and credit cards.
Lenders use your credit score to assess your risk as a borrower, and a high score increases your chances of approval for credit with favourable terms, such as lower interest rates and higher credit limits.
Without good credit, borrowing money might be more expensive, harder to access, or not possible at all.
Also, remember that a good credit rating can impact other areas of your life beyond borrowing money.
For example, some landlords, utility companies, and sometimes even employers might check your credit score..
After all, a strong credit history demonstrates financial responsibility, which can help in securing a rental property, setting up utilities, or even landing a job.
So pay bills on time and manage credit wisely.
11. Understand the difference between good and bad advice
This might be an obvious one, but it’s where so many people, especially Aussies, fall short.
When it comes to your personal finances, it’s important to understand who you can go to for advice, and who you should go to for advice.
Because advice isn’t one-size-fits-all, there’s the good and the bad and it's important to know how to shift through it.
Think about it, who do you ask for advice?
With so many mixed messages and vested interests, who can you really trust?
It might be tempting to take advice from your family, friends, the media or even your accountant.
But remember that everyone has their own vested interest and very few have the experience to give you true unbiased advice.
For example, it’s tempting to be swept away by the media headlines written by doomsayers, but it’s important to note that the media wants to sell the story, or one version of the truth.
On the other hand, an accountant could advise you on tax matters, but most don’t have the intimate knowledge of finances to be able to give good financial advice.
Even when it comes to buying a property, many make the classic mistake of thinking a real estate agent is a good place to go for information, but why’re working for the vendor to help them achieve the best price?
And while it’s true that your friends or family might have your best interests at heart, unless they’re a millionaire or financial planner, they’re no help either.
The best place to take advice is from a professional or experienced person in that field.
If you need to talk about tax, speak to your accountant, if you need advice on financial products, speak to a financial planner, and if you need advice on property investment, go to a property adviser or strategist.
12. Luck is actually just hard work
Many of us like to attribute the success of others all to ‘good fortune’.
Perhaps they were in ‘the right place at the right time’, or knew ‘the right person’.
While a handful of people have lucked out by winning the lottery, truly successful people do the hard yards to reach the pinnacle of their chosen field of endeavour.
If you can find something you’re passionate about and make a living doing it, you’ll be far more likely to achieve great things because you’ll work harder to reach your goals… and every day won’t be a struggle.
13. You don’t need millions to achieve financial freedom
No matter what age you are, financial freedom is the aim of the game.
Imagine being able to put your feet up, not worry about your income and have your money work for itself.
But did you know that plenty of millionaires are up to their eyeballs in debt - many of society’s rich power players are asset-rich, but cash-poor?
Some are indentured to their creditors indefinitely.
Whereas other people, who earn $50,000 a year, are without debt and financially free.
Financial freedom is not dependent on money itself, but on your relationship to it and the level of personal responsibility and fiscal discipline, you’re prepared to exercise throughout life.
The bottom line
By equipping our younger Australians with the information they need in life to manage their finances effectively, we’re setting them up for a more successful future.
And they haven’t had to make many of the mistakes that those before them had to live through.
After all, we are likely to be the only mentors and we’re definitely likely to be the most influential mentors our younger generations have.
So unless we teach good daily success habits and level the playing field, the rich will continue to get richer and the poor will continue to get poorer.
