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Module 1: The freedom of good credit

“Motivation is what gets you started. Habit is what keeps you going.” 

Jim Rohn

Tippla is a tool that helps Australians to access and understand their credit scores. We are not financial advisors. We work with a range of industry professionals and compliance check our content to ensure factual accuracy. We do not provide professional financial advice. Consider seeking independent legal, financial, taxation or other advice to check how the information in this lesson relates to your unique circumstances.

Introduction 

Having a good credit score could make a world of difference! Whether you want to invest, buy, rent or simply get a phone contract, your credit score may be the tipping point for a decision towards or against you. 

Additionally, good credit comes with a lot of opportunities. If you ever need to improve your cash flow quickly, you may have more credit options available to you at a better rate. In contrast, with bad credit, you may miss out on these options. You may not be able to apply for a mortgage as easily, you may find it harder to be approved for a rental contract, and finance may not be as easily accessible to you. 

Checking your credit scores gives you the powerful tool of knowledge and the ability to improve it over time. Tippla is here to support you on your journey to financial wellness that comes from having a solid understanding of what influences a credit score. 

Learn in today’s lesson: 

  • Why your credit scores matter; 
  • How to successfully plan your finances; 
  • The SMART way of setting goals; 
  • How to budget for your lifestyle;
  • Investing in your financial future. 

Why credit scores matter 

Your credit scores are some of the most important numbers of your life and rightfully so! With a better credit score, it could be easier to grow your money long term. Good credit should give you access to more resources and more opportunities. In fact, your credit score can be checked for some of your living costs, such as utilities and phone. 

benefits of a good credit score, good credit score

With great credit scores come great opportunities

Having a good credit score is your personal access key to become a club member for financial opportunities in the future. Even if you don’t need credit right now, once you do, many more options are open to you straight away. 

With a good credit score, you could unlock better credit rates that could help you save money long-term. It could provide you with access to higher cash flow and, therefore, more investment opportunities! 

You won’t have to shop around to get accepted for credit options. Instead, you could be pretty certain that one application will be enough if you meet all of the other criteria required to get a loan. Again, this could make investing much easier. You could get a mortgage to buy an investment property or take out an equity loan against an already existing property to invest in your business. The point is, whatever you want, these options are available to you if your credit score is looking good. 

Strategies for learning to love your finances again 

Do you feel anxious every time you check your balance? Do you feel uncomfortable when checking your credit score? Would you rather change the topic when someone talks about finance in your group of friends? You’re not alone. News.com.au states that almost a third of Australians never talk about money. However, we think you should! Looking after your finances is an act of empowerment! And Tippla’s got your back on the way. 

Biggest concerns for young Australians: 

  • Higher student loan debt

In comparison to previous generations, young Australians finish university with twice as much HECS debt as previous generations. On average, Gen X had to repay $10,000, while recent students are left with $19,000 of HECS debt. (Alphabeta: How Millennials Manage Money)

  • Increased house prices 

New generations will have to save much longer to be able to afford a house. The average house price in 1970 was 5x the average household income. House prices have now increased to 8x the average household income. (Alphabeta: How Millennials Manage Money)

  • Worries about retirement 

Only one in five young Australians in low-income jobs will be owning their house in the future. In combination with low Super contributions and less steady job prospects, the future of retirement for many young Australians is unclear. 

This perspective doesn’t sound too rosy. However, you don’t have to feel discouraged! In this lesson, we will cover financial strategies to help you love your finances again! 

The past, the present and the future 

In your strategy towards improving your finances, you shouldn’t only look forward, you should also learn from past mistakes and observe your current habits. There may be a lesson to learn there. 

To manage your finances successfully, you should have a look into three different areas: 

  • Your financial past 

While you may not like looking at previous mistakes you may have made, it’s one of the best places to start. You can assess your finances in a healthy, non-judgmental way – we all make poor decisions sometimes and deep down, we all know we didn’t need to make that impulse purchase last week. However, looking thoroughly into your financial habits could help you make smarter decisions in the future and give you an indication of how to structure your budget.

  • The present 

Time to set some financial goals. Where are you at and where do you want to get to? We will dive deeper into goal setting in a second. Additionally, you should try to frequently:

  • Check your credit scores to know where you stand;
  • Pay your bills on time;
  • Ensure you live within your means; 
  • Save towards your goals; 
  • Make additional contributions towards your Super. 
  • The future

Of course, you can’t foresee the future, still, you could make sure you are well set up for it. There are a few things you should be looking at: 

  • You may want to consider making extra payments towards your retirement fund. While you won’t see the benefits for a while, your future self will thank you. 
  • The same goes for any kind of long-term savings plan. Consistency is key to providing long-term stability and security for you and your family. 

The SMART way of setting goals 

When you’re setting goals for yourself, it is important to make them clear and tangible. Otherwise, it might feel hard to commit to them and you may struggle to feel a sense of achievement. The more specific your goals are, the easier it is to measure your success and to keep yourself motivated and accountable. Therefore, Tippla recommends that you set yourself SMART goals that are:

SMART budgeting

 “Getting rich” is not easy to achieve. “Having $500,000 on my savings account by the time I’m 50” sounds more tangible but still makes it hard to know what to do. Choose something frequent and time-restricted instead. E.g. “Saving $1,000 each month” gives you a direction of what to do and an appropriate time frame that you can work with. 

Safety through savings

Financial freedom means access to the right sources – and it means so much more than that. Financial freedom is not having to check your bank account before buying groceries, having an unexpected big expense coming up and feeling fine about it. It means having a budget that helps you meet your financial goals. 

Saving requires discipline and a good strategy. However, it could be really exciting! It provides a great safety network against any unexpected events that may come up in the future and could enable you to make decisions based on what you want, not just what you can afford. A good buffer of savings could be your backup plan for any major changes coming up in your life. No matter if you lose your current job, get sick, or your personal circumstances change, you know you make the best decisions for yourself without worrying about money.  

Setting up multiple savings accounts 

To keep track of different savings goals, most banks allow you to set up multiple savings accounts. If your banking app allows it, you can automatically send a certain amount of your income to a nominated savings account. 

How you organise your savings is entirely up to you! You could either divide it into short and long term savings or set up new savings accounts for each goal. Either way, having separate accounts could help you stay organised and keep track of your goals. 

Basics of budgeting

Do you know what you spend your money on? You would be surprised to find that it’s often the small habits that eat into your savings. You may be getting $80 worth of snacks every month without even noticing. That’s where a budget comes into play. A budget could help you dictate where your money should go instead of mindlessly spending it until it’s gone. 

A budget could: 

  • Help you reach your financial goals; 
  • Ensure you have enough money left to pay your bills; 
  • Keep you on track with debt repayments; 
  • Grow your money through savings. 

What is a budget?

Most of us know how much they earn but not necessarily how much they actually need. Your monthly spendings consist of three different areas: fixed expenses, variable costs, and savings.

Fixed expenses

These are any expenses that you know up front and that are recurring costs such as living expenses, membership fees or mortgage payments. The budget for these financial obligations can’t vary as it is already set how much you will spend on them each month. 

  • Rent 
  • Utilities 
  • Insurances 
  • Memberships 
  • Phone 

Variable costs

For variable expenses, it is important to set a realistic budget. You may want to track your spendings over the course of a month to understand where your money actually goes. Some banks already give you the option to categorise and track your spendings. Alternatively, you could stay old school and use a spreadsheet to track how much you’re spending. 

  • Groceries
  • Credit card/loan repayments* 
  • Mortgage repayments*
  • Restaurants 
  • Clothing/shopping 
  • Entertainment 
  • Other 

*They can have variable interest rates, therefore, the repayments may vary over time. Additionally, you may want to make extra repayments towards your debt that are within your budget. 

Savings 

Your savings are an equally important part of your budget. They build the foundation of your financial future and could enable you to navigate through any upcoming situation with ease. But there’s not just one type of saving, there are three main types of saving:

  • Long-term savings 

This includes your retirement fund and money that could allow you to realise bigger goals like buying a home. 

  • Short-term savings 

Money in this fund could be used for holidays or bigger purchases you want to make in the foreseeable future. 

  • Emergency fund

Imagine life doesn’t go to plan and you have a comfortable safety net of cash to catch you. The rule of thumb is to save up to 3 months of expenses to ensure that you have enough money not to stress in case of an emergency. Your car breaks down? No problem, you could pay for it from here. Did you lose your job? You have time to find a new one you love before you need to stress about bills. Your emergency fund could help you be more relaxed and comfortable. 

The money assessment – how much do I need?

Before you set up a budget, it’s important to know how much money you will actually need. If you are wondering where to start, you should assess your personal finances first. Budgeting isn’t supposed to restrict your life. Instead, the idea is to set realistic targets for certain areas in your life and spend your money more mindfully. There are a few questions you should ask yourself first: 

  1. What are your financial goals? What do you want to achieve within the next 6 months? What financial goals do you have long-term? You should make a difference between long-term and short-term goals – while you should make sure you have enough money to go on holidays and purchase the things you want, you also want to look out for your future self. 
  2. Are you saving for a specific purchase?
  3. What are the specific costs of your lifestyle that you can’t live without? Your budget may depend on where you are living and what your life looks like. A student may need a different budget than a single mother of three. 

Your budget should include the things you need and the things you want. It’s absolutely okay to plan to have a night out with your friends or to include your hobbies and interests into your expenses. It’s your choice what you want to spend your money on. While you want to make sure that you don’t overspend, your budget should express your actual state of spendings, not a best-case scenario. That’s why it’s better to keep it realistic instead, as it could be much easier to stick to it. The goal is to know exactly how much money you will need, so you won’t have to dig into your savings each month and then be disappointed with yourself. 

To get you started, you could use this Budgeting Spreadsheet.

Saving without FOMO: Transitional budgets 

You don’t have to cut down on all the things you love from tomorrow. It’s easy to feel stressed about your budget, especially if your current spendings are far off your dream budget. Therefore, having a transitional budget over the course of 6 months, for example, could help you get from where you’re at today to where you want to be in the future. As part of a transitional budget, if your time period has been set for 6 months, then you would set 6 different budgets that slowly and realistically move towards the budget you want to achieve. Through this method, you could cut down on expenses without stressing yourself out in the process. 

Financial security through multiple streams of income 

In 2017 2.1 million Australians had more than one job and the numbers are slowly rising. This surprising number shows a trend towards secondary income as either one job is not financially sufficient anymore or young people don’t want to lay all their eggs in one basket. If you rely on multiple sources to make up your overall income, you may find yourself in a more stable position as multiple sources feed into your general income. If one job falls through, other areas still provide some cash flow. However, do your research first. Keep in mind that a second job could actually lead to higher tax payments. Either way, it is a good concept to know about. 

Different streams of income could be: 

    • Main job 
    • Investment in property 
    • Investment in stock (dividends) 
    • Secondary job 
    • Online/hobby business
    • Blogging/affiliate marketing, if you have a platform 
    • Peer-to-peer lending
    • Savings 

Looking out for your future self 

Retirement still feels very far away? That may be true, however, it is crucial that you look out for your future self. If you make smart decisions now, you could surely feel them in 10 years. That’s why you might want to consider making additional investments to your super. 

By planning your retirement early, you allow yourself enough time to make your money work for you. 

Super 

When you work full-time or part-part time in Australia, your employer will make a contribution to your super account. The minimum payment is 9.5% and your employer has to make the payments at least quarterly. It’s worth checking if you are getting the amount you should be paid. 

The barefoot investor suggests making additional 4.5% contributions (of your pay before tax) towards your Super. This could grow your wealth significantly and provide interesting tax benefits. 

Tippla is a tool that helps Australians to access and understand their credit scores. We are not financial advisors. We work with a range of industry professionals and compliance check our content to ensure factual accuracy. We do not provide professional financial advice. Consider seeking independent legal, financial, taxation or other advice to check how the information in this lesson relates to your unique circumstances.

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