Know about finance stuff

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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May 15, 2017 4

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!

March 28, 2017 2

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!

March 7, 2017 2

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

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.

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

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)

February 26, 2017 3

Why the baby boomers have all the money, and what we can do about it

I love my parents, and my parents’ friends and all the wonderful baby boomers in my life.

But geez they annoy me as a generation.

Swanning around in million dollar properties they paid 25,000 bucks for. Earning a tax-free income in retirement. Cashing in on their free university qualifications without a HECS debt in sight.

Baby boomers account for 25% of the population but own 52% of the wealth. They built their careers and wealth over an unprecedented period of economic growth.

Did you know we’ve now had more than a hundred quarters of positive growth? This is like having a hundred consecutive days of perfect dieting with no accidental chocolate incidents – i.e. practically unheard-of. (I admit we have lived through this period too – but with a lower base of assets to grow from).

Sure they had the recession in the 90s and the 1987 stockmarket crash. They had to live through skinny jeans before lycra was invented, and they didn’t get to play Where in the World is Carmen Sandiego at school. I’m not saying their lives were perfect.

But they have done ok, and Smashed Avo-gate brought this simmering divide to the surface. It’s partly because the world has changed so quickly, so deeply. Home ownership used to be an expectation for any adult with a job and a bank account. It’s now a mythical place of $100,000 deposits, heartbreaking auctions and million-dollar median prices.

The luckiest among us will get help from our parents. Others have parents who can’t or won’t contribute, creating a further divide.

So, what can we do about it? How can we stop those greedy (but totally loved and appreciated!) baby boomers from stealing our futures?

Don’t get mad, get even. And get advice.
Investment Trends says baby boomers account for four in five dollars under advice (i.e money being looked after by financial advisers). That means they are out there getting financial advice while all of us suckers are messing around reading The Fierce Girl’s Guide to Finance. JK! That’s a great idea!

But it might not be enough. I’m not a profesh, and I can’t tell you what’s best for your circumstances.
Sure, advice isn’t free, but it is an investment. Do it early, do it right and it will pay dividends in future. It’s like the difference between messing around at the gym on your own and losing half a kilo in six months, or getting a PT and dropping 5kg in six weeks.

And just like paying a PT makes you really think twice about eating that piece of cake (because hey, you just dropped 80 bucks on a workout), getting a financial plan can make you much more focused and disciplined. If you want to find a good one, my homegirl Nicole P-M has a good column about this.

If you still don’t want to stump up for the full box and dice, you could look at a digital option – aka Robo-advice. Decimal and Stockspot are some of the bigger players (but I haven’t used them so can’t provide a recommendation).

Take Baby Boomer advice with a very big grain of salt. The stuff our parents did to get ahead was done in a different world. Back in the 80s you could get 15% interest for sticking money in the bank. Inflation could be up to 10% as well, but worst case scenario, that’s still a 5% gain.

The best you can hope for today is a 3% interest rate if you shop around. Inflation has been hovering around 2%. So, that’s a big old 1% gain for stashing your money in a bank. (Don’t understand the inflation thing? Check out this post).

Before 2008, the world hadn’t heard of quantitative easing (i.e. governments printing money) or negative interest rates (an actual thing). Now, bank deposits barely keep up with anaemic inflation rates (and in countries like Switzerland you have to pay the bank to look after your money, thanks to negative interest rates. I shit you not).

Buying property was a stretch, but a sure bet for building wealth. You could probably even do it on one income. Today, a mortgage that’s 6 or 8 times the average income means you both work and possibly pay for childcare too. And the stockmarket generally doesn’t deliver the double-digit returns it did back then.

The finance industry calls this a ‘low growth, low return’ world. So hey, thanks boomers for setting that up!

I’m sorry that have no good news for you on this front. It’s going to be like this for a while yet.
What it does mean is that taking advice from your folks can be tricky. They’re in a different headspace (in retirement or close to it) and need to focus on protecting their nest egg.

But we don’t.

There’s a concept called ‘pushing up the risk curve’ – it means that you take on more risk in order to chase higher returns. Instead of buying bluechip stocks you buy cheaper, more speculative ones. Instead of investment grade bonds you buy unrated ones. Instead of buying fixed interest bonds, you buy shares with high dividends.

Remember when you first start drinking alcohol and it took you two Bacardi Breezers to get hammered? But as you increase your ‘piss fitness’ you need a whole six pack and some shots to get to ‘hilarious drunk shenanigans’ level.

Similarly, we need to take more risk in this environment to get the same returns as before.

I am NOT saying go to Vegas and put it all on black. I am NOT saying attend a property spruiker seminar that promises you vast riches if you sign up RIGHT NOW, TONIGHT ONLY!

What I am saying is that we may need to look at something more aggressive than a bank account. Buying bank shares because your dad says they’re good? Maybe not. Buying an investment property because your parents made a killing on a Gold Coast apartment circa 1994? Maybe think twice.

The good thing is, we are young. We can tolerate more risk. If we go backwards we have many more years to go forward.

So just make sure you run any well-meaning advice through a filter, the same as you would when your mum gave you fashion advice as a teenager. (On second thoughts, my mum probably had some useful insights then).

And short of just asking your folks to stump up funds for a house deposit, I don’t have a lot more advice than this: save more, spend less. That’s what a lot of our parents did. My family ate at the Yarrawarrah Windmill Chinese Restaurant once in a while, but that was the eating out budget. They didn’t get a new iPhone every two years. We had the world’s shittiest cars (Subaru Enduro – wtf). They never took to us to Disneyland. And that’s how my parents ended up paying off the house.

So, take the best bits of the boomers, ignore all the cushy tax breaks they’ve made for themselves, and crack on with you own money goals.

February 16, 2017 3

Tears, fights and vomit: why economics is as fun as your 21st birthday

Think you don’t like economics? Oh stop, I know: you fell asleep just hearing the word. I used to as well. But somehow I actually learned to love it.

It was kinda like that nerdy guy who grows on you – the more you get to know him, the more he seems surprisingly sexy.

Wait, is that just me? Sorry. Anyway, there are a few concepts that shape your life more than you know; understanding them can help you with your own money.

Also, being able to converse about economics is a great party trick. Not as good as doing The Worm, but I can’t do that anyway … so here I am in the corner, drinking martinis and discussing central bank policy.

Here’s how you can be that cool too.

The lowdown on interest rates

Interest rates have a big impact on your life because they’re tied up with property prices, and therefore how much money you have to spend or save once you’ve put a roof over your head. (I have another post about this topic, but it’s already outdated because bloody Taylor Swift can’t keep a boyfriend – read it here).

The thing to remember is that interest rates are both a cause AND an effect. The Reserve Bank of Australia (our central bank) uses them to influence economic growth, but they only do this in response to other trends.

For example, the RBA will raise interest rates to ‘cool’ the economy, when inflation is running high and wages are growing too fast – what’s known as a ‘wages breakout’.

(How awesome does that sound though? Like, somehow our paypackets go nuts and party hard and we all end up as total ballers driving Porsches). Apparently, however, this is NOT A GOOD THING.

When things go too hard, too fast and too enthusiastically, they end in disaster, and you’re lying there like ‘Wait, what? Are you done already?’.

Obviously I am talking about inflation (get your mind out of the gutter). High inflation is bad because it reduces the value of your money, drives prices up and creates general chaos in the economy.

It’s not ideal when it’s too low either, as wages stagnate and the economy slows. Basically, inflation is like a fucking needy pedigree cat who only wants the exact right amount of food in the exact right bowl at the exact right time of day. So the RBA tries to tame it with interest rate policy.

Interest rates and housing affordability – aka ‘why am I destined to rent forever?’

I bet you’ve heard your parents complain about the 1990s, when interest rates climbed as high as 17.5% (compared to 1.5% today).

I know right! Apparently there was more to worry about in the 90s than whether Pearl Jam’s second album could possibly be as good as Ten (It wasn’t. Like, it was good, but no Ten).

Anyway, they have probably told you this in the context of ‘But we had it so hard when we bought a house‘ and ‘we had to walk six miles to school, through the snow, in bare feet.’

If they try this on you, feel free to point out that yes, rates were higher, but the amount you had borrow was miniscule compared to now. A handy chart from the Government shows the price of a house in the 90s was about four times the median income. It’s now six times that.

So what has made prices rise so much?

There are lots of factors such as population growth and land supply.

But loose monetary policy is also to blame. And no, I’m not implying anything about the morals of said policy – it is actually talked about in terms of ‘easing’ or ‘tightening’, as though it’s some sort of screwdriver. (Obvs invented by men.)

When shit gets real at your party

When the GFC swept through, economic growth fell off a cliff. Business and consumers stopped spending money because they were totally freaking out.

So how does a central bank convince you to spend again? They cut rates. The lower rates are, the cheaper it is for businesses to borrow money and invest it in things that create jobs.

Since the GFC, the central banks of the world have been using low interest rates to pump more money into the economy and make it grow.

This is like walking into a 21st birthday party and giving everyone tequila laybacks on the dancefloor – it will definitely liven up the party, but you can’t predict exactly how.

Well, we can make general predictions: someone will vomit over the balcony; at least two girls will cry; and there will be a punch-on among the boys. Standard.

Similarly, when interest rates go down, house prices go up because more people can afford to get a home loan. Other asset prices often go up too – like the stock market – for the same reason.

In the same way that tequila makes everyone feel super hot and ridiculously charming, low interest rates make people feel rich – like they could go to a strip joint and make it rain.

But you know how at a certain point, you can’t drink anymore? You’re too drunk, too sick or too tired, so you lie on the nature strip and have a little ‘rest’. That’s where the world is right now with monetary policy. The central banks have pumped so much tequila into the party that everyone is sick of it and it’s not working anymore.

Not before median house prices in Sydney hit a million bucks though. Thanks RBA!

I have some personal views about the failure of this whole approach, its link to rising income inequality and the resulting rise in destructive populist politics. But I’ll save that for the party talk.

In the meantime, let me leave you with this thought. You can’t control the big picture economics happening around you. But understanding them will give you greater insight into how you might respond to them – or even make money from them.

So, don’t be afraid to read more, listen more and think more about that hot, nerdy guy known as economics.

Photo credit

February 5, 2017 0

An Insider’s Guide to Finance: the risk-reward relationship

I’ve taken plenty of risks in my life. Some were productive, like packing up and moving to London. Leaving my marriage was a big risk that was hard to take, but the right thing to do. Wearing neon patterned tights with a crushed velvet skirt to a mufti day in year 7 – that risk did NOT pay off in either social or fashion terms.

When it comes to money, you need to get comfortable with risk. You see, there is a thing called the risk-reward premium, which means the higher the risk, the higher the (potential) reward.

This also means you can put a price on risk – the riskier the deal, the higher the stakes.

It’s why a car loan has a much lower interest rate than a credit card. The car can be repossessed if you can’t pay back the loan, while the credit card is ‘unsecured’ – they can’t come after you for the delicious cocktails you just bought, and the bank manager won’t fit into that Kookai dress. So the risk is higher for bank and more expensive for you.

Risky Business?

Now I am not saying let’s go to Vegas and put it all on black.

But when you invest, you want to balance the risk within your portfolio and within the asset class so that you get a good return while not losing your money.

Ok wait, I just dropped some jargon there. Let’s break it down.

Your portfolio is your entire wardrobe.

Your asset classes are each section: shoes, dresses, underwear, activewear, etc.

We talk about being ‘underweight’ or ‘overweight’ certain types of investments. For example, when the banks aren’t performing well, you might sell off some of those stocks and become underweight in banks. Or if you think resources are about to get hot again, you buy more and go overweight.

This can apply within one asset class – so you can be overweight on running shoes and underweight on high heels, within the broad ‘footwear’ asset class.

Or it can apply to the broader asset classes, so you have heaps of activewear, but not much in the way of work clothes (yep, me). That would be like having a lot of property (your own home) but only a small parcel of shares.

So now we have the lingo, let’s talk about risk. Here’s what you need to know:

1. You need some risk in order to make money, and that’s ok.

2. You can manage that risk by spreading it around – aka diversification.

Now let’s talk more about that.

Why risk is ok.

Risk is what makes you money. It’s the old adage of ‘nothing ventured, nothing gained’. So it’s safe to keep your money in a term deposit in bank, but that’s not going to make you money.

In fact you could even lose money in the bank.

Wait, what?

Thing is, there are heaps of different risks when it comes to money, and one of them is inflation risk. You know how a bag of lollies used to cost 20 cents when you were a kid, and it’s $2 now? That’s inflation.

The value of money changes over time (it’s a really complicated backstory as to why), but let’s just say, inflation usually runs around 2-3% per year. (It’s lower than that right now, but has often been 5-6% in the past 30 years).

If your money is in the bank getting 2% interest, and inflation is 2%, you aren’t making money, but you’re breaking even. But if inflation goes up to 2.5%, you’re actually losing money. The dollar you put in buys less than what it bought a year ago.

This makes intuitive sense right? Things cost more all the time.

So that’s called Inflation Risk, and it’s a risk you face even when you think you’re not facing a risk. Crazy huh.

Here are some other fun and friendly risks:

Interest Rate Risk – The risk that interest rates will change and affect your investment. For example, you buy a property at 5% interest from the bank and then interest rates go up. Suddenly, the $2000 a month mortgage that was covered by rent becomes $2200. Not only do you have to find more cash, it changes the yield – i.e. the return you’re getting for the money you spend.

Liquidity Risk – The risk that you might not be able to turn your investment into cash as quickly as you need to. In the example above, you decide to sell the house as you can’t cover the repayments. But a bunch of other people have been hit by rate rises and are selling too. And with home loans more expensive, the number of buyers falls. So you might have the house on the market for several months, even drop the price. The property investment has low ‘liquidity’ and it can cause all sorts of headaches.

Market Risk – You can be the best stock picker in the world – or pay the best stock picker – but if the whole market falls, it’s pretty likely your investments will fall too. Economies – and the markets they’re part of – are always cyclical. They go up and down – that’s as much a part of life as the fact that you’ll get your period on the exact day you don’t want it to come. The trick is to be prepared for the cycle and have diversified your risks – that way you can manage the dips when they come.

This is just a short list to give you a flavour. There are plenty more, like

sequencing risk (the risk that your investments are in the toilet right at the time you need them);
credit risk (the risk that the company you lent money to – in the form of bonds – goes under and doesn’t pay you back);
operational risk (the risk that you invested in a company run by morons who bugger it up and lose your money); and
concentration risk (the risk that you put all your eggs in one investment basket and then drop the whole darn basket).

You can make friends with risk

I’m not trying to scare you though. You don’t avoid investing just because there are some risks. If I listened to my mum about all the risks of going on holidays to the US (being shot, getting raped, the plane crashing, the car crashing…) then I’d never go.

What you do is manage risk, by being clear about your time horizons and your goals. (A financial adviser can totally help you there).

The rule of thumb is that you only invest in shares if you have at least a five-year horizon, because that’s how long you need to smooth out their ups and down (technically called volatility).

An investment property generally needs even longer because of the costs and drama associated with buying and selling.

And with your superannuation, you have 30-40 years to smooth out the returns, so if you’re young (under 45 or so) then you can tolerate even more risk in the hope of getting higher returns.

Spreading the risk is crucial. The ideal (possibly over your lifetime) is to have a bit of everything. Not just a property, not just shares, not just a term deposit, not just bonds. A bit of everything.

But you can start small. For example, think about a managed fund or ETF if you already own your home. Think about buying listed property instruments (REITS) if you already have shares but can’t afford an investment property.

Basically, don’t just buy a bunch of super cute high heels but then never have any good flats you can walk in.

Risk in a nutshell

So here are the takeaways you should know about risk:

Risk is a part of life, and investing. But if you stay away from crazy, get-rich-quick, too-good-to-be-true investments, you can tolerate and manage risk effectively.

There is also risk in doing nothing. Letting your money sit there and track inflation is a risk, because you risk your future returns and wealth.

So don’t be scared of risk – because the other side of it is reward. Imagine if you never took the risk of drinking too much, wearing too little and partying too hard – what fun stories would you have to remember? Investing is just like that, but with less booze.

Photo credit: Aaron Perkins

November 27, 2016 7

Fierce Girl Finance is totally legit. Here’s the proof.

I was invited onto a podcast called Swings & Roundabouts, which is an investment-themed show created by BRR Media. These guys do a bunch of stuff for the finance industry, and have been around forever, so they are a totally legit crew.

OK, I will admit that my friend and former colleague Jane Lowe is the host, so I may have got a foot in the door there.

But the good news is, if you find all my writing is a bit full-on, you can pop on these shows while you chop the veggies for dinner. (That’s my prime podcast time).

Here is the first show, where we talk about the big issues like why women get ignored by the finance industry.

And then I was so entertaining, I got invited back today to talk about finding a financial adviser, and why investing is like shopping and facials – you can listen here.

Please share if you like it, and let me know if there is anything you’d like us to cover in future.

October 4, 2016 0

Buying shares is pretty much like choosing a husband

For realz. But I’ll get to that.

First up though, why are we talking about shares? Because they can be a solid way to build wealth. And they can be another option if you are priced out of the property market.

However, the stockmarket has been given a bit of a bad rap over the years. Partly because of the dudes who run it. People think they’re like this:

Well, I work with a lot of them and can assure you most of them are way more nerdy. They’re much more likely to ‘slave over a spreadsheet’ than ‘snort coke off a hooker’.

And maybe you think people who play the stockmarket are super-rich, like Goldie Hawn in Overboard (oh, what an 80’s classic!):

Well, go down to any company AGM (a shareholder meeting) and check out the crowd.

There are two types of shareholders. The first is mainly white guys in suits (‘institutional investors’). They invest on behalf of super funds and the like, and don’t go to AGMs because they have private meetings with CEOs in boardrooms with tiny bottles of San Pelegrino.

The other shareholders (‘retail investors’) are normal people like us. A fair few are older people who come to AGMs for the free sandwiches – and because they rely on shares for retirement income.

“But enough random photos, tell us more about shares!” I hear you say. Well, as R. Kelly once said, let me break it down for ya.

“Stocks, shares, equities: what are they?”

These are all the same thing and they mean you have bought a piece of a company. You are a part-owner of it. You share the risk and the reward. If the value of the company increases, the share price goes up. If it makes a profit, it gives some of it to you. If it goes bust, so does your money.

Types of shares:

Bluechip – this is not an actual technical term. It’s just a way that people refer to big, reliable companies like banks or miners. (Note: being big isn’t a guarantee of reliability. It’s like, you can buy a pair of Jimmy Choo’s and be confident in their quality – but that stiletto heel can still get caught in a crack and snap off.)

These shares are the premium end of the market – you’ll pay more for them, because they are less risky. Buying bluechips is like marrying a guy in his 40s who already has a house and a career . He has done the hard yards and proven he is an adult. But you pay a price – emotional baggage and a bitchy ex-wife.

Bluechips also tend to pay more in dividends but have less capital growth – explained below.

Large cap, small cap – This is short for ‘large capitalisation’, and is the sharemarket value of the company. Each share is worth a certain amount, and there are a certain number of shares out there. When you multiply these, it gives you the ‘market cap’. (Company A has 1000 shares each valued at $1, so its market cap is $1000.) There are also ‘small cap’ and ‘micro cap’ stocks, which are often bought based on their growth potential rather than how they are doing now.

A company’s ‘market cap’ hopefully grows over time, as its profit, size and share price increase. It’s possible to buy a ‘small cap’ stock that becomes a ‘large cap’ years later. This is like marrying a 28-year-old guy working on a start-up – a decade later you might be living in a waterfront mansion, or struggling to pay for childcare because you’ve become the breadwinner. It’s a bet on the future.

Bottom line: A good share portfolio will often have a mix of large and small companies because they each have their pros and cons.

“Ok, got it. But what will shares actually give me?”

1) Dividends

Because you are an owner of the company, management might decide to give you a share of the profits. These are dividends. Management decides how much they will pay each year, once they have run all the numbers.

This is what those retirees at the AGM are looking for, as dividends replace their pay cheques. However, the company might not make a profit. Or it needs to invest the profit into paying off debts. So they don’t pay you anything.

That’s because dividends are ‘discretionary’. A company never has to pay them.

You can choose companies that are really bloody likely to pay them, like a big bank. Overall though, income from shares tends to go up and down, so if you rely on them for your lifestyle, you generally need other assets like fixed-income bonds or term deposits as well.

2) Capital Growth

This is where the big gains can be made. If you had bought shares in Apple back in 1980 – when Steve Jobs was just another nerd in a turtleneck – you would have paid fifty cents each. They are now $110 each. Even allowing for inflation (i.e. things used to cost less – remember when a mixed bag of lollies was 20 cents?), that is still a damn good deal.

Of course, for every Apple there’s another five companies that either fell over, stumbled along or just ran a steady marathon. It’s all about picking the right stocks. Is that 28 year old boyfriend going to make good money, be a caring father, not get a beer gut and stay faithful?

Nobody knows. Even Beyonce. She won on the first three but failed on the last one. That’s exactly the same as picking stocks. The good thing is, you can have as many stocks as you like, whereas society says we can only pick one husband at a time. (Whatevs).

Total shareholder return (TSR) is what you get when you add these together. Often you can choose to keep reinvesting the dividends you get paid (if you don’t want the income), so that boosts your shareholding value. Couple that with capital growth, and that’s your return.

The TSR is based on many factors, including the company’s performance and share price. For example, ANZ Bank has delivered 7.5% TSR on average over the last eight years, while Westpac has delivered 11.5%. Luck, skill and research, basically.

“Shares sound great! Sign me up! Take my money!”

Whoa there sister. Let’s just bear in mind a couple of things about shares.

They are volatile (compared to cash, bonds or property). Their price can go up and down in one day (and usually does). A bit of ‘vol’ (as we like to call it, because we sound cool and smart) is okay over the long-run, but it does mean you need to be flexible. If you want to spend the $5000 in your share portfolio, you can easily sell them. But is the price good that day, week or month? This is why shares are better over at least a five-year time horizon.

All shares are not created equal. Some are dogs. For example, if you bought Myer shares in 2009 for about $3.60 they’d be worth less than 50 cents now (as at 5/1/19). I suspect these shares were bought by men who hate shopping, because if any of them had set foot in a Myer they would know the service is shit, the stores are tired and the prices are ‘meh’.

But if you had bought JB HiFi at the same time, for $9.50, you’d be smug AF now, because they are currently $38 each (as at 5/1/19). Although, why people still buy all those CDs and DVDs baffles me . (By the way, if you like these figures, the ASX website has heaps of fun graphs and charts)

So, you can choose your own shares or you can let someone else do it. But even the pros get it wrong sometimes. What we hope is that they get it right more often. Which brings me to the third point.

Don’t put all your eggs in one basket. This is good old ‘diversification’. As we have discussed before, that’s just a fancy way of saying don’t stock your wardrobe full of just ballet flats, or just high-heels, or just runners. That’s crazy. Same with investments. If you buy shares, buy a range of them, because they will all perform differently over time, and in different conditions.

But how do I buy a whole bunch of different shares with just $1000?

Glad you asked! You can either buy a managed fund or an exchange-traded-fund (ETF). They pool a lot of people’s money and spread it out over a range of shares. (You can click the links to find out more about them).

I won’t give you advice on which ones to choose but I can tell you that I have the Raiz app. This takes small amounts of money out of my bank account every week and puts it into an ETF. It’s pretty cool because you don’t notice the money going out.

I don’t fancy myself as a stockpicker. Firstly, I just finished that subject in my post-grad course, and it was seriously the hardest fucking thing I ever studied. Secondly, I don’t have time to dig into the company accounts of potential investments.

So I put share investments into my mental list of “things better left to experts” (along with tax returns, powerlifting training programs and making laksa).

If you do want to go it alone, you can easily sign up to a broker and do it yourself. Check them out at Canstar (a comparison site).

“Sheesh, that’s so much information, I am just as confused as ever”.

Ok I hear ya. There is a lot to know. You can always talk to a financial adviser. Or you can just start small. For example, download Raiz. Or pop $500 into a managed fund or ETF. Or have a ‘fantasy portfolio’: pick some stocks and watch them over a period of time to see how you do.

What I would say is this: if you haven’t bought a property, (or even if you have), shares are one more option for you to build wealth and become a certified Fierce Girl.

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August 20, 2016 3

The Fierce Girl's Guide to Finance

Get your shit together with money

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