We're bombarded with advertising and marketing. Yet most of what we think we "need" is, in fact, a want - it's not necessary for basic survival. The advertisers push our emotional buttons and out flips the cash. Or think of it this way: don't buy it.
Recognise the difference between good debt and bad debt
The only "good" debt is debt that makes more money in the long run. In most cases, that means mortgage and business debt. Your house will increase in value in the time you own it and your business debt should help you increase your profits. Bad debt is money borrowed to pay for everyday items that you consume or that depreciate. The day you buy that TV on HP it drops in value, and you pay 20 per cent more to own it than the person who pays cash.
Understand compound interest
"Compound interest is the most powerful force in the universe," Albert Einstein is alleged to have said. Whether or not the brilliant physicist said it, compound interest - that's interest earned on interest saved - is a very powerful force in long-term saving. You earn interest or other returns on money saved, and when the interest is added to the principal, the next round of interest is even higher. The longer you leave the money invested, the greater the growth curve.
Save money from day one
Kiwis seem to have forgotten the concept of spending less than they earn. No matter how small your income is, start saving money from day one - even if it's only a small amount into KiwiSaver. It's better to save something than nothing. The point is to start a habit and to benefit from compound interest. America's greatest banker, JP Morgan, once said: "In my 43 years of banking, I never knew of anyone who saved money on a large income who didn't get the habit on a small one."
Don't expect to live like your mum and dad the day you leave home or get married
The vast majority of parents didn't buy the median-price property when they started out, and nor in most cases did they have a flash car or all the mod cons in their first few years of marriage. I'm not talking about the Depression generation. I mean those who left home or got married in the 1980s and now have children in their 20s or 30s.
Don't put all your eggs in one basket
Split your investment into chunks of money that you can afford to lose. And make sure they're spread across different investments, not carbon copies of the same investment. It's unlikely an entire class of investments would be wiped out - although it has happened. Just look at the rotten "Corps" such as Equiticorp, Goldcorp, Renouf Corp, Chase Corp and others that vanished into thin air after the 1987 stock market crash.
Have an emergency fund
No one is bulletproof. If you don't have really comprehensive income protection insurance, make sure you have three months' living costs saved and that the money is easily accessible. If not, do you know how much you're entitled to in state benefits? It's a measly sum of money.
Don't keep up with the Joneses
Who cares if your neighbours take holidays to Fiji every year? They may have nothing left to live on in their retirement years. As investor Warren Buffett once said: "You only find out who is swimming naked when the tide goes out." By that he meant that your neighbours could well be living on credit, which will be revealed when the financial tide goes out, which is usually during a recession, as a result of sickness, or come retirement.
I'm a great believer in reinforcing good habits in the brain. Having a few mantras to trot out in your head when you're tempted to do something financially irrational is a very good idea. There are many simple quotations from great investors that are worth following. Some of my favourites are:
Warren Buffett: "Be fearful when others are greedy. Be greedy when others are fearful." Buffett has made billions with his contrarian investing - investing in businesses when the price has been driven down by crowd behaviour.
Sir John Templeton: "The four most expensive words in the English language are, 'This time it's different'." Investment markets correct themselves after long bull runs. It's inevitable even if it can't be timed.
Benjamin Franklin: "A penny saved is a penny earned." He also said "lost time is never found again" and "God helps those who help themselves."
US president, Thomas Jefferson, said: "I am a great believer in luck and find the harder I work, the more I have of it."
Robert Kiyosaki: "The only difference between a rich person and a poor person is how they use their time." People who really want to sort out their finances dedicate time to it. Kiyosaki is the author of the Rich Dad Poor Dad series.
Olly Newland: "Every dollar should be treated with respect, not for its own sake, but for what it represents - effort, risk, patience and hard work." Newland is a property investor, mentor and writer.
Martin Hawes: "When it comes to investment, 'feel' is a four-letter word." Hawes is a financial writer and author.
George Soros: "If investing is entertaining, if you're having fun, you're probably not making any money. Good investing is boring." Soros is a billionaire banker who "broke the bank of England".
Dolf de Roos: "The most valuable piece of real estate is the top six inches of your head, give or take an inch or two, situated between your right ear and your left ear, for what you create in that space will ultimately determine your wealth." De Roos is a property investment writer.
Charles Schwab: "A man can succeed at almost anything for which he has unlimited enthusiasm." This is a good one for people who weren't born with a silver spoon in their mouth. Just look at celebrity chef Gordon Ramsay, who described his early life as being marked by abuse and neglect. Schwab is a US industrialist.
Some of the best money advice I eve received was at home as a child. I remember desperately wanting a Raleigh 20 bicycle. I suggested that it be bought on hire purchase and was given a lesson about the evils of consumer credit - albeit not in those words. It stuck. Why pay 20 per cent or more than others for the same item - even though, at the time, waiting for that bike felt to me like a fate worse than death. My Raleigh 20 was eventually bought on sale.
Another useful piece of advice that stuck was my father's comment that he could afford to buy a new car every year - because he didn't.
It's worth being aware, however, that not all money lessons learned from family are good lessons. Many children are taught to buy now and pay later, or to fear investing because "it's dangerous and you'll lose your money" and so on.
What's the best money advice you've received?
