retirement income

The latest statistics on superannuation balances shows women’s superannuation balances, on average, are 40% lower - the average super balance for women is $92,000 compared with $154,000 for men.

Why is this so?  As I see it, the main reason why women accumulate less is because generally they take more time off from work to have children and some never return back to work, they are on lower average incomes and they mostly retire earlier.

So how much would a person need in retirement? The Association of Superannuation Funds of Australia (ASFA) keeps statistics on the retirement living costs and according to them a couple seeking a comfortable retirement lifestyle will need $55,249 per year. Their definition of “comfortable retirement styles” is: one that enables a healthy retiree to get involved in a broad range of leisure and recreation activities including domestic and occasional international travel

I have seen other statistics, which show this figure to be only $31,675 per year – my conclusion is that may be this estimate is for those wanting a “modest retirement” e.g. better than Age Pension, but still let's a retiree only afford fairly basic activities.

Unfortunately, for me both definitions may roll off your tongue, they don’t really reflect the reality of ongoing price increases. Just consider these 3 increases in the last 12 months:

1. Over the 12 months food costs have increased by 2.5%.
2. Electricity costs went up, on average, by 0.6%
3. Health services increased by 3.6%. Interesting fact: statistically, over the longer term health services tend to have higher increases n prices than any other category of goods and services.

So can you live on those amounts yourself?

Let me tell you: RETIREMENT is a tough business. If you think you are struggling now while working just think about retirement and the fixed incomes waiting for you.

It may be an opportune time for you to re-visit your own superannuation plans so you start planning for the retirement - it will come before you know it.

Con artists

Con artists are everywhere and they have been around for many years. Recently the Internet has brought many new players with many new schemes, reaping millions of dollars from every day Australians.

Some of you probably may not believe how gullible some people can be and you will probable swear that this will never happen to you. But BE CAREFUL - sooner or later your desire to make quick money can make you vulnerable to these schemes.

Here is an example of what happened in America few years back:

Mr Conman approached investors and offered them an opportunity to invest in one of his "money making" investment plans, guaranteeing returns of 50% within 60 days. The only small problem, as he explained to the potential investors, was that because his investment ventures were so successful he could only accept maximum of $5,000 from each person.

At the expiration of the 60 days, Mr Conman sent to all investor a cheque for $7,500. So basically he delivered what he promised. And in the minds of the investors how good was this? 50% return in 60 days! Wow!. You wouldn’t dream about it, would you?

About a month later, Mr Conman contacted the same investors with a phone call to thank them personally for supporting him in the previous campaign. After the pleasantries were over he made them another offer to make 50% return – but this time he told them that as a special thank you he has removed the maximum limit of $5,000 and the investors could invest as much as they liked.

So what do you think the investors did? Did they refuse him? Did they decline him? No, of course. And why would they suspect anything when they had just earned 50% in 60 days.

The story goes on to say that Mr Conman the second time around, after he earned their trust collected just over $46m and disappeared. Eventually, he did get caught and he ended up in jail

The moral of this story is that unfortunately the process of “investing” is all about “emotions”. We like to hear about things that sound good rather than analyse them for they are worth. ASIC continues to advise that “if it sounds too good - the chances are it is too good to be true”.

A famous investor once said: “There are no successful short term investments but there are plenty of people who will take your money if you believe that there are.

gambling and investing

If you gamble, the chances are you will lose. 

And if you invest the chances are you may not make money. 

I will be surprised if many people would disagree with these two statements ? But what is surprising is that too many people ignore the very simple rules and either gamble or make investments that they shouldn't. I am not qualified to make comments on the problems of "gambling" but I have been around long enough to see many clients make bad investment decisions, be it in shares or property.

When it comes to investing in shares, I am yet to meet anyone that has done so based on sound knowledge of the market. My experience is that most people buy shares based on recommendation from friends (mainly the brother-in-law) or mates at work.

IMPORTANT RULE - don't follow or accept tips from people that are not in the business. Share investing is a sophisticated game and there are many things you need to take into account about the company, its management, future plans etc before you can decide if it is a good share to buy.

Interestingly, before the Global Financial Crisis (GFC) share investments by ordinary Mums and Dads was at all time high. Why? because at the time the share market was a "feel good story" and generally most people like good stories. But when the crash took place they sold, took the losses and got out. Of course there was no need to panic and get out of the market - the market eventually did bounce back and most investors would have recovered any "paper losses" they may have incurred during the GFC. Remember! paper losses are just that - in paper.  

IMPORTANT RULE with all investment - you should buy low and sell high. Yet, what did most people do? they all bought high, just before the GFC and sold low after the GFC. So if you, like me, hear someone complain that they lost money on the share market - just ask them "did you follow Robert's rule of buying low and selling high? or did you do the opposite buy high and sell low"?.

Clients losing money is NOT because the share market is not  a good investment option!. Clients lose money because they don't know how to invest.

If you want to invest but don't know how - simply seek advice. Few dollars you will spend getting this initial advice can help make money in the future.

50-40-10 rule

Earning money is quite a standard and easy process for most of us. We get up, we go to work and at the end of the week we get paid. That's the easy part - but then comes the hard and difficult part - how to spend it.

Don't get me wrong - we ALL know how to spend money - spending is a much easier and pleasant task then making it but what I am talking about is spending it WISELY. And this is a very difficult thing because as a rule we are not really taught anything at school about how to look after money because the education system (at least it did when I attended Fitzroy High School between 1968 and 1972) was designed to teach us about American History or Geography or even about the chap with the bucket on his head - what was his name? Oh, yes Ned Kelly. Now when was the last time knowing what happened in 1863 helped you deal with your financial affairs.?

Luckily for you I am here. Over the years I have developed my own set of rules that I am confident will help you learn how to successfully deal with your finances and it is my  50-40-10 rule:

The first 50% (or half) of what you bring home to be used for your everyday cost of living. Things like bills, food, car expenses and entertainment.

The next 40% of what you bring home is for short to medium saving. These savings will be for holidays, investments or just simply for rainy days. It can include investment properties.

The next 10% of what you bring home is for long-term investment. Generally, this would be superannuation. If you are working the chances are that your employer is already contributing the minimum 9%. If you then contribute 10% of your money either as a salary sacrifice, which has some tax benefits or simply as after-tax contributions then that's all you need to worry. Remember! the younger you are the more you will accumulate for retirement.

And that's it! This is all you need to know about finances my 50 - 40 - 10 rule.

Last year I developed a coaching program called FixMyBudget, which takes clients through a step by step process, teaching them how to make up a budget and more importantly how to stick with it. I started it with 22 clients but sadly I only have 14 left - most of those that dropped off found it difficult to work with budgets and they were happy just to go back to what they were doing before. But the ones that stuck with it are reaping the rewards because for the first time they have all saved money.

If you are having difficulty with budgeting and handling your finances I can help you.

In the meantime, my challenge to you is this - give my 50-40-10 rule a go for say 6 months and let's see what happens.

how much to borrow

When it comes to borrowing to purchase property, be it for a home to live in or for an investment I feel that most clients ask the wrong question, which is "How much can I borrow?".

I think what clients should be asking is "How much should I borrow?".

There is a big difference between the two because if you stop and think about it - people should only borrow what they can really afford not what the banks' standard formula comes up with, which uses your current income, your it expenses and applies it to the current interest rates with a little buffer and presto! the clients are given a loan.

I then look at the statistics of the record number loans going bad and ask "Why were these clients given the loan in the first place?" It is possible that most clients can't afford the loan in the first place.

Let's take a young couple that are renting at say $300 per week. Everyone is telling them that "rent money is dead money" so they decide to do what everyone tells them what to do which is to buy a home. So they do the right thing and borrow say $400,000 and buy their new home. Now let's look at their situation: if the interest rate is say 6.5% then their interest repayments will be around $500 per week - that's $200 more than what their rent was and of course this does not take into account the extra they need to pay against the capital. They are already feeling the financial pressure because they not only have to find he extra $200 but they also have to find extra funds to repay some of the capital. And what happens if the interest rates go up? more pressure.

And all because they asked the wrong question of "how much can I borrow?".

If on the other hand, they asked me "how much should we borrow?" then my answer would be "not more than $250,000". Why? because the interest repayments on $250,00 would be equal to that of their rent. And if they can't buy a house with that price then they should keep renting for a little longer and save "like crazy" until they have accumulated large enough deposit that will not put them in financial pressure by changing their rent for interest repayments. There is no law that says you must own a home or an investment property. You should only own a home or an investment property if you can afford it.

So if in the future you are thinking to buy a home or an investment property - remember to ask "How much should I borrow?" NOT "How much can I borrow?" By asking the wrong question you can get yourself in financial trouble.

My business is "financial advice" - so feel free to ask. Spending few dollars on good advice upfront can save you thousands of unnecessary costs later.

insurance

Insurance is a funny business.

We the consumer are always looking for the "cheapest" premiums and we are happy to change companies every year if we can save few dollars - and why not it's out money. The insurance companies, on he other hand, set their premiums based on what profitability they expect on their investments and returns for their shareholders.

So who wins the consumer or the insurance companies.?

I suspect the insurance companies will eventually win because at the end of the day we may think we are changing insurances but we in fact are probably staying with the same companies. Over recent years there have been many acquisitions of insurance companies leaving fewer companies owning more brands. The Insurance Australia Group (IAG) is the company behind the brands NRMA, RACV and CGU. And the company Suncorp Metway, on the other hand, is behind a number of the well known insurance brands including GIO, AMP GI, Vero etc.

So what does this mean for us the consumers?

I suspect only one thing - higher premiums. And following the recent storms that hit us during Christmas there is talk that we are definitely looking at higher premiums.The expectations are that next time you receive your renewal notice form the insurance company for your personal insurances they are likely to go up by between 5% and 10%.

This will be another opportunity for the consumer to shop around as not all brands will have the same increases.

I am an insurance agent for one of the brands AMP GI - so when you receive your next renewal notice, feel free to contact me for a quote.

banks

Is it fair that we should get upset with the banks when they raise the interest rates?

Absolutely YES! I hear some of you say, because YOU know that the increase in the home loan rates means you have to pay the bank more. So, technically you have the right to be angry because it directly affects your pockets.

But what about those of you that don't have a loan? Should you be also angry? Absolutely NO! You should be happy because an increase in the home loan rates means that eventually the interest on bank deposits will also go up - and this will put more in your pocket. So, technically you have the right to be happy because it will directly affect your pockets.

Who was it that said: "you can only please some of the people some of the time......" As I see it, when it comes to banks there are two arguments:

I HATE THE BANKS ARGUMENT

Last financial year the 4 large banks made over $24 billion dollars profit. Have you ever stopped to think what a billion is? that's 1,000 millions. And you would think with that much profits they can absorb some of their so called increased "borrowing costs". And how can we forget their practises of increasing their rates as soon as the Reserve Bank raises the official rate yet when the Reserve Banks reduces the rates - it takes them more than a week to adjust their rates.

And look what happened now! the Reserve Bank has left the rates unchanged but the banks have decided to increase the rates.

Those grubby, dirty, money making banks - don't you just hate them?

I LOVE THE BANKS ARGUMENT

But don't we want our banks to be solid and safe? I have worked all my life to save few dollars and I don't want to lose it - in fact I want to earn some decent bank interest so I can enjoy my life without having to work so hard. Have you forgotten how during the Global Financial Crisis (GFC) our banks were seen as safe? We all know they remained SOLID AS A ROCK at a time when a number of the larger banks around the world collapsed losing billions of dollars. Surely, this is what we want our banks to do - make enough profit, keep it in reserve to protect us during the "rainy days".

SO, IN WHICH CAMP DO YOU BELONG IN?

THE HATE OR THE LOVE ???

MY ADVICE! luckily today we have a wider selections of lenders. You don't have to stick with the larger banks, as there are many smaller lenders around that can help you with lower rates.

If you are not sure - just call me and I am happy to provide you with "options" that may save you money.

And if you are in the hate camp - DON'T GET ANGRY - JUST GET EVEN! - SHOP AROUND!