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The Fierce Girl's Guide to Finance

Get your shit together with money

Month

August 2017

How to feel wealthier, happier and more in control of money

What do you get when you cross a yoga teacher with a financial adviser?

No, that’s not the opening line to a joke.

Lea Schodel is both of those things, and as a result, is the driving force behind a more mindful approach to money. Lea and I came across each other on the interwebs and were like “Yasss, you totally get it!”… “It” being the way money and emotions and wealth and being a woman all intersect.

Lea’s approach to the topic has seen her sprout a social enterprise, The Mindful Wealth Movement, focused on helping women connect their hearts and minds with their money. And then make better decisions about it.

One of the things she provides – for free – is a 30 Day Mindful Wealth Challenge, where you receive a daily email with a little task. Some of them are very practical, like renaming a bank account to fit with a goal – “Adventure Bucket” or “Freedom Fund” for example. Others are more reflective, such as, “Make a list of all the things that wealth means to you”.

What I enjoy is that each day has an affirmation linked to the challenge, like “I am creating a wealthy life”.  It’s a simple but powerful process to reassess your relationship to money.

Lea recently wrapped up a crowdfunding campaign, raising money to provide mindful wealth and financial literacy workshops to disadvantaged women. And she still found time to share some of her thoughts with you, the Fierce Girl community, in answer to my questions. So please read on for some tips from this inspirational woman. 

What prompted you to marry mindfulness with wealth?

As a financial planner, I completely understand the need for the technical knowledge and skills (left-brain) required to manage money well. But to me, this is only half of the skillset required to have a healthy relationship with money. As a yoga teacher and wellbeing coach, I also recognise that our mindset – our thoughts and feelings (right brain) – affect our ability to manage money well.

I often say, “in order to manage money well, we need to manage ourselves well”.

Our thoughts and feelings will either support or sabotage the actions we take with our money – and often we’re not even aware of it.

A lot of what we do with our money is sub-consciously driven: done out of habit or influenced by our emotions. We all have a complex money story and a whole range of beliefs and attitudes towards money. This can either support us or limit us when it comes to earning, keeping and growing our wealth.

After studying mindfulness, I saw it as an ideal philosophy and practice to apply to not only our finances, but our lives and relationships too. Mindfulness is all about creating attention and becoming present and fully aware of our current situation.

Why did you decide to build it into a social enterprise?   

I have this motto in business: Be guided by purpose and be driven by passion. I believe you can work in a space where you generate profit but also generate impact.

Money has such an impact on all areas of our lives. Having a good relationship with money and knowing how to manage your finances is fundamental to wellbeing as well as the ability to live healthy, balanced and stress free lives.

In my experience in Financial Services over the last 16 years, I’ve come to realise that many women (and men) are missing even the most fundamental personal finance concepts and it’s not really their fault – basic financial management wasn’t taught in schools or even households for most people growing up.

I’m on a mission – to help women create a conscious and purposeful relationship with wealth, help them take control of their finances and allow them live happier, healthier and wealthier lives.

I also feel that if as a society we are more conscious and purposeful with money, then it will address social issues such as depression, suicide, homelessness, domestic violence and poverty.

It will also help close the gender pay gap and retirement shortfalls that many women face. I’d also like to see more women become conscious consumers, practice gratitude and maybe even embrace the minimalist movement.  

The final reason I created a social enterprise is because I wanted to make financial literacy and education inclusive to all women, not just those who can afford to pay for financial advice.

It doesn’t matter how much or how little money women have, we all need to know how to manage it properly if we want to use it in a way that supports our dreams, goals and wellbeing.

What stories do you see women often sabotaging their finances with?

Money is so fraught with emotion. Fear, guilt, shame or embarrassment often prevent women from seeking help or even taking the next step to gain control of their money situation.

I see a lot of women who hand over the responsibility to someone else to manage their money, and those who secretly wish and hope someone else will save them – or sweep in and fix their finances for them!

I have a lot of women tell me that they find money boring, or that they’re too creative, or just don’t care about money. It’s almost as though they feel that it’s not really a feminine thing to be money savvy or an investor.  

I see lots of women mixing up their self-worth with their net worth – thinking that they can spend their way to higher self esteem, or trying to value themselves and their success based on the clothes they wear and the things they own.

Finally, I see many women completely disconnected from their future selves, too busy living in the now to consider the impact that their money decisions today may be limiting their opportunities for tomorrow.

If you want to start practicing mindful wealth, where do you start?

Mindful wealth is all about creating connection with and bringing awareness to your wealth, accepting your current money situation and then taking intentional action to create wealth. 

The simplest way to begin is by starting to notice how money is flowing in and out of your life. Whether it is quick to earn and easy to spend, whether you are hanging onto it too tightly, whether you are oblivious to how much you earn, spend, own and owe.

From this place of awareness, you can begin to notice how your emotions and habits may be driving your relationship with money.

Any time you spend or receive money, check in to see how you are feeling, or take a moment to explore the “why” behind your actions with money.

This helps us to create more connection to our money habits (which are often driven from our sub-conscious).

There is a saying that the way to “buy happiness” is not to buy things, but to spend the money you do have, on the things that you value most in life. If you know what you truly value, then you can begin to use the money you do have to bring more of that into your life.

See if you can define what wealth means to you personally. Have a go at thinking about what is present in your life already, or that you’d like to have more of in order to feel happy and abundant.

Whilst money may certainly be one of these things, see if you can list all of the other things that you need or like to have in life and that bring you the most satisfaction and happiness.

This can be an interesting exercise, as often we have this idea that to be wealthy, we need to have lots of money. Then, in the pursuit of more money, we can sometimes lose sight of the things that make us feel truly wealthy.

What if you’re partnered, and your partner isn’t on board? How do you manage that?

I so often see “opposite” money personalities in partnerships, whether romantic or business. Given money is a leading cause of relationship breakdown and divorce, we can certainly do ourselves and our relationships a favour if we can get on the same page as our partners.

In any partnership, it’s important to recognise that we all have a unique money personality, experiences, values and habits. If we can create awareness around what these are for our partner, and they can understand what they are for us, then we can understand what drives our behaviours.

I use a great tool with my clients, which helps couples to discuss their dominant habits and attitudes with money. Then they can begin to work out a plan to support each other’s strengths and challenges when it comes to managing money.

If you’re not on the same page as your partner when it comes to your finances, the first place to start is with communication.

If you can’t communicate with each other without arguing, then it could pay to see a financial counsellor or money coach to begin the conversation in a neutral environment.  

I’m a big fan of transparency between partners, but I also insist that partners maintain some financial independence.

 Joint accounts are great to manage joint and household expenses and debt, but I think it’s also necessary to have individual accounts for personal spending money, so that each partner can spend freely on the things that they value most.

So, these are just some of Lea’s wise words. There is a lot to process there! And because I know you guys like practical tips, I have crunched it down for you into 3 Top Tips for Mindful Wealth.

 

 

photo credit: MrJamesBaker http://bestreviewsbase.com/

Investing 101 – Explained in shoes. Because, why not?

There is one important things that bad-arse, grown-up ladies do with their money.

And no, it’s not buy designer handbags.

Ok  maybe some do – but that’s not what this post is about.

No, what really grown-up ladies do is invest their money. Don’t be put off by that word ‘invest’.

You don’t need a finance degree to invest.

You can get someone to do it for you if you like.

Just like you don’t need to be a colourist to get your hair coloured, you don’t need to be a finance expert to invest.

You may want the guidance or input of a financial adviser. But you can also get a feel for it by starting small and being smart.

What sort of investments?

Well there are lots of ‘asset classes’, but the most popular ones in Australia are shares, property and cash. They all have different pros and cons, so I like to explain them like a shoe wardrobe.

Cash: your work flats – Not very exciting, and not much benefit to your outfit, but geez they are comfy and reliable. Especially if you have to hike to a meeting at the other end of town.

Similarly, putting cash in the bank has a low return, but you know you’ll get all of it back at any time.

Now, I don’t believe you should go to important meetings in flats. And so with cash, it’s fine for some purposes, but it’s not an ideal long-term play because of two reasons:

1) Opportunity cost – the longer you have it in the bank getting stuff-all interest, the more you miss out on the sweet gainz you could be getting in something like shares or property. There is also no way to reduce the tax you pay on any interest, so you pay your marginal rate (i.e the same as your income tax).

2) Inflation risk – as inflation rises, the buying power of your money decreases. If you are getting 2% in the bank, and inflation is 2.5%, then you effectively lose money, because it’s worth less than before.  (I have a whole post on this if you’re interested – here)

Now, if you’re really committed to cash because you’re risk averse or don’t quite know when you’ll want your money back, there is a subset of cash called Enhanced Cash (or similar names).

It tends to give you a couple of percentage points higher than a bank deposit, but is still pretty safe. Think of it as a strappy summer flat – a bit more pizzazz but no real risk of limping home in bare feet, with the balls of your feet burning.

One example is Smarter Money Investments, which I name here because I know the guy who runs it – he is a massive nerd and gets great returns (and for full disclosure, my employer owns some of it). There are other products out there which you could consider from a range of fund managers.

These products aren’t exactly the same as putting cash in the bank, but they are low on the risk spectrum. Make sure you read the fine print.

PropertyYour winter boots – If your boot wardrobe is anything like mine (extensive and carefully curated) then you’d know there are hits and misses. I have faves that have done the hard yards and been a damn great buy.

One of my fave buys

Then there are ones like the blue velvet over-the-knee pair. They were on sale, I had to own them, but now I can’t find anything to wear with them. In investing, this is called ‘poor asset selection’.

Buying investment property is really dependent on how well you choose. Unlike the velvet boot purchase, your property choice should be carefully researched, highly rational and based on solid data sources.

Despite what people say, not all property goes up in value, all the time. It is true that property has been the best-performing asset class in the last couple of decades, but that is an average.

Some locations or house types languish, or even go down. So while property can be a great way to build wealth, it needs more than a good knowledge of colour swatches and Ikea assembly.

The latest Russell Investments report looking at historical returns, warns that even though residential property is the best performer on average, “there was wide variation between regions, dwelling types and suburbs, with some areas declining”.

This is a risk of single-asset investing – imagine if every time you went out, all you had were those blue velvet boots!

So, just be really well-prepared if you go down this road.  And if you don’t want to go it alone, you have a couple of choices.

  1. Real Estate Investment Trusts (REITs) – these are a collection of properties parcelled together, and you  buy ‘units’ of them on the ASX, a bit like you buy shares. The value of the units can go up and down depending on the market (and  don’t always reflect what’s happening in the rest of the property sector. They got hammered in the GFC, for example).

    However, they give you a different flavour to traditional shares (aka equities) and the cost of entry is lower than stumping up for a house or apartment. They also give you access to more than just residential property – so you can own offices, warehouses and other commercial buildings. This provides diversification.

  2. Work with a professional property adviser – Someone like Anna Porter, who is a Fierce Girl-style powerhouse, if you ever get to see her speak. Her company does all the research and then advises on which property to buy. There are lots of similar advisers out there – but make sure they are independent and not just trying to spruik an overpriced new development.

 

Overall, Aussies love property investment and aren’t going to stop any time soon.

But I will just say this: don’t assume that just because you live in a house, you know how to invest in one.

It requires skill, knowledge and yes – luck – to get right.

Shares – your fancy, going-out-to-dinner heels. They give you great rewards (you feel so sexy) but they also have more risks – from tripping over, through to searing pain in your foot.

Shares have historically given great returns. (Nice chart on that here). But they do it with more volatility.

If you happen to put money in just before some stock market craziness, then, yeah you’ll lose some of it quicker than a Bachelor contestant loses her shit at a rose ceremony.

But, just like the resilient young ladies of The Bachelor, you’ll get back up and repair your losses over time. You need time and patience though – if you lack either of those, you could turn the ‘on paper’ loss into a real loss.

That said, there is a lot to like about shares. Not only are they strong performers in terms of returns, they are liquid (i.e. you can usually sell them way faster than a house). You can buy just a few and pay nothing more than a brokerage fee for the privilege, whereas property needs a big upfront investment and has quite a few of costs, from stamp duty through to legal fees.

I’ve written more about shares in this delightfully named piece: Buying shares is pretty much like choosing a husband.

Which investment has the best returns?

You know I’m not going to give you an easy answer.

The thing to remember with any investment is that when people (i.e. the media, finance types, blokes in pubs) talk about returns, they are often talking about that whole asset class.

The Russell Investments report shows that:

Australian shares returned 4.3%, before tax, in the ten years to Dec 2016. But that’s the market average. You may have bought some shares that went bananas and made 20%. Or you bought some that tanked and you barely broke even.

Ideally, neither of these things happened, because you had a diverse portfolio  where the winners and losers balance each other out.

You can do this by investing in managed funds, listed investment companies or exchange-traded funds. (More on that here).

Residential property returned 8.1%, before tax, in the 10 years to Dec 2016. Yeah, almost double the return of shares. But that’s a helicopter view. There are people who made way more than that because they picked a lucky location; then some people in places like Perth and Mackay who watched their properties fall 20% or more in value.

There are also more asset classes than what’s discussed here (alternatives, international shares, fixed income etc). I have just focused on the most popular.

Then there is tax. And it’s complicated.

Broadly speaking, property investing can be good for people who have a high tax bill, as they can declare a loss and claim it as a tax deduction (the oft-discussed ‘negative gearing’).

And for people who pay low or no income tax, Aussie shares can be great because of dividend imputation (aka franking credits). Now I won’t explain these, because working them out literally made me cry in my finance degree. But the outcome is, the less tax you pay, the more you get a bonus return on top. (If you’re interested, I co-wrote this article on the topic).

Of course, you should discuss these tax-type things with an accountant or financial adviser. My main point is that looking at a headline return isn’t very accurate – it depends on your costs, tax rate and timing.

You can start small

Despite all these caveats and warnings, the message I want to give you is this: investing is a key part of building wealth (remember the Four Best Friends Who Will Make You Rich?). Letting your cash sit in the bank forever or spending it whenever you get it, won’t get you closer to your ideal lifestyle.

The more you learn about it now, and the earlier you start, the more you could make over time.

Don’t be afraid to start small. I’ve been running a little portfolio on Acorns, and it’s doing well. Even popping $500 into a managed fund or listed investment company can be a good start.

That’s the key though: you need to start somewhere.

And if all this seems like a lot of information, that’s fine too. It’s totally ok to ask for help. Talk to an adviser, or a trusted friend or family member. You don’t have to be an expert to be an investor.

Photo credits:
M.P.N.texan Good Shoes via photopin (license)
https://www.flickr.com/photos/reverses/
https://www.flickr.com/photos/simpleskye/

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