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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.

 

1

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.

0

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

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.

1

Insider’s Guide to Finance Part II: Financial Advisers

Financial advisers have had a bad run in recent years. But writing off all financial advice because of a few bad ones is like swearing off dating just because you watched The Bachelor choose Alex over Nikki (I know right!). Certainly there are stupid, incompetent or greedy advisers out there. But there are stupid, incompetent and greedy people everywhere, and to be honest, I would say quite a few of them make it onto reality shows.

So would I recommend using an adviser? Yes and no.

As I said in another post, I generally support outsourcing to experts. I certainly don’t let any of my finance clients write media releases, and they don’t let me manage millions of dollars of other people’s money. It works out pretty well.

So here are some reasons you would consider working with a financial planner:

  • You have a pretty big goal to reach, such as starting a business or buying a house.
  • You’re undergoing a change such as marriage, divorce or having a baby.
  • You want to make sure you are on the right track with planning for your retirement.
  • You want a roadmap that keeps you focused on a goal, with a tangible plan to get there.

Advisers actually do quite a lot more than just tell you where to invest your money. They can look your life insurance (read more about that here), how to manage your tax affairs or help with ‘estate planning’ (i.e. they make you get a will).

HOWEVER.  There are a few things you should know about the way the industry works, so you go in with your BS detector ready.

Not all advisers are created equal

Remember in Clueless, when Cher explains her virginity? “You see how picky I am about my shoes, and they only go on my feet!”

clueless

So ladies, be like Cher. Be highly selective when choosing an adviser, because there is a wide spectrum. Some advisers only have a diploma, while others have a degree (although this is set to change in the next couple of years, under new government rules).

A degree is not, in itself, a guarantee of knowledge or integrity. And similarly, plenty of good advisers have gained lots of experience on the job, regardless of having done a uni course.

However, it does pay to look at their credentials. Ask about their qualifications and experiences. Ask for testimonials. Ask your friends and family. It’s your money, and you want to be like Cher with it.

Know enough to call BS on their advice

I got a big financial plan done many years ago, and part of the recommendation was to get a margin loan to buy shares (more about them here). It was late 2007 and the markets were great. In fact the whole economoy was great, and Australia was ballin’ like Beyonce in a pool of dollar bills.

beyoncemoney

Anyway, by the time I got around to implementing the advice, I knew enough to be worried. The sub-prime loan thing was happening in the US (a precursor to the GFC). It looked like the boom could be over soon, after a  period of ridiculous high growth. And anyone with a passing knowledge of economics knows EVERY boom has to have a bust. The trick is working out when.

So I sat out the storm. We kept our money in the bank, and soon enough, the sharemarkets dropped by more than 30% – which would have meant my margin loan got called in, and I’d have lost money or had to spend more.

This isn’t to say the advice was bad. But it came at the top of the markets, and I wasn’t comfortable with the assumptions underlying it.

The lesson here is, do enough reading and learning on your own, so that if something doesn’t sound right – for you – then you can say no. Or ask more questions. Or marry someone for 72 days.

The people who lost their homes in financial advice scandals such as Storm Financial were told that despite a really low income (sometimes just a pension), they could make hundreds of thousands of dollars. If they had had enough basic financial literacy, they would have known it was total BS. (If it sounds too good to be true…)

It’s like when you are in a shoe store and they only have size 38, but you are a size 39. That sales girl will tell you they are leather, they will stretch, yada yada yada. But you know in your heart those things will give you nothing but grief, blisters and pinched toes. So, you need to take advice (from anyone, including me) with a grain of salt, and listen to your own gut feel.

Someone, somewhere, wants to make money off you

You know when you go to the beautician for a facial, and you’re paying your 80 bucks for the service. But then she tells you your skincare regime sucks, and tries to offload 200 bucks worth of overpriced Dermalogica on you. And somehow, in the moment, a $60 moisturiser seems like a really good idea. (Newsflash: it’s not, and it never will be).

Well, the same thing happens in finance. If you go to a financial adviser at a bank, for example, they are bound by rules to recommend the best financial products for you. But it just so happens that the bank has a whole suite of financial products to offer too. “Look, here’s a managed fund I prepared earlier!”.

And just like the beautician is going to offer you the product that makes her money (I know, she swears by it, she really does) – the adviser is also possibly going to sell you a product that makes money for his or her venerable employer: the bank.

It’s called ‘vertical integration’, and while the finance industry didn’t invent it, they have built a huge business out of it.

Not every adviser is part of this vertically integrated structure. Many independent advisers are deadset against it, in fact. And I am not here to say who’s right or wrong. There are fantastic advisers – both independent and aligned – selling a wide range of products in a highly ethical way. It’s just good to be aware who is making money, and where, and how.

Know what you’re buying,  ask questions, and consider whether you couldn’t get a really bloody good moisturiser at Priceline for $12. (I have, and look at my youthful skin!).

So how do I get started?

Asking friends and family for recommendations is a good start. Check out the Financial Planning Association website. Follow some advisers on LinkedIn and see if you like what they say. I wish you well, and hope you never again buy a pair of shoes half a size too small.

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

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