Despite the increasing cost of living, unrelenting interest rate rises and obvious belt-tightening around Australia, talking openly about our personal finances remains taboo. It is one of the mortal sins of dinner table conversation, along with politics, religion and admitting you like pineapple on pizza.
Many of us don't look properly at our personal finances, as we were never shown how. We learn from friends, family, blogs and TikTok channels (everywhere but the formal education system, it seems).
The result is that personal finance and investing can feel perplexing; like it's a world for experts, investment bankers, actuaries and other highly-trained professionals. Buying a house, investing in shares, or saving for a far-off future feels risky.
In my book, I share lessons which helped me, backed by my research and experience working in economics, trade and business, to bring personal finance in from the cold.
My own financial journey has involved more than a few stumbles. Take the time I ticked the wrong box on my superannuation form as a 19-year-old cinema worker, planting me in an asset allocation designed for retirees. Neither my employer nor my super fund corrected me. Only once I started taking an active interest in my finances, years later, did I realise the enormity of my blunder, which had already cost me tens of thousands. Or, take the time I poured money into a company stock based on a 'hot tip' from a mate, who got it from his mate. It promptly plummeted more rapidly than Will Smith's career.
Since we lack the financial education needed to take control of our personal finances, it's easy to fall prey to the narrative working harder and longer, climbing the ladder to ever loftier roles and fatter salaries, or creating the next Atlassian, is the only way to wealth. 'Hustle culture', largely imported from the United States, demands self-sacrifice to succeed.
The dogma says you must be extraordinary to succeed financially. I think you should be able to be ordinary and succeed, especially in Australia.
The fact is, enacting sound personal financial decisions can be more important to your wealth over the long term than how much you earn. Most millionaires in Australia are average Aussies. They drive regular cars, they work regular jobs and they don't create enormously successful start-ups. What they do is use their money wisely.
Having founded and sold a website, and founded a business importing and distributing non-alcoholic beer, I'm aware there are no guarantees in business. Most of my wealth has been built by proper saving and investing.
To me, there was a gap when it came to the availability of financial information. At one end, there are plenty of book titles with beginner personal finances and how-to budgeting plans. At the other end, you can engage a financial adviser for tailored advice for thousands of dollars.
Many years back, I visited a financial adviser to get some tips on where to put my money. For $500, all he could offer were my basic options, but nothing in the way of specific guidance ("that, of course, will cost you extra"). It was essentially $500 to be told how to engage a financial planner. I'm not against financial advisers - only they can provide advice specific to your individual circumstances. However, having a strong base of financial literacy is critical to make the most of any advice. Not all of us have spare money to hire a financial planner.
I wanted to fill a gap for those who sought a more nuanced understanding of their finances and growing wealth, without paying thousands for personalised service - the finance book to read after you've read The Barefoot Investor.
I also wanted less of the 'mindset' suggestions found in certain books, and more practical information, based on research. The book includes home ownership strategies, insurance, super, and modern investing tactics. To demonstrate how decisions can play out, I created the characters of Penny and Shriram. Penny makes good decisions, while Shriram figures finances are a problem for future him. The book follows their financial journeys.
There are several actions that many of us can take immediately, which can have an outsized impact on our lifetime wealth.
For example, take someone on the average Australian earnings ($71,583.20). An additional $100 contribution to your super fund each week through salary sacrificing would mean just $66 less in take-home pay, given tax arrangements. Over 40 years, that could amount to $400,000 extra in your super fund.
The average age to buy a house has climbed to around 36, and one in every 10 Australians now has a mortgage at the time they retire. It likely means more of us will need to dig into super to pay off our mortgages at retirement. For that reason, having a large pool of cash available at retirement may become even more important for millennials and Gen Z.
When it comes to money, we are not rational. Making it, saving it, and using it, are closely tied up with our emotional state, which is partly why it remains secretive and taboo.
Yet, the path to financial security is increasingly difficult in Australia given high house prices, the lack of real wage growth and inflation. Wealth is also increasingly being captured by those at the top. Australia's richest 200 people increased their wealth from $479.6 billion in 2021 to $554.9 billion in 2022, and the share of GDP going to workers has plunged to record lows while the share going to corporate profits has hit historic highs.
For all Australians, using financial knowledge to build financial security is critical to stay ahead. At a time when financial literacy is declining and household budgets are being stretched, busting the taboo on personal finance and learning more about it is one of your best investments.
- Kim Northwood is the author of 'Work Less, Make More: The Millennial's Guide to Financial Freedom', and a long-term investor and entrepreneur. He was formerly an adviser to Australia's trade and investment minister. The book is available at kimnorthwood.com and bookstores. Instagram: @kim_northwood_finance_guy.