Category Archives: Finance Chats

A little on making or saving money

Saving for the Kids’ Education

Preparing for higher education

Like most parents, you want your children to have the best education possible, yet school and university expenses and fees are undeniably costly. The money you spend on your kids’ education could be one of your family’s biggest expenses.  Depending on where you’re based, it may be right up there with your Mortgage repayments.

Not that many of us begrudge the spend, viewing it more of an investment in our children’s futures.

Some will need to decide whether 12 years of formal schooling will be undertaken in the private space or whether just the high school years will be funded.  Others are also happy to help with University costs and some allow Fee Help (formerly known as HECS) to pick up that tab.  Whatever you choose, there’s costs attached and it’s best to be prepared.

Once you’ve worked out your family’s preference, starting to save early will help your children have a high-quality learning experience.

It pays to do your homework.  Research what schools in your area charge each term so you have an understanding of what is required.  Will you need to move to be in the catchment area of your preferred school?  Do you know other parents or students of the school you can ask for testimonials about their experience there?  Do you need to register your child years in advance to get into your preferred school?  Knowing your costs early will give you greater time to save and help avoid disappointment.

The decision to send your children to public or private schools and then to university will determine just how much you need to put aside to start saving.  Despite your wishes, it’s also hard to know whether your children will want to go on to University until they’re some way into their academic career and begin to form some idea about what they’d like to do for a living.  Will a gap year needed to figured into the equation with money for travel?  Or will they fund that by working a part-time job from when they’re able.

What will you need?

As an example… if you send two children to private high school for six years each, which costs around $20,000 a year for each child, by the time they graduate you’ll have spent $240,000 on school fees. And that doesn’t take into account any extras like school uniforms, textbooks, trips and excursions, tutoring, extra-curricular activities, sporting clinics and the like.  This could see costs closer to $275,000 by the time they’re through.

If you only wish to save only for high-school years, you’ll have around 11 to 12 years to save for each child.  If the figures seem out of reach, you may need to rethink what you have to put aside, or review the schools your child will attend.

Public schools are much cheaper but there’s still no such thing as ‘free education.  There are extra fees for textbooks, uniforms, trips, stationery and school camps to pay for. These can easily add up around $1,000 per annum.

Trade Colleges are dearer than public schooling but for those looking to enter trade’s or take over dad’s business, these can be a great option for later high school years.  Often they’re around $4 – $7,000 and only two years is required.

The cost of going to university or college can also vary. If your child is eligible for HECS-HELP (a government loan available to tertiary students) they can choose to defer payment of university fees until they’re earning a living.  Entering the work force with large student loans may not be ideal, but in many cases is unavoidable.

Even if you (or they) aren’t paying upfront tuition fees, there’s still books, textbooks and materials, union and sports fees, lunches, accommodation and transport costs. Contact the university or college and find out how much each of these things will cost each semester, so you have an idea of how much money you will need to save.  And if you’re thinking ahead, don’t forget to allow for inflation too.

The earlier you start saving for your children’s education, the better. Education costs are usually a long-term goal that can take more than 5 years to achieve so stashing early is your best bet.

Then, once you’ve got a ballpark figure in mind to reach for, work out where you’ll put that money.  Are you happy with high interest, web based savings accounts and term deposits or want to invest in education funds or bonds for the longer term?  With interest rates at historical lows, it’s hard to find good returns on conservative styles of investments.

If there’s a top tip to getting set for education costs, it would be to research, plan, track and manage your savings goals on the go.  And be sure to review on at least a half yearly basis to make sure you’re on target.

Managing a Financial Windfall

We’ve all got that dream – we’ll have that massive lotto win, Great-Aunty Betty will die and leave us everything… or even that a spectacular tax return or bonus will come our way.

Although they’re aren’t regular occurrences, financial windfalls can come our way now and then… so instead of blowing it all, what’s the bet way to take advantage of a bonus or extra dollars that come our way?

The temptation to splurge can often be overwhelming, but your future self is hardly likely to thank you for replenishing a wardrobe or buying more “stuff” that is likely to end up in a charity bag in a year or two.  So what are some eminently sensible and grown-up ways of making that money work harder?

Here’s a few ways to spend this money that will give you long-term benefits.

  • If you have debt, especially non-deductible debt like credit cards or personal loans, pay them down first, followed closely by long-term debt like your Mortgage
  • If you’re really not sure what to do and everyone is putting their two cents worth in and confusing you ever more, put it in a high interest savings account until you can do some research and be comfortable with your decision
  • Can you put a bit extra in your super?  Retirement might be a long way off, but that means you have the benefit of long term compounding interest in your favour
  • Is there enough for you to start investing?  It may be worth kicking off a portfolio of shares, property or managed funds if there’s enough.
  • Getting financial advice can be of great benefit.  Financial professionals often have access to funds and research that are unavailable to many and they can ensure that you invest in line with your risk profile, not putting ‘all your eggs in one basket.’
  • Have you put off personal protection strategies like income protection, trauma cover or health insurance?  It may be worth investing in looking after yourself
  • Have you considered taking time out and learning new skills?  Maybe it’s time to invest in yourself and do that course.  Who know’s a career change might be just what you need!

And if you’d really like to still blow just a little of it – set a limit – maybe 10 – 20% and knock yourself out.  Have that splurge, but be smart too.

Do something that your future self with thank you for.

 

Financial Things to do Before You Die

While it might not be as exciting a list as Bucket List inclusions like:

1. Head to Base Camp;

2. Dive the Great Barrier Reef;

3. Have a Champagne at the top of the Eiffel Tower;

4. Stay in a yurt in Mongolia;

5. or sleep in an Igloo under the Northern Lights… it’s definitely a very loving legacy to leave behind for those you care about.

Unfortunately, I’ve had to assist in unraveling affairs of those who instead leave behind a financial mess for their family to navigate.  On top of grief, it’s a bitter pill to swallow when your financial affairs have not been left ‘in order.’  I know I’ve covered this issue before, but it’s so important to have finalised.

And I understand, it’s not a popular question to ponder and is likely hard to imagine, but what if something were to happen to you? Would your loved ones be taken care of or would they face a tough financial future?  Do they know what your wishes are?  Do you even have your important documents sorted?

The greatest gift you can leave your family and loved ones, is having your affairs sorted out before you go.  Please don’t think of this as something morbid… it might seem like I’m backing up the hearse and asking you to smell the roses here… but this isn’t about you, I promise.

If you have made plans, do your loved ones know where to find them? Would they know what assets you have, what insurance policies are in place or how to access your superannuation or life insurance?  Have they met your trusted advisers and know who to get in touch with if something were to happen?  Have you kept them in touch with what your wishes are?

Here are some simple steps you can take to protect the important people in your life:

  • Consolidate your assets and sort your bank accounts out
  • Ensure your life insurance is adequate based on your current circumstances
  • Make sure beneficiaries have been nominated (where possible) on your superannuation and insurance policies
  • Chat with your partner about what you’d like to have happen in the event of the unexpected
  • Ensure your Will is current – circumstances can change quickly!
  • Have your arranged for an Enduring Power of Attorney or completed an Advanced Health Directive?
  • Make sure those who need to know are aware of where your important documents are stored

Not everything will pass through your estate, so it’s wise to ensure you understand what forms estate assets and what stays outside.

Work through the list steadily and once it’s done, make sure it’s reviewed regularly.  Your loved ones will be glad you did.

Embracing Minimalism

Living a simpler and less cluttered life is gaining fans around the world. Here’s some key trends.

1. Tiny living

Rapidly growing global populations mean homes are getting smaller – from micro apartments, re-purposed shipping containers to tiny houses.  But, living small does not have to mean living in a cramped space, with designers increasingly focused on maximising every inch of space.

Sydney architect Spencer Jones says today there are many design elements that can be used to maximise space.

“In cities like Paris where living spaces are very small, people often have made-to-measure, full-height joinery to store as much as they can and leave the rest of the floor empty.

“Designers are also taking inspiration from caravan or boat architecture, using spaces for multiple functions. We are seeing more bedrooms that double as living and dining spaces, multi-function furniture and the use of mezzanine floors in smaller spaces.”

2. Mindful consumption

Australian consumers tend to have high consumption habits. Yet research by Santander Trade also finds we are increasingly concerned with our health and the environment, which is helping to drive a trend towards more mindful purchases.

If you are aiming to become a more mindful consumer, here are some tips to get started:

  • Shop for locally produced and made products instead of imported goods.
  • Buy secondhand from charity shops or online listings. Older or vintage items are usually better quality and will last longer.
  • Choose eco-friendly goods made from recyclable materials.

3. Decluttering

According to blogger Joshua Becker, of lifestyle blog Becoming Minimalist, there are many benefits to owning fewer possessions – less to clean, less debt, less to organise, less stress and more money.

One method Becker recommends to declutter your home is the ’12-12-12 Challenge’. Find 12 items to throw away, 12 items to donate and 12 items to be returned to their proper home.

Summary

Our living, shopping and lifestyle habits have moved on considerably from the 80s and 90s when conspicuous consumption was the norm. Today’s consumers are discovering that living with less can not only help the environment and our pockets but can also help to reduce our stress levels too.

My Top Financial Tip

If there’s one tip I’m constantly asked for, it’s what’s the best way to get on top of your finances?  And for me, that’s easy to answer – “Live Within Your Means!”  Good money management boils down to harnessing the cash flow and getting on top of debt – with the biggest gremlin being credit cards.

If the word ‘budget’ annoys you and has you running for the door, try ‘spending plan’ instead.  A budget/plan should be divided between fixed regular costs (those you MUST meet) and discretionary spending (the WANTS and nice to have stuff.)

Work out first what it costs for mortgage or rent payments, food, clothing, utility bills and loans.  This means you’ll have a much better idea of where you stand and how much you are spending on fun stuff like entertainment and non-essentials.

Losing the credit cards should be a top priority.  Learning that if you can’t afford it now, you can’t have it, is a great skill to take through life.  That’s not to say lay-buy or payment plans can’t work, but we need to move on from the ‘I want it now’ mentality.

Learn what you’re capable of when you’ve got less commitments like interest payments for items you’ve forgotten that you’ve even bought.  You may be pleasantly surprised at what you can achieve with better spending and saving habits.

Did you know, that if you’re 25 and have a nest egg of around $5000 and you’re able to save $50 – $75 a week at around 7% average interest (compounding over the long-term) you could have yourself a cool $1 million by retirement at 65?  It might be a while off, but it does highlight the opportunity cost of spending around $200 to $300 a month on eating out, movies, drinks and ‘stuff.’  Add that to your compulsory super and that’s not a bad way to enjoy post-work life.

Most however don’t really start thinking about retirement until they’re 40 plus and suddenly realise they’re half way through their working life and have been wasting the ready for over 20 years.  It’s time to analyse those poor financial habits now!

Reducing debt and saving as much as possible is imperative if you want to maintain a certain standing of living both now, and when you retire, and living within your means makes life a lot easier.  Life without ongoing financial stresses also helps you sleep easier now. Chances are, the Centrelink age pension will be harder and harder to come by and eventually disappear.

It’s up to us to take charge of our financial future, and the sooner, the better.  Living within your means from now, is vital.  Are you?

Kids and Money

I think the education system needs a massive overhaul and is ripe for disruption.  No longer are we children of the British Empire training to be clerks in far flung places.  We’re a part of mass globalisation (whether we like it or not) and need the skills to be able to cope with the brave and constantly evolving new world.

No longer do we need to graduate being fluent in Algebra, all over Pythagoras’s theorem, knowing how to dissect a frog, being able to wrangle a Bunsen burner or able to recite Romeo & Juliet (Ok, maybe that.)

What we need is a mass of life skills – how to open bank accounts, understanding medicare and health insurance, learning when and how to switch off from devices and social media, defensive driving courses, how to cope with moods and emotions (our own and others,) getting job ready, learning about business and how to run a home.  You know, real world stuff.

And teaching kids about money is vitally important.  Yet often, we haven’t been taught ourselves to pass those lessons on.  Sometimes we’ve had to learn the hard way, but sometimes we wish we’d known a lot more a lot earlier.

Money permeates every part of what we do.  We work to earn money to make and living and a life.  We need it to put a roof over our head, food on the table, buy the shirt on our back, fund the phone and pay for those holidays and hobbies we want along the way.  Yet few of us know that insuring our income should be our top priority for without it, we can’t fund the rest of our lives.

We also seem to be moving ever closer to a cashless society.  Money is becoming invisible in the digital age.  (My sister tells me I’m considered a vagrant because you’re supposed to have at least 40 cents in your purse for a phone call, which I rarely do – but seeing I have a very capable mobile, I really don’t see the need!)  How much harder for children to understand the value when it’s not even a physical commodity anymore!

Fortunately, there’s also a lot of tools online now available to help.  Start talking to your children about money when you head to an ATM or you withdraw cash at the supermarket, even when writing up a shopping list.  Tell them how many hours you had to work to buy that week’s groceries and how banks and lenders give you money for big purchases but charge you extra for the privilege. Discuss online purchases and how to handle them securely and explain the difference between our needs and our wants.  Make it real and understandable in words they can comprehend and appropriate to their age.

Explain the relationship between leaving the lights on and the power bill you receive. Help them work out their first budget when they start work.  Do they need to pay board, cover debt, give to a charity, save for their first big purchase, make sure they put aside for petrol, registration and insurance?  Open lines of communication can be started with basic concepts introduced as early as preschool.

So, don’t leave it to the education system.  Be your babies first line of financial defense in the world that awaits them.

Top 5 Financial Tips

So it wasn’t that long ago that 2017 kicked in and you promised to get on top of your finances this year!  How’s that going for you now that we’re around six weeks in to the new calendar year?

You know what they say about “the best laid plans of mice and men” right?

If you want to break it down into a really easy to follow guide, I’ve got five top tips for you to help get on top of things over the rest of the year…

1. Set goals

Take charge of your financials this year by working out your goals, objectives and priorities and put a plan in place to reach them.  If you want to get rid of credit card debt, increase savings, pay off your mortgage more quickly or boost your superannuation savings, the MoneySmart site has tools to help you work out a plan.  Alternately, hooking up with a financial planner can help you work with a professional money coach to assist you to make it happen, articulate what you’d like to achieve, and give you someone to be accountable to.

2. Map with a budget

As any successful journey begins with a reliable map or an up to date GPS, the path to wealth starts with going back to basics and having an accurate budget.  The thought of doing a budget might make your eyes glaze over, but a budget helps you see where your money is being spent and where you can make changes that will help you build wealth. You can use MoneySmart’s simple money manager to create your budget.  I often recommend clients use it for their budgeting needs.  It’s online, simple to use and comes in a few different languages too.

3. Get a better deal

It’s good to regularly check and make sure you aren’t paying too much for your mortgage, investment or personal loans or insurance policies. Shopping around regularly for the best deals could save you thousands of dollars over the long term. Talk to your lender or mortgage broker about what they can offer.  Different banks have different deals, so they’ll search around for a better deal if they want to keep you as a customer. If they won’t help, feel free to shop around yourself and switch to another option or lender.

Before automatically renewing insurances, check whether your current insurer is giving you the best value for money. You might be able to get a better policy for a lower price or with better conditions.  Often it’s worth asking a broker or agent for help as they have access to different policies and can run comparisons for you based on what’s important to you.

4. Improve your knowledge

It’s long been acknowledged that “knowledge is power.”  Before you commit to any investment opportunity, make sure you understand the features, costs – upfront and ongoing, benefits to you, and all possible risks.  Does the investment fit in with your plan? Don’t invest in something you don’t understand, and “if it sounds too good to be true, it probably is.”

Forewarned if forearmed, so equip yourself with as much knowledge as possible. Subscribe to investment magazines, download popular books on the subject, follow experts on social media or if you still feel clueless, engage a financial adviser to assist.

5. Manage Risk

Investing wisely helps build your wealth for the future.  You’ve probably heard of the benefits of compounding interest, so the longer time frame you have, the better off you should be.  All investments involve an element of risk – and often, “higher the risk, the higher the potential return.” Before you invest any money, take the time to understand the risk versus return.  You need to work out your own personal style of investing.  Are you conservative?  balanced?  or an aggressive investor?  Often, we’ll have a different profile for different types of investment.  If you’re younger, you’re likely to have a much more aggressive approach with your superannuation than you would with funds being saved for a housing deposit.

You’ve probably heard “don’t put all your eggs in one basket.”  This is what diversification is all about. By spreading money across different asset classes and industry sectors, you are less likely to be affected by a particular economic event, like a drop in real estate prices, a fall in the share market or in a particular industry or sector.

So work your way through these five tips.  I’d love to hear how they’ve helped you get on top of your finances!!