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August 2016

Mindful spending: what it is and why it matters

Do you spend too much money?

If you said yes, the good news is, you’re not alone.

The bad news is, it’s not a simple fix.

In fact, I’ve had a few goes at writing this post, because I don’t have any easy answers for you. That’s because spending – or more specifically, consumption – is so deeply bound up with who we are as women.

I’m not talking about the basics like rent or groceries. I am talking about the ‘discretionary’ spending that saps our savings and runs away from us.

Women spend for a lot of reasons. We reward ourselves for hard work. We shop for emotional solace. We buy things to distract ourselves. We splash out to make ourselves feel pretty or sexy or desirable.

Moreover, we are targeted with laser-like accuracy by companies keen to cash in on our hopes, dreams, insecurities and neuroses.

Certainly, I am not impervious to the  ‘go into Priceline to buy a toothbrush, spend fifty bucks on cosmetics’ trap. I could have educated a child in the developing world with the money I have spent being blonde for the last 15 years. (But hey, blondes have more fun).

So this isn’t a lecture about not spending at all. Or on rejecting the fashion-and-beauty industrial complex. Or having bad hair. It’s about paying attention to what you spend.

Because I can assure you, you need to spend less and save more. You need to do this because it’s the only way you will ever get the property, holiday, retirement or general sense of security you crave.

And when you save more, you can then invest it and build your wealth. When you save more, you have more choices about your life and your future. And, you can be like J Lo, confident that your love don’t cost a thing.

So what is Mindful Spending?

In a world of easy credit, ‘tap-and-go’ payments and electronic banking, it’s easy to spend thoughtlessly. It’s the same as eating. When you’re busy or tired or stressed or distracted, it’s so easy to buy take-away that you regret later.

When you stop to think, you know that that food is not cooked with love or care, and it doesn’t help you meet your health goals. So you need to pay time and attention to buying, preparing and cooking food to function at your optimum level.

Similarly, spending based on emotion or entitlement won’t get you to your goals. I’m talking about buying fancy cocktails because you ‘deserve’ it, or buying a new dress because you’ve ‘worked hard’, or getting a blow-dry because ‘you’re stressed’.

Sure, do it once in a while. But don’t make this your default setting. Think carefully about what your goals are, and then decide if this behaviour fits in with them. Same with your diet – do these fries align with your summer body goals?

The Spending Manifesto

Have you ever tracked your diet? Like properly. Not skipping treats at work and glasses of wine. It’s very confronting. I’ve done it in the past, and my coach has looked at me like ‘well of course you’re not getting any leaner’.  So then he sets a meal plan, and I follow it, and it’s hard and unpleasant but I reach my goal.

Spending is the same. If you don’t pay close attention, it trickles through your fingers like your points allocation on a Weight Watchers diet.

It’s pay day, then a week later, you’re looking at your bank balance like you’ve been targeted by cyber hackers. Cyber hackers with a penchant for after-work manicures and Zara sales.

So do this. Think deeply about how you want to spend your money. What means something to you. What genuinely improves your life. Then allocate more money to these things.  For me, I pay a pricey weightlifting coach because it’s my fave thing in the world to do. I then forego buying a lot of ‘stuff’ (activewear sort of not included).

But maybe it’s different for you. Maybe shoes give you life. Maybe wine is your bae. Maybe blowdries are the key to your sanity.

But you can’t have all of those things. You need to choose.

Mindful spending isn’t about not buying anything; it’s about not buying everything.

Then write down your priorities. A few phrases, a whole page, a note on your phone. Whatever the format – make a commitment like you make a meal plan, and then think about it the next time the siren song of H&M starts calling your name.

20160711_210135
I fix my ugg boots with duct tape so I can pay my gym membership. This earns me the ridicule of friends and family but I don’t care.

But what if you can’t stop spending?

Warren Buffett is legit one of the richest people in the world. He is also a massive tight-arse. He still lives in the house he bought in 1958 for $30K. He doesn’t have fancy cars. He eats McDonald’s. And he has committed to giving his wealth away to charity in his lifetime.

Buffett is famous for his out financial tips – you can read some of it here or here. But what I find really interesting is how he views wealth. Investing is not some kind of pissing contest to impress his mates or make himself feel powerful. He invests because he loves it. “Success is really doing what you love and doing it well. … that’s really the ultimate luxury”.

And I have found that the happier I am, the less I spend. There’s less of a gap to fill with ‘stuff’. That seems to be where ‘the Oracle of Omaha’ is coming from. He doesn’t care about being in da club, doing shots of Hennessy – even though he could literally buy every cognac house in France if he wanted to (because his company keeps a cool $20 billion in cash reserves for emergencies).

So this is a really long way of saying, if you truly can’t get a handle on spending, maybe that’s not the issue. I have seen this at close quarters – someone who felt like a failure in their heart, so they bought lots of fancy wine and a big car and expensive toys to try and convince themselves – and the world – that they were worthy and successful.

Thus, maybe there is something else to address – whether it’s a job you don’t like, a relationship that leaves you feeling empty, a body image that leaves you struggling with self-hatred. Moreover, spending is often tied up with the other behaviours that unhappiness can foster, like drinking too much.

So, as per one of the Oracle’s top tips, invest in yourself first. Take steps to address the problems you are trying to spend your way out of. Spend it on a counsellor instead.

Wow, that got really deep. So let’s get away from the feels and back to the dollars.

The bottom line is this: we can’t have everything we want, all of the time. My mum only let me have Coco Pops on school holidays, because of that very reason. So you can’t drink in nice bars every week, and get taxis home, and get Shellac, and buy new shoes, and go to Splendour. You can do some of those things.

The key is to choose which ones matter most.

6

Buying shares is pretty much like choosing a husband

For realz. But I’ll get to that.

First up though, why are we talking about shares? Because they can be a solid way to build wealth. And they can be another option if you are priced out of the property market.

However, the stockmarket has been given a bit of a bad rap over the years. Partly because of the dudes who run it. People think they’re like this:

Well, I work with a lot of them and can assure you most of them are way more nerdy. They’re much more likely to ‘slave over a spreadsheet’ than ‘snort coke off a hooker’.

And maybe you think people who play the stockmarket are super-rich, like Goldie Hawn in Overboard (oh, what an 80’s classic!):

Well, go down to any company AGM (a shareholder meeting) and check out the crowd. It’s like this:

There are two types of shareholders. The first is mainly white guys in suits (‘institutional investors’). They invest on behalf of super funds and the like, and don’t go to AGMs because they have private meetings with CEOs in boardrooms with tiny bottles of San Pelegrino.

The other shareholders (‘retail investors’) are normal people like us. A fair few are older people who come to AGMs for the free sandwiches – and because they rely on shares for retirement income.

“But enough random photos, tell us more about shares!” I hear you say. Well, as R. Kelly once said, let me break it down for ya.

“Stocks, shares, equities: what are they?” 

These are all the same thing and they mean you have bought a piece of a company. You are a part-owner of it. You share the risk and the reward. If the value of the company increases, the share price goes up. If it makes a profit, it gives some of it to you. If it goes bust, so does your money.

Types of shares:

Bluechip – this is not an actual technical term. It’s just a way that people refer to big, reliable companies like banks or miners. (Note: being big isn’t a guarantee of reliability. It’s like, you can buy a pair of Jimmy Choo’s and be confident in their quality – but that stiletto heel can still get caught in a crack and snap off.)

These shares are the premium end of the market – you’ll pay more for them, because they are less risky. Buying bluechips is like marrying a guy in his 40s who already has a house and a career . He has done the hard yards and proven he is an adult. But you pay a price – emotional baggage and a bitchy ex-wife.

Bluechips also tend to pay more in dividends but have less capital growth – explained below.

Large cap, small cap – This is short for ‘large capitalisation’, and is the sharemarket value of the company. Each share is worth a certain amount, and there are a certain number of shares out there. When you multiply these, it gives you the ‘market cap’. (Company A has 1000 shares each valued at $1, so its market cap is $1000.) There are also ‘small cap’ and ‘micro cap’ stocks, which are often bought based on their growth potential rather than how they are doing now.

A company’s ‘market cap’  hopefully grows over time, as its profit, size and share price increase. It’s possible to buy a ‘small cap’ stock that becomes a ‘large cap’ years later.  This is like marrying a 28-year-old guy working on a start-up – a decade later you might be living in a waterfront mansion, or struggling to pay for childcare because you’ve become the breadwinner. It’s a bet on the future.

Bottom line: A good share portfolio will often have a mix of large and small companies because they each have their pros and cons.

“Ok, got it. But what will shares actually give me?” 

1) Dividends 

Because you are an owner of the company, management might decide to give you a share of the profits. These are dividends. Management decides how much they will pay each year, once they have run all the numbers.

This is what those retirees at the AGM are looking for, as dividends replace their pay cheques. However, the company might not make a profit. Or it needs to invest the profit into paying off debts. So they don’t pay you anything.

That’s because dividends are ‘discretionary’. A company never has to pay them.

You can choose companies that are really bloody likely to pay them, like a big bank. Overall though, income from shares tends to go up and down, so if you rely on them for your lifestyle, you generally need other assets like fixed-income bonds or term deposits as well.

2) Capital Growth

This is where the big gains can be made. If you had bought shares in Apple back in 1980 – when Steve Jobs was just another nerd in a turtleneck – you would have paid fifty cents each. They are now $110 each. Even allowing for inflation (i.e. things used to cost less – remember when a mixed bag of lollies was 20 cents?), that is still a damn good deal.

Of course, for every Apple there’s another five companies that either fell over, stumbled along or just ran a steady marathon. It’s all about picking the right stocks. Is that 28 year old boyfriend going to make good money, be a caring father, not get a beer gut and stay faithful?

Nobody knows. Even Beyonce. She won on the first three but failed on the last one. That’s exactly the same as picking stocks. The good thing is, you can have as many stocks as you like, whereas society says we can only pick one husband at a time. (Whatevs).

Total shareholder return (TSR) is what you get when you add these together. Often you can choose to keep reinvesting the dividends you get paid (if you don’t want the income), so that boosts your shareholding value. Couple that with capital growth, and that’s your return.

The TSR is based on many factors, including the company’s performance and share price. For example, ANZ Bank has delivered 7.5% TSR on average over the last eight years, while Westpac has delivered 11.5%. Luck, skill and research, basically.

“Shares sound great! Sign me up! Take my money!”

Whoa there sister. Let’s just bear in mind a couple of things about shares.

They are volatile (compared to cash, bonds or property). Their price can go up and down in one day (and usually does). A bit of ‘vol’ (as we like to call it, because we sound cool and smart) is okay over the long-run, but it does mean you need to be flexible. If you want to spend the $5000 in your share portfolio, you can easily sell them. But is the price good that day, week or month? This is why shares are better over at least a five-year time horizon.

All shares are not created equal. Some are dogs. For example, if you bought Myer shares in 2009 for about $3.60 they’d be worth about $1.30 now. I suspect these shares were bought by men who hate shopping, because if any of them had set foot in a Myer they would know the service is shit, the stores are tired and the prices are ‘meh’.

But if you had bought JB HiFi at the same time, for $9.50, you’d be smug AF now, because they are currently $27 each. I know right! Although, why people still buy all those CDs and DVDs baffles me completely. (By the way, if you like these figures, the ASX website has heaps of fun graphs and charts)

So, you can choose your own shares or you can let someone else do it. But even the pros get it wrong sometimes. What we hope is that they get it right more often. Which brings me to the third point.

Don’t put all your eggs in one basket. This is good old ‘diversification’. As we have discussed before, that’s just a fancy way of saying don’t stock your wardrobe full of just ballet flats, or just high-heels, or just runners. That’s crazy. Same with investments. If you buy shares, buy a range of them, because they will all perform differently over time, and in different conditions.

But how do I buy a whole bunch of different shares with just $1000?

Glad you asked! You can either buy a managed fund or an exchange-traded-fund (ETF). They pool a lot of people’s money and spread it out over a range of shares. (You can click the links to find out more about them).

I won’t give you advice on which ones to choose but I can tell you that I have the Acorns app. This takes small amounts of money out of my bank account every week and puts it into an ETF. It’s pretty cool because you don’t notice the money going out.

I don’t fancy myself as a stockpicker. Firstly, I just finished that subject in my post-grad course, and it was seriously the hardest fucking thing I ever studied. Secondly, I don’t have time to dig into the company accounts of potential investments.

So I put share investments into my mental list of “things better left to experts” (along with tax returns, powerlifting training programs and making laksa).

If you do want to go it alone, you can easily sign up to a broker and do it yourself. Check them out at Canstar (a comparison site).

“Sheesh, that’s so much information, I am just as confused as ever”. 

Ok I hear ya. There is a lot to know. You can always talk to a financial adviser. Or you can just start small. For example, download Acorns. Pop $500 into a managed fund or ETF. Or have a ‘fantasy portfolio’: pick some stocks and watch them over a period of time to see how you do.

What I would say is this: if you haven’t bought a property, (or even if you have), shares are one more option for you to build wealth and become a certified Fierce Girl.

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3

Fierce Girl Action Plan: Part II – Super fun!

Things I like talking about: hair and make-up; weightlifting; The Bachelor; superannuation. Weird huh?

I know it sends most people to sleep – but please, stay with me! Let’s do a deal. I will jazz it up and break it down for you.  You will spend five minutes reading it. And then you then can go straight back to your important tasks like scrolling through Insta.

The thing is, you need to love super early in life to get the most from it. The earlier you start, the easier it is. (Magic of compound interest, yo!).

So here are the things I absolutely want you to know.

Choose a super fund. And give them all your money. 

You could just stay with the fund you’re in, or the one your employer chose for you. But there are two reasons you might choose your own:

  1. If you have several funds, you need to pick one to roll all your money into.
  2. You prefer to make your own choice, not what some employer chose (I don’t even trust mine to pick the Friday arvo wine without my input).

So, let’s pretend you’re at a make-up counter. That’s way more fun huh? You’re looking for a foundation and your comparison points are texture, colour match and moisturising potential. Well it’s the same for a fund. You want to look at:

Performance (over at least 5 years, not 1 year, because this shit is invested for at least 30 years). All funds have to publish their performance figures, and you can find comparison tables here.

Fees –  There used to a lot more variation in fees, but since the Government brought in ‘MySuper’ (a low-cost default scheme), the differences have shrunk. I am in a slightly higher-fee fund myself, because I have made a conscious choice to pay for ethical screening (see below) which is more work and therefore has a price premium.

Insurance – As we saw in Part I, your super fund usually comes with insurance. Make sure you aren’t losing the stuff you want or paying a lot more for it.

Your values and beliefs – Here’s something that will blow your mind. You may be invested in tobacco companies RIGHT NOW. No way huh? Yep, a whole bunch of super funds use asset managers who invest in tobacco. And coal mining. And armaments (bombs and guns!). And gambling.

How could this be? Well, you might think there are a bunch of besuited, bespectacled boffins at your super fund who invest your money. Wrong.

Most funds have a small group of boffins, who choose which fund managers will do the investing for them. It’s the same as when you go to a pub with no in-house kitchen (I’m looking at you, Darlo Bar). So you order a burger and it goes out to Grill’d. Or you order a pizza and it goes out to Crust. But then the bar-staff bring it to your table and give you napkins. This is how most super funds work. Fund managers get paid way more than Crust staff though. 

So, super funds have a bunch of fund managers who are specialists in all types of investments, such as Australian shares, or international bonds. They award them a ‘mandate’, meaning ‘Here is $200 million – can you invest it for us please?’. This is not a bad thing. It means you have really focused specialists who are (hopefully) awesome at what they do. (Who wants a burger made by Crust?). It also spreads risk – if one fund manager gets it wrong, another one probably got it right (or less wrong).

So I have nothing at all against this model. I know a bunch of these fund managers and they are nice people and passionate about what they do.

However, it means you don’t always know where your money has gone. It could be in a nasty mining company or in a wonderful renewable energy company – you just can’t tell.

So, if you care about this, you have a couple of options:

  • Choose your current super fund’s ‘green’, ‘ethical’ or ‘ESG’ option – if it has one. What that means varies, as there is no official definition, but you can ask them.
  • Choose a ‘core’ ethical fund – That’s what I have done, rolling all my money into Australian Ethical. I should disclose that they are my client, but I would spruik them anyway, because they do all their own investments (no sending out to Grill’d), use a rigorous ethical screen, and have fantastic performance. (Coal is a bad investment huh? Who knew?). I can also tell you that the people who run the fund really believe in what they do. There aren’t really any other funds that work this way, so I can’t give you an alternative to compare it to.  

Roll your money into one fund (aka ‘consolidation’)

Ok, so you have decided which is your favourite fund. Now it’s time to rescue your money from your other, unloved funds. Australians have a ridiculous amount of this unclaimed super – $16 billion! – and it’s legit like leaving $3000 in your winter coat pocket and forgetting about it. Except you’re paying fees to your wardrobe to look after it.  

Or it’s paying multiple gym memberships. Imagine if you joined a gym every January in a fit of new year fervour, got bored of it by February, but you still paid the fees. Then you start a new gym the next year, and so on. If you’ve had several jobs and acquired several super accounts, this is exactly what you’re doing. PLEASE STOP DONATING TO SUPER FUNDS.  They don’t need your money.

Donate it to your future retired self instead. She wants to spend summer in Europe in 2045, looking like Baddie Winkle. (If you haven’t seen @baddiewinkle on Instagram, you have no idea what your #retirementgoals could look like).

So, have you tried to do this in the past and there was a bunch of awful paperwork and then it was all too hard? Good news! It’s now much easier. The last few years have seen the super industry change their back-end systems (hello, 21st century!). 

Also, your chosen fund wants you to scrape up all that spare money and give it to them. So, many will have free and easy ‘rollover’ or ‘consolidation’ services that do it all for you.

Bottom line: this is a low-effort, high-value task that will have a big  impact on your final retirement savings.

Throw in some extra money.

I know, you want to spend that money on a mortgage, or a night out, or a new pair of shoes that you absolutely need and your feet may fall off if you don’t get them.

HOWEVER. Your Baddie Winkle self wants that money too, and she makes a convincing case for it.

First, she says, you’ll give less to the tax office if you make contributions from your pre-tax pay (called salary sacrifice or concessional contributions. I know, they need a branding intervention).

That means that instead of paying, say, 39 cents in the dollar in tax when you get paid, you pay  just 15 cents. Of course, you can’t access it til retirement, and you may get taxed on some it when you take it out (long story there). But overall, you come out ahead.

Secondly, Baddie says, you will get compound returns. Which basically means putting $100 away today and leaving it for 30 years gives you a far higher return than waiting for another 20 years, investing it in 2036, and then only getting 10 years’ worth of returns.

The key to super is that the longer you have it, and the earlier you start, the easier it is.

Consider taking some or all of your next payrise as a salary sacrifice (just ask your payroll person). It’s money you’ve never had, so you won’t miss it.

Or just  think about how much a month you waste on shit like wine and coffee, and match that amount. It’s like a sin tax.

Choose an investment option. Right now, if you have the default option, you have the same investments as 58-year-old Barry in accounting. Which is crazy, because he is retiring in a couple of years and you have aaaages to go. (Soz). That means you can probably tolerate more risk and get higher returns.

Picking the right investment option for your age is as simple as calling your fund and asking about it. Most of them can give advice on this issue. In general, if you are under 40, look at a growth option. (Although some funds call their default option ‘growth’ – it’s a long story – just frickin call them and ask).

And lastly, check your payslips and super fund statements. This is easy and important. When I joined my last employer, I gave them all the details for my super fund but some bright spark in payroll stuffed it up, and started paying it into their default fund. Because I am a nerd and checked, I spotted it. You need to make sure that you are getting what’s yours.

Also, checking your statement makes you feel like it’s your money and gives you an idea of whether you have enough (you probably don’t).

Ok, so, I probably lied about the five minutes thing. Sorry. I really love super.

But anyway, think about doing just one of these things and tell me what it is. Or ask a question – to me, or your fund! But maybe don’t ask Baddie – she is very busy hanging out with her celeb friends.

3

Just do one thing: A Fierce Girl Action Plan – Part I

Money is tricky. Debt is distressing. Saving is hard.

And so the easiest thing to do is not think about those things. Sort them out another day. Leave them to your responsible future self.

Unfortunately that future self has all the same flaws as your current self. Damn it!

So there is only one thing to do. Start Now.

“But where do I start? What can I do that will make a difference?”

Well, I like to take life advice from everybody’s favourite nun-turned-governess, Fraulein Maria. She says, “Let’s start at the very beginning”. And I think we can all agree that is a very good place to start.

Financial triage. You know that mean nurse at the hospital emergency room, who decides you wait four hours and that dude goes straight in? That’s the job of the triage nurse: to work out who is most likely die, and who is just there because their arm hurts.

You can do this with your money too. There is no perfect order, and you can do some of them at the same time, but a useful road map will look something like:

  1. Have an emergency savings stash
  2. Insure your most valuable asset
  3. Sort your super
  4. Pay off ‘bad’ debt
  5. Pay off ‘good’ debt
  6. Save for fun stuff
  7. Invest

We will look at each one in separate articles, because there is a fair bit to cover. But here are the first two. And I promise if you spend five minutes reading about insurance, we shall never speak of it again. 

(Well, not promise, as such…)

Emergency savings – This is money you can call on if you lose your job, have an accident, your fridge dies or you suffer any number ofthe disasters that befall us in this crazy little thing called life.

The right amount is different for everyone. If you have a direct line to the parental back-up system, you can get away with less. If you are really doing this adult life thing on your own, then you need at least a month’s salary – preferably three.

You can put it in a plain old bank account (ideally a different bank to your everyday banking, so you don’t see it all the time and mentally spend it on fun things).

Or if you have a mortgage, put it in an offset or redraw facility, so it reduces the interest you pay.

How do you save this amount? Basically, you spend less. Amazing, I know. Check out this post for some tips.

Insure your best asset – No, not like J.Lo insuring her butt. This is about insuring yourself and your earning capacity.

Boring, I know. But like cleansing and moisturising on a daily basis, insurance is a dull but necessary part of life. So what do you need?

Life insurance – it’s up for debate, but my view is that this is mainly needed if other people depend on you and your income. i.e. if you have kids, or you have a mortgage with a partner. If you’re single or your partner looks after himself/herself, having life insurance is kind of like being on the pill when you aren’t getting any action – a bit of a waste.

HOT TIP: You most likely have some life insurance already, because it comes as a default in super funds. Yes, you are probably paying for it RIGHT NOW. And if the only one who needs your money once you’re dead is the drycleaner, who has half your wardrobe waiting to pick up, you may consider opting out (which you totally can).

TPD – This is for total and permanent disability. Like serious Million Dollar Baby stuff.  You get a payout if you are very seriously buggered up and unable to work ever again. That doesn’t mean ‘I fucking hate my boss and also I hurt my back’. It means you are very, very disabled. Usually physically – it’s often hard to prove permanent mental disability.

Again, this is usually a default option in superannuation, and I would argue it’s better to keep it. If you were, God forbid, in a position to need it, you would be really glad to have it. You may even want more than the default amount.

Trauma – similar to the above, but a lower bar to qualify for it. Say you’re in a really bad car accident and can’t work for months, this will help tide you over and pay for all the crazy costs. It’s generally not included in your default super, so talk to a financial adviser, insurance broker or insurance provider about whether it’s for you.

Salary Protection – This is the underloved but very useful member of the insurance family. Say you’re diagnosed with aggressive breast cancer at age 30 (as happened to a friend of mine. No, not Kylie Minogue, an actual real life friend). You have to take six months off work. How do you live? You can’t rely on social security – that shit is hard and slow to access – you will legitimately be living on the streets if and when you ever get a dollar from the Government.

So, unless you relish the thought of cancelling Netflix, drinking Nescafe and taking goon to dinner parties (uni life!) take a good look at this option. You can often get it through a super fund, where  it comes out of your super payments, but you normally have to ask for it. If you get it outside of super, the premiums are even tax deductible. I once had it covered by a generous employer.

You can get a cheaper version, where you get paid out for two years, or the fancy one where it goes until you’re 65. You can also choose how long it takes to kick in (1 – 3 months usually) and that affects the cost.

But the key point here is: think about getting it.

Health Insurance – Look, the public health system isn’t going to let you die just because you don’t have insurance. But you might have to share a room with a loud, weird or stinky person if you’re in hospital. You might have to wait a couple of years for knee surgery, with really painful knees, instead of having it on-demand. You might not be able to afford IVF if you ever need it.

It’s a lifestyle choice. I personally hate paying it, but do it anyway, because I can afford it and, as my ex-husband once said ‘I’m obsessed with insurance’. (Ha! As if! I don’t even know anything about it!).

But don’t be afraid to shop around for a better deal. I used comparethemarket.com.au to do that, because I like the meerkat. But you could try iSelect or other comparison sites. (HOT TIP: these are free to use, because the winning insurer pays the site a commission).

What’s all this stuff about superannuation? Well by some quirk of history, your retirement savings have become wrapped up with insurance. You generally get allocated default Life & TPD insurance when you join, and pay from your contributions. Salary protection and trauma can be paid the same way but you normally have to request them.

Now, you are under no obligation to use your super fund’s insurance (although it can be handy). You can buy any of these products directly from an insurance company. I’m not here to tell you one is better than the other – just make sure you have looked at what you have.

The bottom line

 The action points around this are:

  1. Check your superannuation statement, (or call your fund,  because I know you can’t find it). Find out what insurance you have, and how much you’re paying for it.
  2. Work out how much you need and where the gaps are. MoneySmart has some good stuff on this. Financial advisers and insurance brokers are also helpful. Australians are generally underinsured, but you may be overinsured too, if you don’t want life insurance, for example. Or, if you have multiple super funds, you could be paying for several life insurance products. Sort that shit out now. Please.
  3. Shop around for a better deal on existing insurance by using a comparison site. But if you do this, make sure you read the fine print, to make sure you’re not giving up something you need. Yes, reading the fine print is an important adult skill!

So, there you go, insurance is “Simples!”

meerkat

Disclaimer: I’m not a financial adviser and this isn’t finance advice. If you think you need professional advice, speak to your super fund or an adviser.

5

Interest rate cuts vs Hiddleswift: which one matters more?

Every month, the financial markets whip themselves into a frenzy about the Reserve Bank of Australia’s (RBA) decision on interest rates.

And you’re over here like ‘how long is that Hiddleswift thing going to last?’.

So, should you care about interest rate cuts? Yes and no. Let me give you a quick run-down about interest rate decisions (aka monetary policy) and you can decide. Or you could just sound smart and knowledgeable.  (Although this is a simple version; the economic theories behind monetary policy are hectic).

  • Have a mortgage? Happy days. You’ll save a few dollars a month (say $50 on an average mortgage), which the government hopes you will spend elsewhere, propping up economic growth. However, the tight-arse banks are only passing on half that cut, so don’t start booking the trip to Vegas yet. Also, you could just keep paying your existing amount, to pay your mortgage off faster and save on interest.
  • Want to buy a property? Not ideal. Low interest rates do make loans cheaper, but they also tend to raise property prices. Everyone is all like ‘yay, cheap loans, let’s buy!’. But when everyone does that at once, supply and demand get out of whack. Next thing you know, someone pays more than a million bucks for a hovel in Surry Hills where a dead body was found. True story.
  • Going overseas? Probably doesn’t matter. In theory, these decisions affect the strength of the Aussie dollar. It fell a tiny bit today, which is normal. But because other countries’ central banks* are all over the place right now, it’s hard to predict what will happen to the currency. It’s really complicated, so let’s just say this: if you’re travelling, just travel and hope for the best.
  • Running or starting a business? Mostly a bad sign. If you want a business loan, it will be marginally cheaper due to lower interest rates. But the big issue here is what low rates tell us about the economy. Put simply, it’s kinda crappy. Inflation is low, meaning we aren’t getting mad payrises or spending up big. The economy is growing, but not fast. Consumer confidence is ok but could be better. So the RBA cuts rates to ‘stimulate’ the economy.

But this doesn’t always work. It’s like when you’re a kid and you get ten bucks from your Nanna. You can go spend that on mixed lollies and bouncy balls (the kid version of hookers and blow), or you can save it in your Dollarmites account. Unfortunately, we have too many Dollarmites and not enough child-gangstas these days. The RBA says spend, don’t save! But we don’t.

So monetary policy isn’t working very well, either here or around the world. You might think all the smart money-type people (e.g. the central bankers) would have come up with a Plan B by now. Afraid not.

Well there are other solutions like changing our tax system, cutting the Budget and other politically unpalatable ideas, but it takes a bold government to change what we call ‘fiscal policy’. So they just leave it to the independent central banks to make the hard calls on interest rates.

So there you have it. I’d say you should care about interest rates in the way you care about the love life of Taylor Swift. Interesting but marginal to your daily life.

* A central bank is an independent body that sets interest rates (among other things). They aren’t like normal banks and politicians mostly can’t tell them what to do. So if you hear about the US Fed, the European ECB, the Bank of England or the Bank of Japan, they are central banks. Don’t go ask them for a car loan.

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