Fierce Girl Finance

My late step-grandma* had a saying about choosing a partner: ‘Never stoop to pick up nothing’.

This post is not about that – I just wanted to share it because it’s great, and to prove that Grandmas know their shit.

My Grandma used to have five empty Vegemite jars, which she’d put her stray pennies into. There were different jars for different purposes.

“And if you keep doing that, soon you have a shilling, and then you have 21 shillings, which means you have a guinea to spend”.

(OK, I had to Google how  many shillings in a pound, but I did know that guineas are more exciting than a boring old pound).

This old-fashioned idea actually underpins a fancy new concept: microsaving apps like Acorns. I’m a huge fan of this app, which scrapes small amounts off your bank account – called ’round-ups’ – and invests them for you.

Say you spend $3.50 on a coffee, it garnishes the 50 cents (to round up to $4), and pops it into a portfolio of Exchange Traded Funds (ETFs) – click here if you want to know more about them.

I like this because it’s painless saving. Of course I have other savings. But my Acorns is a bonus stash that I actually forget about most of the time.

Words from the wise

My friend Cara has an Irish Granny who tells her to ‘save your pennies and the pounds look after themselves’. So true! Even if we don’t actually have pennies or pounds.

On one hand, little bits of good work all add up, in those real or virtual Vegemite jars.

On the other hand, it’s all the small purchases here and there that drain your finances.

In fact, I just went through an exercise proving this. My work is about to launch a budgeting tool which links to your bank accounts and categorises all the transactions (from the last 6 months!) into ‘essentials’ and ‘discretionary’.

But it can only do about 70% of them automatically, meaning I had to go through and label a bunch of transactions myself. Soooo many transactions in the ‘Bars, Cafes and Restaurants’. Soooo many in ‘Clothes and Accessories’.

Sobering but not too surprising. After all, my mindful spending manifesto says I can spend money on going out to brunch, dinner or drinks with friends. It says very little about buying clothes though, so I am going a bit too far with that.

Even though I’m still within my ‘spend and splurge’ limit, the process showed me that I should probably shave that allocation down a little.

Considering I just bought an apartment this week, after three years of post-divorce renting, I think that’s a useful and timely lesson.

So my hot tip is this: track what you spend. Even if it’s just for a month, you’ll quickly see where your money goes, and whether it’s in line with your goals or priorities.

I like the trackmyspend app from MoneySmart, but there are others in the app store. Or go old school with a notebook.

Other great tips from my Grandma and her generation:

A stitch in time saves nine – Looking after things properly means they last much longer. I notice this the most with shoes. If you spend the time and effort wearing in a  great pair of shoes, get them resoled and reheeled before they fall apart. I have some beautiful boots cracking the ten year mark now, thanks to some love and care from Mr Minit in Martin Place.

A penny saved is a penny earned – This is really, really important. Earning money is hard and annoying most of the time.

Every time you don’t spend money on something, you can not only keep it, but put it to good use.

My Acorns account is a good demonstration this. I’ve received an 8% return on my funds in the last year.  That means every dollar I put in is now worth $1.08 – for doing nothing!

Sure, I’m not going to spend that 8 cents all at once. But when you add this up over time, it’s powerful. Over the next year, I’ll be earning 8% (or whatever it turns out to be) on $1.08 – not just the original dollar.

And this, my friends, is the magic of compound interest. 

The graph below is from the MoneySmart compound interest calculator (which I freaking love). The pink columns show what happens if I keep my $1000, continue earning 8% every year, but do nothing else for 10 years.

It’s nice. You get $1220 of free money, and come out with $2220. Good outcome, but no reason to crack out the champagne.

However, if you add just $100 a month, look what happens. That is literally the cost of buying a takeaway coffee every day. If you allocate that to an investment fund for 10 years, you could walk away with over $20,000!

Those light blue columns are the ‘free’ money – the interest earned over that time.

There are lots of assumptions in this example, including getting 8% returns (not guaranteed with shares). But you get the general picture.

Every dollar you don’t spend is good. Every dollar you don’t spend, and invest in something more productive, is even better. 

That ‘productive’ thing may just be paying down your mortgage. Don’t get me started on how much you can save by doing that – I have a whole post in the works about it.

But you get it, right?

And finally, here is a tip from Grandma White, which has served me well over time:

If something has green mould, cut it off and it’s fine to eat the rest. If it’s pink mould, throw it out. 

I take no responsibility for public health outcomes on that one.

*Side note about my step-grandma Gwen: in her later years she told her daughters “If I die, don’t throw out my wardrobe without getting the $17,000 out of the back.” Over the years, she’d saved whatever was left over from the housekeeping money and stashed it there. Perfect.

Assumptions in calculator:
Scenario 1: $1000 deposit,  no additional payments, 8% interest each year.
Scenario 2: $1000 deposit, $1000 monthly payment, 8% interest each year.
Past performance of an investment isn’t a reliable indicator of future performance.

photo credit: Nicholas Erwin Change via photopin (license)