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The single biggest risk to your money is probably not what you think

There is one thing that can change your financial path forever, and it’s not betting on the share market. It’s not entering the Gucci store. It’s not even buying a house.

It’s walking down the aisle.

When you get hitched to a partner, you’re hitching your wagon to their financial future. And even if you’re already married, please read on, because this is literally one of the most important posts I am ever going to write on here.

I know it’s easy for me to sound like the bitter divorcee who lost money in a divorce settlement. (I did, but I am less bitter about it these days).

That’s not what this post is about. I’m at the age (40) where marriages are starting to fall apart. I see it among friends, acquaintances and friends of friends. After all, the most common age for getting a divorce is 45.5 for men and 42.9 for women (ABS).

Like any long-term decision, marriage is a calculated risk. There is a 1 in 3 chance it will end in divorce. If someone offered you a raffle where 1 in 3 tickets offered a prize, you’d jump right in.

And yet, so many people get married without even considering the ‘what if?’. The suggestion of a pre-nup, or to not change your surname, is taken offensively.

We are socialised to believe that romantic love is the most important part of marriage. This is a relatively recent development (it took off with the rise of the Romantic novel in the 18th century).

For thousands of years, though, marriage was  an economic and child-bearing union. (Well, more of a takeover than a union, because the man got to control all the woman’s wealth once it was done).

Our ancestors were generally more clear-eyed about the fact that marriage is about far more than love. And in the age of Instagram weddings, it’s easy to forget there’s a shitload more at stake than a perfect photo album.

Once you’re married, everything you earn and own belongs to you both. Louder for the people at the back!

This is fantastic when you’re sharing and building together. But if it falls apart, everything you have worked for can be pooled together and a line drawn down it. (And that line may not be in the middle.)

Not only that, you will likely have to start over in a practical sense. New life, new home, new furniture, new insurance, new kitchenware. The things I own today bear very little resemblance to what I owned five years ago.

There is another big complicating factor in all of this: children. If you bring kids into the picture, there’s a good chance you’ll take career breaks that mean you earn less, reduce your super and even stunt your career progression.

Sorry, I know this sounds terribly unromantic and depressing. But hey, we aren’t just here for the LOLs; we’re here for the learning too.

A little bit of planning goes a long way

So I want you to consider marriage (or even de facto living) in this way: there’s a high chance it will be great and last forever. But there’s also a chance that it won’t.

It’s like car accidents – you really hope you won’t have one, and mostly you don’t. But guess what, you have to insure that vehicle every year anyway.

So I want to position this concept as Independence Insurance (thanks to a friend came up with this phrase, you know who you are).

This is the kind of insurance you take out regardless of how happy your relationship is. Because you just never fucking know.

Bae might come in one day and say s/he’s leaving. Maybe you catch them cheating (hey, if Beyonce isn’t safe, who the fuck is). Or the red flags you ignored before, gradually become so big and red you can’t stay, without harming your mental health or your kids’.

The progression of every break up is different, but the one thing they all have in common is the sense that ‘it wasn’t meant to end like this’.

So what does Independence Insurance involve? Well, the good news is, you don’t have to buy it or renew it or find the paperwork for it every year. It’s more about keeping some things in your control.

Always have at least one bank account in your own name. Up to you how much you have in there. I think at least a couple of thousand is a good start. Not only can you buy surprise presents with it, you can also get the fuck out of dodge if you need to. Honestly, this is such a simple thing to do and if I could go back and change one thing about my marriage, it would be this.

Have a car in your own name. If you only have one car, you may have to battle this one out. But if you have two, have one in your name. In NSW you can’t have two owners on the registration (not sure about other states), which is bloody annoying. But if things turn bitter and your partner has their name on both cars, guess what, s/he can keep them both. Happened to someone I know. Her ex has their two cars sitting in the driveway and she can’t do anything about it until they go to court (some years hence).

Don’t stop investing in your career and earning power. I know, this one is a lot more work than opening a bank account. But think of the women you’ve seen struggle after divorce because they put their own career on the backburner, to raise kids. It’s true, childcare is eye-wateringly expensive, but you need to think about the cost of not working. Not in today’s salary terms, but in the many decades from now if you’ve fallen behind your peers. Or you’ve kept low-stress, flexible, low-paid part-time jobs and now find you’re stuck there.

As my friend said, she never again wants to wake up and feel like she’s trapped in a relationship because she can’t afford to leave.

Take an interest in the financial paperwork. If you’re the spouse who leaves this stuff to your partner, it might seem like they are doing you a favour. But it has a lot of risk too. When I was married, I was the only one who knew how to access our mortgage redraw. If I was a bitch (which I am obviously not, ok), I could have easily drained thousands of dollars out of it, spent it, and he would neither have known nor had any recourse. Paperwork and banking is the worst, but it’s also the key to staying in control, as it gives you full visibility of your position.

Ok let me stop now and apologise if I sound a little preachy. I just want us all to be the best version of ourselves, and that means being realistic even as we are hopeful. I have more on this topic, so stay tuned.

And let me tell you I very much believe in romantic love. Just not as it applies to me haha.

 

2

How to hack your goals and nail everything in 2019

In 2018, I leaned out and toned up, losing about 5kg ahead of my 40th birthday.

People asked me how I did it, and I’d detect a hopeful tone. What wonderful secret had I found?

Sadly, there are none. I tracked and weighed all my food, stopped boozing and trained for fat loss (i.e. so many reps).

Probably the biggest thing was setting a goal. I’d been powerlifting for a few years, and building strength was always the main game – my goals were more like ‘squat 100kg’.

I was more focused on what my body could do, rather than what it looked like. This year, I switched to an aesthetic goal.

Neither of these goals are good or bad, in my opinion. There is something empowering about reaching a lifting goal, but also in feeling lean, fit and attractive.

The key point is, they provide something to work towards. They were specific, measurable and kept me focused. They kept me home on a Friday night, so my coach wouldn’t kill me on a Saturday morning. They encouraged me to spend time on a Sunday night preparing food for the week. They gave me a reason to say no to high-calorie foods.

New year, new you?

I’m telling you this because it’s a new year, and we all have good intentions. Often it’s about weight loss, but it’s a good time to take stock of finances too.

If I’m honest, my 2018 wasn’t great financially speaking. I was trying to get in the groove of being a homeowner, and quarterly strata fees, coupled with a kitchen renovation, really challenged me.

I had all the basics covered and I saved money, but I could have done a lot better, especially if I’m meant to be a good Fierce Girl example.

Know your weakness, then kick its butt

My biggest weakness isn’t a lack of knowledge or a tendency to spend money on stuff. It’s my lack of organisation. I try, I really do, but it’s a constant struggle against my nature.

You know those people who hate mornings, and you try to make them get up early? They’ll do it, but it takes fives snoozes and the threat of unemployment. And when they do wake, they are cranky arseholes.

That’s how I am with any type of life admin. And it’s why I have a shameful stack of papers in my cupboard, full of tasks that I need to file or action. I just add one more thing and shut the door again.

I know that I’m shit at this, and that I need a way to hack my bad habits. So I’m taking my approach to training and diet – which I’m good at – and applying it to money.

Boiled down, my weight loss success was based on:

  1. Set a goal – fit into the very skimpy outfit I purchased for my party
  2. Track everything – all food, every workout
  3. Rely on habit – regular food prep becomes a non-negotiable activity

Applying this to money, I’ve realised I need to:

  1. Set a goal – I’m going to pay an extra $20,000 off my mortgage in 2019
  2. Track everything – yep, I have to manually enter it into the TrackMySpend app
  3. Rely on habit – once a week I have to sort that pile of admin out and do at least one task

That third one really gives me anxiety, because I know I will struggle with it. But I need to start somewhere if I am going be a fully functioning adult.

The missing piece here is reward. At the gym, I get rewarded with endorphins, and I get validation when people compliment me. So it helps me to stick with it.

But this plan is boring and low on quick wins. So I’m adding in a bonus that if I stay on track with saving, I get to have a trip overseas. And if I do my weekly chore torture, I’m allowed to give myself a monthly treat, up to the value of $50.

There will be other behavioural modifications I need to achieve these goals – for example, the point of tracking is to ensure I spend less on crap (I’m looking at you Priceline and Sephora).

But I feel more prepared and confident knowing I have a plan and a framework.

Setting Goals

If you’re keen to nail your finances in 2019, have a think about what you want to achieve. I have a post about goal setting here, and it includes a simple worksheet you can download.

The goals don’t have to be big and hard. They could be as simple as ‘save $200 a month’. Or they can be specific – ‘Pay for my end of year holiday without a credit card’.

The point is to have them. Without something to work towards, we humans tend to drift into whatever’s easy and in front of us.

But with a goal, you can have a plan. And with a plan, you can have global domination (eventually).

So, here’s to an amazing 2019, and I hope you get all the good stuff you deserve!

0

New year, new you: how to up your game this financial year

If I ran a fitness blog, I’d have to wait til January 1 to share good intentions and resolutions with you. Luckily for me, this is a finance blog and I can do it now.

It also requires no activewear or bikini shots, which is a relief, because I have been hitting the red wine and winter comfort food a little too hard.

So, while I commit to no booze and lots of tuna salads for the foreseeable future, you could commit to a few good habits for FY18/19.

Change one bad money habit – It doesn’t have to be outrageously ambitious. You don’t have to makeover your entire financial life. It just needs to be specific and actionable.

For example, you want to control your spending better. My friend Cara gets paid monthly and has a bad habit of ‘making it rain’ the first week, like Drake giving money to poor people. Then she lives like a monk the week before payday.

If you have a similar issue, your goal is to set a weekly spending budget. Look at how much your normally spend (I know: a painful yet necessary step in and of itself. But get out your bank statements and come clean with yourself).

Decide what’s an appropriate ‘discretionary’ budget – lunches, nights out, new shoes, Priceline sales etc. This should be close to what you already spend, otherwise you’re not going to stick to it. Maybe trim a cool 10-20% off it, but don’t go for the diet equivalent of Optifast shakes when you’re used to 2000 calories a day. Now, take that figure and divide by 4. Simples!

Then it’s a matter of putting in place the mechanism for sticking to the weekly budget. Perhaps you get that much cash out, then you see how much is left. Perhaps you have a separate account with weekly auto-transfers of the set amount. Maybe you check your bank account every few days and see if you’re tracking.

Whatever works for you, find a way to put boundaries in place, and automate some of it.

All of this advice is clearly not rocket science. I’m no behavioural psychologist. It’s about intention, action and habit.

Decide what to change, think about a solution, then make it as easy as possible to keep up the habit.

Check out my homeboy James Clear if you want to know more about changing habits – he is the guru.

Other bad money habits you might want to overhaul:

  • Paying too much for convenience: unplanned and expensive groceries, too much Uber Eats, buying a full price dress for a wedding next week etc.
  • Wasting food: throwing out what’s in your fridge, not putting it away properly in the first place, forgetting to eat leftovers – you know the drill. Make a plan, use your freezer and buy some Tupperware FridgeSmarts
  • Dipping into savings for everyday money – you need to re-do your budget, set a mindful spending manifesto, and get an account with a different bank that’s harder to access

Sort your superannuation once and for all – I know, I go on about super and it’s everyone’s least favourite topic. But how about you spend an hour or so on it now, and have thousands more when you retire in a few decades?

I have a deep-dive post about it here, but in short, there are a few basic things that make all the difference:

  1. Find your lost super – That crappy retail job you had for six months? You probably have a super fund for it. If you’ve had more than a couple of jobs there’s a good chance you have a tiny little super balance from it, sitting around in the ATO’s accounts, doing nothing. Get hold of it and put it to work! Some tips here.
  2. Ask your super fund to roll your accounts into one – Your main super fund probably wants to do this lost super thing for you – they often have a rollover service to find your multiple accounts and sweep it into your main one. Let them do the hard work!
  3.  Check your insurance – We get given life insurance without asking – but that doesn’t mean it’s either the right amount or free! Check what you’re covered for, if it’s too much or not enough, and how much it costs. I have a really exciting post about this here (because, let’s face it, the only thing more exciting than super is super AND insurance!).
  4. Review your investment option – Chances are, you’re in the same investment strategy as that 50-year-old bloke on the train wearing a too-tight shirt. Which isn’t ideal if you’re young. As a general rule, younger savers can tolerate more risk for higher returns (they have longer to smooth out the ups and downs). Most super funds will be able to give you advice on what’s right for you. Personally, I will be in high-growth until about the time I need to get botox.

Get a better deal on your boring bills – Once a year, it pays to go through all those dull fixed costs and see if you can cut them down. Are you in the right health fund? Who knows – do some Googling, or call one of those iSelect, ComparetheMarket type services.

Could you be getting a better deal on your phone? Probably, if you’re not already on a contract. They bring out better and cheaper plans all the time, so it’s worth shopping around. The tight-arse circles I hang out in online have  been raving about Kogan.com.au – not an endorsement from me, but can’t hurt to look.

Same goes for your car insurance, power bills and any other painful ongoing cost. Spend a bit of time once a year, and reap the rewards.

Learn about basic investment and finance concepts – Obviously being on this site is a great start. If you’re relatively new here, this post is a good primer.

But if you’ve put off ‘understanding compound interest’ to another day, that day is today.

If you’ve ever thought ‘I’ll look into share investments at some point’, that point is now.

If you’ve pondered ‘how much will I need to retire on?’, then it’s time to do some research.

A great resource is the government-funded http://www.moneysmart.gov.au – it’s designed by financial literacy experts so that anyone can understand it. And it covers a huge range of topics.

And that’s it.

Gosh that was a lot of information for a wintry Sunday morning huh? But you only have to do one thing to make a difference.

And none of those things require diet, exercise or bikini body transformations. So how good is that?

2

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.

4

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.

5

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.

1

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).

 

 

 

4

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.

5

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.

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