Kerrin Falconer Teaches Us Why We Should Budget:

Kerrin was a teacher for 20 years before moving into the financial services industry. She has 10 years experience as a financial planner and as a consultant to financial planning businesses. Kerrin was the SA Chapter Chair for the Financial Planning Association from Oct 2006 - Oct 2010. She is currently a member of 2 national FPA committees and lectures part time at Adelaide Uni in the course, Global Wealth Management. Kerrin is also a columnist for the News Ltd Generations column which appears weekly in most states. We were lucky to get some time with her regarding her thoughts on home budgeting.

Could you tell us a little bit about your history and how you ended up helping other people with their budgeting problems?
I started out as a teacher, in junior primary schools. But I always had an interest in financial planning, and it got to the point where I made a choice to go in this direction. After working for a few different financial planners, I decided it was time to go out on my own, and now I consult to other financial planners. Plus I have taken a very active role in the Financial Planning Association. Now I write articles on home budgeting with three other great budgeting experts for News Limited.

As you used to be a teacher and are now helping people with their budgets; do you feel we are missing a subject in school on home budgeting?
There is a huge gap in schooling with financial educating in general. Financial literacy is very much a key to succeeding in life. A lot of life unfortunately revolves around money. If you can handle and understand the issues in money then life becomes a lot easier.

Even in a relationship, I have seen statistics that show about 80% of all marriage breakdowns end because of difficulties over money. It’s a life skill which people really need to acquire early.

Why do you think it’s not on the schools’ agenda?
In the past, schools have been very, very good at academic subjects. They are very good at teaching things like fractions, percentages, area, and perimeter. But not as good at relating how this works once you leave school.

In 2008, the global financial crisis hit. Do you think there was a big change in people’s behaviour, and do you think they have gone back to their old ways?
I think there has been a huge change in the way people think and relate to money. Prior to the global financial crisis, there was a much more relaxed attitude to money. People seemed much more interested in products and material things such as cars and holidays. House prices were on the rise, so people would borrow against them to buy these luxury items. The attitude was that the good times would roll on forever.

When it all started go bad, it was a shock, and a shock to a lot of people. Some people woke up and realised they had taken on large amounts of debt which needed to be paid back. Plus jobs started to become lost or at risk, and people approaching retirement saw their super hit quite badly. They either had to revise their plans or continue working. People who were getting a really high return on their money started to realise why, because they were at the most risk once the bad times came. There has been a huge refocus on home budgets and a lot of people have become more conservative.

If you could go back to your 21^st birthday and give yourself some advice about money in the future, what would you say?
You need to learn about money at a younger age would be my main piece of advice. Knowledge is power, and if you have strategies in place, you can really set yourself up very nicely to progress down the financial track.

Were you always good with money or was it something you had to learn?
Yes, I did have to learn some things. But then again, I feel like I have always been somewhat of a natural saver right from the word go. My family always encouraged me to save, as money doesn’t just drop from heaven. Sometimes you must work, and work quite hard to achieve your goals.

But my family also taught me not to be obsessive about it. You need to enjoy some of your hard work. It’s not all about saving money for a rainy day. I had to teach myself how the share market works and the benefits of using a budget.

What is your opinion on credit cards?
They are probably the handiest piece of equipment you can own. But I also call them the weapon of mass destruction.

If you are really disciplined and use it instead of carrying around great wads of cash and you are extremely strict with paying them off each month. Because a lot of cards are charging around 20% plus interest and, what a lot of people just don’t get, is if they don’t pay off the full balance they will be paying interest on the interest on the interest. Very expensive!

In saying this, it can be very good if you take advantage of all the points systems, frequent flyer points and God knows what they else have to offer.

What about if someone came to you and wanted to take out a personal loan for a holiday?
You must be extremely good on paying down debt. There are people out there who are very good at paying down debt but are very bad savers. They find it extremely difficult to just deposit money into an account for no reason. And I’m not sure why they are like this, but I do see them all the time. So for these people the personal loan might be a good idea.

But I do have major issues even with these people because if they do take on this debt and then something happens where they’re not earning the income which they expect, things can get very tricky, very quickly. If you can’t meet your debt repayments for a period of time, then all sorts of nasty things can come into play. You really need to think hard about it before doing anything.

The other way of doing this is by extending your home loan. Home loans are far cheaper than personal loans. With home loans you are paying around 7% a year and with personal loans you pay around 14%. But still there is a danger that you don’t make an effort to pay it off quickly because it can get forgotten about. The safest way is to save for what you want.

There has been a number of stories of property prices going down. What is your opinion on property prices in Australia?
We have read all this doom and gloom about property prices in Australia sliding down. In 2008, in the USA, UK, and other parts of Europe they absolutely plummeted. In some cases they have gone as low as 20 to 30 percent.

I doubt very much, that we in Australia will ever get into this position. Maybe because we have such an undersupply of property in Australia. It doesn’t surprise me that house prices have come off 3 to 5 percent. But I think we will see a floor in the price of houses for a little while.

There was a big surge in the price of houses, but I think it was fuelled by the first homebuyers’ grant. But once it was withdrawn, there has been a big exit from the market from this type of buyer and this might be why the prices have become a little flat.

We have all made mistakes with money. But what has been your biggest mistake, purchasing wise?
It hasn’t really been what I have purchased, but more what I haven’t purchased which has really cost me. I look back at some of the opportunities where I could have purchased shares and property but I didn’t, and these have cost me over the longer term. Had I known more about finance when these opportunities came up, I probably would have taken them.

If you could wave a magic wand over the world and teach everybody just one tip about money, what would it be?
Sit down and do a budget and really see where your money does go.

You have really helped a lot of people with their budgeting. Is there a special case which sticks out in your mind that you can share with us?
People think that budgets only need to apply to people who don’t have a high income. However I have seen people on six figure salaries whose budgets are in a big mess. Where I have seen people on modest incomes who handle money extremely well.

One particular young couple were on very modest incomes but were able to pay off their home in a very short space of time. And they then went on to buy an investment property. Only because they were very good at sitting down and working out their budget. Plus they didn’t live a life that was completely devoid of all the nice things in life. Holidays, new cars and going out were still in their life, but the key was they did it within their budget.

If they wanted something like a new car they would start saving for it three or four years ahead. If they did have a large amount of money go out unexpectedly, they would pull back in other areas very quickly.

People think of budgeting as a painful process and being miserable. But it’s not, and to me it’s just a great way of keeping track of your money.

Another person who was on a six-figure salary, her finances were in a complete mess, she really had no idea where her money was going. She kept no track of it and it got out of hand very quickly. Just because she was earning a lot of money, didn’t mean she could keep track of it.

So if a couple came to you and was really drowning in debt, what would be your first piece of advice?
You need to know where your money is going. Write it all down as a couple because you might be surprised by what quick changes you can make to help things change. Plus you need to do this on a regular basis. A lot of people only do this once and forget about it. But it really needs to be a living, breathing thing. Plus you need a plan with goals to help you get out of it.

As you said, you can’t just look at your budget once and forget about it. So how can people keep the motivation to stay on track with it?
Once you see that you are in control of your money, this can give people a great sense of satisfaction. But for other people who need something more tangible, they can put rewards into their budget. If they hit certain goals they can take for example, a trip to the movies, eat out or just give themselves a general reward for keeping on track.

If one of your goals is to have a holiday, build this into your budget as a goal. This can really help people save and keep on track.

Once people get over the idea that it’s depressing, hard, or not nice and start to see things change, their attitude can change very quickly. Add to this some pleasant activities and rewards, and people will want to keep going with it. And sticking to it is the vital part of achieving financial independence and home budgeting.

You do a weekly column for the newspaper, has there been an article which has really stood out for you?
Yes I do have one which stand out about credit card debt. You can click here to read it.