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The Fierce Girl's Guide to Finance

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3 Key Investment Concepts explained by The Spice Girls

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

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

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

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

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

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

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

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

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

Yield – Income – Dividends

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Diversification 

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

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

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

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

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

Sleep well surrounded by 90s nostalgia, Fierce Girls!

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

And it’s not even that long!

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

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

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

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

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

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

I’m not saying bury it in the backyard.

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

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

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

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

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

So what can you do? Educate yourself.

Take it from Elle, education is the best revenge

Sorry, no silver bullet.

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

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

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

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

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

 

 

The property market right now: headed for a full-blown Britney meltdown?

If the residential property market was a person, it would be an Instagram influencer selling you slimming tea right now.

Any article about house prices is clickbait gold for publishers.

If you have a property, you want to know what it’s doing.

If you don’t, you want to know if you’ll ever afford one.

(If you’re a communist hoping for the proletariat to expropriate the bourgeoisie from private property, it’s less relevant).

So it’s in the media’s interests to run story after story predicting housing Armageddon.

The other night, a story on 60 Minutes proclaimed the end of days for property. It was alarmist claptrap. Some of the points were accurate, but the tone and conclusion was an irresponsible media beat-up.

Making sense of the drama

I work in an investment firm specialising in real estate, and I spent last year working in the mortgage broking industry. So I’ve seen it from a few angles.

Nobody has all the answers (and don’t trust anyone who says they do). But this post will hopefully give you a bit of insight into the headlines.

Are we heading for a property market crash?

Nobody knows for sure. But it’s important to remember that property follows a cycle. Just like sharemarkets, property prices rise for a while, get so high they are unsustainable and then come back down.

This is as normal as your menstrual cycle. Home prices will moderate eventually, just as sure as I will turn into a bloated eating machine a week out from my period. (Hey, I did the sums in MyFitnessPal today and was totally allowed to eat that TimTam).

But the crazy thing about cycles is that when they’re peaking, people forget they end.

You know how when you’re drunk at 2am and having the best time of your life, you assume you’re gonna feel like this forever. Life is ah-mazing.

Well, house prices in Sydney, Melbourne and Brisbane have had a long, intense party. Many tequilas were slammed. Many tables were danced on. But in the end, the ugly lights have come on and the bouncers are shooing us out.

What we do know about these cycles is that the pain will be unevenly shared. Some areas will fall faster and further. Outer suburbs and regional towns are often in the firing line.

Inner city areas and premium areas will fall a bit, but it’s very unlikely we will see the 40% price falls one analyst mentioned (although he only said there was a 1 in 5 chance of that).

For one thing, our population is growing at 2.6% a year (ABS stats), which creates ongoing demand for housing. There is also pent-up demand from buyers who have been priced out of the market until now. When prices cool, first-home-buyers and upsizers pounce on the discounted properties.

Long story short, most industry people see this as a market cooling – not crashing.

Is there a massive debt bubble that will burst and cause havoc?

Probably not. But there may be some pain ahead for people who are stretched to the limit. One of the big issues is interest-only loans. Strap yourself in for a quick primer on this – it’s kind of important.

A normal principal-and-interest (P&I) mortgage sets the minimum repayments based on the interest, plus the amount you borrowed – remembering that in a 25-year mortgage you can end up paying almost as much in interest as you borrowed originally.

mmm, cheesecake…

So if you think of it like eating a cheesecake – in a P&I loan, you eat some of the cheesy goodness (interest) and the crumbly base (the principal) all on one delicious spoonful, a mouthful at a time.

But in an interest-only loan, you just eat the filling and leave the crust till later. Sure you’ve spent less calories but now you’re stuck with a dry old base.

This is where the analogy probably falls apart, but the outcome of interest-only (IO) is it’s cheaper at first, but somewhere down the line you probably have to stump up for the principal repayments.

Traditionally these IO loans were given to investors for tax reasons. They can also be good if you have temporary cashflow issues like two small kids in daycare.

But they became much more popular when property prices went through the roof. Why? Because it’s hard to afford the repayments on million-dollar mortgage.

So some greedy/stupid/careless lenders and brokers have shoveled a bunch of people into these loans. And the regulator, APRA, took a look at it and was like:

So they told the banks to dial it down as part of several ‘macroprudential reforms’.

And the best way to reduce demand for a product? Make it more expensive. IO rates went up, the loans were harder to get and APRA was happy with the reduction in new loans.

However, there are literally millions of old IO loans kicking around. Two-thirds of these are going to hit the end of their five-year IO period by 2020 (source).

Some borrowers will be able to roll those into another interest-only period, but others won’t. And some will be shocked and/or disappointed about this, as it can be a big jump in costs. Some people may be forced to sell if they can’t afford it.

Either way, it’s going to be a period of transition in coming years.

If you’re interested, I recommend this speech by the RBA’s Christopher Kent. But the TL;DR is that it’s not going to be a total disaster. He is pretty chill: “For the household sector as a whole, however, the cash flow effect of the transition is likely to be moderate.”

There are other commentators out there saying otherwise, because they like drama and headlines. But if our nation’s central bank is chill, then I’m chill.

If you personally have an IO loan and you haven’t thought about how you’ll afford it when it rolls onto P&I, then you’d better start. Because there’s no guarantee you’ll get another crack at IO.

What’s the verdict then?

Is the housing market about to do a Britney: mess up at the VMA’s and shave its head in public?

I don’t think so. It will go through some tough times. Gain a few kilos. Have a few drunk nights. Marry a random in Vegas maybe. But it always does that when it’s stressed.

Overall, it will be ok.

You know, I really could go on and on about this stuff because I find it super interesting. But I’ll stop here, and encourage you to get in contact with me if you have questions or ideas for related posts.

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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