Are you as financially savvy as you think you are?

1. Property is your best investment

The term ‘safe as houses’ is often used to justify residential property investment. And it’s true that investment in residential property has proven very resilient in the market over long periods, often outperforming other asset classes1. But as a short-term profit generator it is far less stable because of the costs of buying and owning an investment property and cyclical rises and falls in property prices. It is also illiquid: you can’t sell a bedroom if you suddenly need some cash.

2. All mortgages are the same

There are different types of mortgages2. With a principal and interest mortgage, you pay off the principal loan plus the interest and own more of your property over time. In an interest-only mortgage, you only repay interest, and will owe your mortgage provider the original value of the property at the end of the mortgage – a common approach for investors. With an offset or redraw mortgage, you effectively use the mortgage as a bank account. They’re a popular way of paying down a mortgage faster, but usually with higher costs.

3. Investing in large, stable companies yields the best return

So-called blue chip shares pay regular dividends and can generally ride out share market shocks. Yet it can be the smaller, more speculative companies that generate the highest capital returns. When deciding where to invest3, it’s a good idea to consider things like dividends and franking credits as well as share price, and consider getting advice.

4. It’s okay to put off saving till later in life

Putting away money as soon as you start working is a powerful wealth accelerator because of the power of ‘compounding’ over time. According to the government’s MoneySmart calculator, $100 a month will grow to $41,375 after 20 years4.

5. You’ll need super to enjoy retirement

Most couples need about $61,000 a year for a comfortable retirement, or about $43,000 for single retirees, according to the Association of Superannuation Funds of Australia (ASFA)5. Tools from ASFA and MLC can help you estimate your needs. Experts agree that, unless you can rely on an independent income, building up adequate funds in super is essential for a comfortable retirement.

6. You need to save for a rainy day

An emergency fund is essential to weather unexpected events6. A good rule of thumb is to have enough money saved to cover at least three months’ living expenses and to put money away regularly to build up a fund.

7. With no debt I’ll have a good credit rating

Having no debt doesn’t guarantee a good credit rating. A change of address or an undetected identity theft can damage your rating. Australian consumer advocacy group Choice recommends requesting a free credit report once a year7.

8. Credit cards are good for emergencies

Credit cards can help with unexpected expenses, but you’ll be charged interest if you don’t pay off the full balance each month. Paying only the minimum each month can prove expensive. This is why experts recommend having an emergency fund to use instead.