One of the reasons I wanted to start this blog was because the topic of money – how we make, save and spend it – is largely off-limits from most conversations.
I don’t think we should be shouting our salaries from the rooftops, but I do think that if we were more honest and open about money, we would know more – simply through sharing each others’ financial successes and mistakes.
So, with that in mind, I want to share a few mistakes I’ve made and how I’m trying to fix them.
Financing a new car
As soon as I signed the paperwork for our 2015 Nissan X-Trail in November last year, I felt a deepening sense of remorse… We had a 2012 Nissan which we traded in at the very earliest possibility. We went from having two years left to pay off our car, to three years and a $15,000 balloon payment (a lump sum to be paid at the end of the loan agreement).
There were a couple of reasons we wanted to upgrade including better safety features (we were expecting our second child), to reduce our monthly repayments, and to save us from a few large bills in the near future – when the fixed price servicing ran out.
However, we were way too quick to jump. If we had kept the 2012 model, we would have almost paid it off by now and be that much closer to actually owning an asset (albeit a very depreciated one) rather than having more debt.
At the time we were taken in by the very low-interest rate and the immediate benefits of having a new car. Now, I realise more debt is not the answer! It seems so simple, but the mindset I was in last year meant I couldn’t see it was a short-term gain for a long-term loss.
I am determined to put aside the cash we need to pay off all, or at least most, of that balloon payment when it comes due, so we can clear the debt and own our car ASAP.
Using credit to finance “emergencies”
I’ve always had a credit card “for emergencies”. However, after tracking my spending over some time, it’s clear the credit card wasn’t just being used for emergencies. It was being used when I wanted something but didn’t have the cash to pay for it.
Wanting something is NOT an emergency. I repeat: NOT an emergency.
I am no longer using credit for anything other than a couple of software subscriptions. Instead, I’m building up a savings account specifically for TRUE emergencies.
True emergencies are things like unexpected car problems (not regular servicing), large vet fees, or worst case scenario – unexpected hospitalisation. If we owned a property, unexpected maintenance issues could also be classed as an emergency.
There’s a lot of debate around how much people should save in their emergency funds. Some say the safest figure is three months of living expenses in case of job loss, major illness or divorce. My aim is to keep $5,000 in there at all times, which is probably just enough to get us out of trouble.
As long as this account has $5K, I can put savings towards other things like a house deposit or investments. If it’s been depleted, I will have to focus on topping it up first before adding to any other accounts.
Not being able to distinguish needs from wants
This is a critical mistake and one that relates to both of the above issues. For too long I have thought of things I wanted as necessary to a fulfilled life.
I am starting to realise that a lof of the things I wanted actually made no difference to my life satisfaction and that not buying them, or perhaps buying them second hand or borrowing them, would have achieved the same result.
A good example of this was when preparing for a new baby. With my first bub, I often felt like everything had to be latest, greatest, sparkling and new. Now I’m a more seasoned parent, I realise a lot of the stuff we bought was completely unnecessary and we could have done things more cheaply and had the same outcome – a happy little boy.
I’m now trying to think more mindfully about every non-essential purchase I make:
- Why do I want this?
- What will it actually change or improve in my life?
- Can I solve that problem without spending money or by spending less money?
I am not saying we shouldn’t have things we want. Just think about the why a bit more.