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The Fierce Girl's Guide to Finance

Get your shit together with money

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

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

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

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

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

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

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

 

 

Fierce Girl Action Plan Pt III – How to avoid drowning in debt

First up, a confession. I only used that headline so I could use that picture. But Beyonce is full of good advice, which we shall get to later.

Truth is, many of us stumble through life with a trail of debt.  Credit cards,  university fees, car loans. Then we think about barrelling into more debt by buying a home .

However, I am not here to say ‘debt is bad’. It’s a normal part of life, and it can help boost your wealth when used appropriately.

But not all debt is created equal.

And whether it’s good or bad, debt costs us money. Nobody lends you money without the prospect of getting it back and making more on top. 

Even that ’24 months interest free’ for your TV comes with monthly account fees. But what they really hope is that you will go over the 24 months and start paying 20% interest on the outstanding balance.

When the bank says ‘zero percent interest on balance transfers’ for your credit card, it really hopes you won’t pay it off before the special offer ends – and that you will, in fact,  add more to it.

Let’s face it. The banks have you figured. If you need a balance transfer, you probably use your credit card a little too freely. Banks like you. They don’t like Nancy No-Spend, who pays her card off in full each month. She gives them nothing.

But debt can be useful when it helps you build wealth and magnify your gains. So let’s just spend a bit of time on the basics.

Why are some loans sooo expensive?

There are two types of people in this world: people who know how to walk, and people who are in my way.

That’s irrelevant, but I read it the other day and liked it. What I really mean is, there are two types of loans in this world – secured and unsecured.

In life, all risk is priced. Whether it’s the risk to a lender that you won’t repay a loan (hello 20% interest rate!) or the risk to an investor that they might lose money (hello cheap shares in speculative tech start-up!). So, it’s handy to remember that for all money conversations.

In terms of loans, secured is less risky to the lender. There is an asset – your home, a car or shares – that the lender can come in and take back if you don’t pay the loan. The risk for them is lower, and so is the interest rate.

Unsecured loans have none of this ‘collateral’ against them. When you don’t pay your credit card, the bank can’t come in and demand that you return all those bottles of Sauvignon Blanc you bought at Ryan’s Bar. Nor do they have any interest in your hot, over-the-knee boots from last season. (Losers, obvs).

Other than sending you mean letters from debt collectors, they can’t do much to get their money back. So this riskier loan is more exy – up to 20% interest or more.

So what’s a good debt? 

Let’s call them ‘productive debts’. These loans can make you money – finance types call this ‘leveraging’. You borrow money to invest.

A home loan, in theory, will make you money because the value of your property grows.

Whether it balances out with the amount you pay in interest depends – on the interest rate, the property in question and a bunch of economic factors.  In general, the more money you throw at the loan, the faster it gets paid off, the less interest you pay and the more money you make.

Similarly, you can take out a loan to buy investments – often shares – which magnify your gains. So instead of buying $100 of shares that make you $10 profit, you borrow another $100, invest $200 and make $20.

You end up paying back that hundred, plus interest, so you don’t entirely double your gains, but you certainly make more than just spending your own money.

These are called margin loans, and they can be a little tricky for the unwary. Say the shares you bought fall in value dramatically – from $10 each to $6. The bank gets worried because that’s not enough collateral to cover what you borrowed. So they make a ‘margin call’ – forcing you to sell down your shares or tip in more of your own cash.

Now I know that sounds a bit scary, and it can be; people lost a bunch of money this way during the GFC. But there are ways to manage the risk, by not borrowing too much in the first place.

To be honest, most of you probably aren’t going to dabble in margin lending, but if a spivvy financial adviser tries to sell you one, at least you know what they are talking about. (I was advised to get one right before the GFC, and didn’t. Dodged a bullet there).

And what’s bad debt? 

Now we are friends with the good guys, let’s talk about the bad guys. Because that is always who I go for. Hello, Danny Zuko.

dannyzuko

For simplicity, I will make a list of debts you should get out of your life as swiftly as Amber Heard kicked Johnny Depp to the curb and then donated her settlement to women’s charities (Fierce Girl for sure).

Credit Card Debt 

Credit cards are useful if you have self-control. However, much like having a block of Cadbury Dairy Milk in the pantry, it doesn’t always end up they way you hope.

But rather than lecture you, let me share some of my failings in this area and offer some lessons.

Credit Card Disaster #1

When the NRMA demutualised back in 2001, they gave members shares in the company. I got a couple of thousands dollars worth.

I also had a couple of thousand dollars on my credit card from buying clothes and drinking at The Establishment (which was  brand new and oh-so-cool). So I decided that I’d sell my shares and pay off the debt.

My  dad said this was a rubbish idea, but what would he know?! I would clear my slate and go forth debt-free. On $30,000 a year!

So we can see how this ends. I liquidate my one asset with genuine growth prospects, settle a debt, then steadily rack it up again. Without meeting one decent guy at The Establishment. (Some things never change).

Credit card disaster #2

I came back from two years in London with nothing but memories, photos and one good pair of shoes. Luckily my dad and step-mum let me move in, and I got a decent job in PR.

What a great time to set myself up financially.  I had been so poor in London, and now I had money! Hurrah!

Soooo, I spent it. All of it.

In fact, I splashed all my cash on God-knows-what and found myself in debt again. FFS.

Fast-forward a year or two, and  with a better-paid job in Melbourne, I’d paid off the card and got back in control. Until…

Credit card disaster # 3 – My partner was working in hospitality when he had an accident and couldn’t work for months. So I became the breadwinner and we continued our lives as best we could.

Except we didn’t change our lifestyle, or our cost base. Maybe I trimmed at the edges, but essentially, we were still living like a two-income household. So we racked up debt again…

Ok, there is a pattern here, and if I am honest, it’s one I have never totally cracked. Currently at zero balance, but touch wood! [2020 edit –  I have no credit card and no debt other than a mortgage – it is possible!]

The recurring theme is simply thoughtless spending. It’s one thing to have an unexpected costs come up, but another to just let your balance creep up incrementally because you’re a baller. Hence why I have tried to embrace mindful spending.

It comes down to the Micawber Principle. One of my fave Dickens characters, Mr Micawber is constantly in and out of debtors’ jail (yes, in Victorian England you got locked up for going bankrupt!). So he tells David Copperfield, over and again, “Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.”

If you don’t dig Dickens (*shakes head in disapproval*) then let me break it down for you: don’t spend more than you earn. It’s that simple … and that hard.

Fancy cars are for men with small … egos

A couple of years ago I told my brother how I was planning to buy a Toyota 86, a funky little sports car. He asked me a while later what happened to that plan.

“The flaw in my plan,” I told him “is that I forgot that I’m a massive tightarse”. So the 13-year-old Mazda 3 lives another day.

I don’t have much to say here except that cars are a depreciating asset (i.e. they lose money every day), they are mostly an ego decision, and they are a pain to pay for. Just buy the cheapest/safest car you can, and find your self-worth elsewhere.

Also, make sure you find a loan that you can pay out early – it shouldn’t take you five years to pay off a five-year loan. Throw extra money in and you will save on interest, as well as getting the monkey of debt off your back.

A HECS on your debt

If you are trying to choose which debts to pay off first, leave this one down the list (other than the minimum of course). It’s pretty much interest free (they index it, but don’t charge interest), so just let that one tick over on the government’s balance sheet for as long as possible.

If you have concurrent debts, such as HECS, a credit card and a car loan, look at which one is charging the highest interest and smash that one first.

It will require patience and dedication and sacrifice, but so does pretty much everything worth doing.

Be like Beyonce! Work hard and grind hard til you own it (life, that is).

slay

Just do one thing: A Fierce Girl Action Plan – Part I

Money is tricky. Debt is distressing. Saving is hard.

And so the easiest thing to do is not think about those things. Sort them out another day. Leave them to your responsible future self.

Unfortunately that future self has all the same flaws as your current self. Damn it!

So there is only one thing to do. Start Now.

“But where do I start? What can I do that will make a difference?”

Well, I like to take life advice from everybody’s favourite nun-turned-governess, Fraulein Maria. She says, “Let’s start at the very beginning”. And I think we can all agree that is a very good place to start.

Financial triage. You know that mean nurse at the hospital emergency room, who decides you wait four hours and that dude goes straight in? That’s the job of the triage nurse: to work out who is most likely die, and who is just there because their arm hurts.

You can do this with your money too. There is no perfect order, and you can do some of them at the same time, but a useful road map will look something like:

  1. Have an emergency savings stash
  2. Insure your most valuable asset
  3. Sort your super
  4. Pay off ‘bad’ debt
  5. Pay off ‘good’ debt
  6. Save for fun stuff
  7. Invest

We will look at each one in separate articles, because there is a fair bit to cover. But here are the first two. And I promise if you spend five minutes reading about insurance, we shall never speak of it again. 

(Well, not promise, as such…)

Emergency savings – This is money you can call on if you lose your job, have an accident, your fridge dies or you suffer any number ofthe disasters that befall us in this crazy little thing called life.

The right amount is different for everyone. If you have a direct line to the parental back-up system, you can get away with less. If you are really doing this adult life thing on your own, then you need at least a month’s salary – preferably three.

You can put it in a plain old bank account (ideally a different bank to your everyday banking, so you don’t see it all the time and mentally spend it on fun things).

Or if you have a mortgage, put it in an offset or redraw facility, so it reduces the interest you pay.

How do you save this amount? Basically, you spend less. Amazing, I know. Check out this post for some tips.

Insure your best asset – No, not like J.Lo insuring her butt. This is about insuring yourself and your earning capacity.

Boring, I know. But like cleansing and moisturising on a daily basis, insurance is a dull but necessary part of life. So what do you need?

Life insurance – it’s up for debate, but my view is that this is mainly needed if other people depend on you and your income. i.e. if you have kids, or you have a mortgage with a partner. If you’re single or your partner looks after himself/herself, having life insurance is kind of like being on the pill when you aren’t getting any action – a bit of a waste.

HOT TIP: You most likely have some life insurance already, because it comes as a default in super funds. Yes, you are probably paying for it RIGHT NOW. And if the only one who needs your money once you’re dead is the drycleaner, who has half your wardrobe waiting to pick up, you may consider opting out (which you totally can).

TPD – This is for total and permanent disability. Like serious Million Dollar Baby stuff.  You get a payout if you are very seriously buggered up and unable to work ever again. That doesn’t mean ‘I fucking hate my boss and also I hurt my back’. It means you are very, very disabled. Usually physically – it’s often hard to prove permanent mental disability.

Again, this is usually a default option in superannuation, and I would argue it’s better to keep it. If you were, God forbid, in a position to need it, you would be really glad to have it. You may even want more than the default amount.

Trauma – similar to the above, but a lower bar to qualify for it. Say you’re in a really bad car accident and can’t work for months, this will help tide you over and pay for all the crazy costs. It’s generally not included in your default super, so talk to a financial adviser, insurance broker or insurance provider about whether it’s for you.

Salary Protection – This is the underloved but very useful member of the insurance family. Say you’re diagnosed with aggressive breast cancer at age 30 (as happened to a friend of mine. No, not Kylie Minogue, an actual real life friend). You have to take six months off work. How do you live? You can’t rely on social security – that shit is hard and slow to access – you will legitimately be living on the streets if and when you ever get a dollar from the Government.

So, unless you relish the thought of cancelling Netflix, drinking Nescafe and taking goon to dinner parties (uni life!) take a good look at this option. You can often get it through a super fund, where  it comes out of your super payments, but you normally have to ask for it. If you get it outside of super, the premiums are even tax deductible. I once had it covered by a generous employer.

You can get a cheaper version, where you get paid out for two years, or the fancy one where it goes until you’re 65. You can also choose how long it takes to kick in (1 – 3 months usually) and that affects the cost.

But the key point here is: think about getting it.

Health Insurance – Look, the public health system isn’t going to let you die just because you don’t have insurance. But you might have to share a room with a loud, weird or stinky person if you’re in hospital. You might have to wait a couple of years for knee surgery, with really painful knees, instead of having it on-demand. You might not be able to afford IVF if you ever need it.

It’s a lifestyle choice. I personally hate paying it, but do it anyway, because I can afford it and, as my ex-husband once said ‘I’m obsessed with insurance’. (Ha! As if! I don’t even know anything about it!).

But don’t be afraid to shop around for a better deal. I used comparethemarket.com.au to do that, because I like the meerkat. But you could try iSelect or other comparison sites. (HOT TIP: these are free to use, because the winning insurer pays the site a commission).

What’s all this stuff about superannuation? Well by some quirk of history, your retirement savings have become wrapped up with insurance. You generally get allocated default Life & TPD insurance when you join, and pay from your contributions. Salary protection and trauma can be paid the same way but you normally have to request them.

Now, you are under no obligation to use your super fund’s insurance (although it can be handy). You can buy any of these products directly from an insurance company. I’m not here to tell you one is better than the other – just make sure you have looked at what you have.

The bottom line

 The action points around this are:

  1. Check your superannuation statement, (or call your fund,  because I know you can’t find it). Find out what insurance you have, and how much you’re paying for it.
  2. Work out how much you need and where the gaps are. MoneySmart has some good stuff on this. Financial advisers and insurance brokers are also helpful. Australians are generally underinsured, but you may be overinsured too, if you don’t want life insurance, for example. Or, if you have multiple super funds, you could be paying for several life insurance products. Sort that shit out now. Please.
  3. Shop around for a better deal on existing insurance by using a comparison site. But if you do this, make sure you read the fine print, to make sure you’re not giving up something you need. Yes, reading the fine print is an important adult skill!

So, there you go, insurance is “Simples!”

meerkat

Disclaimer: I’m not a financial adviser and this isn’t finance advice. If you think you need professional advice, speak to your super fund or an adviser.

The doctor is in: how to get better at (not) spending

ryangosling doctor

Don’t lie to me. I know you spend money on shit.

You had to get your nails done because you had a bad day, and why should your nails suffer too?

You needed a new white top, to go with that blue skirt, because otherwise the skirt wouldn’t get worn, and that would be more wasteful.

You buy a fancy $20 cocktail because, well, YOLO.

I know, because I do this too. We all do. We live in a consumer society, surrounded by things to buy and people convincing us to buy them. I don’t have any magic solution for that – except escaping to an ashram, and really, can you imagine the hair and wardrobe options in rural India? Exactly.

But we can all do a little better. We can all learn a little thrift. And why is this important? Because it takes a lot of damn effort to earn money. And there are things you really want to do with that money – things that give you joy, or meaning, or opportunity, or security.

Meaning every dollar you don’t waste on crap is something you can spend on the good things. I know, sounds obvious.

So we need to spend consciously. To consider if something is in line with our goals, priorities or even just our genuine pleasure.

Buying your friend a drink is a nice feeling and a great way to bond. Dropping a hundred bucks at the bar because you decided to do shots all night? No.

Buying a killer dress to wear to a friend’s wedding, because your ex will be there? A sensible choice IMO. Buying something from a cheapy Chinese shop in your lunch hour, because you’re PMSing like a bitch, and then realising it actually clings to your lovely lady lumps a bit too much? No.

Think about what matters to you. Goals are good: whether it’s a holiday or a good retirement, having a goal lets you do a calculation. “Would I rather drink wine in Rome or buy another pair of shoes that hurt my feet?”.

Think about what you love and allocate resources to that. I fucking LOVE eating breakfast out. I’d rather spend $25 on that, rather than a bottle of house wine on a Wednesday night (that will make me feel seedy as a tin of raspberry jam the next day). But maybe you really like wine Wednesday. That’s cool. Just make your own toast on a Sunday.

But girl, please, don’t do both, every time. A sense of entitlement to every indulgence that comes your way is a one-way ticket to poverty-ville.

Your spending manifesto

Now write some things down. Give yourself a manifesto. This not that. Poached eggs not prosecco.

Fact is, you can’t have everything you want. Soz!

So deal with that, and decide what you want the most. Be mindful. Be smart. And be a fucking tight-arse when it comes to allocating the money you bust your arse for at work.

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