Money tips to make your decisions clearer and easier
Author: Matt Hern
Certified Financial Planner professional, Matt Hern has three times been awarded as one of Australia's Top 50 Financial Planners by The Australian Financial Review Smart Investor.
He is passionate about guiding you on the right financial choices to achieve what you really want.
Matt Hern is an Authorised Representative of Charter Financial Planning Limited AFSL 234665. All information is general advice only.
If you received a payment from the Government’s Economic Stimulus Package that you consider partly or fully to be surplus to your immediate needs then consider using it to support someone really needy. Check out Donate It Forward, which is being held in conjunction with Pay It Forward Day.
The aim is to donate $50 of your handout to a charity of your choice. (Of course you can donate more if you want and are able to.)
Not only will it give you a warm feeling you will probably also be eligible for a tax deduction on your donation. That’s an extra bonus since your Government handout was not taxable!
(Of course, many people who received the handout are in genuine immediate need. But if you feel the handout was partly surplus please consider helping others out.)
At some time during the recent bear market did you sell most or all your investments to cash? Or maybe have you been holding out on your regular investment plan because you haven’t felt comfortable? Watch the video below for some insights into how to decide when to start investing again.
At some time during the recent bear market did you sell most or all your investments to cash?
Or maybe have you been holding out on your regular investment plan because you haven’t felt comfortable?
If you made that decision based on an emotional trigger such as “feeling tired of losing money” then you face the real predicament of getting back in too late and missing out on big gains which often come in the early days of an economic recovery.
Watch the video below for some insights into how to decide when to start investing again.
With all the kerfuffle by politicians over the remuneration of company executives I found it interesting to read this list of the ten best paid national leaders. Originally compiled by The Times and then re-crunched by The Australian to show their payper capita. (If the link does not work you may also read the article here.)
Interestingly by this measure Kevin Rudd (the Australian Prime Minister) is earning roughly ten times as much as Barack Obama (President of the USA).
When it comes to how much politicians are paid I’ve often wondered if it is evidence to support the saying that “you pay peanuts you get monkeys”.
That said, many company executives who contributed to the global financial crisis were paid multi-millions and now appear to have been monkeys in human suits.
When you boil it down, mostly this is a bit of fun. I think it is fair though to remember the rule of thumb that paying a high fee is no guarantee of quality, but if you expect quality then be prepared to pay for it.
As I recently rode around a nearby lake with my daughter I noticed a Find Thirty logo painted on the pavement.
The Find Thirty campaign encourages us to complete 30 minutes of physical activity each day as an investment in our physical health.
Imagine the possibilities if we also found thirty minutes for wealth?
Imagine how financial literate you could become and how you could use that to create enough money to afford to do and have what you really want.
The twist – DO, not THINK
The interesting twist is that the Find Thirty campaign is not reading or thinking about exercise – it is doing exercise.
For all the hours I may have spent watching “The Biggest Loser” I haven’t lost a kilo of weight, beefed up my muscles or increased my aerobic capacity.
Find thirty to DO wealth creation
The great news is I think that if you spent 182 hours per year implementing wealth creation strategies you could become very wealthy indeed.
That means that making money is possibly easier and quicker than getting healthy. You beauty!
Even if you split it 50:50 and spent 91 hours per year learning and 91 hours implementing you could become a serious money master. How that would change your life!
Learning is important, but not enough
Please don’t misinterpret me. Your financial literacy is essential to how effectively you manage your money. Your knowledge helps you do the right things, in the right way and at the right time.
That’s why it is often said you don’t need money to make money. You just need knowledge. So definitely keep learning.
Financial literacy (and financial health) also shield you against fear and stress at times like we are experiencing in the economy right now.
Find Ten will just about do it
The great news is that unlike physical health, financial health doesn’t require everyday attention (for most). You can concentrate it in a couple of sessions, so long as you just do it.
I think that you’d be in good shape if you could average ten minutes per day on proactively building your financial health.
Sadly, many people spend less than that over a whole year!
An average of ten minutes could look like this
You could average ten minutes per day if you did this:
Up to one hour per week ensuring cash flow is on track and within budget. (The better you are the less time is required for this step.)
One hour per year benchmarking the performance of each of your investment assets (including superannuation)
Three hours every three years ensuring your personal insurance policies are still adequate
Four hours per year reviewing and evolving your long term strategy with your financial planner
In fact the more you outsource to a trusted financial professional as your partner the less time you personally need to spend to stay financially healthy.
Let’s just do it
For some people maybe it is time to spend less time learning and more time doing.
The benefits are:
More money for what you really want to do and have
Less financial stress (which often leads to relationship stress)
I understand the predicament – there is so much wealth creation information out there that it is easy to become overwhelmed. For fear of doing the wrong thing you do nothing. The problem is that delay is the greatest cost in wealth creation.
The great news is that I have spent the last nine years working out what strategies have the highest impact for the lowest effort. So, for help in taking action with the right strategies for you call me directly on 1300 669 101.
“Figures from the Big Four banks show that fewer than 5 per cent of mortgage borrowers have opted to reduce repayments as interest rates continue to slide.” (As reported on News.com.au here or here)
What that means is that the massive rate cuts from the Reserve Bank of Australia over the past four months have been an ineffective stimulus on the Australian economy.
I believe this is happening because our nation’s “leaders” are fear-mongering. They are talking up the bad news too much without sufficient balancing positive leadership. Their jaw boning is counter-productive to their financial stimulus.
The big problem is that talk is free and stimulus is costing the country billions.
The consequences could include (according to my fuzzy crystal ball):
Sudden reflation of the bubble as confidence returns and people start spending like the old days using their new stash of cash savings
Equally rapid interest rate rises
A debt noose around our nation’s necks that hampers our international competitiveness and growth
A depression as the fear mongering becomes a self-fulfilling prophecy
To clarify I don’t mean all of the above. It could go either way in the short term.
One thing I am clear on is that fear breeds fear and what we need is true leadership, not a cash shower.
If you’re feeling scared ask yourself if the facts of your personal situation have really changed? Or is it just your perspective?
Maybe you are unnecessarily too scared. Maybe you don’t really have much to be afraid of and instead could be showing personal leadership to those around you.
The Reserve Bank of Australia’s Statement on Monetary Policy (released 6th February 2009) included the following graph of the largest falls in Australian equities (aka shares). As the RBA note in their report “Historical experience indicates that, following large falls, it can take between three and six years for the share market to recoup losses”.
Many in the media are saying that the latest interest rate cut makes property more affordable for first home buyers. I disagree.
Let us remember this is the lowest interest rate in over 30 years. Rates are artificially low to stimulate the economy short term. This is not normal or even an average.
So it is fair to assume that over the 25 to 30 year loan term that interest rates will go up again. If you can’t afford the repayments when interest rates go back up (as they will) then buying a house now is a recipe for future financial stress.
The current interest rate only makes a home more affordable if you can fix your rate at current levels for 30 years.
If you still buy even though you can only just afford the repayments now then you are betting that your income will increase quicker than interest rates. Start praying that it does.
The only thing that makes the house more affordable is free cash in the form of the First Home Owners Grant.
House prices will perhaps stop decreasing so rapidly. Lower interest rates reduce the pressure on would be sellers so they will be less inclined to drop the price of their house. It is suddenly more affordable for them to hold on.
Of course you could be really creative and just buy a less expensive house that you could afford.
TIP: calculate your affordability based on the repayments if interest rates are 3% higher than they are at the time of purchase. Then make repayments at that level right from the start.
In a presentation last Thursday night, Australian Taxation Office (ATO) second commissioner Jennie Granger said that of the 2,200 employers selected and visited since July 2008, around 1,045 had not met their superannuation guarantee obligations. (Reported here.)
With many small businesses struggling with cash flow at the moment it can be very tempting for them to not pay their compulsory superannuation contributions on time, if at all. There have been plenty of segments on current affairs shows of employees suddenly discovering they have not been paid superannuation for years. Then the business goes into liquidation and they never receive what they are owed.
This should not happen to you – unless you are ignoring your superannuation.
The compulsory 9% contribution must be paid at least quarterly. The deadline is the 28th day after the end of the last quarter. The last contribution was due on 28th January. So go online or call your superannuation fund and check your last contribution was paid. (Salary sacrifice amounts must be contributed in the same month they are sacrificed.)
If you are missing a contribution then confront your employer. Be as understanding as you like but just make sure you are informed about why it is late and precisely when it will be paid.
This could be one of your best indicators of the health of your employer and the likelihood of you losing your job.
“Those who cannot remember the past are condemned to repeat it.” George Santayana, Spanish philosopher
I have just finished reading my gift from Father Christmas, “The Ascent of Money: A Financial History of the World”. This is the newly released book by renowned British historian Niall Ferguson.
2008 was not a first. In the past three or four centuries global economic crises have happened before. They will probably happen again – and maybe even again in your lifetime. Certainly there will be many more bubbles created and busted in your lifetime.
What have you learnt about managing money from what you experienced and observed in the past year?
What will you remember and do differently? What will you share with and encourage your children and grandchildren to do?
My Lesson: Margin of Safety
One of my clear lessons from the financial events of the past year is the importance of a margin of safety.
Retire with more than adequate funds
From seeing all of the news reports about recent retirees needing to go back to work I strengthened my resolve to not cut it that close. Yes that means saving earlier and possibly harder -but more importantly it means creating wealth smarter.
Contain debt repayment obligations
When one borrows to the maximum capacity of both theirs and their partners existing income there is no margin of safety if that combined income decreases, as it often does through life. When you are at maximum capacity you can’t afford extra repayments, so if you miss one you are in default and on the lender’s radar.
Have a backup tank
When things go awry you need access to liquid assets that can be accessed within days at the most. This can be actual cash in a bank or access to redraw on your mortgage.
Shares and managed funds are often considered to be liquid assets. But, as we saw this year redemptions/sales can be frozen and the emergency may have you selling precisely at the wrong time.
Spending less than you earn is another excellent way to have a backup tank. If your income drops temporarily you are ok as you are accustomed to living on less.
Using other people’s money can accelerate your gains, but this year we saw the truth of how it also accelerates loses. In a boom it can be tempting to maximise your leverage because “you don’t want to miss out”.
However, you must always respect the power of the beast and not underestimate the probability or magnitude of loss. History shows it is this underestimation coupled with leverage that can cause the previously unimaginable catastrophe.
Leveraging conservatively will mean different things depending on your overall circumstances. Work out your margin of safety.
What have you learnt about managing money from what you experienced and observed in the past year?
Please help us all learn from our collective past by sharing your lessons as a comment below.
Time Magazine has published its list of the Top 10 Financial Collapses for 2008. The list is interesting, but I most liked the commentary about what contributed to each collapse. Hindsight is a wonderful thing, and it makes it easy to criticise what now appears as stupidity. So I applaud courageous people like Alan Greenspan who at least publicly acknowledged that he got it wrong.
The other great thing about hindsight is that it presents a wonderful opportunity to learn. The key is to implement the lessons so we avoid getting caught out again.
What have you learnt from what you have observed and experienced in 2008? Please share it with me in the comments below.
Author Tammy Erickson shares some interesting tips for making the most of the current economic environment based on your lifestage. Listen to the quick interview (11mins) she did on the Harvard Business Review podcast (episode 123).
At the conclusion of the interview the interviewer references a blog post by Erickson where she makes the point that “Nerve-Wracking Times Require Instinct Override”. Read the blog post here. Our instincts can be very powerful tools, but sometimes we need to blend them with other tools in our tool box if we want to make wise, appropriate decisions for us.
As the first of the Government’s fiscal stimulus hand outs are distributed, the Prime Minister Kevin Rudd is urging Australians to be patriotic and stimulate the economy by spending it. Retailers would love you to spend it in their shops before Christmas, but economists agree that it doesn’t really matter what you spend it on, as long as you do not hoard it.
Here’s a novel alternative: stimulate a financial planner.
If you’re doing it tough in the area of managing your bills then spend some of your hand out being coached on managing cash flow.
If it’s a mountain of debt that’s casting a shadow then pay for advice on the most effective way to get out of owe and into dough. A little bit of money invested in learning to do it well is better than just continuing to do it poorly.
Learning new, improved behaviours is a gift that keeps on giving. You deserve it!
I just read this bit of wit in the December edition of Noel Whittaker’s newsletter. Whittaker didn’t quote the source, but I think the person is worthy of congratulations as it is quite clever. So if you know the origin please let me know.
Mélange Of Frozen Markets
Tossed Assets With Government Guarantees
Frisée Of Foreclosures And Defaults
Évaporation de Credit à la Cold Turkey
House Signature Dish
Seared Investors In Bottomless Pit With Caramelized Investments
Overheated Markets Without Oversight à la SEC
Braised Bankers Rump With Bailout Coulis
Sorbet Trio Of Shock, Disbelief And Insolvency
Off Balance Sheet flambé
Great Depression Grand Siècle
1933 méthode creditoise