The number-crunching of online personal finance calculators offered by super funds, fund managers and the Australian Securities and Investments Commission (ASIC) can help us to better understand our financial circumstances.
Critically, calculators can act as a nudge for us to take action that may include upping our salary-sacrificed super contributions, reducing our home mortgage, cutting our credit card debt and taking financial planning advice.
Professor Annamaria Lusardi, a specialist in financial literacy and behavioural economics at George Washington University in Washington DC, is among the long-time supporters of using personal finance calculators in saving and investing for retirement.
A research paper, Financial literacy and planning: Implications for retirement research – co-authored by Lusardi – had found that the "financially savvy" are more likely to rely on formal means of planning such as financial advisers, retirement seminars and retirement calculators.
At the latest count, ASIC’s personal finance website MoneySmart has 27 calculators – a lengthy line-up that includes highly-practical tools to help deal with budgeting and personal debt control. Its mortgage calculators would surely be among the most popular.
Vanguard, for instance, has a range of calculators to project your super savings by retirement and calculate how long super may last given certain assumptions; compare investment funds and exchange-traded funds (including their performance, asset allocations and fees); assess the short to long-term effect of different investment management fees; and measure the impact of currency movements on your investments.
Calculators offered by some large super funds are designed to assist members get a better understanding of their tolerance to investment risk and to help assess their needs for life, total & permanent disability and income-protection insurance.
Numerous people would no doubt use personal finance calculators to become more aware of their financial position and to better understand their possible options before gaining professional advice. This may put them in a better position to ask an adviser the right questions, helping to maximise the value of advice.
Users of personal finance calculators should, of course, guard against such possible pitfalls as using overly-optimistic projections for investment returns, over-simplifying their circumstances or being overly-ambitious about, say, their plans to salary-sacrifice into super in the future. As with anything to do with personal finance, caution should be exercised.
 |
Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia. As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment. |
|
