Many people may think that investing into ASX shares is the only thing you need to think about when it comes to personal finance.
However, I think it's important to have a good foundation and a good money mindset so that you can invest confidently.
Here are three good personal finance tips:
Have an emergency fund
I think it's important for every adult Australian to have an emergency fund. At least $1,000 is a good target in my opinion. Having that cash set aside can be invaluable when you need it most.
I believe that having that cash reserve set aside allows you to take on a little more 'risk' with your investing. I'm not saying that having an emergency fund should mean you invest in small cap biotech shares. I just mean that having cash set aside can allow you to confidently invest more into (ASX) shares.
Perhaps having an emergency fund would allow you to go for more growth options like Pushpay Holdings Ltd (ASX: PPH) or City Chic Collective Ltd (ASX: CCX). You won't feel as though you need to go for defensive ideas.
Personal finance is important for your life and your family. If you have children and a mortgage then it could be a good idea to have up to six months of living expenses set aside in a high interest savings account. There are plenty of places to find a savings account including businesses like Macquarie Group Ltd (ASX: MQG) and Suncorp Group Ltd (ASX: SUN).
Don't take on risky debt
I think debt is a very dangerous thing when it comes to investing.
It's almost impossible to buy a property without using debt. However, that's not the case with investing in shares. You can invest with as little as $500 – you don't need to borrow to do it.
Debt can accelerate your returns if your investment picks are good. However, the risk of a wipeout is too much in my opinion.
A margin loan could be called precisely when you want to be buying shares not selling them. Selling in a market crash would permanently reduce your wealth.
Every person's personal finance mindset is different. But if you have debt hanging over your portfolio then you may not invest the same as if you didn't have that debt. That would be a shame in my opinion. I think it's best to avoid having high-risk debt when it comes to investing in shares.
And don't forget, debt isn't free money. You have to pay interest, which reduces your returns.
Regularly invest
Unless you're in retirement, most people reading this will be able to invest regularly over the coming years. Or at least when the COVID-19 impacts are over.
A few people may be able to find the next Apple at an early stage and make millions from a relatively small investment. However, you can't assume that will happen for your portfolio.
I believe the easiest way to invest is to regularly put money to work in your investment account – whether that's inside or outside of superannuation. The more you put in the more it can grow. If you invest regularly it's less likely that you'll miss any good buying opportunities.
Personal finance can be very simple if you 'automate' most of your money. That includes your investment schedule.
You can regularly invest into your best ASX share ideas – for me it's something like Pushpay – or you can go for your favourite exchange-traded fund (ETF) like BetaShares Global Quality Leaders ETF (ASX: QLTY) or fund manager like Magellan Global Trust (ASX: MGG).
