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The Fierce Girl's Guide to Finance

Get your shit together with money

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economy

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/ 

The three numbers you need to care about

When they tack sport onto the end of the news bulletins, I have an uncanny ability to tune it out. Not on purpose – I just have zero interest in who sportsed harder than the other.

I’ll bet you do that with the business news too. You legit don’t care about the price of gold or Texas crude oil. You don’t care that the All Ords was down 4%.

I get it – even I only listen with half an ear. (Daily movements don’t mean much – it’s all about the trend lines.)

But there are some numbers in the world of economics that have a real impact on you and your life.

Keeping an eye on them not only makes you smarter, it helps you make better decisions.  So here is a list of numbers I watch and care about, even as someone who can barely use Excel. (Seriously, I can’t even do formulas – it’s like some sort of learning disability).

GDP Growth – This is a simple number with a huge amount of stuff sitting behind it. It’s kinda like saying ‘This is a smoky eye’ when actually this is 20 minutes, five make-up brushes, eyeliner, mascara and probably some swearing.

Gross Domestic Product Growth is a sign of how well the economy is doing: what business is up to; how productive people are (every time you check Facebook at work you are hurting the economy. JK! Well sort of); how technology is making things more efficient. You don’t need to know each thing, but you do need to know the effect.

When the economy is growing, things are pretty good. There are lots of jobs, people spend money, investments grow in value.

If the economy is going backwards, it’s called ‘negative growth’, (an oxymoron in my view, but a thing nonetheless). This is VERY BAD for jobs and general chill levels.

GDP growth is measured every quarter and if you have two consecutive quarters of negative growth, that is a RECESSION.

Now the weird thing (in a good way) about Australia is that we’ve now had over 100 consecutive quarters of positive growth. While all those Europeans and Americans had a post-GFC recession, we didn’t (see side note below).

But it hasn’t been amaaazing growth either, which is one reason why the Reserve Bank has cut interest rates so many times – to try and pump up the economy by making it cheap to borrow and invest.

Unfortunately, most of that borrowing and investing has been by consumers and not businesses. Hence the housing market has gone bananas, while business investment levels have fallen off a cliff (here are the stats if you’re interested).

The reasons behind that are complex, but I think it’s partly a risk-averse corporate culture, and partly because shareholders are demanding big dividends instead of putting profits back into the business.

Side Note Why politicians matter to the economy – if you aren’t interested skip to the next section.

Remember K Rudd sending everyone some free money in 2008 (the ‘stimulus’ program)? That was to avoid a recession. The idea is that if everyone keeps spending, the economy will keep growing.

Sounds simple right? And it is, if you believe my friend Keynes (he’s my friend in the way Beyonce is – we don’t actually hang out. Also, he died in 1946). Keynes says if consumers and business stop spending then the government needs to step in and spend instead. Or give consumers the cash to spend (hello K Rudd!).

The alternative approach is where the government cuts spending to the bone – called ‘austerity’ – and then hopes for the best. It’s been proven to be totally fucking useless and just sends countries into deep, long-term unemployment (see Greece, as an example).

But the weird thing about economic policy is that governments often do stuff that has never been proven to work, because it’s based on the ideology of the people in charge.

Like, tax cuts for business and rich people have never been proved to trickle down to the rest of the economy, but Malcolm Turnbull and Donald Trump fucking love them anyway because they love business and rich people. OK, end of side note.

Inflation – measured as the Consumer Price Index (CPI), this tells us how much prices have moved. They take a ‘basket’ of goods and services – food, clothes, school fees, petrol etc – and track how much people are paying for them.

Some prices go up – hello, glass of wine in a bar! (I paid $13 for one the other day. I nearly vomited). And other prices go down, like TVs and clothes from H&M.  When they are all added and averaged, it gives us the inflation rate – most recently 2.1%.

Why does this matter? Well every time things get more exy, the money you have in your hot little hand is worth less. So you don’t want inflation to be too high.

But if it doesn’t grow at all, it’s a sign that the economy isn’t healthy, so you don’t want it too low either.

Tricky huh?

The Reserve Bank has decided the ‘just right’ level of inflation is 2-3%, so this is the their ‘target inflation band’. If the rate falls below it, they might cut interest rates (see why this stuff matters!).

Or they might not, depending on what else is going on, like house prices going crazy.

TBH, the Reserve Bank has a pretty tough job. Their overall goal is to keep the economy humming. But it’s harder than doing a wedding seating plan. Like if you put that cousin with that friend, they will argue about Trump. And where do you put that lone friend who doesn’t know anybody? Should you put all the single peeps together, or is that telling them they are non-married losers who should be separated from society?

Well that’s how the RBA feels when they try and balance inflation with house prices, growth with avoiding a bubble, stimulus with fairness. And worst of all, they only have ONE TOOL for doing this: interest rates. Up, down or on hold.

And that’s why inflation matters – not just because it affects your spending power, but because it drives interest rates. If you have a mortgage, that matters.

And if you don’t, it still matters, because it affects a) the price of the property you might buy one day and b) the investors buying the property you rent.

Wages Growth – This is very closely related to unemployment, and right now, these two numbers are not good friends. They grew up as besties – doing the same stuff together. When unemployment was low, wages went up. That’s how they rolled.

But in the past few years, they’ve really started going separate ways. One of them likes raves and EDM, the other is into Indie bands at pubs. One of them is vegan and wears recycled fashion, the other is shopping at Forever 21 and gets eyelash extensions.

Don’t believe me? Check out this RBA graph – see where they diverge and also how damn low wages growth is now.

Image result for wages growth unemployment australia 2017

What’s changed is the amount of UNDER-employment – people who want to work more but can’t find the hours. They stay out of the headline unemployment rate but are still economically disadvantaged.

Which is a long way of saying that the economy is complicated, yo.

You should care about wages growth because it relates to your market price as an employee. On a national scale, it’s getting harder to march into your boss and ask for a payrise. So you need to make sure you stay relevant and in-demand, and that you’re acquiring new skills that increase your value. You may also need to be realistic about your payrise expectations (soz).

The Upshot

I know, that was a long and detailed foray into economics. And hardly any celebrities to break it up (well, we had K Rudd and Keynes, I guess).

But I want you to know that this stuff matters. It’s not just numbers on the news; it’s stuff that makes a genuine difference to our lives and should affect our voting decisions.

There are actually tons more cool figures I could have included in here, but hopefully this gives you a taste for that exciting world of ‘the national accounts’. Woot woot! Let’s party with Bey!

 

photo credit: https://www.flickr.com/photos/hongatar/ 

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