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The Fierce Girl's Guide to Finance

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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)

Don’t panic! Well, actually, panic a little.

I’ve been at the coalface recently.

Not literally digging up coal and stuff, but hearing the stories of everyday Australians and their money challenges. I now work for a large financial planning and mortgage business, so I see lots of different ways people are winning or losing the big Monopoly game of life.

So here are some things I really want to tell you.

We are entering uncharted territory, in terms of our economy and society.

We are going to have far more people, living far longer, with unprecedented levels of debt.

This sounds like a big, impersonal statement, but has a lot of implications for each of us as individuals.

For example, if you’re Gen Y or X, like me, your parents could well be retired for 30-40 years. They will likely spend their retirement savings on their holidays at first, then their general living expenses and then aged care (which is bloody expensive). We, their kids, will be lucky to get much of an inheritance.

Key takeout: We will have to look after ourselves one day.

We are buying homes later and paying more for them.

Australians are going to have mortgages for a long time, and many people will limp into retirement (or some form of it) with a debt.

This hit home to me when I was talking to the head of our financial planning business.

I’m trying to work out whether I buy a place to live in, and he’s asking me all these hard questions like ‘what do you want to do in 10 years’ (I don’t know, other than it probably involves Botox).

And then he said, well, what if you retire in your 50s? (Unlikely, I’ll concede, but my dad managed it at 53). Will you want to still have a mortgage? And then it dawned on me that if I get a 25-year mortgage I’ll have it in my 60s!  What the actual fuck.

Now of course I can get a small mortgage and pay it off sooner. But if I do the minimum, that means I’ll literally be in debt for decades.

The age people my age can access super is 67 (aka ‘preservation age’), so I couldn’t even tap into my super to pay off that debt until then. (Which is what people are doing more and more, then having not much super left to live on).

Key takeout: We should probably rethink our retirement age and smash our mortgages as fast as possible.

Maybe you can’t afford the home you want, right now. But you can probably afford a home you don’t like, in a few years.

I know, that’s confusing. Why would you buy a house you don’t like?

I have said before on this blog that buying property isn’t the ultimate be-all and end-all to life. Certainly that’s the case when we’re younger. But nobody really wants to be old and homeless.

There’s a growing group of under-40s who despair of ever getting into the market. But that’s because lots of us want to live in expensive places like Sydney.

One option is to buy an investment in a more affordable place – often regional cities – and sit on it for a long time. Most people who have ‘dream homes’ didn’t start with them. They upgrade over time.

The key is to do something, as soon as possible. What scares the hell out of me is the idea of not owning anything in old age.

I heard a customer story the other day about a couple, in their 60s, owing hundreds of thousands on a home loan. Their combined income was less than $75K per annum, both casual. They may never pay off their property. Or the husband might die and leave his wife on her own earning $19K a year. Yep, these are real people and I have no idea of their backstory. But I really don’t want any of my Fierce Girls to be in this position one day.

Which brings me to my final key takeout: Please start soon. Actually, start now.

Start what? Saving, being serious, investing, adulting, not wasting money on crap. The sooner you build a foundation of wealth, whether it’s a little share portfolio or a savings account or a cheap investment property, the sooner you are giving yourself a bedrock for the future.

And the power of compound interest means the sooner you start, the less painful it will be. Don’t put off the idea of wealth building, even if it  means starting small.

And if you’re not sure where to start, then have a look through the extensive Fierce Girl archives. Because the blog is about to celebrate its first birthday! Yay! So you have a year’s worth of fierce tips to work with. Enjoy! (Now that I’ve scared the shit out of you haha).

Photo credit: https://www.flickr.com/photos/cedwardbrice/ 

Don’t panic and start early: wise words from rich people

One perk of my job is that I get to hang out with some pretty rich people.

Ok, when I say ‘hang out’, I don’t mean we are drinking champagne on their yachts. More like, we are in meeting rooms and they are telling me the finer details of their investment strategy, so I can PR the shit out of it.

How rich? Well some are just really well-paid, others have a few million sunk in their fund management companies, and a handful are serious, yacht-owning, penthouse-buying ballers.

(On a side note, they are generally totally low-key about their wealth – you have to notice their watches, or do the sums on their ‘funds under management’ to get the idea).

Anyway, because I love you Fierce Girls, and am always thinking about ways to help you own it, I have been asking these people what advice they have for the mere mortals among us. Here are some of the wise words I’ve heard.

Don’t Panic. This is from a lovely fund manager who grew up on a pineapple farm and has just launched one of the biggest listed investment companies on the ASX.  Oh, and he was a professor of finance at one stage (WTF).

His message was that in the current housing market, it can feel like you have to do something fast or you’ll miss out forever.  That’s a natural reaction when prices go up as fast as they have been. And it doesn’t help your FOMO levels when you read about 30 year old property barons. (By the way, Buzzfeed has a very interesting take-down of these stories – recommended read).

Yes house prices are crazy, especially in Sydney and Melbourne. But every generation has its challenges in getting onto the property ladder.

My Gran and Poppa lived in a car container for the first year of their marriage. Gran said she felt pretty lucky, because all some people had was a tent! That was actually a thing in post-war Australia – building materials were rationed, hence all those pokey little fibro cottages. Buying land was kinda easy, but building a house on it? Not so much.

And then our parents’ generation struggled with 18% interest rates and a major recession. Yes, they were still spending less in comparison to wages (as I explain here), but I’m sure we can all agree it felt pretty fucking stressful at the time. And unemployment was high AF, so there was also the chance you could lose your job.

Yes, it’s hard and scary to buy property now, but it always has been. You have to accept that and find a way around it. Maybe you can’t buy in Sydney, for example, but can you buy somewhere else for under $500K and rent it out? Probably.

You still need to do boring things like cut back your spending and save like a tight-arse – but I can tell you right now my Gran was not getting her nails done when she was living in a one-room shed with a husband and a baby.

And if you play the long game, knuckle down, and get serious about saving, you will get there eventually.

Start investing early and take on more risk when you’re young – This solid piece of advice comes from one of my favourite low-key rich people. He manages ridiculous amounts of money for ridiculously rich people, but still gets excited about getting a great deal at the Anytime Fitness near his apartment building. And when I say his building, this guy’s company literally built and sold the whole thing.

Anyway, the point here is two-fold. Firstly, the earlier you start, the easier it is to make gains – this is the magic of compound returns. Please go play with this calculator to see what I mean.

The second point is that you can tolerate more risk when you’re young, because you have a longer investment horizon. If you lose a little bit one year, you have more years to make it back.

Markets are volatile, so you have to build in the likelihood of loss every now and then. In fact, most super funds work out their investment risk based on how often they can lose money. A medium-risk option might tolerate 2-3 years of negative returns over 20 years, while a higher risk option would make a loss in 4-6 years – although aiming for higher returns too. (There’s a good explanation of this concept here).

The upshot is, you can’t make all the money, all the time – but if you have time on your side, you can upsize your risk profile, as well as capture the magic of compound returns.

As you get closer to retirement, and have less time to make up for losses, you should dial down your risk profile accordingly. Some super funds now just do it for you – it’s called a ‘lifecycle’ strategy.

(If you want to read about risk and the different ways it applies to your money, check out my earlier post.)

The key here is that  you don’t have to drop a million bucks on a property to make this advice work. You could sign up to the Acorns app, for example, and start socking away loose change into an ETF. (Of course, do your own research on it).

But remember, you can start small, just as much as you can start early.

So that’s it for now. I have a few more nuggets of advice up my sleeve, which I’ll share in future. In the meantime, ladies, stay Fierce.

We’re all going to die – so let’s just talk about it here, then move on

That’s quite the dramatic headline, I know. But unless you’re a vampire like R-Patts, it’s true.

And if I said ‘hey girls, come over here and chat about life insurance for a moment’, you’d be about as excited as I was to watch three types of football this weekend (thanks to my brother). But unlike football, I can’t even tempt you with muscular men in very tight shorts.

So I promise to make this short and simple. (If you want a long read on this exciting topic, here’s one I prepared earlier). We’ll have a quick chat and then you can get back to worrying about Prince Harry’s mental health.

Imagine if you couldn’t work anymore. For a few months, for a year or two, or even forever. How the hell would you pay the bills? Your partner would? Ok, sure. What if he left though? What if he died? I know, I am a bundle of fun today.

Seriously though, if you got sick, or were injured in a car accident, do you think you future financial needs would be covered by social security? Maybe, but let me just say the disability support pension is about $400 a week. WTF? I legit pay more in rent than that. I would be in minus figures before I even had a crack at feeding or clothing myself.

So that’s why God (well, actually insurance companies) invented Salary Protection insurance (aka income protection). It pays you 75% of your current salary if you can’t work because of illness or injury. For example, I know a lovely lady who was diagnosed with breast cancer at age 30 and couldn’t work for six months. She didn’t have that insurance so had to rely on her family for support.

What if you’re in a car accident and end up in hospital and rehab for months on end? You may get some sort of compensation (or not) but that often doesn’t get paid till months or even years down the track. Good salary protection will kick in after a month off work and help to pay your ongoing living costs. Some policies cover you for up to two years; others until you’re 65. Obvs the latter one costs more, but could be worth it. (It’s what I have).

A good friend of Salary Protection is Trauma cover. This is a lump sum that you can get paid if you have some sort of accident or serious illness.  Think about how effing expensive it is to get even a bit sick these days – things like cancer or heart surgery are far more exy. Medicare and private health won’t cover all the costs of specialists, scans and tests. The bills don’t stop coming even if you’re off work. And perhaps you want to fly in family to be by your side.

Trauma protection gives you a pot of money to cover all the costs you face in a crisis, and gives you one less thing to worry about at an otherwise crazy stressful time. 

Total & Permanent Disability – This is one of the policies that often comes with your super fund – not for free, but the premiums come straight out of your savings, so you don’t really notice it. It’s a lump sum you can get if you really can’t work anymore. It’s not always easy to claim (given that it has to be TOTAL and PERMANENT) and can take a while to process even if you do, so trauma and salary protection can be useful to have alongside it.

Life insurance – this is really DEATH insurance but it’s not polite to talk about death, so it gets a turned into a lovely euphemism. Obviously it’s a payout to your partner/kids/family if you die. Also available in your super fund, but chances are you don’t know how much you’re covered for or how much it costs. Defo worth looking into and checking that.

Most people underestimate how much they need, because they don’t realise how many years it has to last for and how expensive life is. Even if you’re not the breadwinner, would your partner be able to pay for childcare while they work full-time? There are plenty of things like this to consider.

How to take action

At the very least, look at your last super statement and see what cover you have. Can’t find it? Jump online or call your fund – they can tell you. Think about whether you’d have enough to pay off your debts, and leave the people you love with enough to make them comfortable.

Ideally, you would talk to a financial adviser or insurance broker. (Click here for more about finding an adviser). They not only help you work out what you need, but they do all the shitty dealings with the insurance company – now, and in the event of a claim. It may not even cost you much, because they may be paid by the insurance companies. (Depends on who you deal with and how their business is set up).

But seriously, you are gonna die. And if you do get sick or hurt, the last thing you want to deal with – on top of that – is being broke. You insure your car, your home – maybe even your pets – so please, please insure yourself and your income.

 

Is doing nothing worse than doing the wrong thing with money?

Sorry to my email subscribers – this link got broken. Here it is again. I am not really that profesh after all.  

I want to confess something. I’m probably wrong.

Some view I hold, some article of faith, some strongly held opinion. It’s completely wrong.

Because you know what? We’re all wrong, some of the time. I was wrong about Trump being unelectable (me, and a bazillion other political junkies).

I was wrong about Beyonce being the only viable winner of Album of the Year at the Grammy’s. (Adele. Huh. Who knew).

And I have been wrong about the romantic suitability of more men than I care to remember (although some of them are burnt into my heart: from Doug the 15-year-old drop-out to Mr Darcy, the 40-something divorcé).

Nobody has all the answers – regardless of how much conviction they show when giving you those answers. (In fact, the more conviction the higher the chance they’re wrong).

This is really important to know when it comes to money, for two reasons:

1. You should run all advice through your own bullshit filter (mine included)

2. You don’t want to let fear stop you from acting

Let’s look at the first one. As a woman, you’re going to come across a bunch of people offering free advice about money. Your folks want you to buy property. Some bloke at work wants to mansplain why you should invest in shares. Some blogger wants to tell you to stop getting eyelash extensions  (oh, that’s me).

Some of it will sound legit. Some of it will make perfect sense. And some of it won’t sit well with you at all.

One of the best ways to increase the sensitivity of your BS filter is to find your own information. Read widely and get a feel for different viewpoints. And then …

Pay attention to the numbers

I work with a wide range of fund managers and they all have a different approach. Every time I sit down with them I totally believe that they have found the holy grail of investment theory. Most of them are indeed pretty good, but it’s their numbers that tell the real story. And those numbers show that some are definitely better than others.

Key take-out? Numbers don’t lie – always look at performance figures. And not just the last year, but the last three and five years – and longer if possible.

Someone can tell you that buying an apartment off the plan and renting it out is THE best way to make a solid investment. But it’s pretty easy to test that theory. Take the purchase price, and divide it by the rent it brings in. This is the rental yield, and it tells you a lot about the return on investment.

An apartment that costs $800K and is rented out at $500 per week, gives a gross yield of 3.25% (before costs such as maintenance and strata). Yield also doesn’t take into the cost of interest on the loan, so it’s a pretty blunt instrument to work out our return on investment.

The great unknown is how much capital growth it will get – i.e. how much the value will go up. Same deal with shares – you can broadly predict the yield on those (as dividends tend to be similar every year), but less so what the share price will do.

So like every decision in life, you have some things you know and some things you just hope for the best on. Everything we do is a calculated risk.

I bought a pair of navy suede ankle boots this week, and there is a risk that I might not get as much wear as I hope out of them. But I took a risk, because they are really cute and they were on sale and I have wanted blue boots for months.

(Side note, I broke my own promise not to go to Wittner. I have a problem).

Key take-out: you can and should run the numbers on an investment, but you also have to accept there is no perfect answer and no guaranteed outcome. You need to identify and manage the risk, through things such as diversification or building in a buffer. (Read this piece about risk if you are interested).

And this brings me to another point. When you are trying to run all these numbers, you may want some help. So, should you use a financial planner?

Probably. Like colouring your hair or getting a spray tan, you can do an ok job yourself, but you will probably get a better result with a professional.

It’s the same reason I pay a stupid amount of money to a powerlifting coach. Sure I could read a book on training, but that book isn’t going to stand in front of me and shout ‘knees out, chest up!’ when my form goes to shit.

So yeah, do the basics on your own. Learn some stuff, read a book or two, get your budget and savings sorted. But if you want to move up from messing around in the weights room to actually building some serious muscle, you need a coach. In this case, a money coach.

How do you find one? Well, asking other people is a good start. But if you don’t have any recommendations to go on, take a look at the FPA website.

But let me explain the industry a bit, so you know what to look out for.

Most planners will be attached to a bank, a big financial institution or something called a ‘Dealer Group’. It’s a complicated thing where they need to be part of an organisation that holds a license. The Licensee takes all the heat of the admin and compliance (there is a shit-ton of it in this industry). The people who work under this license are called Authorised Representatives.

So the person you deal with has some sort of network behind them, whether it’s a bank or a dealer group, and that institution may or may not want to sell you some of their products. What products? Managed funds, margin loans, life insurance, mortgages. Financial products.

Now, these may be right for you. Or there could be something better out there. If you get your make-up done at the Mac counter, they’re hardly going to point you over to the Estee Lauder counter are they? Well, actually there was this one time when the Estee Lauder girl at Nordstrom recommended the Smashbox mascara she was wearing (and it was awesome). So it’s all about finding someone with your best interests at heart, and won’t just push their products on you.

Luckily, there is a law that says they have to do this – i.e. act in the client’s best interests. So regardless of whether they have their own products, an adviser will generally recommend things from an Approved Product List – a list that their Dealer Group has checked out and made sure they are legit. It’s like going to Mecca Cosmetica or Sephora, where they just give you the best of the best regardless of brand.

Key take-out: Make sure you ask lots of questions about why they are recommending one product over another. Think about how long you spend choosing a foundation – and then maybe double it.

The important thing is that you do something. Don’t fall into the trap of thinking it’s all too hard, there’s too much to know, so you’d better not do anything. That’s how you miss out on building wealth, and instead just let your life run ahead of you and your goals.

So if you are a bit scared about getting started on the finance thing, here are some tips:

  1. Do some basic research. Google is your friend. Read Warren Buffet – he makes a lot of sense and is also one of the richest guys in the world.
  2. Speak to a few grown-up people you trust (and who have money) and get their input
  3. Ask around and find a professional you like and trust. You generally get a first session free, so if you don’t click, don’t go ahead. It’s like Tinder, but less awks.
  4. Use the process to think about your goals, priorities and plans. Then map your finances against these.
  5. Ask questions,  don’t be afraid to be annoying and demanding. If you can’t understand it or it doesn’t feel right, don’t do it.

And of course, you can always cruise around the Fierce Girl blog and enjoy its truth-bombs.

Getting a home loan: a Fierce Girl guide for rookies

So you’re going  to buy a property? Congratulations! You must have sold an organ or won the lottery.

Maybe you saved your arse off, or got some help from the parentals. Either way, you have squirreled away enough money for a deposit.

Otherwise, you’re reading this because it’s useful information to have in approximately 72 years when you have saved up enough. I get it – it’s like watching Jamie Oliver.  You aren’t really going to make that 30-minute Peruvian rotisserie chicken, but it feels good intending to.

And like most finance stuff, there’s a whole world of bullshit jargon and rules you’ve never heard of. It’s like your mum trying to navigate Instagram – ‘what does ‘AF’ stand for?’.

I am going to break down the process, but it really is a lot of learning so I’ll keep it topline for now. If you get really excited, you can Google more info.

Find out how much you can borrow.

There are plenty of nifty ‘borrowing power’ calculators that give you a general idea. They’re pretty generous though – they suggest that you can buy a chateau on the banks of the river Seine … as long as you eat baked beans and shop at K-Mart for the rest of your adult life.

So you need to sit down with an actual mortgage broker and go through it.

Make friends with a mortgage broker

Should you use a broker? Fuck yes. Seriously, you’ll feel like a bloke who’s wandered into Sephora if you try and work this shit out yourself. A mortgage broker does all the work for you and you don’t even need to pay them – the winning lender does that!

Keep an eye out to make sure they aren’t just suggesting the loans aligned with their brand. For example, Aussie Home Loans can act as a broker as well as sell you an Aussie loan – but only if it’s the best deal. They have a professional obligation to do what’s in your best interest..

Occasionally you can get a deal that’s not available through a broker – e.g. I refinanced to a UBank home loan that my broker couldn’t match, even though he is a top bloke. But that was when I was already somewhat versed in this stuff. If you’re a virgin, you don’t really want to mess around with clueless Year 8 boys now, do you?

How do you find a broker? Ask around. People who have a good one will happily recommend them – maybe it’s because they play a positive role in such a big event, but people seem to get attached.

Things that might affect your borrowing power:

  • Credit cards. The limit you have is seen as a liability, even if the balance is zero. So if you have a $10,000 limit, the bank assumes you have that much debt and that counts it as a competing priority for your hard-earned cash. So either cancel unnecessary cards or reduce your limits.
  • Personal or car loans – again, if you owe $20K on a car loan, the bank will take this into account. Sensible Aunty Belinda says what business do you have buying a house when you are still paying off a car – HOWEVER, this is the real world, so if you are, be aware that it crimps your spending power.
  • Your credit score. Like an inner wild child, everyone has one of these – even if they don’t know it. If you buggered up a mobile phone plan as a 19 year old, your credit score will know. If you didn’t return that Mean Girls DVDs to the store in 2005, they will know. OK, maybe not the latter one – but you will have a score, it might be compromised by a bad decision or oversight, and you need to know about it. Google ‘credit score’ and get a free one.
  • Your savings history. Even if you have been gifted a hefty sum from the ‘bank of mum and dad’, you need to show the bank you can be a grown up and pay off a mortgage. So they will want to see your bank statements to reassure themselves of that fact.

Building in a buffer

Now just because you CAN borrow a certain amount, doesn’t mean you NEED to. Banks are pretty clueless about how much they think you actually spend. They will say ‘your repayments are this, and your spending is that, so you can borrow this BIG AMOUNT.’

But they don’t know about your penchant for annual ski trips, your addiction to spray tans or your deep-seated desire to pay 30 bucks a pop for an F45 workout. So unless you intend to live like your Nanna, don’t take the max amount.

Also, remember that we are at crazy low interest rates right now, and they won’t last forever. You need a decent buffer in case rates go up, so get your broker to run the numbers as though rates had gone up 3% or more. If you almost pass out when you see those repayments, it means you can’t afford it.

The next step is to get pre-approval on the loan you want. That means you can go to auctions and sales and feel like you have the money in your hot little hand. You actually don’t, because the bank still needs to approve the property you buy, and a bunch of other boring details. But it’s the closest you’ll get until you do the deed for real.

The paperwork gauntlet

Applying for a home loan is seriously one of the biggest paperwork fuck-arounds you will ever experience. They want payslips, bank records, identification and whether you’re oily, dry or combination skin. Well, it feels like it anyway.

A good mortgage broker will hold your hand through it, but be ready to spend time and frustration on it.

Crunching the numbers

How much does a property cost? More than you think. The purchase price is just the start. Other costs are:

  • Legal/conveyancing fees. Depends on who you use and what you need but factor in at least a couple of grand.
  • Building inspections – A few hundred bucks every time you get serious about a property and want to make sure it’s structurally sound and not full of termites.
  • Stamp duty – This is the big one. If you’re a first home buyer, some states have exemptions or discounts, so check out your state government website. Working out the amount is pretty complicated and different in each state, so check out the calculators you find online or ask your broker. But it can add tens of thousands of dollars to your purchase price.
  • Lenders’ Mortgage Insurance – Another annoying trap for the rookie. If you have less than 20% of the deposit, the bank thinks you’re risky. So they make you take out insurance on the amount that’s short. E.g. If you’re at 18%, you may need insurance on the missing 2%. If you get one of those ‘95% of purchase price’ loans, they will hit you hard with this. You don’t have to find this money upfront – they whack it onto the mortgage. But if you throw an extra, say, $10k onto your mortgage, you are then paying interest on it. It’s a rort in my opinion, so do everything you can to scrape up the 20% deposit.On a side note, when I bought my place, the bank valued it at $40K higher than what we paid. We had been just shy of 20%, but at the bank’s valuation, we hit the 20% mark, so my awesome broker made them waive the couple of grand extra we would have spent on LMI. Suffer, bank!

Choosing a loan

Fixed, variable, offset, redraw – WTF? Relax, it’s not that complicated.

The first thing to decide is whether to have a fixed rate, meaning the interest rate doesn’t change. A variable loan goes up and down at the whim of the Reserve Bank or even just when your bank feels like it.

A fixed rate means you have more certainty for the term of it (often 3 years) but you are also stuck if rates go down, and may face a fee if you pay the loan out early (a break fee).

There are pros and cons of each, and basically, it’s like placing your money on red or black on a pokie machine – it could go either way. Choose the option that you can sleep at night with.

Then there is ‘offset account’. This is where any money in your bank account counts towards (offsets) the loan. Say you have a cool $10K of your everyday money kicking around in your bank account (well done, I wish I could manage that).

The bank acts as though you paid that money to them, and reduces the amount you pay interest on. So for example instead of paying interest on $400K, you pay it on $390K. All adds up, my friend!

A redraw is similar but I prefer it because it’s an extra level of discipline. Any money that you pay on top of the minimum repayment goes to the loan, but you can redraw it out again. Say you made $10K extra in payments last year – you can claw that back if you need an emergency boob job or something.

In my experience, once that money is in there, it’s a huge guilt trip to pull it out again – and you usually have to wait a day.

In terms of rates, your broker should find the best one for you. But here’s a hot tip – it’s probably not going to be with one of the big 4 banks. It might be with some credit union, or an online bank (like my UBank loan). So don’t be sucked in by their branding. Also, bear in mind the ‘comparison rate’ – this means if they say the rate is 4%, but by the time you add fees and charges, it comes out more like 4.2%, they have to say so. Try and find one with minimal fees, obvs.

Now I am not going to give you any advice about actually choosing a property because that’s a whole other topic and one I’m not really an expert in. But suffice to say do your research – lots of it.

So that’s it Fierce Girls. Save this in your files for your happy house-hunting in the year 2067!

 

What marriage – and divorce – taught me about money

My house was sold on Saturday. It sounds exciting but is in fact painful. It’s one of the last steps on the road to settling my divorce.

Regardless of the price my property commanded, selling it was one more loss in a long process of shedding – which is what a marriage breakdown all comes down to.

You shed your identity as a couple and as a wife. You leave behind cherished memories and possessions that hurt too much to think about, so you shed them too.

And when it’s all done, you find yourself stripped back to a strange hybrid self. The single self you were all those years ago, when you were on your own. But she is overlaid with a new, wiser, older version, burnished by loss and forged in fire.

So because I am a bit too sad and emotional to give you awesome happy money tips today, I instead give you some hard-won lessons. Take from them what you will.

You can walk away with (almost) nothing and be happy. I left a 3-bedroom townhouse with a double garage and extra storage. I ended up with 1 room in an apartment, no garage and no storage.

It was already furnished, so I left a house full of furniture, appliances, books and ‘stuff’. Left it there, threw it out, donated it or squeezed it into a few boxes in mum’s garage. I kept my (real) Tupperware though – that shit has a lifetime warranty!

So, I barely own any stuff now. And I am happier than I have been in years. Now, correlation is not necessarily causation – I am happy for other, more fundamental reasons.

But this process of leaving things proved to me that beyond the basics (like containers for your epic food prep sessions), you don’t need heaps of stuff to be happy.

Money means choices. Nobody gets married thinking it will end. I didn’t think it would happen to me. But sometimes it does, and it did.

And if you’re the one who wants to leave, you have to deal with the emotional upheaval just as much as the practical shitstorm. Finding rent and bond for a new place is a big expense.

I was able to do that because I had savings. I had an income. I could choose a nice apartment in a nice area. That meant I could focus all my attention on the essentials, like bursting into tears on the train every morning, for example.

You need to share the responsibility for money. You won’t be surprised to hear that I was in charge of all the finances. This wasn’t good for either of us. I felt burdened and he felt frustrated by my decisions.

I see both men and women fall into this trap. It seems easier to give up control, but it actually drives you apart. Managing money together means you share the wins and handle the challenges together, rather than one person shouldering the blame for your financial outcomes, or guilt-tripping the other one.

Ultimately, nobody is going to look after your interests like you do. No matter how happy your relationship, you’ll never regret giving yourself the knowledge and tools to be in control of your life and your choices.

You can always reinvent yourself – I’m the Arts graduate who fell into PR. I was all about words and books and writing. And here I am, rocking an actual qualification in finance and being called an ‘expert’ (haha thanks Mamamia).

I was the unsporty, uncoordinated one, and here I am about to compete in a powerlifting competition this weekend. (I won’t beat anyone, but will rock the outfit anyway).

You just never know how things will turn out. You are just one decision away from changing your life, or someone deciding to change it for you.

This is both liberating and terrifying. The only thing to do is be ready for anything – to embrace the new opportunities or tackle the crises. And to put away what money and resources you can, in order to do that successfully.

So that’s what I learnt once I picked my life up and put it back together. If I had to sum it up, I’d say, no matter what happens: you’ve got this.

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

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

But geez they annoy me as a generation.

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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


But we don’t.


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


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

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


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

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

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

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

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

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

 

Daddy Lessons: 3 tips from a Fierce Girl father

While support for this blog from the sisterhood has been fantastic, I’ve also been delighted by the number of men who have got behind it.  My dad is one of these honorary Fierce Guys, and because I am studying for my last exam, he offered to do a guest post. What a legend.

So, here are some tips from a guy who lives the ideal retirement lifestyle, after a long and intense career in the corporate world.

A Fierce Girl dad chips in – by David White

I’d better fess up at the outset.  I’m one of those baby-boomers.  You know, the ones who got a free university education, lucked out in the property market, got the best out of the super system.  What could I possibly have to say to the Gen Ys and Xs who have to live in a much less opportunity-rich environment?

Trust me, I know how lucky I’ve been and the media keeps reminding me if I forget.  But I think there are a few rules applicable at any time, which is what my Fierce Girl has been trying to tell you.  So that you don’t have to listen for too long to an old bloke’s pontificating, I just want to suggest three ideas you might consider.

Your super

I know it’s getting hard to trust the system when they keep tinkering with super.  Do you really want to put your money into a game where the goalposts keep moving?  Here’s the thing, though – even this penny-pinching government won’t change the rules backwards.  They had a go recently and their own hard-arsed conservative mates forced a backdown.  All the rule-changing has confirmed this  – every bit you can get into your super account before the next bit of tinkering is a bonus that will pay you back later on.

I would say to you, stuff every bit of left-over cash you can manage into your super account, while the rules let you still contribute.  Do it to the point where it hurts you just a little bit.  In 20 or 30 years’ time you will love yourself for it.

One thing you need to remember, though, is that your super balance (even though you might not be able to get your hands on it for decades), is counted at its face value as part of your total asset pool in some cases.  So if you find your Mr Darcy, and he turns out to be Mr Wickham, all your hardscrabble super would fall into the pot to be divided between you.  It will hurt you to have to give that creep anything, when he’s been out putting new gadgets on his four wheel drive and drinking fancy single malt Scotch while you’ve been sensibly trying to assure your financial future together.  And now he wants some of your super!

But think about this if that shit happens to you – what you have in your super can never be replaced if you have to trade it away as part of the split, because of those changing rules.  Maybe let that freeloader have a bit more of the hard assets, and hang on to as much of the super pie as you can.  Down the track you ‘ll be feeling smug when all he can afford is Johnny Walker Red and a secondhand Hyundai.

Don’t buy a Porsche

That may be the wankiest piece of advice you will ever get in the Fierce Girl’s Guide.  But there was this one time, late in my career, when for the only time ever via some fluke in the market, the company had a great result and we maxed out our bonuses.  The executive team did particularly well out of it (yeah, I know, fat cat bosses).  Out of the seven of us, the car park count was:  two of the most expensive Harley Davidsons you could buy; two Porsches; one BMW.  One of us (a girl of course) put it towards the house she was in the midst of buying.  Being the tight-arse I am, I paid off my last bit of debt.

Now I’m never going to have another chance to buy a Porsche.  But every time I see some grey-headed dude drive past in one, it reminds me that I made a good decision.

What should you do if a bundle of cash falls unexpectedly into your lap?  I would apply the 80-10-10 rule.  With 80% of it, do something boring and sensible:  pay it off your mortgage, invest it, stick it into super.  With 10%, blow it on yourself and get something you’ve really lusted after but couldn’t prudently afford.  Then give the last 10% away, to your family, to charity, to some cause you’re passionate about – it will feel amazingly good.  You’ll end up with a triple shot of self-esteem, instead of that hangover feeling after you pissed the money away.

It’s not all about you

Without wanting to contradict all the good advice you get from this Guide, I want to suggest that you don’t button yourself down so much financially that you might be hurting people you love.  I asked my Fierce Girl if I was too much of a tight-arse when she was growing up.  She said, “It wasn’t too bad, but you should have taken us to Disneyland.”

She’s right, I could have afforded it, and going to Disneyland in your thirties just isn’t the same. Thus my unrelenting financial prudence was in some ways not so clever.  Precious memories can give just as good a return on investment as bluechip shares.

So, you go for it, all you Fierce Girls.  It’s a hard world out there, but you can do it.  Oh, and remember your dads love you, and we’re proud of you.

Note from Belinda: If you haven’t seen Beyonce sing Daddy Lessons with the Dixie Chicks, do yourself a favour and go here

Also, my dad and I have blogged together for ages on http://www.lifein500words.wordpress.com if you’re interested. #nerdfamily

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