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The Fierce Girl's Guide to Finance

Get your shit together with money

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Education

Maybe your grandma was right (about money, as well as that boy you were dating)

My late step-grandma* had a saying about choosing a partner: ‘Never stoop to pick up nothing’.

This post is not about that – I just wanted to share it because it’s great, and to prove that Grandmas know their shit.

My Grandma used to have five empty Vegemite jars, which she’d put her stray pennies into. There were different jars for different purposes.

“And if you keep doing that, soon you have a shilling, and then you have 21 shillings, which means you have a guinea to spend”.

(OK, I had to Google how  many shillings in a pound, but I did know that guineas are more exciting than a boring old pound).

This old-fashioned idea actually underpins a fancy new concept: microsaving apps like Acorns. I’m a huge fan of this app, which scrapes small amounts off your bank account – called ’round-ups’ – and invests them for you.

Say you spend $3.50 on a coffee, it garnishes the 50 cents (to round up to $4), and pops it into a portfolio of Exchange Traded Funds (ETFs) – click here if you want to know more about them.

I like this because it’s painless saving. Of course I have other savings. But my Acorns is a bonus stash that I actually forget about most of the time.

Words from the wise

My friend Cara has an Irish Granny who tells her to ‘save your pennies and the pounds look after themselves’. So true! Even if we don’t actually have pennies or pounds.

On one hand, little bits of good work all add up, in those real or virtual Vegemite jars.

On the other hand, it’s all the small purchases here and there that drain your finances.

In fact, I just went through an exercise proving this. My work is about to launch a budgeting tool which links to your bank accounts and categorises all the transactions (from the last 6 months!) into ‘essentials’ and ‘discretionary’.

But it can only do about 70% of them automatically, meaning I had to go through and label a bunch of transactions myself. Soooo many transactions in the ‘Bars, Cafes and Restaurants’. Soooo many in ‘Clothes and Accessories’.

Sobering but not too surprising. After all, my mindful spending manifesto says I can spend money on going out to brunch, dinner or drinks with friends. It says very little about buying clothes though, so I am going a bit too far with that.

Even though I’m still within my ‘spend and splurge’ limit, the process showed me that I should probably shave that allocation down a little.

Considering I just bought an apartment this week, after three years of post-divorce renting, I think that’s a useful and timely lesson.

So my hot tip is this: track what you spend. Even if it’s just for a month, you’ll quickly see where your money goes, and whether it’s in line with your goals or priorities.

I like the trackmyspend app from MoneySmart, but there are others in the app store. Or go old school with a notebook.

Other great tips from my Grandma and her generation:

A stitch in time saves nine – Looking after things properly means they last much longer. I notice this the most with shoes. If you spend the time and effort wearing in a  great pair of shoes, get them resoled and reheeled before they fall apart. I have some beautiful boots cracking the ten year mark now, thanks to some love and care from Mr Minit in Martin Place.

A penny saved is a penny earned – This is really, really important. Earning money is hard and annoying most of the time.

Every time you don’t spend money on something, you can not only keep it, but put it to good use.

My Acorns account is a good demonstration this. I’ve received an 8% return on my funds in the last year.  That means every dollar I put in is now worth $1.08 – for doing nothing!

Sure, I’m not going to spend that 8 cents all at once. But when you add this up over time, it’s powerful. Over the next year, I’ll be earning 8% (or whatever it turns out to be) on $1.08 – not just the original dollar.

And this, my friends, is the magic of compound interest. 

The graph below is from the MoneySmart compound interest calculator (which I freaking love). The pink columns show what happens if I keep my $1000, continue earning 8% every year, but do nothing else for 10 years.

It’s nice. You get $1220 of free money, and come out with $2220. Good outcome, but no reason to crack out the champagne.

However, if you add just $100 a month, look what happens. That is literally the cost of buying a takeaway coffee every day. If you allocate that to an investment fund for 10 years, you could walk away with over $20,000!

Those light blue columns are the ‘free’ money – the interest earned over that time.

Source: moneysmart.gov.au

There are lots of assumptions in this example, including getting 8% returns (not guaranteed with shares). But you get the general picture.

Every dollar you don’t spend is good. Every dollar you don’t spend, and invest in something more productive, is even better. 

That ‘productive’ thing may just be paying down your mortgage. Don’t get me started on how much you can save by doing that – I have a whole post in the works about it.

But you get it, right?

And finally, here is a tip from Grandma White, which has served me well over time:

If something has green mould, cut it off and it’s fine to eat the rest. If it’s pink mould, throw it out. 

I take no responsibility for public health outcomes on that one.

*Side note about my step-grandma Gwen: in her later years she told her daughters “If I die, don’t throw out my wardrobe without getting the $17,000 out of the back.” Over the years, she’d saved whatever was left over from the housekeeping money and stashed it there. Perfect.

Assumptions in calculator:
Scenario 1: $1000 deposit,  no additional payments, 8% interest each year.

Scenario 2: $1000 deposit, $1000 monthly payment, 8% interest each year.
Past performance of an investment isn’t a reliable indicator of future performance.

photo credit: Nicholas Erwin Change via photopin (license)

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/

Bad at saving money? Here’s why – and what to do about it

I got asked today ‘how do you have the discipline to diet?’.

Since I was eating a Bounty at that moment, I’m not sure why. (To be fair, it was a piece of someone else’s Bounty, so there are obviously no calories.)

My response was that it’s easier if you have a reason. In my case, it’s so I can compete in powerlifting in a lower weight class.

It’s the same with money. Another friend asked me, ‘What if you just can’t save?’. To which I answered the same thing: you need a reason.

AKA: a goal.

Goals, I know! So lame and hard and too much like adulting.

I’m not a massive goal-setter myself, but I have forced myself to create some clarity about where I’m going. So then I know how to get there.

Just before you get bored and switch off, let me offer you a gift. We’ll come back to it shortly.

Click here to download your printable A4 worksheet

Why do you need a worksheet?

So we can put the ‘plan’ into financial planning.

I know, a lot of people don’t trust financial planners. There are good and bad ones, just like any other profession. We’ve all had a hairdresser who takes ‘just a trim‘ and turns it into ‘radical hair makeover so you look like a lesbian biker‘. (Don’t get me wrong, I love lesbian bikers – I just don’t necessarily want their haircuts).

However, I’ve been having a conversation with a mate who’s a financial planner, and he messes with my head because he’s all about ‘plans’.

I would ask him ‘should I buy a property to live in or invest in’ and he was all like ‘well, what’s your plan?’.

I don’t know! I’m in my late 30s, divorced, childless. So far, all the ‘plans’ I made 10 years ago haven’t really turned out.

But that doesn’t mean I can get away without one. Without some goals, I don’t know where to put my money or how much to save.

And if you don’t know the destination, how will you know the how to get there?

Sometimes, choosing the destination is the hard bit

People often ask me about what to with their money. I can’t  tell them specifically (partly because I’m not licensed so it’s illegal). But I do ask them ‘what’s the goal’?.

Is it  saving enough for a property? Is it having enough to travel? Maybe it’s just being a bad-arse with a backpack and a round-the-world ticket (oh hey Betsy, how’s Iceland?).

Tactics are useless without a strategy. And a strategy is nothing without a goal.

If you’re  like me though, you find big life planning stuff daunting at best, terrifying at worst. But don’t worry, Fierce Girls, I got ya.

I came up with questions to help you create some clarity. And then I made a fucking worksheet! I know, I am crafty AF.

Doing the worksheet

Now, you can do this and not necessarily come up with a special number. You know, a savings goal or something. That’s a topic for another day.

But you will think critically about the factors that shape your decisions. So the questions in the worksheet are (and you can totally pick the timeframe that applies to you):

  • Where do you want to be __ years from now?
  • What things do you want to experience?
  • How will you spend your time? Who with?
  • What will you own?
  • What is a must-do or must-have?
  • What can you give up or cut back?
  • What is the ‘why’?

When I did this exercise, I came up with a general plan that I don’t want to be a full-time, salaried employee much past my mid-fifties. I want to write books and hold workshops and coach people and be generally useful. I also want to travel as much as possible.

So that means I have about 15 years to build wealth, take holidays, smash a mortgage and sock away superannuation. Scary huh?

It also means I can give up expensive cars, too many clothes, and general unnecessary ‘stuff’. When I am considering a purchase, my decision tree is something like ‘Could I better spend this money on my trip next year?’ or ‘Wouldn’t I be better to chuck this into my mortgage?’.

Of course I won’t be perfect. But I have a plan and sense of direction. And then everything else is easier from there. Try it yourself!

Next week: The Track Your Spend challenge: finding where your money goes and working out how to save more of it. Yep. I’m gonna make another worksheet. It will be amazing.

 

The three numbers you need to care about

When they tack sport onto the end of the news bulletins, I have an uncanny ability to tune it out. Not on purpose – I just have zero interest in who sportsed harder than the other.

I’ll bet you do that with the business news too. You legit don’t care about the price of gold or Texas crude oil. You don’t care that the All Ords was down 4%.

I get it – even I only listen with half an ear. (Daily movements don’t mean much – it’s all about the trend lines.)

But there are some numbers in the world of economics that have a real impact on you and your life.

Keeping an eye on them not only makes you smarter, it helps you make better decisions.  So here is a list of numbers I watch and care about, even as someone who can barely use Excel. (Seriously, I can’t even do formulas – it’s like some sort of learning disability).

GDP Growth – This is a simple number with a huge amount of stuff sitting behind it. It’s kinda like saying ‘This is a smoky eye’ when actually this is 20 minutes, five make-up brushes, eyeliner, mascara and probably some swearing.

Gross Domestic Product Growth is a sign of how well the economy is doing: what business is up to; how productive people are (every time you check Facebook at work you are hurting the economy. JK! Well sort of); how technology is making things more efficient. You don’t need to know each thing, but you do need to know the effect.

When the economy is growing, things are pretty good. There are lots of jobs, people spend money, investments grow in value.

If the economy is going backwards, it’s called ‘negative growth’, (an oxymoron in my view, but a thing nonetheless). This is VERY BAD for jobs and general chill levels.

GDP growth is measured every quarter and if you have two consecutive quarters of negative growth, that is a RECESSION.

Now the weird thing (in a good way) about Australia is that we’ve now had over 100 consecutive quarters of positive growth. While all those Europeans and Americans had a post-GFC recession, we didn’t (see side note below).

But it hasn’t been amaaazing growth either, which is one reason why the Reserve Bank has cut interest rates so many times – to try and pump up the economy by making it cheap to borrow and invest.

Unfortunately, most of that borrowing and investing has been by consumers and not businesses. Hence the housing market has gone bananas, while business investment levels have fallen off a cliff (here are the stats if you’re interested).

The reasons behind that are complex, but I think it’s partly a risk-averse corporate culture, and partly because shareholders are demanding big dividends instead of putting profits back into the business.

Side Note Why politicians matter to the economy – if you aren’t interested skip to the next section.

Remember K Rudd sending everyone some free money in 2008 (the ‘stimulus’ program)? That was to avoid a recession. The idea is that if everyone keeps spending, the economy will keep growing.

Sounds simple right? And it is, if you believe my friend Keynes (he’s my friend in the way Beyonce is – we don’t actually hang out. Also, he died in 1946). Keynes says if consumers and business stop spending then the government needs to step in and spend instead. Or give consumers the cash to spend (hello K Rudd!).

The alternative approach is where the government cuts spending to the bone – called ‘austerity’ – and then hopes for the best. It’s been proven to be totally fucking useless and just sends countries into deep, long-term unemployment (see Greece, as an example).

But the weird thing about economic policy is that governments often do stuff that has never been proven to work, because it’s based on the ideology of the people in charge.

Like, tax cuts for business and rich people have never been proved to trickle down to the rest of the economy, but Malcolm Turnbull and Donald Trump fucking love them anyway because they love business and rich people. OK, end of side note.

Inflation – measured as the Consumer Price Index (CPI), this tells us how much prices have moved. They take a ‘basket’ of goods and services – food, clothes, school fees, petrol etc – and track how much people are paying for them.

Some prices go up – hello, glass of wine in a bar! (I paid $13 for one the other day. I nearly vomited). And other prices go down, like TVs and clothes from H&M.  When they are all added and averaged, it gives us the inflation rate – most recently 2.1%.

Why does this matter? Well every time things get more exy, the money you have in your hot little hand is worth less. So you don’t want inflation to be too high.

But if it doesn’t grow at all, it’s a sign that the economy isn’t healthy, so you don’t want it too low either.

Tricky huh?

The Reserve Bank has decided the ‘just right’ level of inflation is 2-3%, so this is the their ‘target inflation band’. If the rate falls below it, they might cut interest rates (see why this stuff matters!).

Or they might not, depending on what else is going on, like house prices going crazy.

TBH, the Reserve Bank has a pretty tough job. Their overall goal is to keep the economy humming. But it’s harder than doing a wedding seating plan. Like if you put that cousin with that friend, they will argue about Trump. And where do you put that lone friend who doesn’t know anybody? Should you put all the single peeps together, or is that telling them they are non-married losers who should be separated from society?

Well that’s how the RBA feels when they try and balance inflation with house prices, growth with avoiding a bubble, stimulus with fairness. And worst of all, they only have ONE TOOL for doing this: interest rates. Up, down or on hold.

And that’s why inflation matters – not just because it affects your spending power, but because it drives interest rates. If you have a mortgage, that matters.

And if you don’t, it still matters, because it affects a) the price of the property you might buy one day and b) the investors buying the property you rent.

Wages Growth – This is very closely related to unemployment, and right now, these two numbers are not good friends. They grew up as besties – doing the same stuff together. When unemployment was low, wages went up. That’s how they rolled.

But in the past few years, they’ve really started going separate ways. One of them likes raves and EDM, the other is into Indie bands at pubs. One of them is vegan and wears recycled fashion, the other is shopping at Forever 21 and gets eyelash extensions.

Don’t believe me? Check out this RBA graph – see where they diverge and also how damn low wages growth is now.

Image result for wages growth unemployment australia 2017

What’s changed is the amount of UNDER-employment – people who want to work more but can’t find the hours. They stay out of the headline unemployment rate but are still economically disadvantaged.

Which is a long way of saying that the economy is complicated, yo.

You should care about wages growth because it relates to your market price as an employee. On a national scale, it’s getting harder to march into your boss and ask for a payrise. So you need to make sure you stay relevant and in-demand, and that you’re acquiring new skills that increase your value. You may also need to be realistic about your payrise expectations (soz).

The Upshot

I know, that was a long and detailed foray into economics. And hardly any celebrities to break it up (well, we had K Rudd and Keynes, I guess).

But I want you to know that this stuff matters. It’s not just numbers on the news; it’s stuff that makes a genuine difference to our lives and should affect our voting decisions.

There are actually tons more cool figures I could have included in here, but hopefully this gives you a taste for that exciting world of ‘the national accounts’. Woot woot! Let’s party with Bey!

 

photo credit: https://www.flickr.com/photos/hongatar/ 

We’re all going to die – so let’s just talk about it here, then move on

That’s quite the dramatic headline, I know. But unless you’re a vampire like R-Patts, it’s true.

And if I said ‘hey girls, come over here and chat about life insurance for a moment’, you’d be about as excited as I was to watch three types of football this weekend (thanks to my brother). But unlike football, I can’t even tempt you with muscular men in very tight shorts.

So I promise to make this short and simple. (If you want a long read on this exciting topic, here’s one I prepared earlier). We’ll have a quick chat and then you can get back to worrying about Prince Harry’s mental health.

Imagine if you couldn’t work anymore. For a few months, for a year or two, or even forever. How the hell would you pay the bills? Your partner would? Ok, sure. What if he left though? What if he died? I know, I am a bundle of fun today.

Seriously though, if you got sick, or were injured in a car accident, do you think you future financial needs would be covered by social security? Maybe, but let me just say the disability support pension is about $400 a week. WTF? I legit pay more in rent than that. I would be in minus figures before I even had a crack at feeding or clothing myself.

So that’s why God (well, actually insurance companies) invented Salary Protection insurance (aka income protection). It pays you 75% of your current salary if you can’t work because of illness or injury. For example, I know a lovely lady who was diagnosed with breast cancer at age 30 and couldn’t work for six months. She didn’t have that insurance so had to rely on her family for support.

What if you’re in a car accident and end up in hospital and rehab for months on end? You may get some sort of compensation (or not) but that often doesn’t get paid till months or even years down the track. Good salary protection will kick in after a month off work and help to pay your ongoing living costs. Some policies cover you for up to two years; others until you’re 65. Obvs the latter one costs more, but could be worth it. (It’s what I have).

A good friend of Salary Protection is Trauma cover. This is a lump sum that you can get paid if you have some sort of accident or serious illness.  Think about how effing expensive it is to get even a bit sick these days – things like cancer or heart surgery are far more exy. Medicare and private health won’t cover all the costs of specialists, scans and tests. The bills don’t stop coming even if you’re off work. And perhaps you want to fly in family to be by your side.

Trauma protection gives you a pot of money to cover all the costs you face in a crisis, and gives you one less thing to worry about at an otherwise crazy stressful time. 

Total & Permanent Disability – This is one of the policies that often comes with your super fund – not for free, but the premiums come straight out of your savings, so you don’t really notice it. It’s a lump sum you can get if you really can’t work anymore. It’s not always easy to claim (given that it has to be TOTAL and PERMANENT) and can take a while to process even if you do, so trauma and salary protection can be useful to have alongside it.

Life insurance – this is really DEATH insurance but it’s not polite to talk about death, so it gets a turned into a lovely euphemism. Obviously it’s a payout to your partner/kids/family if you die. Also available in your super fund, but chances are you don’t know how much you’re covered for or how much it costs. Defo worth looking into and checking that.

Most people underestimate how much they need, because they don’t realise how many years it has to last for and how expensive life is. Even if you’re not the breadwinner, would your partner be able to pay for childcare while they work full-time? There are plenty of things like this to consider.

How to take action

At the very least, look at your last super statement and see what cover you have. Can’t find it? Jump online or call your fund – they can tell you. Think about whether you’d have enough to pay off your debts, and leave the people you love with enough to make them comfortable.

Ideally, you would talk to a financial adviser or insurance broker. (Click here for more about finding an adviser). They not only help you work out what you need, but they do all the shitty dealings with the insurance company – now, and in the event of a claim. It may not even cost you much, because they may be paid by the insurance companies. (Depends on who you deal with and how their business is set up).

But seriously, you are gonna die. And if you do get sick or hurt, the last thing you want to deal with – on top of that – is being broke. You insure your car, your home – maybe even your pets – so please, please insure yourself and your income.

 

Is doing nothing worse than doing the wrong thing with money?

Sorry to my email subscribers – this link got broken. Here it is again. I am not really that profesh after all.  

I want to confess something. I’m probably wrong.

Some view I hold, some article of faith, some strongly held opinion. It’s completely wrong.

Because you know what? We’re all wrong, some of the time. I was wrong about Trump being unelectable (me, and a bazillion other political junkies).

I was wrong about Beyonce being the only viable winner of Album of the Year at the Grammy’s. (Adele. Huh. Who knew).

And I have been wrong about the romantic suitability of more men than I care to remember (although some of them are burnt into my heart: from Doug the 15-year-old drop-out to Mr Darcy, the 40-something divorcé).

Nobody has all the answers – regardless of how much conviction they show when giving you those answers. (In fact, the more conviction the higher the chance they’re wrong).

This is really important to know when it comes to money, for two reasons:

1. You should run all advice through your own bullshit filter (mine included)

2. You don’t want to let fear stop you from acting

Let’s look at the first one. As a woman, you’re going to come across a bunch of people offering free advice about money. Your folks want you to buy property. Some bloke at work wants to mansplain why you should invest in shares. Some blogger wants to tell you to stop getting eyelash extensions  (oh, that’s me).

Some of it will sound legit. Some of it will make perfect sense. And some of it won’t sit well with you at all.

One of the best ways to increase the sensitivity of your BS filter is to find your own information. Read widely and get a feel for different viewpoints. And then …

Pay attention to the numbers

I work with a wide range of fund managers and they all have a different approach. Every time I sit down with them I totally believe that they have found the holy grail of investment theory. Most of them are indeed pretty good, but it’s their numbers that tell the real story. And those numbers show that some are definitely better than others.

Key take-out? Numbers don’t lie – always look at performance figures. And not just the last year, but the last three and five years – and longer if possible.

Someone can tell you that buying an apartment off the plan and renting it out is THE best way to make a solid investment. But it’s pretty easy to test that theory. Take the purchase price, and divide it by the rent it brings in. This is the rental yield, and it tells you a lot about the return on investment.

An apartment that costs $800K and is rented out at $500 per week, gives a gross yield of 3.25% (before costs such as maintenance and strata). Yield also doesn’t take into the cost of interest on the loan, so it’s a pretty blunt instrument to work out our return on investment.

The great unknown is how much capital growth it will get – i.e. how much the value will go up. Same deal with shares – you can broadly predict the yield on those (as dividends tend to be similar every year), but less so what the share price will do.

So like every decision in life, you have some things you know and some things you just hope for the best on. Everything we do is a calculated risk.

I bought a pair of navy suede ankle boots this week, and there is a risk that I might not get as much wear as I hope out of them. But I took a risk, because they are really cute and they were on sale and I have wanted blue boots for months.

(Side note, I broke my own promise not to go to Wittner. I have a problem).

Key take-out: you can and should run the numbers on an investment, but you also have to accept there is no perfect answer and no guaranteed outcome. You need to identify and manage the risk, through things such as diversification or building in a buffer. (Read this piece about risk if you are interested).

And this brings me to another point. When you are trying to run all these numbers, you may want some help. So, should you use a financial planner?

Probably. Like colouring your hair or getting a spray tan, you can do an ok job yourself, but you will probably get a better result with a professional.

It’s the same reason I pay a stupid amount of money to a powerlifting coach. Sure I could read a book on training, but that book isn’t going to stand in front of me and shout ‘knees out, chest up!’ when my form goes to shit.

So yeah, do the basics on your own. Learn some stuff, read a book or two, get your budget and savings sorted. But if you want to move up from messing around in the weights room to actually building some serious muscle, you need a coach. In this case, a money coach.

How do you find one? Well, asking other people is a good start. But if you don’t have any recommendations to go on, take a look at the FPA website.

But let me explain the industry a bit, so you know what to look out for.

Most planners will be attached to a bank, a big financial institution or something called a ‘Dealer Group’. It’s a complicated thing where they need to be part of an organisation that holds a license. The Licensee takes all the heat of the admin and compliance (there is a shit-ton of it in this industry). The people who work under this license are called Authorised Representatives.

So the person you deal with has some sort of network behind them, whether it’s a bank or a dealer group, and that institution may or may not want to sell you some of their products. What products? Managed funds, margin loans, life insurance, mortgages. Financial products.

Now, these may be right for you. Or there could be something better out there. If you get your make-up done at the Mac counter, they’re hardly going to point you over to the Estee Lauder counter are they? Well, actually there was this one time when the Estee Lauder girl at Nordstrom recommended the Smashbox mascara she was wearing (and it was awesome). So it’s all about finding someone with your best interests at heart, and won’t just push their products on you.

Luckily, there is a law that says they have to do this – i.e. act in the client’s best interests. So regardless of whether they have their own products, an adviser will generally recommend things from an Approved Product List – a list that their Dealer Group has checked out and made sure they are legit. It’s like going to Mecca Cosmetica or Sephora, where they just give you the best of the best regardless of brand.

Key take-out: Make sure you ask lots of questions about why they are recommending one product over another. Think about how long you spend choosing a foundation – and then maybe double it.

The important thing is that you do something. Don’t fall into the trap of thinking it’s all too hard, there’s too much to know, so you’d better not do anything. That’s how you miss out on building wealth, and instead just let your life run ahead of you and your goals.

So if you are a bit scared about getting started on the finance thing, here are some tips:

  1. Do some basic research. Google is your friend. Read Warren Buffet – he makes a lot of sense and is also one of the richest guys in the world.
  2. Speak to a few grown-up people you trust (and who have money) and get their input
  3. Ask around and find a professional you like and trust. You generally get a first session free, so if you don’t click, don’t go ahead. It’s like Tinder, but less awks.
  4. Use the process to think about your goals, priorities and plans. Then map your finances against these.
  5. Ask questions,  don’t be afraid to be annoying and demanding. If you can’t understand it or it doesn’t feel right, don’t do it.

And of course, you can always cruise around the Fierce Girl blog and enjoy its truth-bombs.

Is doing nothing worse than doing the wrong thing with money?

I want to confess something. I’m probably wrong.

Some view I hold, some article of faith, some strongly held opinion. It’s completely wrong.

Because you know what? We’re all wrong, some of the time. I was wrong about Trump being unelectable (me, and a bazillion other political junkies).

I was wrong about Beyonce being the only viable winner of Album of the Year at the Grammy’s. (Adele. Huh. Who knew).

And I have been wrong about the romantic suitability of more men than I care to remember (although some of them are burnt into my heart: from Doug the 15-year-old drop-out to Mr Darcy, the 40-something divorcé).

Nobody has all the answers – regardless of how much conviction they show when giving you those answers. (In fact, the more conviction the higher the chance they’re wrong).

This is really important to know when it comes to money, for two reasons:

1. You should run all advice through your own bullshit filter (mine included)

2. You don’t want to let fear stop you from acting

Let’s look at the first one. As a woman, you’re going to come across a bunch of people offering free advice about money. Your folks want you to buy property. Some bloke at work wants to mansplain why you should invest in shares. Some blogger wants to tell you to stop getting eyelash extensions  (oh, that’s me).

Some of it will sound legit. Some of it will make perfect sense. And some of it won’t sit well with you at all.

One of the best ways to increase the sensitivity of your BS filter is to find your own information. Read widely and get a feel for different viewpoints. And then …

Pay attention to the numbers

I work with a wide range of fund managers and they all have a different approach. Every time I sit down with them I totally believe that they have found the holy grail of investment theory. Most of them are indeed pretty good, but it’s their numbers that tell the real story. And those numbers show that some are definitely better than others.

Key take-out? Numbers don’t lie – always look at performance figures. And not just the last year, but the last three and five years – and longer if possible.

Someone can tell you that buying an apartment off the plan and renting it out is THE best way to make a solid investment. But it’s pretty easy to test that theory. Take the purchase price, and divide it by the rent it brings in. This is the rental yield, and it tells you a lot about the return on investment.

An apartment that costs $800K and is rented out at $500 per week, gives a gross yield of 3.25% (before costs such as maintenance and strata). Yield also doesn’t take into the cost of interest on the loan, so it’s a pretty blunt instrument to work out our return on investment.

The great unknown is how much capital growth it will get – i.e. how much the value will go up. Same deal with shares – you can broadly predict the yield on those (as dividends tend to be similar every year), but less so what the share price will do.

So like every decision in life, you have some things you know and some things you just hope for the best on. Everything we do is a calculated risk.

I bought a pair of navy suede ankle boots this week, and there is a risk that I might not get as much wear as I hope out of them. But I took a risk, because they are really cute and they were on sale and I have wanted blue boots for months.

(Side note, I broke my own promise not to go to Wittner. I have a problem).

Key take-out: you can and should run the numbers on an investment, but you also have to accept there is no perfect answer and no guaranteed outcome. You need to identify and manage the risk, through things such as diversification or building in a buffer. (Read this piece about risk if you are interested).

And this brings me to another point. When you are trying to run all these numbers, you may want some help. So, should you use a financial planner?

Probably. Like colouring your hair or getting a spray tan, you can do an ok job yourself, but you will probably get a better result with a professional.

It’s the same reason I pay a stupid amount of money to a powerlifting coach. Sure I could read a book on training, but that book isn’t going to stand in front of me and shout ‘knees out, chest up!’ when my form goes to shit.

So yeah, do the basics on your own. Learn some stuff, read a book or two, get your budget and savings sorted. But if you want to move up from messing around in the weights room to actually building some serious muscle, you need a coach. In this case, a money coach.

How do you find one? Well, asking other people is a good start. But if you don’t have any recommendations to go on, take a look at the FPA website.

But let me explain the industry a bit, so you know what to look out for.

Most planners will be attached to a bank, a big financial institution or something called a ‘Dealer Group’. It’s a complicated thing where they need to be part of an organisation that holds a license. The Licensee takes all the heat of the admin and compliance (there is a shit-ton of it in this industry). The people who work under this license are called Authorised Representatives.

So the person you deal with has some sort of network behind them, whether it’s a bank or a dealer group, and that institution may or may not want to sell you some of their products. What products? Managed funds, margin loans, life insurance, mortgages. Financial products.

Now, these may be right for you. Or there could be something better out there. If you get your make-up done at the Mac counter, they’re hardly going to point you over to the Estee Lauder counter are they? Well, actually there was this one time when the Estee Lauder girl at Nordstrom recommended the Smashbox mascara she was wearing (and it was awesome). So it’s all about finding someone with your best interests at heart, and won’t just push their products on you.

Luckily, there is a law that says they have to do this – i.e. act in the client’s best interests. So regardless of whether they have their own products, an adviser will generally recommend things from an Approved Product List – a list that their Dealer Group has checked out and made sure they are legit. It’s like going to Mecca Cosmetica or Sephora, where they just give you the best of the best regardless of brand.

Key take-out: Make sure you ask lots of questions about why they are recommending one product over another. Think about how long you spend choosing a foundation – and then maybe double it.

The important thing is that you do something. Don’t fall into the trap of thinking it’s all too hard, there’s too much to know, so you’d better not do anything. That’s how you miss out on building wealth, and instead just let your life run ahead of you and your goals.

So if you are a bit scared about getting started on the finance thing, here are some tips:

  1. Do some basic research. Google is your friend. Read Warren Buffet – he makes a lot of sense and is also one of the richest guys in the world.
  2. Speak to a few grown-up people you trust (and who have money) and get their input
  3. Ask around and find a professional you like and trust. You generally get a first session free, so if you don’t click, don’t go ahead. It’s like Tinder, but less awks.
  4. Use the process to think about your goals, priorities and plans. Then map your finances against these.
  5. Ask questions,  don’t be afraid to be annoying and demanding. If you can’t understand it or it doesn’t feel right, don’t do it.

And of course, you can always cruise around the Fierce Girl blog and enjoy its truth-bombs.

Getting a home loan: a Fierce Girl guide for rookies

So you’re going  to buy a property? Congratulations! You must have sold an organ or won the lottery.

Maybe you saved your arse off, or got some help from the parentals. Either way, you have squirreled away enough money for a deposit.

Otherwise, you’re reading this because it’s useful information to have in approximately 72 years when you have saved up enough. I get it – it’s like watching Jamie Oliver.  You aren’t really going to make that 30-minute Peruvian rotisserie chicken, but it feels good intending to.

And like most finance stuff, there’s a whole world of bullshit jargon and rules you’ve never heard of. It’s like your mum trying to navigate Instagram – ‘what does ‘AF’ stand for?’.

I am going to break down the process, but it really is a lot of learning so I’ll keep it topline for now. If you get really excited, you can Google more info.

Find out how much you can borrow.

There are plenty of nifty ‘borrowing power’ calculators that give you a general idea. They’re pretty generous though – they suggest that you can buy a chateau on the banks of the river Seine … as long as you eat baked beans and shop at K-Mart for the rest of your adult life.

So you need to sit down with an actual mortgage broker and go through it.

Make friends with a mortgage broker

Should you use a broker? Fuck yes. Seriously, you’ll feel like a bloke who’s wandered into Sephora if you try and work this shit out yourself. A mortgage broker does all the work for you and you don’t even need to pay them – the winning lender does that!

Keep an eye out to make sure they aren’t just suggesting the loans aligned with their brand. For example, Aussie Home Loans can act as a broker as well as sell you an Aussie loan – but only if it’s the best deal. They have a professional obligation to do what’s in your best interest..

Occasionally you can get a deal that’s not available through a broker – e.g. I refinanced to a UBank home loan that my broker couldn’t match, even though he is a top bloke. But that was when I was already somewhat versed in this stuff. If you’re a virgin, you don’t really want to mess around with clueless Year 8 boys now, do you?

How do you find a broker? Ask around. People who have a good one will happily recommend them – maybe it’s because they play a positive role in such a big event, but people seem to get attached.

Things that might affect your borrowing power:

  • Credit cards. The limit you have is seen as a liability, even if the balance is zero. So if you have a $10,000 limit, the bank assumes you have that much debt and that counts it as a competing priority for your hard-earned cash. So either cancel unnecessary cards or reduce your limits.
  • Personal or car loans – again, if you owe $20K on a car loan, the bank will take this into account. Sensible Aunty Belinda says what business do you have buying a house when you are still paying off a car – HOWEVER, this is the real world, so if you are, be aware that it crimps your spending power.
  • Your credit score. Like an inner wild child, everyone has one of these – even if they don’t know it. If you buggered up a mobile phone plan as a 19 year old, your credit score will know. If you didn’t return that Mean Girls DVDs to the store in 2005, they will know. OK, maybe not the latter one – but you will have a score, it might be compromised by a bad decision or oversight, and you need to know about it. Google ‘credit score’ and get a free one.
  • Your savings history. Even if you have been gifted a hefty sum from the ‘bank of mum and dad’, you need to show the bank you can be a grown up and pay off a mortgage. So they will want to see your bank statements to reassure themselves of that fact.

Building in a buffer

Now just because you CAN borrow a certain amount, doesn’t mean you NEED to. Banks are pretty clueless about how much they think you actually spend. They will say ‘your repayments are this, and your spending is that, so you can borrow this BIG AMOUNT.’

But they don’t know about your penchant for annual ski trips, your addiction to spray tans or your deep-seated desire to pay 30 bucks a pop for an F45 workout. So unless you intend to live like your Nanna, don’t take the max amount.

Also, remember that we are at crazy low interest rates right now, and they won’t last forever. You need a decent buffer in case rates go up, so get your broker to run the numbers as though rates had gone up 3% or more. If you almost pass out when you see those repayments, it means you can’t afford it.

The next step is to get pre-approval on the loan you want. That means you can go to auctions and sales and feel like you have the money in your hot little hand. You actually don’t, because the bank still needs to approve the property you buy, and a bunch of other boring details. But it’s the closest you’ll get until you do the deed for real.

The paperwork gauntlet

Applying for a home loan is seriously one of the biggest paperwork fuck-arounds you will ever experience. They want payslips, bank records, identification and whether you’re oily, dry or combination skin. Well, it feels like it anyway.

A good mortgage broker will hold your hand through it, but be ready to spend time and frustration on it.

Crunching the numbers

How much does a property cost? More than you think. The purchase price is just the start. Other costs are:

  • Legal/conveyancing fees. Depends on who you use and what you need but factor in at least a couple of grand.
  • Building inspections – A few hundred bucks every time you get serious about a property and want to make sure it’s structurally sound and not full of termites.
  • Stamp duty – This is the big one. If you’re a first home buyer, some states have exemptions or discounts, so check out your state government website. Working out the amount is pretty complicated and different in each state, so check out the calculators you find online or ask your broker. But it can add tens of thousands of dollars to your purchase price.
  • Lenders’ Mortgage Insurance – Another annoying trap for the rookie. If you have less than 20% of the deposit, the bank thinks you’re risky. So they make you take out insurance on the amount that’s short. E.g. If you’re at 18%, you may need insurance on the missing 2%. If you get one of those ‘95% of purchase price’ loans, they will hit you hard with this. You don’t have to find this money upfront – they whack it onto the mortgage. But if you throw an extra, say, $10k onto your mortgage, you are then paying interest on it. It’s a rort in my opinion, so do everything you can to scrape up the 20% deposit.On a side note, when I bought my place, the bank valued it at $40K higher than what we paid. We had been just shy of 20%, but at the bank’s valuation, we hit the 20% mark, so my awesome broker made them waive the couple of grand extra we would have spent on LMI. Suffer, bank!

Choosing a loan

Fixed, variable, offset, redraw – WTF? Relax, it’s not that complicated.

The first thing to decide is whether to have a fixed rate, meaning the interest rate doesn’t change. A variable loan goes up and down at the whim of the Reserve Bank or even just when your bank feels like it.

A fixed rate means you have more certainty for the term of it (often 3 years) but you are also stuck if rates go down, and may face a fee if you pay the loan out early (a break fee).

There are pros and cons of each, and basically, it’s like placing your money on red or black on a pokie machine – it could go either way. Choose the option that you can sleep at night with.

Then there is ‘offset account’. This is where any money in your bank account counts towards (offsets) the loan. Say you have a cool $10K of your everyday money kicking around in your bank account (well done, I wish I could manage that).

The bank acts as though you paid that money to them, and reduces the amount you pay interest on. So for example instead of paying interest on $400K, you pay it on $390K. All adds up, my friend!

A redraw is similar but I prefer it because it’s an extra level of discipline. Any money that you pay on top of the minimum repayment goes to the loan, but you can redraw it out again. Say you made $10K extra in payments last year – you can claw that back if you need an emergency boob job or something.

In my experience, once that money is in there, it’s a huge guilt trip to pull it out again – and you usually have to wait a day.

In terms of rates, your broker should find the best one for you. But here’s a hot tip – it’s probably not going to be with one of the big 4 banks. It might be with some credit union, or an online bank (like my UBank loan). So don’t be sucked in by their branding. Also, bear in mind the ‘comparison rate’ – this means if they say the rate is 4%, but by the time you add fees and charges, it comes out more like 4.2%, they have to say so. Try and find one with minimal fees, obvs.

Now I am not going to give you any advice about actually choosing a property because that’s a whole other topic and one I’m not really an expert in. But suffice to say do your research – lots of it.

So that’s it Fierce Girls. Save this in your files for your happy house-hunting in the year 2067!

 

4 reasons you can stop panicking about buying a home

Sometimes it feels like all money conversations come back to this issue. Can I buy my own home? Will I be a failure if I don’t? Can I ever afford one?

And it’s not a daydreamy, hypothetical convo, like ‘What if I called my kid Joaquin? Would people know how to pronounce it? Did the Pheonix family really lay the groundwork here?”.

No, the tone is more like ‘Will I die in a gutter, languish in poverty, or be photographed collecting mail in nothing but a bedsheet, if I don’t get onto the property ladder?’.

There is a sense of panic, as if not hobbling yourself with a million dollars in debt means you will end up on the scrapheap of life.

So let’s all just take a moment and STOP PANICKING. People who panic don’t make good decisions. You know that dress you bought the day before a high-stakes date with Mr Future Husband? Let’s admit: you’ve never worn it again.

Instead, let’s have some realtalk about property, saving and wealth.

Because there are more ways to build wealth than buying a house.  Property is just one ‘asset class’, as the professionals call them. There are many more (read a whole post about it here) and they are all viable ways to build wealth.

However, there are some valid reasons that people go nuts for property in Australia. For example:

  • It can increase in value without you doing anything (aka ‘capital growth’)
  • It is easy to borrow money, because it’s a secured asset. In other words, the bank can repossess it if you go broke, to get its money back. It’s more complicated for banks to do that with something likes shares.
  • You get great tax breaks. If you sell the home you live in and make a profit on it, you don’t have to pay capital gains tax on that profit. If you did the same with any other investment – e.g. shares, bonds or an investment property – you would. And then there is the old negative gearing heist (which I won’t go into here – but basically the government rewards you for losing money – wtf?).
  • You get to live in it and nobody can kick you out. You can also renovate and hang hooks and shit. (Although why anybody in their right mind would renovate is beyond me. Dust, paint splatter and interminable trips to Bunnings. Lord give me strength).

These are all compelling reasons that I acknowledge warmly. I own property and it has been a good investment.

But here are some downsides that don’t get a lot of airplay, especially in the media.

By the way, the mainstream media has a huge vested interest in talking up property. Ever notice those thick, glossy real estate liftouts in the paper? Yep, they are rivers of gold for media companies, so it’s not in the interests of News Ltd, Fairfax or their mates to say ‘hold up, property is totes overrated!’, is it?

But here are some counterpoints to the national narrative.

1. You pay a huge amount of interest over the life of a mortgage

This graph is from an earlier post (which you should also read). I include it here to defy the people who say ‘renting is just giving money away to someone else’. Well, Mr Mansplainer, a mortgage is just giving  interest payments to a bank.

Say you borrow $500,000 over 25 years, you will pay nearly $300,000 in interest (at 4%, which is a historically low rate in this country). That interest amount is represented by the light pink below.

Source: Moneysmart.gov.au

Source: Moneysmart.gov.au

Hopefully the property increases in value so you make some of that money back. But it’s not guaranteed. Which brings me to the next point.

2. House prices don’t always go up

I know, they do in your living memory, and certainly in the last few years. Mr Mansplainer may even tell you ‘house prices double every seven years’.

HOWEVER, this somewhat dubious assertion is based on averages, which don’t tell the whole story. You know, your ex-boyfriend was only an arsehole to you half the time, on average. But that didn’t make it worth staying with him.

Don’t just take my word for it – take the Reserve Bank’s! I know you won’t read their paper on the topic, so let me summarise. House prices rise faster and slower depending on other stuff going on in the economy.

But over the long-term, that shit is all over the place. The graph below gives you an idea of how house prices resemble a 5-year-old kid high on fairybread and Cheezels at a birthday party.

screenshot-2017-02-26-at-11-28-45-am

 

 

 

 

Source: RBA (which is why it’s crappy low-res). NB: This shows prices when inflation is removed. 

So it depends on when you bought, and also where you bought. And so we come to another point.

3. Picking property is a lottery

When we talk about property going up by, say 7% a year, that’s averaged out across the country. It masks the fact that some people bought gems, while others bought dogs.

Maybe they paid too much in the first place. Maybe they bought in an area that hasn’t gone up much, or worse, in an area that has gone down. Places like Mackay or Townsville boomed as a result of mining a few years back. Now, they have bust, with prices actually dropping.

Here’s a real-life example. A couple I know, let’s call them Kylie and Jim, bought a new house in an estate in Townsville in 2004. They paid $254,000.

Five years later, having been sent interstate for work, they sold it for $379,000, netting them a tidy profit of $125,000 (less taxes and costs). Nice deal.

That same house sold this year for $340,000.

Yep,  eight years later, it sold for nearly $40,000 LESS than it did in 2009.

Kylie and Jim were just lucky that they caught the cycle on its way up, and got out before it went down.

If you live somewhere like Sydney right now it’s easy to feel like there is only one direction and pace for prices: up and fast.

But I know another couple with an investment property on Brisbane’s outer edges, whose property value has grown at about the same pace that I lose fat, i.e painstakingly slowly.

I did some sums on it and the capital growth has been about 2.5% a year. That’s not taking into account the extra money they need to find every month for the mortgage, because it’s negatively geared.

The moral of this story is not that Queensland property is a mug’s game. It’s not – plenty of people have done well there, and all over Australia.

The point is that there is a good deal of luck and timing involved in buying property. The same is true of any asset class. But don’t look at the headline figures and decide buying a property is a rolled-gold, surefire way to get rich. As with any investment, there are risks.  And so, to the next point…

4. We may be in a property bubble – and it could burst

Now I am not a crazy doomsayer. I am only saying we might be in a bubble.

But some people are convinced of it. Here’s a chart of house prices since the 19th century from a blog called macrobusiness (they are a little ‘out there’, but I read widely). All the labels on it are theirs, btw.

Source: Macrobusiness
screenshot-2017-02-26-at-1-21-26-pm

 

 

 

A while back, I fan-girled Greg Medcraft, the head of ASIC (our corporate watchdog in Australia). He was on the 389 bus to Bondi, so I went up to him and started chatting about property bubbles. (True story, I swear). He said words to the effect that when people are in a bubble, they’re in denial about it.

“This time it’s different”, they say – like an ex-boyfriend who’s trying to win you back.

For my mate Greg, this market looks, smells and tastes like a bubble. And that was 2015, before we hit the point of a $1 million median house price in Sydney.

Other people disagree, and point to population growth, lack of supply and a bunch of other factors driving prices ever upward. I see their point too.

The fact is, nobody knows for sure.

If house prices stay high, there are benefits, mainly to people who already own them.

If house prices fall, the economy will definitely suffer – but it will also mean aspiring buyers get a better shot at affording something.

Either way, you shouldn’t give up on the idea of buying your own pad eventually. Which brings me to…

One last (very important) thing. 

If you can’t afford a property yet, that doesn’t mean you can piss your money away in protest or despair.

There are plenty of options for building wealth (check out this post). But you have to get serious about saving and investing to do it (check out this post about the four best friends who will make you rich).

Just because you don’t have a white picket fence doesn’t mean you can’t be a serious money saver or investor.

It doesn’t matter how much you have, saving and investing is a mindset and a habit. So work on that and ignore the noise about house prices, smashed avo and property bubbles.

You’ve got this!

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photo credit: ruimc77 Burbujas via photopin (license)

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