Developing your knowledge of personal finance not only gives you the ability to take control of money matters, it can also help you start growing your wealth.
While many of us are beleaguered with student loan or credit card debt that are hindering our ability to move forward, there is a sane way to solvency.
Sydney-based money coach Canna Campbell aka Sugar Mamma recently revealed her answers to the most common questions she’s asked by those wanting streamline their finances in order to cut debt, maximise savings and increase their income.
Sydney-based money coach Canna Campbell aka Sugar Mamma recently revealed her answers to the most common questions she’s asked on all matters financial
1. SHOULD I USE SAVINGS TO PAY OFF CREDIT CARD OR STUDENT DEBT?
Of all the questions the finance expert is asked by those seeking out her services, the most common is should savings be used to pay off credit card or student debt.
‘Basic maths says pay it off,’ she said in her video.
‘If you have $10,000 and the credit card company is charging you 17 per cent per year $1700. That is a charge of after tax dollars.
‘Depending on your marginal tax rate, you have to earn between $2000 and $2500 just to service the interest on that credit card debt.
She then goes onto explain that if you have $10,000 in savings it’s likely given current interest rates you’d only be earning $250 a year in interest a year.
‘It’s incredibly toxic to be carrying credit card debt. Shift the savings to the credit card debt and start your savings afresh,’ she adds.
The financial expert said it’s incredibly toxic to carry credit card debt (stock picture)
2. HOW CAN I GET AHEAD WHILE PAYING OFF DEBT?
While Canna acknowledges it can feel frustrating to be focused on paying down debt, she also said there are few things you can do to keep moving forward.
First, she suggests taking a look at your superannuation.
‘Make sure your superannuation is consolidated and invested in the right place, and the contributions are going in. And that you’re aware of how much money you really need in superannuation.’
Secondly she recommends ensuring you have the right insurances in place.
‘Make sure you have life cover, make sure you have permanent disablement cover. Make sure you’ve got trauma cover. Make sure you’ve got income protection,’ she said.
While it can feel frustrating to be focused on paying down debt, there are also few things you can do to keep moving forward (stock picture)
3. SHOULD I HAVE AN EMERGENCY SAVINGS FUND?
The money coach is emphatic it’s essential to have savings solely dedicated to the possibility of managing a financial crisis.
‘You need emergency money because life happens. We have medical expenses, we have dental bills that unexpected. We have situations where we may need to help people,’ she said.
But the question as to how much money you really need really all depends on your living situation.
‘If you’re young and living at home, in the early stages of their career without huge living expenses, they may not need too much. Between $1000 and $5000 may be enough,’ she suggests.
‘For people who have young children, mortgages, people who aren’t very well, they may need a lot more.
‘My recommendation is to make sure you build it up as quickly as possible. Set it aside in a separate account with your life money, and make sure you never spend it.’
The money coach is emphatic it’s essential to have savings solely dedicated to the possibility of managing a financial crisis
4. SHOULD I TRANSFER DEBTS TO ONE CREDIT CARD TO PAY OFF THE BALANCE?
This question, said Canna, is one that’s incredibly popular, especially given the proliferation of ads on TV offering credit card debt consolidation at no interest for a fix term.
While this option is tempting, the financial guru recommends steering clear of such offers as they can often prove problematic over the longer term.
‘People transfer their two credit card debts over to the new card. They think “great, I feel fresher, I feel fine. I can just park that problem, I have six months to pay it off and there’s no interest in the meantime”.’
But she cautions that six months passes really quickly, and if lifestyle changes haven’t been made, its likely there may be even more debt than before.
‘The six months goes by and the transferred debt hasn’t been paid down, or only a little bit has been paid, and they’ve managed to keep using their other credit cards in the meantime, so now they’ve got three credit cards.
‘If you’ve got credit card debt, you need to step up and pay this yourself. You need to do the hard yards and pay this off yourself, she
Don’t rob Peter to pay Paul, Canna advise when she’s asked if it’s a wise choice to transfer credit card debt (stock picture)
5. HOW MUCH SHOULD I BORROW FROM THE BANK TO BUY A HOME?
This situation can often be quite complex, Canna explains, especially as banks tend to be willing to lend ever-increasing large sums of money.
‘Just because the bank said you can borrow all this money, doesn’t necessarily mean that you should’.
Before borrowing, the financial whizz said to take a close look at your financial situation to ensure you have the means to service the loan.
‘What’s your income level, what’s your deposit size, what’s your deposit size? What are your buying costs? Have you worked out how much that will cost each month to pay off?’
In addition to paying off a home loan, Canna believes you need to take other life costs into account, ‘You have to make sure you can clothe yourself, have some sanity money, maybe afford a holiday or upgrade the property, if it’s required.
‘Make sure you can service that mortgage on whatever amount of money you are able to borrow on your existing budget.’
The savvy spender advocates for borrowing within your means, and recommends to spend around 30 per cent of your income in total on your mortgage repayments.
The savvy spender advocates for borrowing within your means (stock picture)
6. HOW DO I INVEST IN THE SHARE MARKET?
While investing in the share market is an appealing option, figuring out the complexities can be overwhelming.
Rather than attempting to work out which stocks are offering the best return, Canna suggests outsourcing to experts.
‘You can subscribe to an independent research house that does all the research for you, crunches all the numbers, and gives you a really simple report as to what stocks they like and why.
‘There are also options like managed funds where you invest a lump sum amount of money, and a fund manager goes on to invest that money in different asset classes in different countries, and they charge a fee for managing that money under investment.
‘Another option is to consider stocks in a listed investment company. The money is pooled and they invest in a portfolio of different shares and different countries.’
Working with experts means you don’t have to become a financial analyst in order to reap rewards, she said.
Working with experts means you don’t have to become a financial analyst in order to reap rewards, Canna said
7. SHOULD I PAY OFF MY MORTGAGE BEFORE INVESTING?
Paying down the mortgage comes with many benefits, the financial expert said, however she is often asked if its possible to invest while reducing this debt.
‘There is one strategy called debt recycling,’ she said.
‘It’s essentially where you draw or borrow against your home using the existing equity you’ve created to start investing.
‘It’s a way you shift non-deductible debt into deductible debt, she explains.
For those considering this, Canna said it’s a way to have the best of both worlds in that you can pay down your mortgage while your investment portfolio grows.
However she recommends before considering this assess your risk profile, ‘And as always get professional advice.’