7 Deadly Ego Sins of Household Financial Management
These are a list of my 7 deadly ego sins when it comes to financial management for the average household. I say ego sins because I've found that often my 'sins' are curbed my what my ego wants rather than sound financial decisions. A big ego can lead to big mistakes, and lets just say my ego isn't small! But the ego of a man is a reality and so I've found that if I try and understand what is driving my decisions and staying aware of when my ego is getting out-of-line is the key to making good financial decisions. Then you keep both your ego and your wallet happy- and lets face it the wife and therefore your life too! By staying financially ego-sin-free your quality of life won't suffer but you could save hundreds of thousands of dollars over your lifetime.
- Poorly structured debt.
Debt isn't a sin; in fact a degree of household debt is sensible if the alternative is to be paying rent, however debt that is poorly structured can lead to wasting money on excessive interest repayments and bank fees. Generally its good to keep debt as low as possible - a loan offset account can have the effect of paying down your debt whilst still giving you access to your cash.
- Credit card debt.
This is really a subsection of the first point, however because of the high interest associated with credit card debt it deserves a paragraph of its own. In a nutshell, all interest bearing credit card debt is a financial sin. Your ego will most likely have a lot to do with credit card debit. Often rushed, on-the-spot decisions, with an aim to impress, result in credit card debit.
- Not maximising returns on spare cash.
After paying off all debt, if you still have cash available, get it working for you either earning interest in a high interest cash account or another asset class that suits your risk strategy. It is ridiculous to keep large amounts of cash in no or low interest bank accounts.
- Not understanding superannuation.
Poorly managed superannuation can over time mean a significantly lower asset base at retirement. But it is important to match your risk profile to your age and then look at maximising your return after fees.
- Poor contracts on essential services and utilities.
Make sure you have effective cell phone, internet, electricity and gas contracts that account for your amount and time of day of usage. Having effective contracts on your most basic services can save tens of thousands of dollars over a lifetime. Also old or poorly operating appliances can use significantly more electricity than their modern replacements, so it might save more money over time to replace them.
- Not having or understanding your insurance.
Insurance is a complete waste of money if the insurer isn't going to pay out when you expect them too. Worse still it could be the most financially devastating event in your lifetime if you don't have appropriate cover. So know your insurance policy and make sure it provides you with adequate cover.
- Turning over your car too often.
This point is really all about your ego. A new car depreciates significantly in the first few years you own it but less so later in its life. So try and get a few extra years out of your car before you turn it over and you will save thousands. Your ego will want the latest sports car but if you don't want a divorce, tell your ego to drop into first gear.