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The Fierce Girl's Guide to Finance

Get your shit together with money

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June 2019

3 Key Investment Concepts explained by The Spice Girls

It’s Sunday morning, I still have glitter all over my face from last night’s Oxford St make-up, and I’m drinking coffee in bed. The only thing that could make today better is dropping some knowledge bombs on you all.

If you didn’t hear about the Great Disappointment of 2019, last week Mel B told us that The Spice Girls were coming to Australia, before clarifying that actually it was just a vague intention.

Anyway, since this Girl Power phenomenon was a huge formative influence on my life, I decided to give them their own Fierce Girl post. And sneak in some learning at the same time.

So, here I give you three important investment concepts they should really teach at school but usually don’t.

Capital Growth – this is when an investment or asset increases in value over time, without you having to do anything.

Capital Growth is the Spice Girls of the investment world. For that brief moment of joy where we thought the band was touring Australia, my friends and I considered how much we’d pay for tickets. ($1000 was too much, $999 we agreed was ok). Those girls haven’t made an album in decades but they get more valuable over time!

With assets, homes are the most common example of a capital growth play. We buy them and hope they’ll double in value every seven years and in a rising market, that does happen. But all markets follow a cycle, so if you buy at the wrong time, you may either miss out on capital growth, or see it go backwards. (Read this post for more info).

When people buy shares, they are often looking for capital growth, especially if it’s an up-and-coming company that doesn’t make a profit. You don’t get any dividends in this case, but hopefully in a few years those $1 shares are worth $5. I already wrote a whole post about how buying shares is like choosing husbands (here). But when I think about it, it’s kind of like creating a girl band. They could end up as the Spice Girls, or they could go the way of Bardot (sorry Sophie Monk).

Ouch, my nostalgia-o-meter just kicked into overdrive and I feel old AF

Yield – Income – Dividends

These are all basically the same thing, and refer to the cashola you earn from owning an asset. Also known as passive income.

Do you ever wonder how Sporty Spice seems to live an A-list lifestyle, even though we haven’t heard much from her since the 1999 dancefloor banger ‘I Turn to You‘?

Yep, that’s right, she’s living off royalties. Apparently all five girls have co-writer credits for their songs and get paid when people play or perform them.

This is the kind of passive income I want in my life, but since I have zero musical talent, and am probably past my prime girl-band age, I’ll have to buy some blue-chip shares instead.

Retirees are big on ‘yield stocks’ like Telstra and the Big Four banks, because they need  income to live on day-to-day.

For myself, as a young investor, I’d rather re-invest that income to grow my nest egg, and in fact many companies have an option for doing this. It’s called a Dividend Reinvestment Plan (I know, they could have catchier name). Say you have $1000 worth of Telstra shares and they pay a 7% dividend, instead of taking that $70 and putting it in the bank, they just give you $70 worth of their shares. It all happens automatically once you sign up for it, and you don’t need to pay a broker (which is normally the case for buying shares).

It’s as easy as letting Spotify create a Pop Queens playlist for you. (Athough, tbh, I’ve made my own and it’s great. You’re welcome).

When it comes to property, rent is the key income stream. If you have an investment property where the rental income is enough to cover the costs of the mortgage, strata and other bills, it means it’s positively geared. (‘Gearing’ refers to debt, so it basically means the income is greater than the cost of servicing the debt).

If the rent isn’t enough to cover the costs of owning the property,  you have to put your hand in your pocket to top it up. This means it’s negatively geared – as you’re making a loss on an investment.

If you’re thinking ‘wait, what, why would anyone want to make a loss on an investment?’ then you have obviously never experience my dating life, which is all about putting in more than I get out. (Although I’m down with that now).

The key insight here is that investment losses are tax deductible. So, say you have to cover $10,000 a year of investment property costs each year, you can reduce your taxable income by that amount. i.e. maybe get a sweet little tax refund.

Like, I see how this is good for people who hate paying tax to the government (ok, literally everyone). But I personally don’t relish the idea of finding extra money all the time, which is one of many reasons I don’t have an investment property. But if you do, that’s great and no judgement – you do you, boo!

I just think people get excited about negative gearing but forget they are still making a loss, AND the strategy relies on the property increasing in value (capital growth) to make it work. Which is not happening much at this point of the cycle, and also is dependent on where and what you buy.

Anyway, this isn’t meant to be a rant about Australians’ obsession with property, but a rant about how important the Spice Girls have been to our lives (if only I had a photo of my platform sneakers from 1997.) So let me get to the next point…

Diversification 

Of course there are more investments you can make than just shares or residential property. There are bonds, REITs, commodities, infrastructure etc. A sensible portfolio will have diversification, and that is exactly where the Spice Girls have excelled.

Each member is unique and brings something different. Well, I think Posh’s contribution is minimal, but someone may want to fight me over that comment.

When we were young women looking at the fab five, we could all identify with something, whether it was their hair colour, fashion sense or personality. Having a bit of everything helped to make a great band.

Finance is the same. If you just put all your money into property, then you might be missing out on the returns of shares, for example. These asset classes are often ‘uncorrelated’, which just means they do their own thing: while property is falling, the sharemarket could be soaring – which is happening right now. So if you have a bit of each, you spread the risk. When Ginger Spice was in a bad place of eating disorders, yoga videos and questionable solo songs, Posh was marrying Becks. Markets and people all move in their own cycles.

Wow, this was quite a long post so if you’ve stuck with it, well done. Your prize is a night on the Spice Girls red bus, which is now an Air BnB. Enjoy!

Sleep well surrounded by 90s nostalgia, Fierce Girls!

3 useful things to help you win the war on adulting

I’ve been adulting hard in 2019. I  finished a bathroom renovation and I got my car registered. Ok, maybe my dad took the car for a service and inspection, but I most definitely did the paperwork.

Anyway it got me thinking about what it means to be a fully functioning adult. Because even though I’m now 40 (wtf), I sometimes feel like a 21 year old, just trying to keep all that adulting, life-admin shit together. (Hence why my dad steps in now and then).

I don’t even have kids and I find it hard – so let me salute all the ladies out there who can deal with car rego and school permission slips (do they even have them anymore or is there some sort of app?). Anyway, I don’t know how you do it all.

But when it comes to money, I am doing ok. So I want to share with you a few things that every girl should have as a serious, responsible adult. This is not an exhaustive list, obviously, but it’s not a bad place to start.

1. A stash of emergency cash – An emergency is not a new outfit for a wedding that you forgot about. It’s your car breaking down and needing expensive repairs; it’s your hot water system exploding and needing immediate replacement; it’s getting out of a bad relationship that’s affecting your mental health.

The spectrum of reasons is wide, but the solution is the same: put at least a few thousand dollars aside with a different bank  –  so that you can’t see or easily access it in your everyday banking. Ideally, you want to have three months of living expenses in there. But if you can only manage a hundred or a thousand, do that and keep building a little at a time.

Some is better than none, so don’t let the ‘three month emergency fund’ rule keep you from getting on top of it.

2. A good banking or budgeting app – One thing I’ve learnt about money is that it’s a needy friend. Your bank account is totally NOT OK with sporadic texts and comments on her Insta posts.

She wants you to check in with her all the time, see how she’s feeling, has she been too busy, is she feeling sick, did someone absolutely flog her on the weekend at a bar around midnight. Ya know, the usual.

We really need to be frequently reviewing our spending, looking for cost overruns and also checking there are no suspicious transactions (cybercrime is real, y’all). Otherwise it becomes an avoidance thing of ‘God I don’t even want to look’. And a spiral of stress.

The next level of adulting to consider is a budgeting app that helps you set up buckets of money and lets you know if you’ve hit them. This is for the advanced level saver, and I know it’s not everyone’s gig. But something to consider.

When I feel like I’m getting a bit outta control, I track every dollar I spend (as per my new year resolution). I enter it into the TrackMySpend app, and it shows me where all my money goes. I like to enter it in manually  (as opposed to just reviewing my bank transactions), because it makes me think about each purchase.

In a cashless world, it’s easy to ignore exactly how much cash you’re dropping. So this is one way to create an additional mental barrier. (And yes, ‘Personal & Medical’ category, I see you and your outsize contribution. So what if I spent $400 at the naturopath? I haven’t even been to Priceline, so there).

3. A decent income protection policy

I know this is boring, but seriously, what happens if you can’t work because you’re really, seriously sick. Cancer, depression, an accident.

For a while there I was paying for this through my superannuation. Which is totally fine and if you do this, then great. I ended up getting a professional insurance review (for free, when I worked in a financial planning company). The outcome is a Rolls Royce policy that even pays my super if I can’t work. It’s very expensive, and I wince when I pay it every month.

HOWEVER, I am a single gal with no safety net other than my family, so I want the best. And then I hear about people like Kim, who beat breast cancer at 30 and had a double mastectomy; and is now battling cancer a decade later. Or the guy I met on the weekend (who is super cute and sweet, but that’s not relevant). He was in a car accident at 22 and spent four months in a coma before having to relearn pretty much everything in subsequent years, due to traumatic brain injury.

And I think damn, I guess I can afford it.

So, if you have an income, you should probably insure it. Talk to your super fund if you aren’t sure how to get started. (Also, note this is not the same as Life and TPD insurance that comes as a default; you need to add it yourself with most super funds).

Read more about the exciting topic of insurance here! We’re all going to die – so let’s just talk about it here, then move on

And that, my friends, is a completely randomly chosen list of things to help you win the war on adulting.

How much is enough? And other deep questions raised by Netflix

It seems like everyone is talking about Marie Kondo, the Japanese tidying-up queen. Her book even spawned a new verb: to KonMari.

Marie Kondo is now on Netflix, where she helps people who have become smothered by their own ‘stuff’, exhorting them to ponder each item and ask ‘Does this spark joy?’. (If it doesn’t, it’s out.)

I’m a fan of the concept.

When I left my marriage, I basically just took my clothes and shoes. Well, ok.  I also took the  Tupperware, the Le Creuset and my Mundial knife. A girl’s gotta cook.

I started again, and it was strangely liberating.

Yet how quickly we acquire more things. I’ve told myself no more kitchenware, but it’s hard. I recently gushed with envy over a friend’s omelette pan.

Which brings me to the a question I’ve been pondering for a while now: how do we know when we have enough?

Enough what, you ask?

Anything, really.

The big challenge of our modern lives and disposable incomes is simply saying no.

When you have money, there’s always more you can buy.

Maybe it’s one more cheap T-shirt. Maybe it’s another pair of designer heels. Maybe it’s one more eyeshadow palette, to get one particular colour.

Whatever your thing, you have the ability and opportunity to continuing indulging in it.

But there comes a point, hopefully before Marie Kondo has to step in, when it’s time to ask the question: is this enough?

It might be that you’re running out of space (or money).

Maybe you have so many Lorna Jane crop tops you struggle to rotate them efficiently (I hear that’s a thing, wouldn’t know myself).

Maybe your wife gets cranky at all the space your bikes are taking up in the garage (sorry dad).

Or maybe you just start feeling guilty about the impact you’re having on the earth.

I’ve been talking to people about this to get their view on this thorny topic.

I asked a girlfriend at work how many work outfits are enough. ‘Ten’, she replied. Two weeks of new outfits, then rotate again. ‘After all, a man normally has a couple of suits and ten shirts’.

The girls in the team nodded thoughtfully, then all agreed that was a preposterous notion. We could quite literally wear a new outfit for a month without duplicating it.

Which really gives you pause for thought. (And hopefully I have that pause, next time I’m in a changeroom.)

Pick your vices

My dad’s advice is to try and limit your number of vices to one. He has chosen bikes, and associated bike gear, as his vice. He claims to have culled to the very reasonable number of three. His wife remains unconvinced, but this is a woman with a chandelier in every room, so I’m not sure she’s blameless.

And if we all have our different vices, we also need to have things we’re happy to be a tight-arse about.

I have an obscene amount of fancy activewear, but use a Kmart handbag. My friend has an obscenely large collection of designer bags,  but buys cheap gymwear. We revel in judging each other about it.

It all comes back to mindful spending (more about that here). This is a concept that I have been spruiking for a while now. Amazingly, this week I spoke to someone who has adopted it!

She said it helps her when she’s having that moment in a store, for example, wondering whether she ‘needs’ a new top, or is just buying it for the sake of it.

But what I like about this approach is that it can actually give you freedom, not just constraints. Mindful spending helps you pinpoint those things that ‘spark joy’ and allocate resources that way. Guilt-free, by the way.

So there is no easy answer to ‘how much is enough?’, but there are definitely some road signs to help us on the journey to find out.

 

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