We are delighted to feature internationally renowned money educator and commentator Nicole Pedersen-McKinnon in our latest issue as she presents her five steps to smarter money.

5 STEPS TO SMARTER MONEY

Think about how much money you’ve earned in your life? What do you have to show for it?

If the answer is not much, you’ve probably had plenty of fun. But you have a looming problem: how are you going to fund future fun? You don’t have to be particularly clued up to secure a comfy future. But you can’t be clueless either.

This is the simple ‘SMART’ money acronym I teach high school students.

Save don’t cave – ‘debt’ is one of the nastiest four-letter words around … and the average Aussie has more than $4000 on a credit card, $20,000 on a personal loan and $350,000 on a house. At average interest rates that costs them nearly $3000 a month in repayments and more than $300,000 in total interest. With my fellow financial literacy campaigner, Paul Clitheroe, I recently assessed the nation’s household finances and graded them on ‘money smarts’: we failed the average household on the basis of too much debt attracting too much interest. For goodness sakes, get lower rates – see ‘R’ below – so you can ditch debt quick.

Moderation not deprivation – if you’re a bit of a health and fitness junkie, you have the right mentality to optimise your money. Intake, output, focus, determination – there are big parallels between physical and financial fitness. But like good health, good wealth has to be sensible and sustainable for a lifetime. Don’t forget to reward yourself either – I love the 80:20 noble-to-naughty ratio.

Amass a cash stash – Albert Einstein took time out from physics for a little finance in his time, proclaiming compound interest as the eighth wonder of the world. His Theory of Relative Worth went that, “He [or she] who understands compound interest earns it; he [or she] who doesn’t, pays it”. See ‘S’ for the latter. How much better off might you be from the former? If you can make an average 8% annual return, you can be a millionaire by 60 if you save $190 a month from age 15, $1052 a month from 35 or $5496 from 50. So get cracking!

Rates not mates – my number crunching reveals the average Aussie gives away more than $90,000 in interest. That’s the cost of lifetime loyalty to one of the Big 4 banks as opposed to holding the average Australian debt with the cheapest providers (think credit card, personal loan and mortgage, as above). It’s also more than the average annual salary and could buy you a luxury car. All your financial products should be with different institutions – no single provider offers the best of even two products – and you should change them regularly. The plethora of comparison websites is your friend.

Target sweet rewards – why bother with all this? For reasons that are very personal and precious to you. For the family ski holidays, for liberation from mortgage repayments, for the ability to take a year off and travel around Australia, for early retirement. Your goals should be so tantalising you can almost taste them. That way, one day, you will.

Sure, you may no longer be in high school. But it’s never too late to get in control of your money and build a financially free future.

Website: www.themoneymentorway.com

Twitter: @NicolePedMcK

Nicole regularly appears on radio and television (her regular TV segments include Channel 7's Sunrise, 7News, The Morning Show and Daily Edition, and Channel 9's A Current Affair), as well as being Fairfax’s highly popular Money Matters columnist, and appearing on all Fairfax websites and in The Sydney Morning Herald and The Age. A qualified financial planner, Nicole’s career credentials include money expert for Marie Claire magazine, writing advice for many other titles, author of two plain-English books on making money, founding and editing The Australian Financial Review’s Smart Investor magazine, and reporting and editing for the magazine arm of the UK’s Financial Times, with her writing earning her top personal finance awards in the UK and Australia. She also delivers a multimedia financial literacy program to high school students across Australia and has presented her take on wealth creation at conferences in Australia, the UK and the US.