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The Fierce Girl's Guide to Finance

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Invest like a boss

Maybe your grandma was right (about money, as well as that boy you were dating)

My late step-grandma* had a saying about choosing a partner: ‘Never stoop to pick up nothing’.

This post is not about that – I just wanted to share it because it’s great, and to prove that Grandmas know their shit.

My Grandma used to have five empty Vegemite jars, which she’d put her stray pennies into. There were different jars for different purposes.

“And if you keep doing that, soon you have a shilling, and then you have 21 shillings, which means you have a guinea to spend”.

(OK, I had to Google how  many shillings in a pound, but I did know that guineas are more exciting than a boring old pound).

This old-fashioned idea actually underpins a fancy new concept: microsaving apps like Acorns. I’m a huge fan of this app, which scrapes small amounts off your bank account – called ’round-ups’ – and invests them for you.

Say you spend $3.50 on a coffee, it garnishes the 50 cents (to round up to $4), and pops it into a portfolio of Exchange Traded Funds (ETFs) – click here if you want to know more about them.

I like this because it’s painless saving. Of course I have other savings. But my Acorns is a bonus stash that I actually forget about most of the time.

Words from the wise

My friend Cara has an Irish Granny who tells her to ‘save your pennies and the pounds look after themselves’. So true! Even if we don’t actually have pennies or pounds.

On one hand, little bits of good work all add up, in those real or virtual Vegemite jars.

On the other hand, it’s all the small purchases here and there that drain your finances.

In fact, I just went through an exercise proving this. My work is about to launch a budgeting tool which links to your bank accounts and categorises all the transactions (from the last 6 months!) into ‘essentials’ and ‘discretionary’.

But it can only do about 70% of them automatically, meaning I had to go through and label a bunch of transactions myself. Soooo many transactions in the ‘Bars, Cafes and Restaurants’. Soooo many in ‘Clothes and Accessories’.

Sobering but not too surprising. After all, my mindful spending manifesto says I can spend money on going out to brunch, dinner or drinks with friends. It says very little about buying clothes though, so I am going a bit too far with that.

Even though I’m still within my ‘spend and splurge’ limit, the process showed me that I should probably shave that allocation down a little.

Considering I just bought an apartment this week, after three years of post-divorce renting, I think that’s a useful and timely lesson.

So my hot tip is this: track what you spend. Even if it’s just for a month, you’ll quickly see where your money goes, and whether it’s in line with your goals or priorities.

I like the trackmyspend app from MoneySmart, but there are others in the app store. Or go old school with a notebook.

Other great tips from my Grandma and her generation:

A stitch in time saves nine – Looking after things properly means they last much longer. I notice this the most with shoes. If you spend the time and effort wearing in a  great pair of shoes, get them resoled and reheeled before they fall apart. I have some beautiful boots cracking the ten year mark now, thanks to some love and care from Mr Minit in Martin Place.

A penny saved is a penny earned – This is really, really important. Earning money is hard and annoying most of the time.

Every time you don’t spend money on something, you can not only keep it, but put it to good use.

My Acorns account is a good demonstration this. I’ve received an 8% return on my funds in the last year.  That means every dollar I put in is now worth $1.08 – for doing nothing!

Sure, I’m not going to spend that 8 cents all at once. But when you add this up over time, it’s powerful. Over the next year, I’ll be earning 8% (or whatever it turns out to be) on $1.08 – not just the original dollar.

And this, my friends, is the magic of compound interest. 

The graph below is from the MoneySmart compound interest calculator (which I freaking love). The pink columns show what happens if I keep my $1000, continue earning 8% every year, but do nothing else for 10 years.

It’s nice. You get $1220 of free money, and come out with $2220. Good outcome, but no reason to crack out the champagne.

However, if you add just $100 a month, look what happens. That is literally the cost of buying a takeaway coffee every day. If you allocate that to an investment fund for 10 years, you could walk away with over $20,000!

Those light blue columns are the ‘free’ money – the interest earned over that time.

Source: moneysmart.gov.au

There are lots of assumptions in this example, including getting 8% returns (not guaranteed with shares). But you get the general picture.

Every dollar you don’t spend is good. Every dollar you don’t spend, and invest in something more productive, is even better. 

That ‘productive’ thing may just be paying down your mortgage. Don’t get me started on how much you can save by doing that – I have a whole post in the works about it.

But you get it, right?

And finally, here is a tip from Grandma White, which has served me well over time:

If something has green mould, cut it off and it’s fine to eat the rest. If it’s pink mould, throw it out. 

I take no responsibility for public health outcomes on that one.

*Side note about my step-grandma Gwen: in her later years she told her daughters “If I die, don’t throw out my wardrobe without getting the $17,000 out of the back.” Over the years, she’d saved whatever was left over from the housekeeping money and stashed it there. Perfect.

Assumptions in calculator:
Scenario 1: $1000 deposit,  no additional payments, 8% interest each year.

Scenario 2: $1000 deposit, $1000 monthly payment, 8% interest each year.
Past performance of an investment isn’t a reliable indicator of future performance.

photo credit: Nicholas Erwin Change via photopin (license)

Investing 101 – Explained in shoes. Because, why not?

There is one important things that bad-arse, grown-up ladies do with their money.

And no, it’s not buy designer handbags.

Ok  maybe some do – but that’s not what this post is about.

No, what really grown-up ladies do is invest their money. Don’t be put off by that word ‘invest’.

You don’t need a finance degree to invest.

You can get someone to do it for you if you like.

Just like you don’t need to be a colourist to get your hair coloured, you don’t need to be a finance expert to invest.

You may want the guidance or input of a financial adviser. But you can also get a feel for it by starting small and being smart.

What sort of investments?

Well there are lots of ‘asset classes’, but the most popular ones in Australia are shares, property and cash. They all have different pros and cons, so I like to explain them like a shoe wardrobe.

Cash: your work flats – Not very exciting, and not much benefit to your outfit, but geez they are comfy and reliable. Especially if you have to hike to a meeting at the other end of town.

Similarly, putting cash in the bank has a low return, but you know you’ll get all of it back at any time.

Now, I don’t believe you should go to important meetings in flats. And so with cash, it’s fine for some purposes, but it’s not an ideal long-term play because of two reasons:

1) Opportunity cost – the longer you have it in the bank getting stuff-all interest, the more you miss out on the sweet gainz you could be getting in something like shares or property. There is also no way to reduce the tax you pay on any interest, so you pay your marginal rate (i.e the same as your income tax).

2) Inflation risk – as inflation rises, the buying power of your money decreases. If you are getting 2% in the bank, and inflation is 2.5%, then you effectively lose money, because it’s worth less than before.  (I have a whole post on this if you’re interested – here)

Now, if you’re really committed to cash because you’re risk averse or don’t quite know when you’ll want your money back, there is a subset of cash called Enhanced Cash (or similar names).

It tends to give you a couple of percentage points higher than a bank deposit, but is still pretty safe. Think of it as a strappy summer flat – a bit more pizzazz but no real risk of limping home in bare feet, with the balls of your feet burning.

One example is Smarter Money Investments, which I name here because I know the guy who runs it – he is a massive nerd and gets great returns (and for full disclosure, my employer owns some of it). There are other products out there which you could consider from a range of fund managers.

These products aren’t exactly the same as putting cash in the bank, but they are low on the risk spectrum. Make sure you read the fine print.

PropertyYour winter boots – If your boot wardrobe is anything like mine (extensive and carefully curated) then you’d know there are hits and misses. I have faves that have done the hard yards and been a damn great buy.

One of my fave buys

Then there are ones like the blue velvet over-the-knee pair. They were on sale, I had to own them, but now I can’t find anything to wear with them. In investing, this is called ‘poor asset selection’.

Buying investment property is really dependent on how well you choose. Unlike the velvet boot purchase, your property choice should be carefully researched, highly rational and based on solid data sources.

Despite what people say, not all property goes up in value, all the time. It is true that property has been the best-performing asset class in the last couple of decades, but that is an average.

Some locations or house types languish, or even go down. So while property can be a great way to build wealth, it needs more than a good knowledge of colour swatches and Ikea assembly.

The latest Russell Investments report looking at historical returns, warns that even though residential property is the best performer on average, “there was wide variation between regions, dwelling types and suburbs, with some areas declining”.

This is a risk of single-asset investing – imagine if every time you went out, all you had were those blue velvet boots!

So, just be really well-prepared if you go down this road.  And if you don’t want to go it alone, you have a couple of choices.

  1. Real Estate Investment Trusts (REITs) – these are a collection of properties parcelled together, and you  buy ‘units’ of them on the ASX, a bit like you buy shares. The value of the units can go up and down depending on the market (and  don’t always reflect what’s happening in the rest of the property sector. They got hammered in the GFC, for example).

    However, they give you a different flavour to traditional shares (aka equities) and the cost of entry is lower than stumping up for a house or apartment. They also give you access to more than just residential property – so you can own offices, warehouses and other commercial buildings. This provides diversification.

  2. Work with a professional property adviser – Someone like Anna Porter, who is a Fierce Girl-style powerhouse, if you ever get to see her speak. Her company does all the research and then advises on which property to buy. There are lots of similar advisers out there – but make sure they are independent and not just trying to spruik an overpriced new development.

 

Overall, Aussies love property investment and aren’t going to stop any time soon.

But I will just say this: don’t assume that just because you live in a house, you know how to invest in one.

It requires skill, knowledge and yes – luck – to get right.

Shares – your fancy, going-out-to-dinner heels. They give you great rewards (you feel so sexy) but they also have more risks – from tripping over, through to searing pain in your foot.

Shares have historically given great returns. (Nice chart on that here). But they do it with more volatility.

If you happen to put money in just before some stock market craziness, then, yeah you’ll lose some of it quicker than a Bachelor contestant loses her shit at a rose ceremony.

But, just like the resilient young ladies of The Bachelor, you’ll get back up and repair your losses over time. You need time and patience though – if you lack either of those, you could turn the ‘on paper’ loss into a real loss.

That said, there is a lot to like about shares. Not only are they strong performers in terms of returns, they are liquid (i.e. you can usually sell them way faster than a house). You can buy just a few and pay nothing more than a brokerage fee for the privilege, whereas property needs a big upfront investment and has quite a few of costs, from stamp duty through to legal fees.

I’ve written more about shares in this delightfully named piece: Buying shares is pretty much like choosing a husband.

Which investment has the best returns?

You know I’m not going to give you an easy answer.

The thing to remember with any investment is that when people (i.e. the media, finance types, blokes in pubs) talk about returns, they are often talking about that whole asset class.

The Russell Investments report shows that:

Australian shares returned 4.3%, before tax, in the ten years to Dec 2016. But that’s the market average. You may have bought some shares that went bananas and made 20%. Or you bought some that tanked and you barely broke even.

Ideally, neither of these things happened, because you had a diverse portfolio  where the winners and losers balance each other out.

You can do this by investing in managed funds, listed investment companies or exchange-traded funds. (More on that here).

Residential property returned 8.1%, before tax, in the 10 years to Dec 2016. Yeah, almost double the return of shares. But that’s a helicopter view. There are people who made way more than that because they picked a lucky location; then some people in places like Perth and Mackay who watched their properties fall 20% or more in value.

There are also more asset classes than what’s discussed here (alternatives, international shares, fixed income etc). I have just focused on the most popular.

Then there is tax. And it’s complicated.

Broadly speaking, property investing can be good for people who have a high tax bill, as they can declare a loss and claim it as a tax deduction (the oft-discussed ‘negative gearing’).

And for people who pay low or no income tax, Aussie shares can be great because of dividend imputation (aka franking credits). Now I won’t explain these, because working them out literally made me cry in my finance degree. But the outcome is, the less tax you pay, the more you get a bonus return on top. (If you’re interested, I co-wrote this article on the topic).

Of course, you should discuss these tax-type things with an accountant or financial adviser. My main point is that looking at a headline return isn’t very accurate – it depends on your costs, tax rate and timing.

You can start small

Despite all these caveats and warnings, the message I want to give you is this: investing is a key part of building wealth (remember the Four Best Friends Who Will Make You Rich?). Letting your cash sit in the bank forever or spending it whenever you get it, won’t get you closer to your ideal lifestyle.

The more you learn about it now, and the earlier you start, the more you could make over time.

Don’t be afraid to start small. I’ve been running a little portfolio on Acorns, and it’s doing well. Even popping $500 into a managed fund or listed investment company can be a good start.

That’s the key though: you need to start somewhere.

And if all this seems like a lot of information, that’s fine too. It’s totally ok to ask for help. Talk to an adviser, or a trusted friend or family member. You don’t have to be an expert to be an investor.

Photo credits:
M.P.N.texan Good Shoes via photopin (license)
https://www.flickr.com/photos/reverses/
https://www.flickr.com/photos/simpleskye/

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.

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.

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.

4 reasons you can stop panicking about buying a home

Sometimes it feels like all money conversations come back to this issue. Can I buy my own home? Will I be a failure if I don’t? Can I ever afford one?

And it’s not a daydreamy, hypothetical convo, like ‘What if I called my kid Joaquin? Would people know how to pronounce it? Did the Pheonix family really lay the groundwork here?”.

No, the tone is more like ‘Will I die in a gutter, languish in poverty, or be photographed collecting mail in nothing but a bedsheet, if I don’t get onto the property ladder?’.

There is a sense of panic, as if not hobbling yourself with a million dollars in debt means you will end up on the scrapheap of life.

So let’s all just take a moment and STOP PANICKING. People who panic don’t make good decisions. You know that dress you bought the day before a high-stakes date with Mr Future Husband? Let’s admit: you’ve never worn it again.

Instead, let’s have some realtalk about property, saving and wealth.

Because there are more ways to build wealth than buying a house.  Property is just one ‘asset class’, as the professionals call them. There are many more (read a whole post about it here) and they are all viable ways to build wealth.

However, there are some valid reasons that people go nuts for property in Australia. For example:

  • It can increase in value without you doing anything (aka ‘capital growth’)
  • It is easy to borrow money, because it’s a secured asset. In other words, the bank can repossess it if you go broke, to get its money back. It’s more complicated for banks to do that with something likes shares.
  • You get great tax breaks. If you sell the home you live in and make a profit on it, you don’t have to pay capital gains tax on that profit. If you did the same with any other investment – e.g. shares, bonds or an investment property – you would. And then there is the old negative gearing heist (which I won’t go into here – but basically the government rewards you for losing money – wtf?).
  • You get to live in it and nobody can kick you out. You can also renovate and hang hooks and shit. (Although why anybody in their right mind would renovate is beyond me. Dust, paint splatter and interminable trips to Bunnings. Lord give me strength).

These are all compelling reasons that I acknowledge warmly. I own property and it has been a good investment.

But here are some downsides that don’t get a lot of airplay, especially in the media.

By the way, the mainstream media has a huge vested interest in talking up property. Ever notice those thick, glossy real estate liftouts in the paper? Yep, they are rivers of gold for media companies, so it’s not in the interests of News Ltd, Fairfax or their mates to say ‘hold up, property is totes overrated!’, is it?

But here are some counterpoints to the national narrative.

1. You pay a huge amount of interest over the life of a mortgage

This graph is from an earlier post (which you should also read). I include it here to defy the people who say ‘renting is just giving money away to someone else’. Well, Mr Mansplainer, a mortgage is just giving  interest payments to a bank.

Say you borrow $500,000 over 25 years, you will pay nearly $300,000 in interest (at 4%, which is a historically low rate in this country). That interest amount is represented by the light pink below.

Source: Moneysmart.gov.au

Source: Moneysmart.gov.au

Hopefully the property increases in value so you make some of that money back. But it’s not guaranteed. Which brings me to the next point.

2. House prices don’t always go up

I know, they do in your living memory, and certainly in the last few years. Mr Mansplainer may even tell you ‘house prices double every seven years’.

HOWEVER, this somewhat dubious assertion is based on averages, which don’t tell the whole story. You know, your ex-boyfriend was only an arsehole to you half the time, on average. But that didn’t make it worth staying with him.

Don’t just take my word for it – take the Reserve Bank’s! I know you won’t read their paper on the topic, so let me summarise. House prices rise faster and slower depending on other stuff going on in the economy.

But over the long-term, that shit is all over the place. The graph below gives you an idea of how house prices resemble a 5-year-old kid high on fairybread and Cheezels at a birthday party.

screenshot-2017-02-26-at-11-28-45-am

 

 

 

 

Source: RBA (which is why it’s crappy low-res). NB: This shows prices when inflation is removed. 

So it depends on when you bought, and also where you bought. And so we come to another point.

3. Picking property is a lottery

When we talk about property going up by, say 7% a year, that’s averaged out across the country. It masks the fact that some people bought gems, while others bought dogs.

Maybe they paid too much in the first place. Maybe they bought in an area that hasn’t gone up much, or worse, in an area that has gone down. Places like Mackay or Townsville boomed as a result of mining a few years back. Now, they have bust, with prices actually dropping.

Here’s a real-life example. A couple I know, let’s call them Kylie and Jim, bought a new house in an estate in Townsville in 2004. They paid $254,000.

Five years later, having been sent interstate for work, they sold it for $379,000, netting them a tidy profit of $125,000 (less taxes and costs). Nice deal.

That same house sold this year for $340,000.

Yep,  eight years later, it sold for nearly $40,000 LESS than it did in 2009.

Kylie and Jim were just lucky that they caught the cycle on its way up, and got out before it went down.

If you live somewhere like Sydney right now it’s easy to feel like there is only one direction and pace for prices: up and fast.

But I know another couple with an investment property on Brisbane’s outer edges, whose property value has grown at about the same pace that I lose fat, i.e painstakingly slowly.

I did some sums on it and the capital growth has been about 2.5% a year. That’s not taking into account the extra money they need to find every month for the mortgage, because it’s negatively geared.

The moral of this story is not that Queensland property is a mug’s game. It’s not – plenty of people have done well there, and all over Australia.

The point is that there is a good deal of luck and timing involved in buying property. The same is true of any asset class. But don’t look at the headline figures and decide buying a property is a rolled-gold, surefire way to get rich. As with any investment, there are risks.  And so, to the next point…

4. We may be in a property bubble – and it could burst

Now I am not a crazy doomsayer. I am only saying we might be in a bubble.

But some people are convinced of it. Here’s a chart of house prices since the 19th century from a blog called macrobusiness (they are a little ‘out there’, but I read widely). All the labels on it are theirs, btw.

Source: Macrobusiness
screenshot-2017-02-26-at-1-21-26-pm

 

 

 

A while back, I fan-girled Greg Medcraft, the head of ASIC (our corporate watchdog in Australia). He was on the 389 bus to Bondi, so I went up to him and started chatting about property bubbles. (True story, I swear). He said words to the effect that when people are in a bubble, they’re in denial about it.

“This time it’s different”, they say – like an ex-boyfriend who’s trying to win you back.

For my mate Greg, this market looks, smells and tastes like a bubble. And that was 2015, before we hit the point of a $1 million median house price in Sydney.

Other people disagree, and point to population growth, lack of supply and a bunch of other factors driving prices ever upward. I see their point too.

The fact is, nobody knows for sure.

If house prices stay high, there are benefits, mainly to people who already own them.

If house prices fall, the economy will definitely suffer – but it will also mean aspiring buyers get a better shot at affording something.

Either way, you shouldn’t give up on the idea of buying your own pad eventually. Which brings me to…

One last (very important) thing. 

If you can’t afford a property yet, that doesn’t mean you can piss your money away in protest or despair.

There are plenty of options for building wealth (check out this post). But you have to get serious about saving and investing to do it (check out this post about the four best friends who will make you rich).

Just because you don’t have a white picket fence doesn’t mean you can’t be a serious money saver or investor.

It doesn’t matter how much you have, saving and investing is a mindset and a habit. So work on that and ignore the noise about house prices, smashed avo and property bubbles.

You’ve got this!

If you liked this post, you could totally sign up to receive more! I post every week and you might not always see them on Facebook (because something something algorithm). So pop your email address in that box up top. Thanks! 

photo credit: ruimc77 Burbujas via photopin (license)

3 money lessons I’d give my 21-year-old self

My first degree was Arts, with Honours in English literature. If you want to know about Latin declensions or 19th century novelists, I’m your girl.

I don’t tell you this to impress you (although, feel free to be impressed), but to give you the context of how financially literate I was when I started my career. I even dropped maths in Year 12!

Now, I’m about to finish the final exam in an Applied Finance course. It’s not a full degree or anything crazy like that, but it’s the pathway to becoming a financial analyst (which I don’t intend to do).

In the 16 years between my first graduation and my imminent second one, I’ve muddled along on my own. I’ve learnt from smart clients and bosses, and the great Tom Buchan hounded me into loving economics. But I am not a numbers person, I don’t love maths and I can’t split a bill to save to myself.

Yet here I am, talking about money and stuff.

If I can do it, anybody can. However, there are things I wish I’d known earlier. If I sat my 21-year-old self down, this is what I’d say.

Capital Growth + Income = Returns. Think about all your savings in this way. Capital growth is when your asset increases in value without you doing anything to it. Your house’s value goes up while you live in it, or your shares increase in price while you own them.

Income is what you receive along the way. Think rent on an investment property, interest on a savings account or dividends on shares.

Every investment or asset will have some or all of these ingredients, e.g:

  • The house you buy to live in receives no income, but it gets capital growth.
  • A bluechip share portfolio will usually have a bit of each but skews towards income (more about that here).
  • A savings account has no capital growth but will pay income from interest.

There is no perfect combination of growth and income; it’s like lipstick. One that’s super glossy and glides on beautifully won’t stay on past your morning coffee. You can get one that makes it well past lunch, but it dries your lips out like a desert. Every lipstick has some combination of shine and durability, but the perfect ratio doesn’t exist.

Generally, the younger you are, the more you look for ‘growth’ assets because you’re building your wealth. When you’re retired, you generally need more income because you don’t have a paypacket. There are a hundred different scenarios in between, so you need to decide what’s important to you.

Every dollar you spend is a dollar you can’t make money from. The thing about money is that it can make you more money. Buying a house, investing in shares, contributing to super, even just getting interest on a bank account: all of those things give you more money – FREE money! Because that’s what capital growth and income are: money you DIDN’T HAVE TO EARN by working.

So, while it feels good to drop 100 bucks on eyelash extensions (don’t get me started on the ridiculousness of that price point), that’s money you could have put towards a holiday, or a home, or a degree, or any number of things that will actually improve your life.

If you can look me in the eye and convince me that extensions have genuinely improved your life (better job? hotter man? happier heart?) then go ahead. For example, I genuinely, deeply believe being blonde is an expensive but essential part of my life. But that means I don’t do other things like spray tans or nail salons.

It’s part of my approach to mindful spending and while it’s not perfect, it means I have some money leftover to do other, more productive stuff.

Get to know your money personality – and manage it. Everyone has their own approach to finances . I’m the ‘going broke saving money’ type: I can’t go past a sale … but still buy stuff I don’t need. (And, of course, it’s not a bargain if you don’t need it).

The key is to identify your own quirks and work around them (e.g. I try to avoid shopping malls in January). It’s all about self-awareness.

In a partnership, it’s more complicated. I was often in a tug-of-war with my ex-husband because we had different ideas about our money. He spent far more on ‘stuff’ than I’d like; I spent more on travel than he wanted. Neither of us was right or wrong, but if I had my time again, I would keep more money separate, accept that we have different priorities, and work from that basis.

Nobody is perfect, and I’m certainly not . I still get mad at myself for breaking my own budgets. I am the worst at claiming back money from my health fund and the tax office. I never have all of my shit together, all at once.

But like most hard things, doing a little bit to improve, all the time, can have a big impact.

Do you know some Fierce Girls who could use this advice? Share this post! Or subscribe if you want more real talk and lipstick analogies.

The 4 best friends who will make you rich

A wise man once said “Get rich or die tryin’”. Ah yes, Fifty Cent. You fill us with ambition.

But how do you get rich? And what is ‘rich’ anyway?

I’m not talking about the richness of family, friends and emotional connections.

I’m talking cold, hard cash that makes you feel like you’re in a rap video wearing giant diamond necklaces*.  

However, most of us aren’t going to get rich by a) marrying a millionaire b) inheriting a fortune or c) inventing Post-it Notes**.

And so, I’m introducing your #squad. Actually, your #richsquad. Probably not as hot as Taytay’s girlsquad, because we don’t have Gigi Hadid.

But these girls will have your back – as long as you get to know them, respect the hell out of them and don’t sleep with their boyfriends.

Introducing: Earning, Spending, Saving & Investing

Earning is pretty hot but doesn’t always get noticed. Girls are socialised not to pay attention to her. We take lower-paid jobs in lower-paid sectors. We take time out to raise families. We ‘follow our passions’ and other bullshit.

We are told that Earning is more of a guy’s kind of girl.

But you need to take this chick seriously.

Always be maximising your earnings, and don’t apologise for it.  Don’t ignore the power of boosting your paypacket – whether by making the right career moves, asking for payrises or having a side hustle.

And pay attention to Earning when you have to make life decisions. Firstly, she’s hard to win back if you leave her alone too long – if you step down, cut your income or take time out of the workforce, it can be really hard to catch up.

I’m not saying you should let her control your whole life. I made a decision to work a 9-day fortnight, which cuts my income by 10%. Is it worth it? While I’m studying, yes. Am I conscious of the hit I’m taking? Yes, and I review it often.  

Spending is everyone’s favourite fun friend. She loves ordering shots and telling you to live a little.

But this friend is a little cray-cray; she needs to be handled with care. DO NOT let Spending take over your life or your credit card. She makes you feel good when you are out partying, but she leaves you with a hangover.

The key to a healthy relationship with Spending is to give her respect and pay attention to her. Define the boundaries of your relationship. Embrace mindful spending (read more here). Be clear on what you will and won’t do with this friend.

Because if you let Spending take over your life, you will never be rich. You will feel rich at the time you’re hanging out together. But over time, she can be a bad influence who holds you back from achieving your goals.

So if that bitch tells you that you need to drop hundreds of dollars eyelash extensions, shut her down and go hang out with your other, more sensible friend…

Saving. Your quiet but powerful friend. She isn’t as glamorous or as fun as Spending, but she really does have your back. She will help you reach your goals, be there for life’s unexpected dramas and generally be an awesome wingman.

She loves inviting your over to drink reasonably-priced wine, rather than go out to fancy bars. She makes you bring your own lunch to work, only ever buys stuff on sale and tells you to follow a budget.

But Saving is a true friend, and the more you get to know her, the more you’ll see her value. You see, she gives you choices and opportunities, and makes you feel far more in control of your life. Aaaand, she will introduce you to her smart and sassy friend…

Investing. This chick seems scary at first, because she’s so clever and uses a lot of big words. But don’t be put off – if you listen for a while, she makes sense.

And Investing is actually the one who makes you rich – or richer. She gives you money all the time. Like, for free! Just to say thanks for being friends.

Investing takes your money, multiplies it, and gives it back to you. That’s not something Spending can do. And while Saving does it a bit, she’s pretty tight – she buys you a coffee, whereas your glamorous friend Investing buys you an espresso martini.

So please don’t turn your back on this lady when she tries to befriend you. She can be hard to get to know. Ok, so she seems like a total know-it-all bitch at first.

But once you get past all the bullshit jargon, Investing is your true friend, and she’ll help you become more than you ever could on your own.

So that’s it. Your #richsquad. And you know what your #squadgoals are, right? Independence, freedom and choices. (Not flashy clothes and fancy cars. Well, maybe a few).

The thing is though, just like the Sex and the City girls, or the girls from Girls, or the Gilmore Girls, or the Spice Girls, or any other famous girl group, they function at their best when they are all together.

Cut Investing out, and you will just chug along,never really getting ahead. Give Spending too much booze and she will wreak havoc. Ignore Earning for too long, and she’ll start drifting from you. Drop Saving, and you’ll feel out of control of your life.

So, make friends with ALL of these lovely ladies, and you’ll be a Fierce Girl for life.

*(I’m thinking of the line from Ludacris’ Stand Up, where he says “Watch out for the medallions/My diamonds are reckless/Feels like a midget is hanging from my necklace”)

** That’s a Romy & Michelle reference, duh.

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