Personal Finance Notes

Personal finance involves managing money, saving, and investing to meet financial goals.
Examples of financial goals include funding a lifestyle, saving for a car or home, education, investing, and retirement planning.

Challenges include saving a deposit and servicing the mortgage.
A 20% deposit is typically required; less requires lender’s mortgage insurance (LMI).
Households spending over 30% of income on housing are considered in 'housing stress'.
Strategies to achieve home ownership: financial advisors, mortgage brokers, lifestyle adjustments, shared living, investment, budgeting, automated savings, side hustles, career advancement, smaller properties, first home owners grant, shared equity programs, rentvesting, guarantor loans, location flexibility, and Help To Buy Scheme.

Good money habits: spending less than you earn, budgeting, having financial goals, getting financial advice, having an emergency fund, shopping around.
Bad money habits: using a credit card like free money, not keeping track of spending, lack of discipline, living beyond your means, living paycheck to paycheck.
- Buy Now, Pay Later (BNPL)
  - Allows immediate purchase with payments over time.
  - Benefits: immediate access, no interest if paid on time, budget management.
  - Risks: late fees, encourages impulse buying, debt accumulation.

Budget: An itemized summary of likely income and expenses for a given period, designed to assist with spending decisions.
Income: money received from work, investments, or other sources.
Expenses: money spent to pay for something.
Surplus: earning more money that you are spending.
Deficit: spending more than you are earning.
If you have a deficit,you will need to adjust your expenses or earn more income.
If you have a surplus, you have excess funds that you can put towards your savings goal.
Regular review and updates are needed to keep it current.
Achieving a surplus enables saving, avoiding debt, investing, and ensuring financial security.

Income is money (or its equivalent) received in exchange for labour or services, from the sale of goods or property, or as profit from financial investments.
Types of income:
- Earned Income: Money received in exchange for working, as well as profits from actively running a business.
- Investment Income: Profit from selling an asset at a higher price than the original purchase price.
- Passive Income: Money acquired with little to no work to earn or maintain.

Compounding is earning returns on both the original investment and its accumulated earnings over time.
Compounding harnesses the power of time and reinvested returns to exponentially grow wealth over the long term.
The element of time is crucially important to wielding the power of compounding growth.
Investment returns need to be reinvested for compounding to occur.

Property investment involves purchasing real estate with the goal of generating income or capital growth.
Equity in a property is the difference between its market value and the remaining loan balance.
Money can be earned with property through: rent, capital growth, and development.
Potential risks include: gearing risk, legislation risk, general market risk, tenancy risk, and liquidity risk.

Shares are parts of companies that you can purchase to have part ownership of the company.
Shares: Parts of companies purchased for ownership.
Sharemarket: Where shares are bought and sold (e.g., ASX).
Stockbrokers: Buy/sell shares for investors, charging brokerage fees.
Money can be earned with shares through: capital Growth and dividends.
Different shares represent different levels of risk and different levels of potential reward.
Exchange-Traded Funds (ETFs)
- Investment funds trading on stock exchanges, holding diversified assets.
- Offer diversification, cost-efficiency, and ease of trading.
Sharemarket Game: A simulation to buy and sell shares with $$50,000 virtual money.
- Market Sectors: Companies listed on the ASX are categorised into market sectors.

Superannuation is a compulsory Government scheme that forces people to save money for their retirement
Superannuation fund managers invest this money in a variety of ways (shares, property etc).
Combination of regular contributions and investment gains can lead significant growth over time.
Benefits of superannuation: forces saving, funds grow over time, enables comfortable retirement, and reduces burden on taxpayers.