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The Fierce Girl's Guide to Finance

Get your shit together with money

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If financial planners are greedy, dishonest or stupid, who should we trust?

That’s a big call, I know. But it’s what the Royal Commission (RC) into financial services seems to be suggesting.

Not all financial planners, just the ones who’ve been blowtorched by bad-arse special counsel Rowena Orr, affectionately  nicknamed ‘Shock-and-Orr’ by the media. (Pictured above, showing  strong side-eye game).

I’ve been following the RC  closely this week. Partly for professional interest and partly because it’s car-crash viewing – i.e. hard to look away from the wreckage.

So far we’ve heard about greed and dishonesty at the top. AMP management all but confessed to charging fees for no service, then lying to the regulator about it. So far, the CEO and head lawyer have taken the fall, but there will be more, I suspect.

We’ve also heard about incompetence and greed at the frontlines.

An adviser who told a couple they could buy a property within their self-managed super fund, to live in. Anyone with even the slightest knowledge of SMSFs knows you can’t do this: only investment properties can be placed into super. That couple ended up with no home of their own to live in.

There was another adviser who suggested his clients change super funds, even though they’d be slugged with a $16,000 exit fee – or a quarter of their (fairly meagre) savings. Because it would make him money.

Then there was a high-profile, TV-star adviser, who told a client to leave her super fund and join his firm’s. Even though it would cost her $500,000 to do so.

This was after his staff had impersonated the client to contact her super fund (which is absolutely not required, because you can easily give an adviser authority to call on your behalf).

Turns out he was confused about whether his client was in a ‘deferred benefit’ fund or a ‘defined benefit’ fund. Those two things are in no way similar; it’s like saying you’d like a pinot noir and being serve a pinot gris. When a girl wants red wine, she does not like getting white.

Luckily, this client is a smart and savvy lawyer, so she picked up the error, rejected the advice and complained to his professional body. In the planner’s response, he called her ‘nitpicky’ and ‘aggressive’.

I don’t know about you, but if I’d picked up a $500K error in advice I’d just been charged several thousand dollars for, I’d feel a little aggressive.

And if knowing the difference between ‘defined’ and ‘deferred’ is nitpicky, then sure, sign me up for pedant of the year.

These are just some examples of the train-wreck that is the Royal Commission. And while there is some schadenfreude in watching it, mostly, it just hurts my heart.

It hurts because these are everyday people who have done the right thing and sought professional advice about something important. Then been totally screwed over for it.

It hurts because, for every dodgy and stupid and incompetent planner, there are many more who care deeply about their clients and give solid advice that’s in their client’s best interests.

But sadly, it’s hard to sort the good from the bad.

When you get a bad hairdresser, you know straight away. Your partner will no doubt declare the shitness of your new ‘do as soon as you walk in the door. Ah well, six weeks and you can move on.

But bad financial advice can take a long time to emerge and even longer to fix. In fact, many of the people affected by bad advice don’t even know it yet. Seriously, AMP admitted that they haven’t quite got around to telling a bunch of clients that their adviser is a chump who’s cost them money.

I’m at a loss to know what to make of it all. How can I sit here and tell all my Fierce Girls to get professional advice? What if you end up with one of the spivs who send you off in the wrong direction?

What if you get sold crap products and solutions just because it puts money in the pocket of the adviser and their company?

You can look for recommendations from family and friends, but what if they have also been given bad advice and just don’t know yet?

I honestly don’t know the answers to these questions. It’s mindblowing to me just how devastating the RC’s findings have been. From the Prime Minister through to the average woman on the street, we are all left shaking our heads at the breathtaking combination of greed and stupidity that appears to infect the financial planning industry – or perhaps the finance sector more broadly.

Take charge of your own money

The only advice I can offer in light of these revelations is this: you can make plenty of good decisions about your money without financial advice.

The first thing to do is get a handle on your spending. Good money management is the biggest challenge for most people; working out how to invest comes later on.

So before you do anything, check out my take on Guilt-free spending and how to wrangle your bank accounts into order.

Beyond that, financial advisers mostly help you in three areas: personal insurance, investments and superannuation. Here are some DIY ways to improve them.

Insurance – You normally get insurance through your super fund without even asking – mostly it’s just death cover and TPD (read this post for more detail). Call them up, check how much you’re covered for, talk to them about whether it’s too much or not enough. Most funds are allowed to provide this ‘limited advice’ as part of your membership. And you should definitely look at adding income protection if you don’t have it already.

Investments – Knowing where to invest your surplus savings is a good problem to have. However, many of us could do great things just by paying extra off our mortgage (and therefore saving thousands in interest over the life of the loan).

We could easily start small with an exchange-traded fund (read more here) or a micro-investing app (like Acorns, which this week rebranded itself to Raiz). Investing doesn’t have to be scary and complicated – and a bit of self-education goes a long way.

Super – With the RC findings ringing in our ears, I’m gonna make a call: a big-bank super fund may not be the best option. I’ve worked with lots of super funds over the years (as clients) and have found that industry funds and values-driven funds (like Australian Ethical) really do approach things with one purpose in mind: their members.

If you’re already in a bank fund, I’m not saying you need to bail out of it. But if you want to roll all your super into one fund (which you totally should, to cut out duplicate fees and insurance premiums), pick one that aligns with your values.

And consider putting a bit extra into super, as it’s a good way to cut your tax bill and keep money aside for the future.

Another thing you can do is speak to your fund about which investment option is best for you. Again, this advice is often part of your membership, so it’s worth seeing if your risk profile is right for your age and situation.

In some cases, the ‘default’ option they put you into is one-size-fits-all. And as anyone who has been entangled in a cheap, Chinese-made ‘one-size’ top in a change room can attest, one-size does not actually fit all.

Take charge

To sum up, I would reiterate what I say on here all the time: you are responsible for your money. Educate yourself. Pick up the Barefoot Investor. Read http://www.financy.com.au or the Money section of the newspaper. Get engaged and involved. The more you know, the more control you have.

Four things rich people do … that you can too

There’s a section in my favourite gossip mag, ‘Celebs – they’re just like us’, where photos like Reese Witherspoon hauling groceries to her car make us feel good – as though there’s not much separating our humble lives from theirs.

Well, I’d like to propose a column called ‘Rich people – they’re just like us. Except not really’.

My career has thrown me in the path of many rich people (who, curiously, don’t call themselves rich most of the time).

They are like us in that they struggle with personal relationships, self-esteem and whether to eat dessert or avoid the calories.

But they are unlike us when it comes to money. I’ve noticed a few things that they have in common with each other, and it might help you too.

Like another favourite section of the gossip mags, here’s my version of ‘Rich People: steal their style’.

1. They spend money to make money

Wealthy people have wealth managers. It might be a financial adviser or private banker (probably both). They have an accountant to minimise their tax, a lawyer to set up trusts, and then they pay fund managers to invest their money. And they’ll pay a lot for these services, if they see value.

The reason for having a coterie of advisers is that each one has specialist skills to maximise return and minimise risk.

Key take-out for you? Don’t be afraid to invest in professional advice. A good financial adviser could make a difference of tens or even hundreds of thousands of dollars over your life.

A good accountant will make your tax and investments work harder for you (and likely give you a way better tax return).

Even a good career or business coach can make a difference to your earning potential and success. (Mine pushes me to be tougher than I naturally am)

2. They don’t avoid risk, they manage it

I get it: you work hard for your cash so you don’t want to risk it in investments you don’t understand. But shoving your cash in the bank will not build your wealth these days.

Most bank deposit rates barely keep ahead of inflation. For example, inflation is running at around 2%, you’re getting 3% interest, so in fact you’ve only made 1% on your money.

The key is to understand risk management. Diversification is key to that – having your eggs in a few baskets. Another is paying attention to the fine print, so you are only taking risks you understand.

Related to the first point above, good advisers will help you manage risk according to your timeframe and goals. And I’ve written a whole post about risk here – check it out!

The other thing rich people do is insure the hell out of everything. There’s a place called Lloyd’s of London that’s been around since the 1700s, where you can go and get insurance for anything from a giant container ship through to J-Lo’s butt (true story).

It’s a global institution, because insurance has been at the heart of the economy since men were wearing wigs in an un-ironic way.

Insurance is a crucial part of risk management, so if you haven’t seriously looked at your income protection and life insurance, now is the time. (Oh wait, here’s a handy guide I wrote!).

3. They are masters of debt, not slaves

There’s a concept called ‘productive debt’ (aka ‘good debt’), and it’s worth understanding. It’s the debt you take on in order to invest and make more money.

A home loan is the most common form of this debt. But there are also investment loans, such as a margin loan to buy shares. Business loans are also in this class – borrowing to build and grow a business is a big driver of our economy.

‘Unproductive’ or ‘bad’ debt is borrowing money to buy something that just costs you money – a car loan for example. The car you have at the end of the loan will be worth less than you paid for it. Credit cards generally fall into this category too.

I know, you may feel like the investment you made in an Urban Decay Nude II palette at Sephora is productive and will improve your life. But unless you’re an Instagram sensation, or land a millionaire husband who was lured by your perfect eyeshadow contouring, you will not make money out of it.

Good debt still has to be carefully managed, as there are risks associated with borrowing. For example, if the value of the asset you bought goes down, it can create issues. But when used well, leverage (as debt is also known) can magnify your gains.

I’m not saying all rich people use debt to build wealth.  I’m saying that many of them use debt strategically and with a goal in mind … not just because they can’t manage their cashflow in between paydays.

You can learn from these people by thinking about debt as a tool, not as a fallback for bad money habits.

4. They pay attention to their finances

One thing you learn in consulting is this: big clients paying $20K a month have zero shame in questioning a $25 taxi fare you’ve added to their invoice. The same goes for rich people. Just because they’re rich doesn’t mean they’re careless with money.

In fact, they are generally the opposite. They won’t begrudge spending $20 on a cocktail, but they will check their bill in a restaurant. They won’t mind spending thousands to pay an investment manager, but they will expect strong returns.

And they will ask questions. Lots and lots of questions. The more money they are going to hand over, the more questions they’ll ask.

You should do the same. Whether it’s a phone bill, a bank statement, a payslip or an investment statement, pay attention to the details. People and companies frequently get things wrong. Some will deliberately rip you off.  Get ahead of them.

And more broadly, take just as much interest in your finances as you do in the ASOS sale email or the finer points of make-up contouring.

Ultimately, nobody will ever care about your money as much as you, so you’re in the driver’s seat.

 

Should I care about the Banking Royal Commission?

A lot happened last week. Taylor Swift announced her Australian tour dates. Prince Harry announced his engagement to Meghan Markle. And in a spectacular show of being skewered by his own political allies, Prime Minister Turnbull announced the Royal Commission into banks.

If you haven’t been following the business press as closely as me, let’s recap the key points.

  • Banks have done a bunch of dodgy things, from ripping off financial planning customers, to denying life insurance clients their claims. Labor and The Greens have been gunning for a banking Royal Commission for ages.
  • The Government was, for a long time, seen as an ally of the banks. But in a high-drama, high-school-style reversal of friendship, the Libs came up with a new bank tax in this year’s budget. Turnbull, like a mean girl, sensed the direction of the wind, saw that people don’t like banks, and figured he may as well take money off them. All of sudden it was like ‘you can’t hang with us’ and ‘can I have my CDs back’.
  • But the Government wouldn’t go so far as calling a Royal Commission, because a) they had said they wouldn’t and b) they still secretly love banks.
  • That was, until the crazy Nationals got in on the act last week. Like a group of Emo kids and nerds united by their tendency to get teased, the Libs and Nats have an uneasy coalition. And last week some Nationals threatened to call a parliamentary inquiry, which the Greens had already had a crack at. You know that when the Nats and Greens are pushing the same barrow, some weird shit is about to go down.
  • And then, in a crisis response Ferris Bueller would be proud of, the banks sent the PM a letter saying, essentially, ‘Bring it on, bitches’. You see, if the Nats/Greens’ inquiry got up, those parties would control the terms of reference.
  • But if the banks and the Libs called their own Royal Commission, they could set the chess pieces up the way they wanted. Choose the guy running it, decide who it would cover and most importantly, what it would exclude.
  • Like a kid about to have his locker searched for weed, the banks were all like ‘Nothing to see here’, madly hoping they didn’t accidentally leave a baggie of bud at the back of the locker last week.

So, the terms are set and from what one columnist described, it will have all the impact of being slapped with a wet lettuce.  It will also cover more than banks, and sweep in superannuation and insurance. This has the impact of spreading the attention and therefore the depth across more companies. While it’s costing a bomb (like $75m) and will take a year, the word on the street is that’s not actually enough to cover all those sectors. Time will tell.

What does it mean for you?

Probably not a lot. Maybe it will shine a light on the potential conflicts of interest within banks (where they provide financial planning then sell a bunch of their own products, for example).

But we already have a highly regulated bank and financial services sector. What’s harder to control is culture, and that’s what the banks need to work on. When money is involved, and large sums of it, it’s easy for greed to take over in some corners of an organisation.

A good culture calls out bad behaviour and shuts it down. I suspect that hasn’t been happening enough in some parts of some banks. (There are also genuinely good people  in banks, doing great work – let’s not forget that).

Caveat Emptor – the real answer to all of this

That just means ‘buyer beware’ – but it sounds way smarter in Latin right? My take on the whole thing is this: there will always be people trying to take your money. So when it comes to big financial decisions, the key is to keep your dubious face on.

Here’s an example. One of the issues that people want the Commission to cover is how ANZ got mixed up in the collapse of Timbercorp. This was a forestry investment that was tax deductible because it was agriculture or something. Basically, if you invested, you got a bunch of tax breaks. So, people chucked a bunch of money into it, and many lost said money when it all collapsed.

I feel sorry for them, but here’s the thing. The people I heard interviewed had broken the basic rules of investment.

Firstly, does it sound too good to be true? Shitload of tax breaks for planting trees? Sounds legit. Not!

Secondly, are you throwing all your money at it? Or are you building a diversified portfolio of investments so that if one goes sour, you don’t lose it all.

Thirdly, have you protected your downside? This means looking at all the things that could go wrong, what they would cost, and how you would bounce back from the worst outcome. If you haven’t played out this scenario, then you’re not ready to invest.

None of these things are super complex or require a degree in finance. It’s just having a good bullshit detector, not ever trusting anyone too much, and following some basic principles.

If you’re ever thinking about an investment and aren’t sure about your own BS filter, ask someone else – someone you trust, or who’s really cynical. Or both. Like a poorly lined pencil skirt, when you hold something up to the light, you often see its flaws.

So, short answer is this: nobody is going to protect your money as well as you. No royal commissioner, no regulator, not even Ferris Bueller. The only option is for you to take charge, Fierce Girls!

6 of the best: Fierce Girl’s top posts to help you makeover your money

I’m gonna call it. The Fierce Girl’s Guide to Finance is going places.

Last week we had our first original content posted on Mamamia: a Money Makeover, helping Theresa make a plan to save $25,000. Check it out here.

Then The Daily Mail got wind of the story and got in touch. Let me tell you, after 17 years in PR, the idea of a journalist calling me (about something good) is absolute bliss! Usually we have to shop our stories around and beg journalists to write them.

The outcome was a story where I seemed to scold everyone a lot, but hopefully also provide some useful tips (read it here). And just in case anyone was wondering my age, they helpfully plastered it everywhere. I hope the undertone was ‘wow, doesn’t she look great for her age‘.

I think the reason for this momentum comes down to a few things. Firstly, there isn’t much competition. Not many others are talking to women about money in a no-bullshit way.

Secondly, it’s an idea whose time has come. Ridiculous house prices, rising energy costs, stupidly high uni fees, and a stubborn gender pay gap are just some of the reasons women are realising why we need to look after our own interests.

Turns out, middle-aged white guys in suits aren’t racing to share their power or wealth with us. Huh, who knew? (As a group that is – individually, my dad is actually pretty good at giving me money).

The third reason is obviously the awesome content being pumped out by these fierce fingers. But let’s not dwell on that.

The blog has been around for just over a year, but there are lots of new readers. Hi ladies! Thanks for coming by!

So, let me point you to some of the most popular or useful posts. (NB: this is not like a TV show where they run out of budget for a whole new episode so they just have a storyline full of flashbacks. It’s because there is good content that could be useful to you).

1. How to think about your money as though you’re in an episode of Sex and the City. 

The 4 best friends who will make you rich

 

 

 

 

 

2. Hacks to help you  overhaul your approach to money (even if it’s not January)

7 money resolutions you can keep in 2017

 

 

 

 

 

 

 

3. How to set up your banking to make your life easier and your spending more enjoyable

The secret to guilt-free spending

 

 

 

 

 

 

4. How mindful spending can help you have a better relationship with money

Mindful spending: what it is and why it matters

 

 

 

 

 

 

 

5. What to read if you’re thinking about buying a home or are freaking out about not doing it

Can I afford my own home? Part I and Can I afford my own home? Part II

 

 

 

 

 

 

 

6. How to get started with investing 

Buying shares is pretty much like choosing a husband

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/ 

I know you’re bored AF of the Budget, but just read this one thing

Because I am going to give you a useful view on it, probably with some swearing, and then you can go back to drinking that glass of sav blanc.

First question: Is the Super Saver Scheme the BEST THING EVER for first home buyers? 

No, not really. But it’s not bad either.

The best thing that could happen for the poor young first home buyer is that we stop immigration, use more contraception and go back to living with three generations in one house. None of which I am actually advocating – but the point is, supply is the biggest issue.

I listened to a story on ABC Radio National this week, about the economics of population growth (that’s the kind of party girl I am). Our population is growing faster than ever, and we have to house everyone. At the same time, the number of people who live in each dwelling has gone down a lot since the 1960s. I found this graph in a delightful RBA research paper on house prices (which I read so you don’t have to).

I live by myself, so I am guilty of driving this trend. But the ethics of resource consumption aside, it’s clear that we have too many people and not enough housing, and this will keep prices high for the foreseeable future.

However, that’s OVERALL. House prices rise and fall in line with the fate of the particular cities and towns they’re in. Townsville, Mackay and Perth are just some of the places that have faced steep falls in prices, as the mining industries propping them up have faltered. Hence why the old property investment game is a bit tricky.

“But what does this all mean for me?”

This is a bit of a diversion to say a couple of things: 1. The government isn’t going to solve house prices for you and 2. if you want to buy a property in Sydney or Melbourne you’re kinda screwed.

Well, not completely. There are other ways to get into the market – they just take longer. For example, the ‘rentvesting’ idea: rent where you like living, buy where you can afford to. My new boss, who is a famous finance guru (cos who else would I do PR for?) reckons you should buy not just one, but two or three properties this way.

The key is, they are in areas where the price is more manageable. Regional towns or smaller capital cities (although probably stay out of Brisbane high-rise apartments for the moment – they went a bit nuts building them and have too many now).

You buy these places, build up the equity in them, and then eventually sell them to buy your dream home. That’s the theory anyway – the execution needs to be pretty spot on, so you don’t end up with some shitty properties languishing for years.

Obviously this is a long-term play – five or ten years even. But you won’t die just because you aren’t living in a house you own. The key is that you’re doing something.

The worst fucking option is renting, moaning and spending your money on shit you don’t need ‘because I can’t afford a property anyway’.

But even doing this requires a deposit. Which brings me back to the initial question: how good is the Super Saver Scheme (SSS)? 

Look, it’s better than a slap in the face with a wet fish. Jessica Irvine, whom I love, has a done a great job of breaking down the detail for you here. But I’ll give you the highlights:

  • It’s a good discipline – once you put that money in there, there’s no pulling it back out for a splurge on a new dress or a fancy holiday you just had to have. It’s either ‘spend it on a property’ or ‘get it when you’re 67’ (see ya bye, money!).
  • It’ll mean you pay less tax going in – the cash that goes in gets taxed at the super rate of 15% instead of your personal rate of up to 47% (depending on how much you earn). Think about it like this: for every $100 of your pre-tax pay, you get to keep $85 if it goes into the SSS. If you just took it in your take-home pay, you’d keep as little $53 (in theory – progressive tax means it would be a a bit more than that).
  • …And going out. Anything you earn on the money you save will be taxed at your marginal rate, less 30% when you take it out. If you’re on the 37% rate, you pay just 7 cents. But that’s not bad – if it was bank interest you could pay your personal tax rate – which, as mentioned above, is likely higher.

Of course there are tons more annoying details but if you want a disciplined way to save, and you think you’re getting slugged on your income tax (don’t we all?), it could be a go-er.

“Hey, what about the bank tax? Should I care about it?”

I hear you asking and my answer is, only a little bit. Those banks are not just gonna take the hit to their bottom line, so they will pass it on to either staff, shareholders or customers.

I suspect a bit of each. Interest rates on mortgages and credit cards could rise – if they do, shop around to one of the banks who isn’t paying that tax (remember, it’s only the Big 4 plus Macquarie bank, and odds are you don’t have private banking with the latter).

And although bank-bashing is a national sport, let me just remind you that anyone with superannuation probably is a shareholder in them. The Big Four are called that for a reason – they are the four biggest companies on the ASX. And if your super account is made up of about 40% Aussie shares (most default funds sit somewhere around that level), then you, my friend, own a shitload of bank shares.

So before you gleefully stick the boot into the big greedy banks, remember they are funding your retirement. (Well, not mine – I’m in Australian Ethical and they only invest in Westpac).

So, of course other stuff happened in the Budget, but everyone else has covered that. For a Fierce Girl about town, these are some of the more relevant ones. And now, we may never speak of this again.

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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!

 

IWD2017: 4 grown-up things every woman should do with her money

Yay, it’s International Women’s Day! What are we going to do to celebrate?

We could start a bloody revolution that changes the course of history for the century. Oh wait, that’s already been done – by the Russians in 1917. Yep, for realz. The revolution kicked off when thousands of women took to the streets protesting against food shortages on IWD 100 years ago.

There was no hashtag for it then, and not even a Snapchat story, so did it even happen?

But anyway don’t let me get started on history stuff because I won’t get to the real point. And that is:  equality means equal pay and equal opportunity, and we don’t have either of those yet.

I don’t really want to delve into the 17% pay gap issue – or more concerningly, the huuuge gap between men’s and women’s super balances (up to half, in some age groups).  But they exist, they suck and they appear to be stubbornly sticking around.

But those stats are averages, and we all know that Fierce Girls don’t care about averages. We defy averages. And so here is the Fierce Girl’s Guide to being a grown-up woman who tells the patriarchy to go back to the 20th century where it belongs.

1. Get serious about tracking your spending. I have been resistant to this whole idea for years. I am not that kind of girl. But then I got to my last payday and had seriously messed up cashflow issues. (Yep, I am far from perfect with money).

Thing is, I didn’t feel like I spent much. Sure I had to pay rego and stuff for my car, and it was holidays etc. But seriously where did my cash go? So I downloaded the MoneySmart TrackMySpend app (totally free, thanks Government!) and started recording.

And then I realised that this exercise is life-changing in the same way as keeping a food diary. When you have to write it down, you don’t want to spend/eat it. It’s a serious accountability tool.

And so, it’s not until you create some proper boundaries and systems that you can truly get on top of things.

2. Get your super sorted. I know, super is dull and stuff, but it really, really makes a difference when you get onto it early. And it’s a quick and easy adult task you can tick off.

If you only do one thing, find your forgotten super and roll it into one account (speak to your fave super fund and they will likely do it for you).

If you do two things, make sure your fund has all your correct details and check how much you have saved. Knowing the amount can really make it feel like real money that you own.

And if you get really effing excited, review your investment option. Are you taking on the right level of risk for your age? If you’re under 45 or so, you might want to boost returns with a more aggressive approach. But I’m not qualified to tell you that – call your fund and ask them.

And finally, at Defcon 5 level of super enthusiasm, put some extra money in! Did you know any amount you put in from your pre-tax salary gets taxed at 15% – instead of your income tax rate of up to 47%?

Anyway, I have a whoooole post about super – one of my fave topics – that I would point you to.

3. Have a separate, possibly secret, stash of money. If you’re a single gal, this is simple – just put a bit away, every pay, into a separate account that has an extra level of irritation to access e.g. a separate online bank or a term deposit. Just as long as you can’t crack into it for a 2am round of shots or for a mid-arvo premenstrual retail therapy session.

This is money to buffer you against the slings and arrows of outrageous fortune.

If you’re coupled up, just make sure it’s separate. You need something that you can call on if the relationship goes south. Whether it’s secret is up to you. Marriage vows, trust, partnership – I get it, they matter. Totes up to you. Just have the cash, one way or another.

Oh, right, here’s a post about this very issue. (Just be careful your ex-husband and his lawyer don’t read it and accuse you of hiding assets in your divorce settlement) (and yes that actually happened).

4. Learn some stuff about money and investing and finance. This stuff might seem a little boring. And it is, I guess, compared to iPanda – an entire website dedicated to baby pandas (which I HIGHLY recommend).

However, can a panda cub give you security, opportunities and choices? No, only cash money can do that. So take an interest. Read some blogs like this or Financy. Listen to podcasts like Freakonomics or Planet Money. Maybe even check out the personal finance or  business sections of the newspapers.

Knowledge is power, and money is power. So put those together and you will be a total bad-arse WonderWoman, wielding a calculator and making it rain.

Also, talk to your girlsquad about this stuff. As much as it’s important to discuss the hotness of young Justin Trudeau, it’s also useful to share your tips, challenges and ideas about money. And to support their money goals. (Oh wait, here’s another blog I prepared earlier!)

So, the message here is simple. Being empowered requires money. And the better you are at managing that money, the more we will be worthy of all the opportunities and privileges our foremothers fought for. So go forth and be fierce!

 

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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