Search

The Fierce Girl's Guide to Finance

Get your shit together with money

Author

Fierce Girl

Hi there, I'm the Chief Fierce Girl. I work in the finance world, and moonlight as a blogger helping to empower women financially. Thanks for stopping by; I can see we are going to be great friends.

‘Don’t ask, don’t get’ – and other life pro tips for IWD2019

In my view, every day should be International Women’s Day. We have thousands of years of patriarchal oppression to make up for right? But since it’s only once a year, I’m writing in honour of it.

Normally I just talk about ‘money this’ and ‘finance that’, but today I’m sharing a random collection of life and career tips that I’ve collected over the years.

While I sometimes think I could have pushed harder and been more successful by now, I’m not a total failure in the old ‘adulting’ department. So here is some of my hard-won knowledge.

  1. Don’t ask, don’t get

If I could only choose one piece of advice this would be it. It’s just as useful in the bedroom as the boardroom, to be honest. Women who don’t articulate their desires are far less likely to have them met.

I used to just get given a payrise or promotion and be like ‘wow, thanks!’. Never occurred to me to ask for more – which is actually a thing you can and should do. Similarly, when you’re making a big purchase, why not ask for a discount?

So now I ask, no matter how uncomfortable it makes me feel (i.e. a lot). Maybe you get a ‘no’, but maybe you get a ‘yes’.

Whereas if you don’t ask, you’ve given yourself a ‘no’ from the outset.

  1. It’s not about having time, it’s about having priorities

People ask me how I have time to do all this food prep and go to the gym five days a week, and all the other stuff that means I can wear sequin hot pants at age 40. I make time because it’s a priority.

I have no kids or husband to deal with, so I actually have plenty of time.

If you do have kids or a crazy job, and can’t make time for that stuff, then that’s cool too. Your priorities are different. It’s not wrong, you’re not lazy, it’s just a fact of modern life.

Money helps in this situation. If buying pre-packaged meals helps you hit your calorie target, then do it. If getting a personal trainer means you optimise your time in the gym, then invest. If you can pay a cleaner and steal back two hours of your life, then why not?

Sure, we should be responsible with our money, but we should also be realistic. We all have competing priorities – the key is to work out the order they go in, and build a life around that, with no judgement and minimal guilt trips.

  1. Choose a leader, not a job

I’ve been so lucky in my career, working for talented people who taught me a lot. My first boss taught me everything I know about PR, even if she shouted at me now and then. My editorial director in a London book company was inspiring even if she described me as ‘bossy and opinionated’ (in an affectionate way). This week I attended a retirement dinner for the man who told me I was a shit writer, then turned me into a good one. And my current boss has taught me that ‘no’ is just the start of a negotiation.

However, the thing they have in common is that they weren’t just managers, they were leaders whose values I was aligned with.

So the point I’d make is this. When you’re planning your next career move, look for a leader you’d follow into a fire. It’s not always about the company brand, or the title you’ll get, or even the money. Find yourself a boss you like, who sees you as a person, not just a resource – and you’ll go further at work.

  1. Be your own cheerleader

It’s great to have someone who spots your talent and rewards you accordingly. But people are busy and focused on their own stuff. Simply doing a great job isn’t enough to help you climb the ladder.

You need to make your case and highlight your good work. I know, that sounds awkward AF.

Drawing attention to your wins, describing yourself positively, pushing your case in a performance review: they all sound about as comfortable as a strapless bra that’s a size too small.

This week I had to write an announcement about myself for my boss to send to all staff. At first I was all like ‘oh I sound like a douchebag’.

And then I was like ‘oh stop it, who cares, you’re the head of PR and if you don’t PR the shit out of yourself, who will?’. So, I pretended I was writing it about someone else, and it was totally fine.

So my main point here is, cheerleading for yourself is not a natural or comfortable thing for most women – but do it anyway, like Rihanna putting her own damn crown on.

I got totally rejected by a guy the other week.

Baffling, I know.

So, we met online, organised to meet for a drink and he walked in and looked pretty cute.

He’s gainfully employed, seems to have his life together and has a command of basic English – all of which you can’t take for granted in modern dating life.

We are having a good conversation and it turns to investment. He has a couple of investment properties; one of them is okay-ish and one of them is a dog. But he’s planning to buy another one.

So in my very direct way I’m like, ‘what about diversification?’ and ‘why go further into something you’re clearly not great at?’. Then I continue, ‘Haven’t you thought about shares? Can I recommend you research low-cost indexed funds? Your investment strategy sounds pretty dumb’.

In the retelling of this to my friends, the general consensus was (in Whitney’s words) ‘boner-killer’.

Whereas I thought I was helping him reassess his life choices in a positive way, apparently I was just coming off as a difficult, mouthy blonde.

You won’t be surprised to hear I didn’t get asked for a second date.

All week I kept thinking of Clueless, when Cher says, ‘did I stumble into some bad lighting?’.

Money, men and masculine energy

But my sad/non-existent love life is not the point of this post. What I started thinking about was the great sense of confidence old mate had about his investments, even though, in truth, he was not that good at it.

To his credit, he has done something. He’s made a move, and he’s owned it.

I think of this as a masculine kind of energy. Apparently I have a bit too much of that myself, because no guys ever want to date me. But what’s wrong with backing yourself sometimes?

What I see sometimes in the women around me is a lack of confidence in their financial ability. They see money as something complex and threatening. They think of ‘investment’ as a big, scary word.

So they leave it alone,  do a budget that gets them through to payday, buy a house they can just afford, pay their compulsory super … and that’s it. They don’t plan world domination.

Or they let their partner do the heavy lifting on the finances, and thereby open themselves to him making a bad decision on his own.

So I’d like to throw a challenge out to all my ladies. How about we all be a little more blokey when it comes to money?

And I don’t mean ‘use things without reading the instructions and then screw it up’.

I mean ‘hell yeah, I’ve done the research, spoken to the experts and educated myself. I’m going to take action’.

What sort of action? Well that depends where you are on your journey. Perhaps it’s starting out with the above-mentioned low-cost index funds. Maybe it’s buying an investment property. Maybe it’s adding more to super. Maybe it’s just setting up a high-interest savings account.

The key is to make a decision. Don’t second-guess yourself to the point of paralysis. Educate yourself to the point of confidence. Then go out and OWN IT.

Just don’t use it as a dating strategy, or you’ll end up like me, watching Chvrches concerts on YouTube, in my underwear, writing blogs and eating 85% dark chocolate.

Wait, that sounds fucking awesome … no wonder I’m single.

This is legit the only thing you need to read about the Royal Commission

And it’s not even that long!

I want to say a few things about the shit that went down with the Hayne Royal Commission into banking and financial services. The final report was released on Monday,

I know, it’s the last thing you want to think or read about. But go with me for a quick moment.

But first of all, can we take a moment to appreciate the awesome awkwardness of the photo call.

The fact that Hayne gives zero fucks about hiding his disaste for the whole thing is just glorious.

Ok, now I want to get to the real point. There were 76 recommendations that came out of the final report. I’m not gonna lie, I haven’t read most of them. I usually nerd out on this stuff but it’s been a busy week.

What I have done is read a shitload of commentary on it. And I came here to say this: don’t trust anyone with your money.

I’m not saying bury it in the backyard.

I am saying that a recurring theme was people having no bullshit filter.

The hearings were full of stories of people given poor advice by dodgy bankers and advisers, who didn’t see it for what it was.

Like, people close to retirement were given supersize home loans for risky property purchases. Or parents went guarantor for their kids’ businesses and didn’t realise their own home was on the line. Awful stuff, where people lost their homes, marriages and families.

There will always be fraudsters and dodgy dealers. But much of the poor behaviour recounted in the Commission wasn’t technically illegal. It was just risky business.

People who couldn’t afford to take on risk were told to do so. And because they trusted ‘professionals’, they just went along with it.

So what can you do? Educate yourself.

Take it from Elle, education is the best revenge

Sorry, no silver bullet.

To become a truly fierce girl, you need to take some responsibility for, and interest in, your finances. Read books and blogs. Talk to smart people. Pick up the business section of the paper now and then.

If you’re making a big decision about your money, go in with a serious amount of your own research. Line  up any advice or recommendations against your gut instincts. If it doesn’t sit well with you, think twice about it. And never feel afraid to ask ‘dumb’ or ‘rude’ questions.

The fact is, the Commission didn’t recommend fundamental changes to the sector. And greedy/unethical/incompetent people will continue to litter the finance industry the same way they do every industry. (You probably work with some yourself). As a result, you have to be on your game.

Sounds harsh, but the best defense against getting ripped off is to be a bossy, know-it-all, difficult-question-asking bitch.

Which is great, because that’s totally my style!

 

 

If you’re not making your own bowls, do you even like money?

If there is one food trend I can get on board with, it’s bowls. Poke bowls, buddha bowls – call them what you want, they rock.

I’ll be honest, I make a lot of bowl-based meals at home because I live alone and feel empowered to eat on the lounge (more than I should). Pre-chop your steak and veg, throw it in a bowl, add some hot sauce and you’re ready for a solid session of one-handed bliss in front of Queer Eye.

On occasion, I’ll stump up and buy a poke bowl from Nudefish and holy moly the price hurts. If you want avocado on that baby you’re spending fifteen bucks.

But judging by the queues at the food court the good people of Sydney can’t get enough bowl action. It’s like they enjoy spending too much on takeaway!

Well Fierce Girls, I’m here to combine two of my favourite things: food prep and saving money!

The thing is, it’s annoying to make just one bowl because there are all these separate elements. But if you do a batch, you’re set for the week. And you’re in control of all your diet and money resolutions.

It’s not complicated. It comes down to:

A base: rice, quinoa, buckwheat – or if you’re feeling low-carb, try shredded cabbage, zoodles, or even the good ol’ salad mix.

It’s super easy and cheap to buy some red and black and brown rice, cook up a cup or two and have it ready in the fridge all week. It’s more exciting and nutty than boring old white or brown. And less plastic waste than the microwave packets.

Veggies: I like to roast them up for sweetness and general deliciousness, then add some microwaved or steamed greens like broccoli. You get a nice mix of flavours.

Protein: If you feel fancy, some hot-smoked salmon is fantastic, but you can also do some normal smoked salmon. You can marinate and grill up some chicken breast (or buy the pre-marinated one from Aldi – no judgement). And if you’re really desperate you can totally throw in a can of tuna or salmon.

For an extra tasty flourish, I fry an egg or two that morning and throw it on top. I also like to add some hot sauce, some avocado or some tahini – whatever condiments get you going.

The process is really simple. Pre-cook as much as possible and put it all in separate containers in the fridge.

Did I ever tell you about when I was a Tupperware lady?

Maybe your fridge doesn’t look quite like mine, but also, you probably don’t have a lifelong Tupperware obsession.

The key points I want to make are:

Food prep is not that hard to get right. It just takes some planning and an hour or two of time.

BYO Lunches are the absolute key to saving money and cleaning up your diet. I love bowls because it’s so easy to track your macros (if you weigh and measure like a nerd).

Once you have a few go-to meals, you can mix and match to avoid boredom. It also helps to buy seasonal veggies, so you can change the ingredients over time.

Simply put: bowls are a great way to rock your diet and wallet.

*Sorry about my lame food pics – need to really work on my skills. But you get the idea. I’ll also give you some more serious financial tips soon. In the meantime, get cooking!

How to hack your goals and nail everything in 2019

In 2018, I leaned out and toned up, losing about 5kg ahead of my 40th birthday.

People asked me how I did it, and I’d detect a hopeful tone. What wonderful secret had I found?

Sadly, there are none. I tracked and weighed all my food, stopped boozing and trained for fat loss (i.e. so many reps).

Probably the biggest thing was setting a goal. I’d been powerlifting for a few years, and building strength was always the main game – my goals were more like ‘squat 100kg’.

I was more focused on what my body could do, rather than what it looked like. This year, I switched to an aesthetic goal.

Neither of these goals are good or bad, in my opinion. There is something empowering about reaching a lifting goal, but also in feeling lean, fit and attractive.

The key point is, they provide something to work towards. They were specific, measurable and kept me focused. They kept me home on a Friday night, so my coach wouldn’t kill me on a Saturday morning. They encouraged me to spend time on a Sunday night preparing food for the week. They gave me a reason to say no to high-calorie foods.

New year, new you?

I’m telling you this because it’s a new year, and we all have good intentions. Often it’s about weight loss, but it’s a good time to take stock of finances too.

If I’m honest, my 2018 wasn’t great financially speaking. I was trying to get in the groove of being a homeowner, and quarterly strata fees, coupled with a kitchen renovation, really challenged me.

I had all the basics covered and I saved money, but I could have done a lot better, especially if I’m meant to be a good Fierce Girl example.

Know your weakness, then kick its butt

My biggest weakness isn’t a lack of knowledge or a tendency to spend money on stuff. It’s my lack of organisation. I try, I really do, but it’s a constant struggle against my nature.

You know those people who hate mornings, and you try to make them get up early? They’ll do it, but it takes fives snoozes and the threat of unemployment. And when they do wake, they are cranky arseholes.

That’s how I am with any type of life admin. And it’s why I have a shameful stack of papers in my cupboard, full of tasks that I need to file or action. I just add one more thing and shut the door again.

I know that I’m shit at this, and that I need a way to hack my bad habits. So I’m taking my approach to training and diet – which I’m good at – and applying it to money.

Boiled down, my weight loss success was based on:

  1. Set a goal – fit into the very skimpy outfit I purchased for my party
  2. Track everything – all food, every workout
  3. Rely on habit – regular food prep becomes a non-negotiable activity

Applying this to money, I’ve realised I need to:

  1. Set a goal – I’m going to pay an extra $20,000 off my mortgage in 2019
  2. Track everything – yep, I have to manually enter it into the TrackMySpend app
  3. Rely on habit – once a week I have to sort that pile of admin out and do at least one task

That third one really gives me anxiety, because I know I will struggle with it. But I need to start somewhere if I am going be a fully functioning adult.

The missing piece here is reward. At the gym, I get rewarded with endorphins, and I get validation when people compliment me. So it helps me to stick with it.

But this plan is boring and low on quick wins. So I’m adding in a bonus that if I stay on track with saving, I get to have a trip overseas. And if I do my weekly chore torture, I’m allowed to give myself a monthly treat, up to the value of $50.

There will be other behavioural modifications I need to achieve these goals – for example, the point of tracking is to ensure I spend less on crap (I’m looking at you Priceline and Sephora).

But I feel more prepared and confident knowing I have a plan and a framework.

Setting Goals

If you’re keen to nail your finances in 2019, have a think about what you want to achieve. I have a post about goal setting here, and it includes a simple worksheet you can download.

The goals don’t have to be big and hard. They could be as simple as ‘save $200 a month’. Or they can be specific – ‘Pay for my end of year holiday without a credit card’.

The point is to have them. Without something to work towards, we humans tend to drift into whatever’s easy and in front of us.

But with a goal, you can have a plan. And with a plan, you can have global domination (eventually).

So, here’s to an amazing 2019, and I hope you get all the good stuff you deserve!

I turned 40 and here’s what I’ve learnt about money

To be honest, I was freaking out about turning 40 at first. Thought I’d run away for my birthday and hide in shame.

Then I remembered who I am. Bad-arse bitch who loves attention! I have a great job, my own, sweet bachelorette pad, cash in the bank and a zippy 2005 Mazda in the garage (lol, it doesn’t even have power windows).

20181209_124253
I kept the celebrations totally low-key and subtle, of course

So now that the Festival of Belinda has successfully been celebrated, I give to you four gifts of wisdom – one for each decade.

Money isn’t about stuff, it’s about choices.

I know, I say this a lot. But the longer I live, the more I see it play out. I have watched friends stuck in marriages they can’t afford to leave, or stuck in jobs they hatett. When I left my marriage, the quality of life I had afterwards was a direct outcome of the money I could save and earn.

So, the more you spend on clothes, jewelry, homewares, cars and other ‘stuff’, the lower your buffer when you want to make a change. I controversially believe in having a ‘FU Fund‘, even if you’re married, because you honestly just never fucking know when you need to leave something or someone.

Money’s always hard, because temptation’s always there.

I’d like to think I have my shit together financially. But I still struggle.

Whether it’s the small temptations (I swear this is my last Shellac for a long time), or the big decisions (do I renovate the bathroom or sit on the cash?), it’s hard.

We are wired to like shiny new things and fun experiences. And they get advertised to us everywhere! The gym, the toilet, the elevator – nowhere is safe.

Plus modern life is complicated and relentless. I got a credit card for work and forgot to pay it off the second bloody month I owned it. (I’m smart but so, so vague).

So we need to create frameworks for ourselves. I diarised my credit card due date, for example.

We need to pay attention to what matters, by creating a mindful spending manifesto.

We need to practise saying no to things if they don’t align with our goals.

And we need to check in with our bank statements reguarly, not wish them into another dimension.

It’s a grind, but we just need to suck it up, buttercup. The alternative is to be broke AF and/or not meet our life goals. And who wants that?

Nobody cares about your money as much as you do.

Remember the post a while back where I got my friends a $6k refund from their bank? The short version is they were on the wrong interest rate, and nobody – neither their mortgage broker, financial adviser nor the bank – gave a shit.

It was only when they picked up The Barefoot Investor and started asking me stuff, that we realised they were getting screwed over.

I’m not against using advisers or brokers or accountants. But you still have a responsibility to keep an eye on things and to educate yourself. The more you know, the likelier you are to ask tough questions or spot bullshit.

Similarly, no energy company, telco or insurer is going to offer you a better deal for the hell of it. Do your research, call them up,  give them a hard time, or simply switch. It’s your money, so be a tight-arse with it.

Only you can decide what’s important to you.

Remember my friend Jen who loves designer bags and shoes? Girlfriend got two pairs of Valentino heels delivered to the office just a couple of weeks ago. About $1500 all up and that was ON SALE.

And yet she can’t fathom how I’d spend over a hundred bucks on LuluLemon leggings, when I could get them for $30 at Cotton On. I could give you chapter and verse about the superiority of the Align leggings, and how I train every day etc.

But at the end of the day, I care a lot about exercise and all the stuff that goes with it. Including sneakers that are technically just for walking around. (Hey, walking is exercise ok). So I spend money on it.

And I spend less on other stuff. I don’t spend much in bars; I buy cheap wine whenever I need it; and that aforementioned Mazda is worth so little I don’t even pay for comprehensive insurance for it.

It’s ok to have things you splurge on. The trouble comes when you splurge on everything. When you feel out of control so you end up saying ‘YOLO’ and whacking it on the credit card.

You can always stop and reset (read this post). You can always do better. And you can pick one or two things to treat yourself, while still achieving your goals.

If I had to sum up my financial life, from my first job at 13 until now, I’d say it was a work in progress.  I’ve been broke, learnt the hard way, had some good luck, made a shitload of mistakes, had some great help and advice, and muddled my way through. The best thing I’ve done is stay interested and curious.

After all, if you keep learning, you keep improving. Which is pretty great life advice right there. You’re welcome.

photo credit: donbuciak Another Hot Year via photopin (license)

I don’t mean to alarm you but it’s nearly f@*#king Christmas!

Ladies, this is not a drill. There are only seven shopping weekends left until Christmas.

Maybe you’re the type of girl who excitedly starts playing Mariah Carey at the first hint of festivities.

Maybe you’re a cynic who likes mince pies but dreads the consumerist orgy of yuletide.

Maybe you hate the enforced family proximity of holiday season.

But no matter where you fall on the Grinchometer, you can’t avoid Christmas (ok, maybe if you’re Muslim or Jewish or Hindu. But even then, you probably still watch Love Actually and eat a box of Favourites).

Nor can you avoid the financial pressures that the season brings. Not only are there all the gifts to buy, there are other sneaky costs.

The extra social events are a big one – not all of them include free booze from your work, so you end up eating out and drinking more.

Then there are extra party season outfits, accessories and salon trips. (It’s my birthday in December too, so the pressure is on).

And of course there are holidays themselves, and all the expense of going away, if you’re lucky enough to do that. I only have to hang out at my cousin’s place in WA but that bitch is gonna make me get drunk and buy wine in Margaret River, I guarantee.

So this is a short post, but with some important take-aways:

  • Start planning and buying gifts NOW – there are no sales in December, friends (until it’s too late, on boxing day). So try and start looking for bargains now, or at least space out your purchases so it’s not one big shitfight for your cashflow. Then check out different vendors to see has the cheapest version. Don’t just wander into Myer and hope for the best. A new release book, for example, can be $40 in one store and $20 in another. Do your research.
  • Make a list of people to buy for and what you’re getting them – and do it before you hit the shops. It will stop you panicking and buying too much or the wrong thing, in a moment of exhaustion or panic.
  • Have a conversation with your family NOW to set limits and expectations – if you’re feeling the pinch financially, now’s the time to fess up. Say to mum and dad and siblings ‘hey, I have some savings goals, can we put a limit on gifts this year?’ Or do the kris kringle thing. What you’ll often find is that when one person tries to de-escalate the gift war, other people are relieved.
  • Make a special ‘Festive Season’ mindful spending manifesto – this is an exercise where you think seriously about where to allocate your spending (read more here). In this season, it’s easy to get sucked into a whole bunch of costs, as mentioned above. So have a talk with yourself about where to scrimp and where to save. If you choose to splash out on gifts, then put that party dress back on the rack. Want to buy French champagne? Then tone down the seafood platter you bring on Christmas Day. You get my drift – the key is not to start spending, and then think ‘oh well I’m screwed now, let’s keep going’. Go in strategically and be a tight-arse on some things. Like, I promise not to buy any new Christmas lights. Well, maybe just one set…

Of course I would tell you not to smash the credit card too hard, but you know that. And you’re going to do it or not, regardless of my lecture. But hopefully the tips above can help you limit the damage.

So, have a great party season and get cracking on your festive dance routines!

By the way, as a bonus, this is a message I got this week from my above-mentioned cousin. You can see where I got my thrifty habits…

1 science truthbomb and 3 ways it will help you save money

Do you ever find that when you’re being ‘good’ with your diet, you’re really good in the morning. No muffins for me!

Pretty good at lunch. I’ll take the sushi instead of the schnitzel thanks.

And by 3pm? If I open the work pantry and there happen to be TimTams, it’s not my fault if they fall into my mouth.

Well, you’re not alone my friend. There is a real scientific concept called decision fatigue.

From the moment we wake up, we’re forced to make all these small decisions. What to wear, what to eat, when to leave, how long to spend on Instagram.

And this literally drains our brains of power.

In fact, a study on this topic found that judges hearing parole cases were more likely to grant parole in the morning, when they were fresh and unfatigued. When they got tired and cranky, it was easier just to say ‘no, go back to jail’.

The one variable was that straight after lunch, they perked up and started saying yes more. Until TimTam o’clock, that is.

There’s a really cool article about it here if you’re interested. One of my faves, James Clear, also has a great post.

But the take-outs for me, in relation to money, were three-fold.

1. Don’t shop at night – I’m as fond of a Thursday night jaunt as the next girl. But if you’re tired and over work, there’s a good chance you’ll make questionable decisions about what to buy.

Of course, we may have shopping emergencies (who doesn’t?). But in general, try and save your shopping sprees for a weekend morning, or at least a lunch break after you’ve eaten. Much better chance of buying something you actually need and like.

Similarly, cruising the ASOS or Iconic websites in front of the TV might not be the best habit if you’re trying to save money.

Maybe just limit yourself to filling your shopping cart but not hitting the checkout til the next day. You’ll feel differently in the morning – I very rarely make a purchase in this scenario.

2. Sometimes a ban is easier than moderation – If you’re trying to make decisions about whether to buy something, and you’ve already made a bunch of choices that day, it’s pretty easy to say ‘bugger it, spend the money’.

But what about if it’s not even an option? No decision required in that case.

If I’m trying to save money, I ban myself from shopping for a month. I also find it easier for losing weight. For instance, if I have to try and weigh up whether to have a wine, I usually go with yes.

But if I just say ‘no booze in October’, then I don’t expend energy trying to justify it.

I get that not everyone works like this (the rebels among us). Some people just need to break a rule as soon as they impose it.

So, my friend Jo said that when she moved to being a vegetarian, she gave herself a ‘once a week’ option of eating meat. She didn’t end up using it much, but was comforted by that slice of freedom.

So maybe it’s not a shopping ban – instead, it’s ‘I can buy one piece of clothing this month’. And you may not even find anything. But the rebel in you will feel ok about not being told what to do.

3 . Automate the shit out of everything – One of the most important parts of achieving financial security is to pay yourself first. In other words, put your savings aside in a nicely inaccessible account as soon as you get paid.

Do you ever spend the weeks after payday going out, buying lunches, hitting the shops and all that cool stuff, and then seeing how much you have left over to save? If so, the odds are it’s a big fat zero.

So try and automate things like saving and paying bills. Have a direct debit into various accounts. Check out this post for some tips on how to structure your bank accounts – boring but possibly life-changing!

So there are three things that science can help you with, and they apply to other good behaviours too. One of the reasons I food prep like a boss (some of my tips here) is that it takes away the need to decide. You don’t have to weigh up healthy or unhealthy, expensive or cheap. You just eat your darn curry and shut up. It’s strangely liberating, I promise!

Just some stuff about money you need to know but probably weren’t taught

Disclaimer: literally no connection to Channing or Ryan – I just wanted you to read this.

I had a conversation at work today about a journalist failing to understand the difference between real estate ‘debt’ and ‘equity’ as asset classes.

And then realised that this is totally normal, and I’m just surrounded by nerds who get paid a lot to think about this stuff all the time.

Really, most financial education happens on the fly. We don’t sit down at school and get taught about the capital stack in the same way we get walked through trigonometry.

That is crazy! Like when was the last time you needed to work out the angle of an isosceles triangle? (My vague memory of what it’s for).

But I’ll bet, sure as shit, you’ve wondered if you can afford to save for a home or your retirement.

So today is a quick primer on some of the basic stuff that nobody ever took the time to publish in your Year 11 textbooks.

What’s Capital Growth and why should I care about it?

It’s when the value of an asset goes up over time, often without you having to do anything.

The most common place we see this is housing. You know how your folks bought a bungalow in the suburbs way back when, and paid like five bucks for it? Well, the fact that it could now fund a small developing nation is thanks to capital growth.

Similarly, some people who bought shares in Apple, back when they were making Macs for Where in the World is Carmen San Diego. Now, they have seen the value of those shares increase by about a bazillion. That’s capital growth.

How does this magic happen? Well, it’s complicated.

When you buy shares, you’re often hoping that a company will grow over time. Certain styles of investor will only buy these types of shares – betting on their future.

With property, it mainly boils down to population growth. You’re betting that over time, more people will want to come to the area you’ve bought in. Supply is under pressure, demand is up, and voila, somehow it costs a million bucks to live in a shitty two-bedroom cottage miles from the city.

This is how a lot of people make money in Australia.

But it’s also the reason people freak the hell out when property prices look flat – or even worse, decline. If you’ve bet the house (haha get it) on prices going up, it all looks a bit scary when that stops happening.

But wait, is capital growth the only way to make money?

Glad you asked! The answer is no. Sometimes you buy an asset for its yield (aka income). For example, Telstra shares have gone nowhere fast in terms of capital growth (pretty much since they were floated onto the market).

But they usually pay sweet dividends (i.e. a little thank you payment from the company), and thus are beloved by retiree investors, who need the income to live on. (Be annoyed with Telstra’s service as much as you like, but they likely funded your last birthday present from Grandma and Grandpa.)

In terms of investment property, you have tenants who pay the equivalent of dividends. If the value of the property is flat or declining, ideally you’ll still get income from rent to pay the mortgage and possibly have a bit left over.

Some investments don’t have any growth, but give you reliable income – like a term deposit. The advantage is low risk – you know how much you’ll get back at the end.

So, should I look for growth or income or what?

Well it depends on your goals and timeframe. If you have a long time horizon, like retirement saving, you’re looking for capital growth with a bit of income thrown in.

If you are living off your investments, you’ll be more focused on steady income, and would look at things like bonds or dividend stocks.

Big difference between those two things, however, is that one is predictable and one is not. Also known as ‘fixed income’, bonds are based on an agreement that the issuer will pay you – the bondholder – a certain amount of income.

With shares, dividends are not guaranteed. It’s like dating a total player (or in fact any guy I’ve dated in the last four years): they’ll promise you a lot but when the chips are down, they’ll disappoint you.

Kind of not their fault though: under corporate law, companies are only allowed to pay dividends if they have their shit together. (I feel like this should apply to men on the dating scene, but there is a sad lack of law in this regard).

zac efron shirtless
Also no reason for Zac Efron, but just wanted to reward you for reading this far

And hey, what’s the difference between debt and equity?

Here’s a quick primer as it relates to investments.

Equity is when you take an ownership stake in something. It might be your home or it might be a small chunk of a company, which you buy on the stock exchange (hence why the asset class is called Equities).

You become an owner, and that means taking on all the risks and rewards that come with it. Like this week when my apartment started leaking through the roof, I was reminded of the sheer tedium of home ownership.

With shares, if the company tanks or even goes out of business, shareholders cop a lot of the losses. In fact, if it goes bust, shareholders are last in line among creditors (i.e. all those people queued up trying to get their money back).

On the upside, if it goes gangbusters, you’re set to make a lot of money – hello Apple shares!

Debt is the more sensible friend of equity.

If you don’t want the volatility or hassles of ownership, you can lend money to companies instead.

Yep, you heard me, be your own bank baby!

That’s what bonds are: a loan to a government or company. You agree to give them $XX and they agree to pay XX percent interest (often monthly or quarterly). Usually it’s a fixed rate, but there are ones called ‘floating rate’ which move around. Maybe that’s TMI but there you go.

Bondholders are also at the front of the line if things go belly-up, but the downside is they won’t increase in value over time – much. (I could talk about yield curves here but that is 100% TMI).

So, this is an example of this truism: what you give up in sexiness you gain in comfort. Bonds are just like … Bonds! As in, the undies.

A pair of Bonds hipsters isn’t going to set any boudoir action alight, but goddamn it, they will save you from an all-day wedgie.

And for a retiree who won’t be earning an income from work, bonds can provide a predictable income without so much stress.

Wow, do I have to choose one of these things?

The key thing to remember is that a cluey investor doesn’t have to choose just one of these. Most diversified portfolios – like the one your super is probably invested in – have a bit of everything.

Like the joy of owning the perfect eyeshadow palette, a diverse portfolio gives you a little bit of everything. It also spreads the risk, so if one asset class tanks, you’re not totally exposed.

You can build your own portfolio with some careful selection or pay a fund manager to do it.

What if I am freaked out by this and want to do nothing?

It’s fine, no big deal. You’ll likely have some exposure to all this through your super (which I am sure you’re going hard on).

Most people in Australia will go through life with probably one big equity investment that relies on capital growth to make money: their home.

Maybe they’ll buy an investment property and hope for some more capital growth, plus a bit of income to service it.

About a third will give the share market a red hot go, picking stocks based on professional advice, their own research or maybe a tip from a random on Hot Copper (like Reddit but for investor nerds).

Some will make money and some will lose it, but overall they will be looking at a Total Return generated by combination of Yield and Capital Growth.

But basically, you can go out there and live your best life knowing all these things that nobody ever bothered to explain to you.

(Oh, and this is a long post and if you’ve read this far, go you! Brad says well done).

Image result for brad pitt shirtless

Blog at WordPress.com.

Up ↑