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The Fierce Girl's Guide to Finance

Get your shit together with money

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That time I made the bank give my bestie a $6000 refund

One of my mottoes in life is ‘Don’t ask, don’t get’. (Others include ‘Don’t stoop to pick up nothing – but that’s a dating motto).

You may remember I did a financial makeover with my friends Sonia and Todd a few weeks back (which was great; you should totally read it here).

One of the outstanding issues was their incorrect home loan. They were in an investor loan product, not an owner-occupier one.

Why does this matter? Back when they got the loan four years ago, it may not have. The interest rates may have been similar.

But the regulators have since cracked down on the banks, wanting them to lend less to investors. The banks responded by ratcheting up the interest rates on investor loans, to make them less attractive.

This is actually pretty cheeky for current customers. They already have the loan, so the price signal isn’t going to change demand. This is called ‘repricing their back-book’, and it’s arguably a cash grab. But who’d have thought a bank would do something questionable like that?

Anyway, I digress. When Sonia told me her interest rate, it sounded super high (well over 5%). I told her to call up the bank and negotiate a lower one.

This is something you can totally do. Seriously. 

The last thing your bank wants is to lose all that lovely interest you’re paying them … for like the next 20 years. Because it’s such a long-term loan, most people forget about their rate after a few years, even if competitors are dropping their prices.

So if the lender sniffs the scent of a customer wanting to leave, they will usually go hard to keep you. They often have special retention teams, whose job it is to keep you in love with them. Ok, so they don’t buy you fancy lingerie and a sexy weekend away, but maybe they should.

Anyway, when Sonia calls up her bank, she finds out about the investor loan thing. Now, let’s remember every statement goes to the same address as the address of the loan. So how could that be an investment property?

Nonetheless, they are like, “Ooops, sorry for having you in a wrong, expensive loan for four years, let me just swap you over to the right one with a heaps lower rate”. Job done.

OR WAS IT?

I would not let this lie. I urged Sonia to follow it up. Was it the mortgage broker or the lender who stuffed it up? Were they going to give her back the money it cost her being in the wrong product?

Turns out the bank and broker both ‘fessed up to making a mistake.

And then they gave her a refund. Not like ‘a free dessert when the kitchen stuffs up your main course’ kinda refund. A full $6000 back in their pockets.

They even rang me up and sang me a daggy song about being a good friend. Which is really all anyone wants in life right?

What’s the lesson here?

I’d take a few actually:

  • Even professionals can get it wrong. Banks (and any service company) may not deliberately rip you off, but mistakes happen. Always read your statements, ask questions, shop around, and get a second opinion if you can. I was only able to spot this mistake because I spent a year working in a mortgage company, so try and speak to people who are in the know.
  • Talking about money is not taboo. I know people who’ll share intimate details of their sex life but never reveal how much debt they carry. But, just like sex, the more we keep our money matters in the dark, the less chance we have to learn from one another. I’m not encouraging you to gloat about how much you dropped on a new outfit; I’m asking you to talk about your lessons, challenges and battles with the people you trust.
  • Don’t ask, don’t get. I know, there was a spoiler for this one in the opening. But let me say it again: if you don’t ask questions, demand refunds or search for better deals, you will pay too much. The worst thing anyone can say is no. My advice? Approach your finances with the confidence of an average white guy chatting up a way hotter woman.

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.

When are you gonna get serious about your money?

How about now?

Let me tell you a story. Maybe it will inspire you/get you off your arse.

Sonia and Todd are everyday people with everyday jobs and a house in the suburbs. Sonia works in a finance company, so it made sense to get financial advice there when they bought a house four years ago.

An adviser hooked them up with a mortgage and an investment strategy. And since then, they haven’t really thought much about it.

Until a few weeks ago, when Todd was at a loose end on a work trip and bought The Barefoot Investor book*. Suddenly, he got interested in his finances (yay!).

He started looking at his home loan interest rate and the investment loan he’d acquired.

But it din’t make a lot of sense. So they invited me over for a second opinion, and over a few beers and some Trivial Pursuit, we started untangling their finances.

It was kinda hard, because until now, they haven’t paid attention to paperwork or statements. But we cracked on.

Home loan haggling

The low-hanging fruit was the mortgage: they were paying an eye-wateringly high rate, so I suggested that Sonia to call up and ask for a better one (a thing that you can totally do). Turns out they were in the wrong product – an investor loan, instead of owner-occupier.

Four years ago, that wouldn’t be a big difference, but investor loan rates have gone up since then (long story – search ‘macroprudential policy’ if you care). Now, they are paying far too much.

So, the lender helpfully put them into the right product and their rate became waaay more competitive. That’s a potential saving of tens of thousands over the life of the loan.

Why were they in the wrong loan originally, who is to blame, and can they get those extra interest payments back? We’re still working that out.

Borrowing to invest

Then we came to the investment portfolio. They have a sizeable ‘line of credit’ investment loan that funds a managed portfolio, mostly of shares.

Kind of like doing a smoky eye, borrowing to invest is neither good nor bad as a concept – it’s all about the execution. The line between ‘hooker after a big night’ and ‘sultry sex kitten’ is very fine.

Borrowing to buy shares increases your gains (if you have them) but it also increases your losses if the market goes down.

At the end of the day, Sonia and Todd are in an investment they don’t really understand, and one that cranks up their financial risk.

Your best ‘listening face’

That’s not to say the strategy wasn’t explained by the adviser at some point, but here’s the thing about ‘experts’. We often listen to them with an interested look on our face, but only half an ear open.

Whether it’s a physiotherapist explaining the intricacies of lumbar discs, or an adviser explaining leveraged investments, we nod and smile along, while being bamboozled on the inside.

It makes vague sense at the time, but when we get home we don’t really know how to do those stretches properly, or why we have thousands of dollars in a loan.

What’s the solution?

I’m not a professional adviser, so I wasn’t going to say ‘do this’ or ‘don’t do that’. But I did ask Todd and Sonia about their goals and priorities are and what they feel comfortable with.

It was clear they were not comfortable with a leveraged portfolio, and they  wanted to pay off their mortgage as a priority. They also had some expensive credit cards they could ditch immediately.

My take on their investment strategy is that they are Holden customers who have been sold a Mercedes. And they are paying a couple of thousand a year to an adviser, plus investment fees, for the privilege.

So, Sonia called a meeting with their adviser. I suggested some questions they could ask, and they had a positive and constructive conversation.

Over time (to minimise capital gains tax), they will sell down the shares to reduce the investment loan. They might add extra to their super (a cheap and cheerful way to lower your tax) and increase what they pay on the home loan.

Todd is also changing their bank accounts in line with The Barefoot Investor’s advice (similar to my suggestion here).

How to take charge

I don’t think Todd and Sonia had bad advice (except for that wrong home loan business). I just think they were given advice by someone who doesn’t know them well. And they didn’t feel smart enough to question it.

But they are smart. And capable. And pretty decent with everyday budgeting.  They just need to know that.

And I am telling you that you are too. Don’t let men in suits bamboozle you with their suit-tastic jargon.

You might have a simpler set-up than my friends. But the same rule applies: take an interest and you’ll get a better outcome.

Don’t be scared to ask questions – especially “why?” and “how much”. Why this home loan and not that one? Why this super fund?  How much am I paying in fees? What’s the long-term cost?

Another hot tip: read your paperwork. Every six months your super fund has to send you a statement. Open it. Read it. Compare it to other funds (some help here). And if you don’t get those statements, contact the fund and update your details.

Same with your home loan, personal loan or credit card – check out the interest rate. See if you can get a better one. Call them up. Put pressure on. In the case of home loans, the lender’s worst outcome is that you go elsewhere – so they will often bend over backwards to keep you. If you used a mortgage broker, get them to do it for you.

When’s the right time to do this stuff? 

Well, obviously … NOW.

Not sure where to start? Ask people (smart ones that you trust). Read The Barefoot Investor. Read the Money section of the newspaper. Google stuff. Visit http://www.moneysmart.gov.au

The knowledge is out there, you just need to get started.

*A lot of people ask me about this book. I haven’t read it all, but in general I like Scott Pape’s way of thinking and I am impressed at his ability to get people fired up about money. So yeah, go ahead and read it.

Some realtalk about buying property – and how to get it done

I’ve changed my mind about something. Something important.

I’ve said on this blog before that if you don’t buy your own home to live in, it’s not the end of the world. As long as you choose some other way to build your wealth, you don’t have to freak out about not getting on the property ladder.

And financially speaking, that holds true.

But I think I missed something important: human emotion.

Having just settled into the new apartment I bought, I realised I’d been denying something to myself. I like having my own ‘patch of dirt’. It fulfils a deep human desire to be settled and to feel some control over my destiny.

This feeling was compounded by the dramas of trying to get my bond back. The exit cleaners didn’t do a good enough job, so I found myself Gumptioning walls in my lunch hour.

A detail was missed in my ingoing condition report, so I was accused of leaving holes in a wall. And then there was the threat to make me pay for an electrician to change a light bulb that was out.

I fought tooth and nail, and in the end they only withheld $8.80 for said light bulb. But it reminded me of the way the cards are stacked against renters in this country, along with short leases and pet bans.

So, this is my advice for the yet-to-be-homeowners. Do everything you can to get your foot onto the first rung of the property ladder.

It might take a while, and it might mean making sacrifices, but it’s one of the most important things you can do with your money.

“But wait”, I hear you say. “I’ll never afford a property in this crazy market”.

And if you’re in the very lowest income band, that may be the case. But for someone earning  decent (or even ok) money, especially early in your career, it’s totally possible.  And here are three ways you can go about it.

Rentvesting – There are two hard parts of buying a property to live in. Scraping up the deposit and then repaying the loan (known in the industry as ‘servicing’).

If you go down the route of buying where you can afford and renting where you want to live, you remove that second challenge by having rental income.

If you live in Sydney or Melbourne, being a first home buyer is really bloody hard. There aren’t really any bargain suburbs left, even on the outskirts.

But if you look elsewhere, median house prices look far more manageable. Perhaps it’s just out of town, like the Central Coast or the Bellarine Peninsula. Or it might be regional, such as Wagga Wagga or Ballarat. Or a smaller capital city such as Hobart or Adelaide.

I am not giving you hot tips on all of these as investment property destinations. I’m simply naming places where you can pick up a house for the price of a small garage in Sydney.

How do you work out where to buy? Well you can do a ton of research yourself, looking at the supply and demand drivers. Talk to people in the area. Visit it for yourself.

Or you can work with professionals whose job it is to research these things, and provide recommendations.

I am most definitely NOT talking about the guys who try and spruik you an off-the-plan development in the outskirts of a holiday town.

No, I’m talking about real professionals whom you pay for their services. Like any such adviser, choose carefully, look at their results with other clients and use your bullshit detector. But for the clueless or nervous, this can be a useful way to avoid buying a dog of an investment in a far-flung place.

Family Guarantees – This approach works where you have the ability to service a loan (i.e. a decent income) but trouble saving a sizeable deposit. Your parents can use the equity in their own home to act in place of a deposit. Say you have 5% saved for a $500,000 property, but need 20%. They promise to cover the missing 15% if anything goes wrong and you default on the mortgage.

This is different to just getting a lump sum gift from the parentals (let’s admit, that’s the dream solution). It means they don’t have to actually come up with the cash (unless things go wrong – see below).

Of course there are risks involved. The biggest is that you default and the lender demands some or all of that money your parents promised. Some lenders also require the guarantor (i.e. your folks) to cover the mortgage repayments if you fall behind yourself.

And lenders will generally require the parents to get independent legal advice before going ahead, so that’s an additional cost.

You’ll still need to prove your ability to save and be a responsible adult – lenders want to see proof of ‘genuine savings’. But family guarantees can get you into your own place sooner and avoid the cost of Lenders Mortgage Insurance (which banks hit you with if you have less than a 20% deposit).

Play the long game – Maybe it’s going to take you five or ten years to cobble enough together for a home. But in the Monopoly game of life, that’s not actually very long. If you live to 85 that’s less than 10% of your life!

It drives me nuts when I hear people say things like ‘well I’ll never afford to own property so I’ll just spend my money and enjoy myself’.

No! Just because you can’t afford it now, doesn’t mean you can’t ever afford it.

First of all, there’s the power of compound interest: 10 years of slow and steady socking away will actually see you get some free money in there too.

Secondly, just because you earn this much now doesn’t mean you will forever. You can climb the ladder, increase your education, change career, start a side hustle, marry money … ok scrap that last one. But seriously, there is always an opportunity to do more, be more and earn more than you do now. So don’t rule out a big goal.

The hardest part in a long game is staying motivated. If your timeline is five years, saying no to another overseas trip or buying clothes from Kmart instead of Lorna Jane can get old real quick.

So, don’t be afraid to do things like set SMART goals, make a vision board (as cheesy as it sounds) and track your progress regularly. Hey, maybe even ‘treat yoself’ to a reasonably priced reward when you hit milestones.

I have a plan to pay off my mortgage in 12-15 years (depending on what interest rates do), so some of this stuff will be going on in my little world.

I have specific and aggressive retirement goals, and this is what will keep me from making poor decisions about money.

I’ll never give up martinis, but will I drop twenty bucks on them in a fancy bar? Hell to the no! (I will totally make them at home.)

Oh hey, homemade martini!

That’s because I have done the numbers on repayments, and I know that paying an extra $250 a month can cut five years off my mortgage. And then I think about not having to get up and schlep to an office five days a week, because I’m doing my own semi-retired thing, and it motivates me!

So, my message to you is: don’t despair! With a clear goal and some good behaviours, you too will one day have the pleasure of telling your property manager to get fucked. (Note: this only happened in my head, not out loud).

 

 

 

When should I pay other people to do stuff?

Sometimes, it pays to pay a professional.

Anyone who has ever walked out of a salon with a kick-arse blowdry knows this. Never in my life have I got my hair as good as Millie can. I always book an appointment on a day that I have some major social event, so I don’t waste that hotness.

Look at that salon-perfect hair!

But there are other important things we should pay for in life. I’m often surprised how people who would spend a hundred bucks on drinks and dinner, will blanch at the idea of spending that to see a health professional.

So, I want to have a conversation about things that might be a really good investment, even though you have to shell out some cash.

Some of these have a material return on investment, while others just have a positive impact on your life. But it’s a version of mindful spending – ‘how am I going to deploy my money in a way that gives me the most happiness?’.

1. A financial adviser – I know, you expected me to say this. And I don’t think everyone needs an adviser at every stage of their lives. But there are some points where it makes a lot of sense. For example:

Getting married – Do not tell me that you can drop upwards of $20k on a wedding but can’t spend a couple of grand on a Statement of Advice. Or, you could be really sensible and spend some of your wishing well money on it.

Getting hitched is a good opportunity to map out a financial future together, and ensure you’re on the same page about it.

Many couples miss this crucial goal-setting convo, and muddle along with different ideas of what they’re trying to achieve. Conflict ensues (every time you bring home new shoes).

Having kiddoes – This is more about getting your insurance sorted. If you’re responsible for  tiny humans, you need to think about  life, trauma and income protection insurance to protect them. If something happened to you, would your partner have the resources to keep working, cover childcare, educate the kids and pay a mortgage … until the kids are all grown up?

Australians are  woefully underinsured for things like this. But you can talk to a financial adviser just for an insurance review (i.e. you don’t get a full financial plan) and the fees are pretty low – under $500 in the network I work for. Sometimes they may even waive them (because they get a commission). Definitely worth looking at.

Becoming a grown up – I know, there is no real test for this point. But I think there is a solid case for sitting down with a professional at some point around your late 20s – early 30s mark. You’ve been working for a few years now, you’ve saved some money (or not) and you want to genuinely get your shit together.

But there are so many options! Speaking to an expert can help you clarify your goals and give you comfort that you’re on the right track. I went through this process at age 29 and even though none of the life plan worked out (the kids, the marriage etc), it was a great, educational process and taught me a lot about goal setting. (Side note – I didn’t actually implement the advice because it was very heavy on investing in equities, and I was worried about the markets. This was early 2008. In all of the good calls I ever made financially, this was the best).

Of course there are other triggers for seeing an adviser – these are just a few. So how do you find a good one? Well, same way you find a good hairdresser, to be honest.

Ask friends and family, look at testimonials, search online. Make sure they are qualified and part of a reputable group that holds an AFSL. Ask about their qualifications, and see if you like them in your first consultation, which is generally free. If the vibe isn’t right, look for someone else. Basically, find someone whom you trust and seems legit.

Then filter their advice with your own thinking and preferences – just the same as if your hairdresser were to say ‘I think you should try a fringe’ and you know you hate having one. That’s what I did, way back in 2008.

I worked with finance clients, I could see the sub-prime crisis brewing, my boss and I discussed how heated the market was – and I held off. Why didn’t my adviser do this? Well, I think people who are ‘in’ the industry often fit the old cliche: when you’ve got a hammer, everything looks like a nail.

Just like the sales lady in Kookai is going to tell you that a Kookai dress is the best solution to your birthday outfit quandary, an adviser probably wants to sell you a financial product. It’s up to you to decide if your bum looks big in it.

A Personal Trainer – I know, this blog is about money, not fitness. But I want to address this because a lot of people question spending money on a PT. Is it just an extravagance?

If you get a good one, it’s not. A good PT will push you to your limits (“just killing me enough” is a great description for my coach), correct your technique and create variety that makes your body respond and change.

I question the value of some PTs I see in the gym: having a chat, watching you go through the motions, being your bestie.

If you don’t hate your PT a little, for the hour they’re training you, you should probably find a new one.

I first went to my coach when I’d hit a plateau – I wanted to get leaner and stronger but couldn’t do it alone. Years of powerlifting later, I am both of those things (although annoyingly, my triceps mean I can hardly wear any suit jackets).

I have experienced both elation and disappointment in getting there. I’ve cried with frustration in deadlift sessions, celebrated PBs, competed in events and made my body do stuff I never imagined it could.

For me, that’s worth the money I spend. If you’re plateaued, frustrated with results, finding it hard to stay on track, or ready to push yourself to new places, get a good PT.

The caveat on this is – if you can afford it. i.e. if you’ve paid for all the other things like bills, savings and an emergency fund. And you may need to skip something else, like buying lunches and coffees out, or getting your nails done. You can’t have all the treats, all the time.

Cleaners, removalists, carwashes and any other service provider – I just moved house and paid a removalist to do it all for me. After years of borrowed utes, trucks and a Ukrainian guy off Airtasker whose offsider was his tiny girlfriend, this was a wonderful luxury. I had the money, so I paid for it. Didn’t lift one box – amazing!

Whether you pay for things like a cleaner is down to you. But I would argue you need to consider:

  1. Can I afford it? i.e. have I paid all my bills including my savings? Have I given up a different luxury?
  2. Does it make my life better? i.e. am I using that time I saved wisely, or defusing a relationship pain point (fighting over who cleans the bathroom).

You really need to answer both those questions before you can shell out, guilt-free.

The lazy girl’s guide to making money

One of the burdens of modern life is choice.

Choosing how to spend your time (Facebook, or read a damn book?). How to spend your working years (I’ve spoken to three friends this week about their career dilemmas). How to spend your emotional energy (obsess over 3% body fat gain, or not?).

And nowhere is this more prevalent than deciding how to spend money. So many things seem pressing or important.

We buy stuff because we are used to the instant gratification of retail therapy.

The pressure to look hot, young, thin and hair-free  sees us scooting into salons to address our perceived shortcomings.

And the social groups we move in demand a certain level of spending, on everything from dinners out to expensive hen’s days.

No judgement about any of these things. We are all at the mercy of these forces. (God knows I think far too much about botox on a bad day.)

A very tempting – and understandable – response to this is to minimise the choices we make. In other words, choosing not to choose.

This is not an ideal plan. 

You know the 80/20 rule, right? AKA The Pareto Principle. It says you get 80% of your outcomes from 20% of your efforts. (Nice easy summary of it here). Like, 20% of your wardrobe gets worn 80% of the time; 20% of the people in your company do 80% of the work. And so on.

The same applies to your money. Not in an exact ‘whack out your calculator’ way, but in a general sense of doing a few things right can have an outsize impact.

So, here I offer unto you: the lazy girl’s guide to doing the right thing with your money.

Tip 1. Start retirement saving early – The magic of compound interest means the earlier you start, the greater the gains and the less the pain. I know, super is boring and you have to pay of home loans and HECS debts and stuff.

But here are some amazing numbers. Laura is 30 years old and already has $30K in super. She’s earning $75K annually, and putting the standard 9.5% of that into her super. If she works for 30 years, she will end up putting just $213K of her own money into that nest egg.

But she will end up with over $1.1 million!

That’s because most of the money comes from compound returns – the light pink bars in the graph below. This is a simplified version of retirement saving: in reality, her salary will go up and down, and her rate of return will too. But it gives you the picture.

Now, if Laura puts in just a little extra – say 12% of her salary – she will end up with $1,321,429 – an extra $212,000! That’s a lot you can spend on a round the world retirement trip, just by putting away a couple of hundred extra every month.

MoneySmart.gov.au Compound Interest Calculator

 

 

 

 

 

 

 

 

On the downside, if Laura takes four years off work to have some kidlets, then she only has 26 years to work that magical compound interest. So, her total nest egg goes down to $791,566. Yep, instead of $1.1 million.

Again, that’s simplified, because the amount would actually depend which years were taken off, and where in the savings cycle she was up to. But it illustrates the reason there is such a huge retirement savings gap between men and women (like, close to 50% I’m sad to say).

So, the action points here:

  • Add a little extra to your super as early as possible – ask your payroll peeps about salary sacrificing.
  • If you are off work or going part-time, your spouse/partner can make contributions into your super and may get some tax benefits too. (Nice summary here)
  • Another option, if you’re on a low or part-time income, is to make an after-tax contribution of up to $1,000 to super and the government will contribute 50% to match it – up to $500. More on that here.
  • For goodness’ sake, please roll all your super into one account! Paying multiple fees and insurance policies is like standing in the shower tearing up hundred dollar bills. Most funds do it all for you these days, so pick your fave fund and get in contact. The difference at retirement could be tens of thousands of dollars!

Tip 2. Pay down debt faster – This applies to all debts, from credit cards to car loans. But I want to talk about the biggest, hairiest debt: your mortgage.

A quick play on an Extra Repayment Calculator shows that on a $400,000 home loan, paying an additional $250 per month would mean:

  • You save almost $52,000
  • You pay off the loan 5 years and 7 months earlier[i]

 

Think you can’t afford that extra money? I challenge you to find it.

  • It’s  you and your partner not buying a coffee every day (yep, for realz – $8 x 30 days = $240).
  • It’s cutting your grocery bill by shopping in bulk or somewhere like Aldi (did you read this post?).
  • It’s getting your hair done differently so you go every three months instead of every six weeks (I did this and it changed my life).
  • It’s putting on your big girl pants and not buying shit you don’t need, three times out of four (the fourth time, well, hey, we are all human).

Whether it’s a hundred bucks or a thousand, looking for ways to chuck extra money into your mortgage puts you so far ahead. You can either get out of debt faster, or leverage the equity you build up to invest in another property.

Find a better deal – On the loan mentioned above, you’d save $33,683.69 over the life of the loan, by moving from an interest rate of 4.04% p.a. to a loan at 3.63% p.a. (yes, these loans exist).

Plus, you’d be paying almost $100 less as the minimum repayment each month. That’s money you could either have in your pocket, or ideally, pay off as an additional amount.

Yes, refinancing means a lot of paperwork, but get a good broker and they do the hard work for you. Whatever you do, don’t pay the ‘lazy tax’ by staying in an expensive home loan.

Use your offset or redraw – These work in slightly differently ways but have the same effect: they reduce the amount that your interest is being calculated on.

If you think about it, 4% of $100,000 is much less than 4% of $150,000. So, you want to be paying interest on a smaller principal amount.

Redraw – this lets you access any additional funds you’ve paid above the minimum repayment. Say you’ve paid an extra $5000, you can get it out in an emergency (a real one, or ‘I need a holiday before I kill someone’).

Offset – the balance “offsets” the interest charged on your mortgage.  Say you have $10,000 in an offset and $300,000 on your loan, you only pay interest on the equivalent of $290,000.

It’s similar to the redraw but a bit more dangerous because it’s easier to access. Often a redraw takes a day to process, whereas you can have an offset mixed up with all your normal bills and banking.

Even if you don’t have a mortgage, you can apply a lot of this thinking to your saving.

For instance, look for better deals on the interest you get paid – or even look at other types of investments depending on your timeframe and goal. (Check out this post for some tips).

Track your money and expenses so you can find extra savings. And always pay yourself first. Just like you pay your mortgage repayments before everything else, your savings should go into a different account before you even see it, hold it or think about spending it. Ideally in a different bank!

Start early. Pay off debt. Sounds simple huh? It is in theory, but can be hard in execution. If you’re not convinced you can do it, maybe part of the challenge is to tweak your attitude to money.

May I recommend one or two posts I’ve prepared earlier?

Mindful spending – what it is and why it matters:

https://fiercegirlfinance.com.au/2016/08/28/mindful-spending-what-it-is-and-why-it-matters/

What’s holding you back from being Fierce:

https://fiercegirlfinance.com.au/2017/05/01/whats-holding-you-back-from-being-fierce/

That’s it. Now go forth and be fierce.

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

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

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

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

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

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

AKA: a goal.

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

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

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

Click here to download your printable A4 worksheet

Why do you need a worksheet?

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

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

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

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

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

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

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

Sometimes, choosing the destination is the hard bit

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

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

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

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

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

Doing the worksheet

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

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

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

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

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

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

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

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

 

The secret to guilt-free spending

Sounds too good to be true huh? Like the promise of diet cheesecake or hangover-free wine.

But I spent a whole day with a guy last week, who I can only call the Money Whisperer, and he explained how it was possible. Plus, he was so full of good sense that I had to share some highlights with you.

Steve Crawford, from Experience Wealth, has built a whole business wrangling the errant wallets of ladies like us (or me, at least). Gen X and Y, mainly professionals, often in media and finance. We all earn good money but somehow it slips through our fingers faster than we’d like.

So, he is a Money Coach. That’s actually a thing (that people pay for, not just me scolding you for free). I’ve told him he has to do an interview at some point, but in the meantime, let me paraphrase one of his concepts.

Banking – sooo boring. Or is it? 

I know, setting up bank accounts sounds so dull. But it’s all about earmarking money in a way that makes things more organised, and less tempting.

This is essentially how I do my banking, and while I am not perfect, it certainly keeps me in line. Steve has helpfully refined it and given it better names. I, however, made that fancy little graphic.

The Banking Buckets

These are the key elements:

Main account – your pay goes in here and pays all those annoying fixed costs, like rent and bills. You pay the Boring Bills straight out of here, with direct debits.

Storage – this is money you know you’ll need later, but not right now – in other words, short-term savings. This is the most ‘sensible’ account – the one that grown-ups have because they know car rego is due in January and they don’t want to put in on a credit card. I’d also argue this is the hardest one to nail – but still, we have to try!

Hot tip – have this one with a different bank, so you don’t see it and remember it every time you log on to internet banking.

Savings – This is the long-term stuff – the home deposit, the potential share portfolio, or the emergency fund (real emergencies like your car breaking down, not needing to buy new moisturiser so you can get the Clinique gift-with-purchase). This should be in a high-interest account with no card access – meaning you can’t get drunk and dip into it at 3am in the casino.

Spending – This is the guilt-free account. Sadly, you can only put money in there after filling up the other three. Sucks, I know. BUT – whatever is in there is totally guilt-free. Spend it on hookers and coke, if you feel so inclined. Jokes! We don’t need to pay for sex. Or coke, for that matter.

This account is like when your mum let you have ice-cream for dessert, but only after eating all your vegetables at dinner.

Once you’ve done the sensible things, then you do the fun things.

How much goes in each account?

That’s quite a detailed discussion for another time. But briefly:

  • make sure you work out the Boring Bills stuff properly – and don’t forget to shop around if they seem unpleasantly high
  • give yourself a decent Storage buffer, as that’s where the big costs often come from
  • be realistic with Savings – even just a little bit is far better than nothing at all
  • make Spending somewhere between what you’d really like to play with. and what you realistically can afford.

And if this all sounds like a great idea but you don’t where to start, you should give Steve a call. He will make rude jokes about Sydney people (he has a habit of saying #sosydney in conversation), but other than that, he’s the real deal.

photo credit: suzyhazelwood DSC01149-02 via photopin (license)

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