When it comes to finances, it’s safe to say you’re either a left or right side brain… highly logical, analytical and ‘numbers’ orientated (left), or extremely creative, artistic and highly illogical but wildly free-spirited.
If you fall into the latter category and know finances are not your forte, despite perhaps having a highly successful career as said creative, then it’s time for a little finance refresher.
As someone who has been ‘meaning to read’ The Barefoot Investor but hasn’t yet felt ‘inspired’ or ‘called to by a higher power’ quite yet, the chance to write this article seemed a illuminating and useful way to incorporate my creative side and learn a little basic finance info on the side.
So, for all fellow creatives that admittedly are a little naive on the finance front, think of this as your ‘Finance Words For Dummy’s Guide’—with help from Sydney based finance expert Vanessa Stoykov.
1. Superannuation
“This is the money that’s saved for your retirement. If you’re employed by someone, 9.5 per cent of your earnings are automatically set aside for retirement. But if you are self employed you don’t have to do it, but you should definitely do it! So many young creatives don’t and if anything I recommend putting aside 12 per cent.”
2. Compound interest
“This is when the interest you’re making is making money. For example, if you pay $100 for an Apple share you may make $20 in a year. If you keep it in there then the return is compounding. Pretty much the way superannuation works, as earnings go in it makes the investment bigger and that’s when money makes money. Note though: if you put in the bank and you only get one per cent, it’s not worth it. But if you’re investing into shares then that money rolls into it and the returns get bigger and bigger.”
3. Shares
“Buying a share means you are buying into a part of the company, either in Australia or around the world such, global share examples are corporations like Apple, Google, etc.”
“To do this you can look them up online (they are listed) or you can go to your bank and ask for a share trading platform (for example Comsec via Commonwealth bank ) to keep it simple.”
“I recommend buying into a company you’re interested in, such as Apple, and when you watch it go up and down, you feel more incentivised knowing you have a stake in it.”
4. Net worth
“This is your worth value after you add all your assets up (such as car, house, jewellery) then minus debt (such as credit card debt, mortgage, university debt), that’s your total net worth.”
5. Asset location and diversification
“It’s so important not to put all your eggs in the one basket in terms of assets. Have a range of different assets that equate your total wealth, such as superannuation, a house, shares, buying antiques or art, etc. Asset location means you have your money tied up in at least one or two things, but diversification means you have a diversified portfolio of investments.”
6. Asset liability
“A classic example of an asset liability is a car. Unless it’s vintage and increases over time, it devalues once you buy it. Then add in the costs such as servicing, insurance etc and it ends up costing you, making it a ‘liability.’ If you buy an asset it should work to make you money, so even if you buy a property, if its in an area not increasing in value then it’s a liability… and that goes for clothes and shoes too. As much as a $1000 designer jacket might be nice, it will sell on ebay for half the price, so sorry to say—it’s a liability.”
7. Overheads
“Whether in your own personal life you want to save money or if you run a business, overheads are essential to running a business effectively. Overheads ask—what are the costs of running something?”
“The government has a great website that asks you to fill out everything from how much your gas, Netflix, phone plan, rent is etc, and once you input the numbers it will tell you what your overheads are.”
“As most people have no idea what they earn they tend to spend more than what they can actually afford.”
8. Credit rating
“If you ever default (don’t pay) a electricity bill or phone bill you can be reported to a credit agency and if you’re credit score is bad you will not be given finance (to say get a mortgage or loan). To find out your credit rating, you can just Google it and banks can do the same, so make sure to pay your bills on time if you wish to seek finances later down the track.”
3 Easy To Use Apps for Setting Up A Financially Fit Future
1. Rayz
“This app rounds up your money and puts it into your savings. For example, if you put 80 cents into your savings, it rounds it up to the closest dollar. At the time you barely notice it but but over 10 years that really adds up.”
2. Brickx
“If you’re keen to get started buying a property but don’t yet have the funds, this lets you buy a fraction of a property such as a post box on a house in a suburb of Sydney.”
3. Grow
“This is a superannuation company that shows you in picture form what each 5 per cent of your super can ‘grow’ into, so that it’s a little more motivating.
