Making money

Most of us are out and about making money. If we are not working or unable to work then we need to work out how we can make the most of the money we have. It is easy enough to spend money. It is wise though if we do not spend more than we make! Once June (the month) arrived my thoughts turned to our yearly budget.

Earlier in the week I prepared our 2017-18 budget. It did not take long as it is a habit that happens every year. All I need to do is examine our expenditure from the previous financial year and see where adjustments are to be made. For example, our electricity went down this past year when mostly I hear that people are paying more for electricity. Our electricity costs went down because we replaced a 250-litre hot water system with an instantaneous gas system.

I also adjusted my behaviour to get the most out of our solar system. Every evening our dishwasher would go on. I changed this to the early afternoon to use our solar and minimise the use of electricity. As we are retired and at home we can do this. If you are out of the home working and have solar it is best to put the dishwasher on just before you leave for work, not in the evening, unless you have battery storage. Our electricity bill is now half of what it used to be. Our gas bill is not high as we have natural gas and only heat our water.

There are other ways we can be kept busy making money, but it all starts and ends with a budget.

Making money at the supermarket

When grocery shopping we can all make money by:

  • Planning our meals
  • Writing a shopping list
  • Not shopping when we are hungry

Some people think that you should leave the kids at home when you shop. This might be okay on some occasions and when they are younger. Once they are older it is good to involve children in helping write the shopping list. They can also get involved in comparing the cost of items on the supermarket shelf. Supermarket shopping is also a great opportunity to teach children/grandchildren about money and budgeting.

Do you use cash or card when supermarket shopping? Earlier this year I experimented with shopping with a card. To keep within our budget, I kept the receipts to keep a record. Most fortnights we were spending more than our allocated amount for groceries. We went back to paying by cash and now at the end of each fortnight we have unspent money. What is the psychology behind looking in your “grocery” wallet to see how much cash you have left for the fortnight? When you use a card, it is as though your spending power has no limits. Therefore, you spend more. Paying with cash though gives the check-out operator a surprise as most people today shop with a card. Will we move to a completely cashless society? I don’t think so. Even though technology has taken over with e-books, computers and kindles, many of us still like the feel of a book in our hands. Books, like cash will remain popular. Yet I hear that some businesses are considering a “no cash” policy. Is this to reduce the risk of theft? The only problem with a “no cash” policy is when there are technical issues and/or the power goes off. Everything comes to a halt and no card transactions can take place. In this case, it looks like all the diners who are leaving to go home will have to leave an IOU.

Writing down ideas for this year’s budget

Making money by giving gifts

When we give a gift, we do not have to go shopping. It is possible to make gifts at home. We can do this through cooking, sewing, knitting, art and crafts. I am not good at doing this and it is an area I could improve on. On the odd occasion, I have been creative and given a gift that I made myself, it is very rewarding.

Buy a crock-pot

Crock-pots reduce cooking costs. You can also buy cheaper cuts of meat to make a delicious home-made meal. If you are out making money put the crock-pot on before you leave for work and when at home relax – dinner is ready!

Having a budget means I am on target with managing my money

Gaining momentum for making money

When you are saving money, you are making money. I like to make my money work and I do this by knowing where my money ends up. Hopefully, not always in someone else’s pocket! Making money matters and it matters more the less you have.

It is not easy to make money when we leave it in the custody of the bank. Interest is low and money grows slow. Making money with money is difficult these days. Many families and retiree’s find that they are dipping into their savings. Making money by reducing expenditure is the common-sense approach.

Making money does not happen if you earn less than you spend. When you are doing your budget for 2017-18 think about, as I do, what makes you happy? Are people happier without debt? I know that I am happier if I have no debt and no money worries. What about you?

There are things that money cannot buy, like love or friendship. If we have these, and a little bit of cash to go with it and the right attitude to “making money” then we will have a good life!

Super slippery slide

It seems like the global economy is heading for uncertain times gives the Brexit situation and the question I asked is “are we on a super slippery slide economically”? If you are reading this and don’t know what ‘Brexit’ means just turn on your television and within minutes you will be a Brexit expert.

While all the negotiations for Great Britain to exit the European Union are underway how stable will the economy be in Australia and how will it impact our local economy? The landscape is unknown and in the days ahead the Australian government may have to negotiate a minefield of issues. Do we have to panic? No! Do we have to be worried? No! Panicking and worrying won’t change the situation. I learnt a little saying early in life and I repeat it often at times like this – “Worry is like a rocking chair; it keeps you busy but doesn’t get you anywhere”. So true. We can be mindful of the global circumstances and attend to our personal and business financial situation, but worrying about the global situation won’t help or change anything.

At times like this I am a great supporter of the Australian Federal and Queensland State Government paying down debt. Unlike New South Wales State Government, who are predicting a $3.7bn surplus in the 2016/17 financial year, Queensland is dipping into public service superannuation and taking out $4bn from the $34bn defined benefits scheme fund. At this time the fund has a surplus of $10bn and the money will be used to pay down debt and for infrastructure.

This seems like desperate times for a government and one that could potentially set them and us on track to ride a super slippery slide into further debt. In an unstable global economy is this the right time to be raiding the QSuper piggy bank? It is a little like parents raiding their child’s moneybox or bank account when things get tough financially. Usually, the money never gets repaid – sorry kids!

The money tree is almost bare

The money tree is almost bare

Surely, such a step of raiding a superannuation fund is not the answer to a ‘blackhole’ in the budget? To understand how we are likely to feel with an ever increasing budget ‘blackhole’ in Queensland we need to look no further than Wet’n’Wild, Gold Coast. The ‘blackhole’ water slide has the full experience. It will send you “into an adrenaline pumping pitch black spiral of darkness”. If that doesn’t convince you then try the ‘tornado’ which will take you on a wild ride “right into the eye of the storm” before “hurtling through the eye of the storm to the calm waters below”. At least that is my hope that Queensland, the state where I was born and the state where I am now retired, will manage the eye of the storm and move us all into safer waters.

However, right now we are still in the “eye of the storm” and I have to ask a “what if” question – what if the $4bn taken out of QSuper can’t be repaid? What if the Queensland government plummets into further debt? And what if the economy becomes more volatile and the QSuper fund loses money given the current and future global financial situation?

One ‘blackhole’ that is a ravenous consumer of $’s in Queensland is the public service payroll. As at June 2014 there were 195,724 Full Time Equivalent (FTE’s) staff in the state. The number of Queensland employees as of December 2015 FTE was 205,529. There was an increase of 312 staff for the September 2015 quarter (0.15% increase). The government today is on a trajectory to spend its way into further debt through increasing the number of public servants which in 2015/16 was more than double the government’s budget projection. When I retired from the Queensland public sector in 2013 staff were being paid from borrowed money and yet the FTE numbers continue to increase. Does anyone have any idea of the rationale behind this type of economic management?

In 2009 Queensland lost its AAA credit rating. In January 2015, from my then local Landsborough Railway Station, the Premier Campbell Newman spoke to locals on the platform and told them he was working towards Queensland getting back its AAA credit rating in three years. Mr Newman did not get the opportunity to restore Queenland’s AAA credit rating as the following month Queenslanders voted in the Labor Party. Since that time the state continues to ride the super slippery slide into more debt. Now with the Brexit situation Great Britain is feeling the full force of leaving the European Union as they lose their AAA credit rating. Where will it all end? Politicians can’t continue to please “all the people, all the time” and hand out money that we don’t have. But then it seems that Queenslanders are not willing to put up with tough times while the state addresses the budget ‘blackhole’ and overspending of the past. I am not promoting a particular political party. What I am promoting is good economic management. Can we have our cake and eat it too – I don’t think so.

Frugal Frieda and sense savings

I made a decision in January this year to write a “Frugal Frieda” post each month. Life has been busy and I missed the month of May altogether! Now it is June and getting close to the end of the financial year Frugal Frieda has thoughts about saving and spending – sense savings.

Have you heard about ‘sense savings’? It is more than just a new buzz phrase – ‘sense savings’ is a new way of banking. It is a combination of two accounts; an everyday account and a savings account, with one statement. The ‘sense savings’ account does analysis on spending and saving and provides information using tools such as pie charts and graphs. At a glance you can find out how successful you are in reaching your financial goals. This type of account would be great for young people saving for a home or a car. It could also be beneficial for retirees who have an income of $2000 or more per month and like the idea of someone else doing the tracking of spending and saving.

There are now only a few banks that offer this and one of these is St George Bank. Read more here. As Frugal Frieda says “even if it sounds attractive make sure you do your homework and are getting the best interest on your money”.

Watch the change and you will find you are saving

Watch the change!

While Frugal Frieda is not promoting a bank she does emphasise tracking your spending and tracking savings. It makes sense to track what we are doing with our money. If we don’t manage our money than our money will slip through our fingers and where it goes, no one knows!

Frugal Frieda and I are constantly surprised by the number of people waving around that small piece of plastic for a purchase and then waving goodbye to the receipt as the shop attendant places it in the bin. How do these people track their expenses and make sure there are no unauthorised transactions on their bank statements? Even with my ‘squirrel’ type behaviour of keeping every receipt and tracking expenditure there are times when one will go missing and I am trying to work out from the statement what the transaction is all about.

One major issue for Frugal Frieda is to keep a good record of expenses. It makes sense to do this as part of a budget management plan. Without tracking expenses and savings, it is easy to overspend and then wonder where it all went. Perhaps Frugal Frieda should put up her hand to help with the Federal Budget! For Frugal Frieda it is easy peasy to manage your money. On one side of the ledger there are expenses (outgoings), the other side what comes in e.g. salary (income). Frugal Frieda likes the simple approach. It is a simple mathematics formula, that is, subtract expenses from your income and savings balance. What you have left is what you can spend or better still spend some and save some.

If a bank can help with spending and saving that is a bonus and always something to consider without having to work it out ourselves. Frugal Frieda is pleased that a few banks are offering such a service to customers when all the time customers are getting less face-to-face services.

The banks are changing the way they do business with their customers. I found this out a few months ago when I visited a bank where all the tellers had been replaced with machines. The machines are very intelligent and efficient, they can count money quickly and with the press of a few keys your money has gone into either yours or someone else’s account. My first experience of this was quite traumatic as the money disappeared into the black hole of the machine before I knew what was going on. Fortunately, I have moved with the times and are now quite reasonably comfortable with the process apart from the receipt not giving me the details of where the money ends up!

As Frugal Frieda states “the world is in such a flux of change and we have to adapt to change rather than fight against it”. In adapting to the changes all around us we have to ‘wise up’ and start saving. The financial debt of everyday Australians is at an all-time high which tells us people are ‘spending’ rather than ‘saving’ and at times ‘spending’ more money than they have!

Frugal Frieda’s Tip: Keep a track of your income and expenses. Instead of buying something on a credit card and paying it off over months or years “save for it”! If you need a new piece of furniture look for a second-hand item or something on sale – once you have the money! It saves being anxious about debt. As Frugal Frieda says “true happiness is being ‘sense’ able and not overspending”. It is a simple formula and without all the strife a life of overspending brings.

Reverse mortgage warning

A Reverse Mortgage or Home Equity Conversion Mortgage (HECM) loan enables Senior Australians over 60 years to access the equity in their home as security to borrow money. This can be taken as a regular income stream, a lump sum, a line of credit or a combination of these options. Seniors who contemplate a reverse mortgage are often asset rich but cash poor. But is a reverse mortgage a good alternative to downsizing or some other solution?

To begin with I am not about to venture into the territory of securing a reverse mortgage. My interest comes from reading about the availability of reverse mortgages and the experiences of others. After all the years that my “One & Only” (O&O) and I have worked and saved to own our home I do not want it to be partly owned by the bank or some other lender in my retirement years.

Using the equity in your home and converting it to cash can sound attractive, but how attractive is it really and what are the pro’s and con’s of a reverse mortgage?

There are over 40,000 Australians who have gone down the track of securing a reverse mortgage. Not all of these have understood the risks of a reverse mortgage and many have failed to seek independent legal advice. The pleasure of securing cash through a reverse mortgage for renovating the house, buying a new car, going on a holiday or buying a better lifestyle can quickly disappear once the reality of an accumulated debt hits home!

Often the interest rates on a reverse mortgage are higher than the average home loan and with compound interest the debt can increase exponentially. At this rate I expect it could create an element of stress in retirement years when the aim should be to eliminate stress after a life time at work.

Take for example a reverse mortgage loan of $200,000 on a home worth $1,000,000 with upfront cost of $1,500 and paying off the interest at $1,000 a month (interest at 7%). After 5 years the mortgage debt would be $359,182 and after 30 years and 9 months the equity falls to zero.

Let’s try another calculation: a home worth $750,000 with a reverse mortgage loan of $50,000. The mortgage debt after 5 years would be $146,538. It would be more than 35 years before the equity falls to zero. Similarly, if the loan in this situation was $100,000 the equity would fall to zero at 32 years and 7 months.

There is a strong possibility in the situations I described above of negative equity if a person lives a long life. As of 2012 the Federal Government introduced statutory “negative equity protection” on all new reverse mortgage loans. However, anyone who took out a reverse mortgage prior to 18 September 2012 should check their contract to see if they are protected.

In retirement there are many simple things you can enjoy without the big price tag - such as fishing

In retirement there are many simple things you can enjoy without the big price tag – such as fishing

If you are considering a reverse mortgage take the time to investigate all the pro’s and con’s. Seek expert advice. Engage a licensed mortgage broker. Do NOT sign a reverse mortgage contract, as attractive as it sounds, without having the contract reviewed by an independent legal advisor. Talk to a Financial Information Service (FIS) Officer at Centrelink for information about how taking out a reverse mortgage may impact on your eligibility for an aged pension or Health Care Card. Utilise the reverse mortgage calculators available online. If you are helping a relative and they are not computer literate ensure that they are fully aware of the risks and the period of time whereby they will reach zero equity. Always take time in your decision making; your life could depend on it!

Please note: the information provided in this article is for demonstration purposes only. It is not to be taken as expert opinion. Anyone considering a reverse mortgage should seek advice from a licensed financial advisor and qualified legal advisor.

Super Snoop

If you have super perhaps you would like to join me in being a “super snoop”.  It is not advisable to turn a blind eye to what is going on with your super and leave it only to the “experts”.

If you are like me and retired there are no further earnings from your employment. At the moment money in bank accounts is earning very little. For example, if you invest $10,000 – $50,000 with the major banks you will get anywhere from 2.50% – 2.80% for a 12 month term deposit (paid at the end of the term). Investing $20,000 with a bank on this basis will return around $520 per year. Therefore, when the cash rate is at such a low level, superannuation and other investments are a better option for monetary gains.

Become a “super snoop” and keep more money in your wallet for the things that count

Become a “super snoop” and keep more money in your wallet for the things that count

One of the recent government changes is in regard to Centrelink deeming rules for financial assets. Currently, how the system works is that the deemed rate calculates your level of earning on a financial asset. There is a small incentive to manage your money wisely. If you earn more than the deemed rate on an investment then this income is not counted in Centrelink assessing your entitlement to a pension, allowance or benefit. The downside at the moment is that the deemed rate is not much different to returns on term deposits. As of 1 January 2015 the deeming rules were extended to any new superannuation income accounts or income product changes.  If you had an income account prior to 1 January then don’t let a financial advisor talk you into converting your income account into a new product without finding out the impost in lost cash as a result of the change. The heaviest impact due to the change will be felt by retiree’s on part-pensions. Any new income account as of 1 January 2015 will be subject to the deeming rules. The capital component of superannuation is counted under the assets test and then any income drawn from this through an income/pension account is deemed. This will reduce the Centrelink entitlement amount, through what has essentially become a “double-dipping” by the Federal Government, as a result of the changes to the deeming rules.

Being a “super snoop” means keeping across what is happening with superannuation and any changes that the Australian Federal Government is proposing.  Superannuation changes can have a deleterious impact for those who have recently retired or are close to retirement age. Fortunately, most changes to the superannuation rules are grandfathered, meaning that if you came under a previous rule you are not subject to the new rules. However, people close to retiring can have little notice about a change in superannuation rules with the consequence they may have less to live on in retirement.

The Association of Superannuation Funds of Australia (ASFA) is the peak body representing all superannuation fund sectors, service providers and fund members. ASFA have worked out a standard of income needed for retirement. For a modest lifestyle: $23,469 (single); $33,766 (couple). For a comfortable lifestyle: $42,604 (single); $58,364 (couple). For a retiree on a full government pension they would receive $22,365 (single); $33,717 (couple) per year. For any retiree’s who rely only on the government pension in retirement they will have a modest lifestyle which means less money for items such as transport, clothing, household goods and groceries.  To live a comfortable lifestyle you need superannuation or other investments to live independently of the government or you qualify for a part-pension. To live independently on superannuation for a comfortable lifestyle it is estimated $790,000 (single) and $1,080,000 (couple) would be required. But even then Jeremy Cooper from Challenger states that people are being misled by the debate about the lump sum required for a comfortable retirement. Read what he has to say here. 

The other area that has been unofficially canvassed by the Federal Government is taking the family home into consideration when determining a person’s worth. For now this suggestion has been shelved. The goal post then shifted to the likelihood of changing the assets test. The proposition is that anyone who has $1.1 million, now entitled to a part aged pension, would not receive any government support unless their assets are reduced to around $800,000. As you can see from the information provided earlier $800,000 will not provide a “comfortable” retirement lifestyle. Also, if there are unfavourable economic conditions the capital can quickly become eroded.

The point in question here is that the area of superannuation, managed by the Federal Government, is like the pendulum on a clock, forever changing back and forth. It creates a very unstable decision-making environment for everyone, but particularly those close to and within the retirement phase of their life. In my view the change required is to rectify the systemic instability created by political decision-making within the superannuation sector. What then can be done to create stability and strengthen this area?

Jeff Kennett (former Liberal Premier of Victoria and Chairman of Beyond Blue) has a very worthwhile contribution on the topic. Kennett’s view is that the Federal Government should set up an independent statutory body with powers to make decisions covering the issues surrounding superannuation. This would take the decision-making out of the hands of politicians. Kennett, given his background in politics, understands the political landscape and the insecurity created for consumers and the sector when decision-making is solely in the hands of politicians.

I hope that his suggestions are given some traction by the Federal Government. That does not mean that the government cannot contribute to making the system better, it just means that they don’t hold all the power. The power of the independent statutory body can then be shared though consultative mechanisms with the government, peak bodies, lobby groups, consumers and the superannuation sector. As Kennett stated “sadly, the political process in this country over recent times has proved itself to be unable to decide on the three competing interest of individual need and fairness, personal responsibility and the national interest”.

By writing this post I am not claiming I am an expert when it comes to financial matters in retirement. But what I do know is that my money matters and your money matters and it will make a difference if you become, like me, a “super snoop”.  I totally support Kennett’s proposal for an independent statutory body to manage superannuation. Let me know what you think.

Thought for the day: It’s good to have money and the things that money can buy, but it’s good, too, to check up once in a while and make sure that you haven’t lost the things that money can’t buy (George Lorimer).

Mid-Year Budget Review

Last week it was time for a mid-year budget review of our household income and expenses. The Federal Government calls it their Mid Year Economic and Fiscal Outlook (MYEFO). I am calling this My EFO (My economic and fiscal outlook). My budget strategy for the rest of the year is simple “do more with less”. The Australian government is intent on repairing the budget. Therefore this is something that every household should do if the household budget is in need of repair.  Just as the government is working towards “sustaining strong growth in living standards” we can all do this if we manage our budget.

Following the 2008 Global Financial Crisis (GFC) countries including Australia implemented the Keynesian Theory of economics. The theory is named after John Maynard Keynes who developed his theory in the 1930’s.  Basically his theory is spending and tax cuts to encourage economic growth. After the GFC the government spend billions on stimulus packages (e.g. Feb 2009, $42 billion). The measure did keep tens of thousands of people in a job however who is undertaking the cost/benefit analysis? Further is this the right methodology to divert a recession?

The fact is that government spending has increased Australia’s net debt projection for 2014-15 to $226.9 billion and the interest bill forecast is $14.7 billion. Knowing that Australia is paying more than $1 billion in interest to pay off the debt, it is just too much for my mind – it can’t compute! When it comes to public and private debt then things are really getting out of hand. Take a look here!  

If you give a person a fish you feed them for a day; if you teach them how to fish and you feed them for a lifetime

It is very clear to me that when it comes to the household budget we cannot spend our way out of a shortfall. If we do we would likely end up bankrupt. Therefore, it is up to me to utilise a number of tools to manage our household budget. If you are reading this then you have access to the internet. There is a plethora of information on budget management. If you don’t have a budget to manage your money then get one quickly. You can start here.

If you are not budgeting your money will disappear and you will have no idea where it goes. Richard Armour said “that money talks, I won’t deny. I heard it once, it said Goodbye”. Don’t keep saying goodbye to your money. One of my saying is “money matters and it matters more when you don’t have enough”. Therefore, there are a couple of essential “must do’s” for reviewing the household budget mid-year.

#1           Income/Expenses: By having a budget and tracking our income and expenses I get a good picture of our financial outlook.  At the mid-year mark it is easy to review what areas are on target and what areas are over expended in each category e.g. groceries, entertainment, petrol, medical. This enables us to make adjustments with the aim to come in on budget at the end of June 2015.

#2           Buffer account: There will be emergencies in every household so planning for these takes the stress out of the situation.  After a couple of years of budgeting you gain a sense of how much is needed in the buffer account. Fortunately for us we had the buffer account and this saw as through some unexpected expenses for the first half of this financial year. Setting up the Chicken’s Palace (aka Chicken Coop) was an unplanned expenditure, but all worth it for those royal “golden” eggs.

Again, the cost came out of the buffer account. Our buffer account makes me feel so much better and gives us flexibility in life as well as a little interest. So don’t be a duffer, have a buffer!

#3           Delay gratification: A rule that can’t be broken is NO impulse buying, particularly costly items. We have a list, lots of lists at our place and so we write down what we want and wait. Waiting tells us if it is more of a want than a need! The key here is we give ourselves time to determine whether it is the best way to spend our money.  I want a new lens for my camera. I have delayed my gratification for a month now, not bought, but still on my shopping list! Can’t be long now!

Back to My EFO and how did we go? Overall not too bad, all thanks to the buffer account. The My EFO is an essential mid-year financial health check. It is a very necessary and valuable exercise just like looking after our health and taking preventative measures. The information I discovered in the mid-year review informs our behaviour and budget management for the second half of the financial year. Money matters and managing our money tells us where each dollar is going. It also helps us make informed decisions and gives me and my “one and only” peace of mind. After all that effort perhaps we should now go fishing.

Giving & Generosity

At this time of the year we are coming close to what is commonly called the “Season of Giving”. When we talk about giving we often hear the phrase “charity begins at home”. As far back as 1383 John Wycliffe stated that “Charity should begin at himself”. There was no gender inclusion language in those days. In the 1380’s John Wycliffe produced the first hand written English Bible manuscripts of the Latin Vulgate. While this post is about an entirely different matter, suffice to say Wycliffe’s actions were significant as they marked the beginning of the Protestant Reformation. Yet it is Sir Thomas Browne in his book of 1642 titled the “Religio Medici” who is recognised as the source of the phrase “charity begins at home”. Browne in his book said “But how shall we expect charity towards others, when we are uncharitable to ourselves? ‘Charity begins at home,’ is the voice of the world”.

Charity begins at home

Charity begins at home

This led me to think about the generosity of Australians and their giving. I discovered that the State of New South Wales (the average spend per person) is the most charitable State (with nine postcodes). Based on postcodes Victoria has four; the Australian Capital Territory four; South Australia two and Queensland one (Chapel Hill). The top five postcodes out of 20 that are the most generous are all suburbs in Sydney. Maleny the small township where I live in Queensland is rated as number one of the top 20 postcodes for charitable giving (based on the percentage of income). However, we should not get too excited that Malenyites are wonderful givers as the percentage of taxable income is only 0.27%.

Looking more broadly at wealth and how this is linked to generosity I examined the situation with Bill Gates (co-founder of Microsoft Corporation). He is consistently ranked in the Forbes list of wealthiest people in the world. He has a net worth of $84 billion and he and his wife set up the Bill and Melinda Gates Foundation. As of January 2013 they gave $28 Billion to the Foundation, more than $8 Billion of this to improve global health. They are using their wealth to bring about change and address the injustices found across the world. Their mission is “All Lives Have Equal Value”.

Whether it was my training in social work or something in my upbringing I have always been concerned about injustice, in all its forms. To me every life has equal value and every life is significant. To be able to address inequality money counts. As I always say money matters and you can do more with more i.e. more for others. My question is if you can afford to give is this being generous? When a person has little and is generous is this a more charitable act. I will leave each reader to come to your own decision about this. For me generosity is not all about money. We can be generous with our time, giving attention to others, generous in what we say and through acts of kindness.

We are approaching the "Season of Giving"

We are approaching the “Season of Giving”

When I reflect on my life to date I wonder whether I was as generous as I could have been when I was younger. When I was growing up in Toowoomba my sister Susan and I would often go for school holidays to Brisbane where my paternal grandmother and aunties lived. I remember their generosity. On one occasion my sister Susan and I arrived without our suitcase (port we call it in Queensland) and Grandmother Jessie sewed clothes for us and Aunty Glady who worked in Brisbane CBD bought us home underwear and socks. The generosity of the McCart family was always evident although as a child I did not recognise it. Anyone could turn up at the home and a meal would be offered. I fondly remember Aunty Glady and Aunty Evy and their kind and generous spirits. They were not wealthy people but always giving to others. Are Bill and Melinda Gates more generous than Aunty Glady and Aunty Evy? I don’t think so.

Financial Future of Seniors

The financial future of many seniors depends heavily on the government of the day to have financial laws in place that will protect the consumer. In my post of 17 June 2013 I raised a number of concerns surrounding the Abbott Government’s intention to rollback the Future of Financial Advice (FOFA) laws. I mentioned that these reforms, introduced by Labor, must stay in place as a protective mechanism for consumers. Without strict financial regulations in place many people will receive misguided financial advice that is not in their best interest e.g. Timbercorp Investment Scheme.

Last week a group of Senators after hearing from people affected by the Timbercorp collapse could not, with a good conscience, support the FOFA changes. It was an unprecedented move when Senator Nick Xenophon then spoke on behalf of the group (including Senators Jacqui Lambie and Ricky Muir) stating they would reject the proposed changes. I was pleased to hear this. It is my view that the Government has a responsibility to enact responsible laws. Responsible laws protect people from financial ruin, not the people who make money from others vulnerability.

However great or little your money matters

However great or little your money matters

It often happens when Government’s change, groups or individuals lobby the government for change. In this case the insurance companies, banks and the Financial Planning Association (FPA) lobbied the Federal Government to soften Labor’s FOFA laws. The rules introduced by Labor meant that Financial Planners had to act “in the best interests of their client” and not promote products where the Financial Planner receives a greater incentive to promote ‘insider’ products.

Your money matters, my money matters. Anyone who has any money to invest and is unable to manage it themselves should only engage a person who has an Australian Financial Services Licence (AFSA). The Australian Securities and Investments Commission (ASIC) website holds very informative material that will help. MoneySmart is their website for consumers. You can also give them a call if you can’t find the information you are looking for.

Last Wednesday the Senate passed a motion to disallow the FOFA changes (32-30 vote). There was pandemonium in the Senate as a result. While the Financial Services Council criticised the move, consumers supported the Senate’s move as a great win for customers. Whatever you may think of Senators Jacqui Lambie and Ricky Muir I admire their willingness to stand up and vote for what is right. All investors owe them a debt of gratitude.

Budget Tips for Budget Buoyancy

"Money is made round, to go around".

“Money is made round, to go around”.

It is that time of the year for budget tips. It is also time to work out how buoyant our budget is and how financially resilient we will be as retiree’s moving into a new financial year. As I always say “money matters” and it matters more when you don’t have enough to cover basic living expenses. As we are just about to commence a new financial year it is time to review 2013-14 and project our income and expenditure for 2014-15. It is better to understand what is happening with your money rather than seeing it flitter through your fingers without a notion of where it goes. It is so liberating when your expenses for the year are identified and you know that there will be enough income to cover your costs.

There are a number of good budgeting software programs that can be purchased however I have never been a fan of these as most of them are connected to the internet and where your financial and banking information goes, no one knows! If you are confident with online financial software, then go ahead. My preference is use the Microsoft Office Excel Program. I find the program excellent for developing a budget and projecting expenses.

In our relationship I am the finance guru! All that means is that I have taken responsibility for this and report to my “one and only”. I now have our budget and projected expenses in place for 2014-15. If there are any surprises throughout the year this is covered through a miscellaneous allocation of funds. If there are funds over at the end of the year this must be my CEO of Finances bonus? No, it is a bonus for us as a couple to share.

I will tell you what I do and if you are currently not doing any money management as a retiree, now is the time to start. This year I discovered the Excel Personal Budget template. The great part about the template is that it has all the formulas in place and it will automatically calculate your yearly cost for each item and the total costs plus any cash shortage/surplus. The goal is to make it all balance. If there is any shortage then you will need to go back and review what you can live without. If there is a surplus, that is a saving. You can also change the item names to suit, such as Utilities to Electricity. If you do not have a computer you can still have a yearly budget and keep a track of monthly expenses all recorded by hand.

Other tools I use to keep across our expenditure include a yearly Bill Schedule Tool (again in Excel Program). It tells me which month different bills are due e.g. car registration. It is helpful if you are going away on a long holiday to ensure you don’t miss a payment. Direct debit is another option, though this is not my preference. Then I utilise an Actual Expenditure Worksheet for the current year to record all expenses. BJ developed the formulas and this is the sixth year I have used it. The purpose being is that a budget is one matter; another is what your actual living costs are. It is worth investing a little time in managing your finances so that you keep your budget buoyant and don’t end up with “budget blues”.

Top Tips (TT) for Managing and Saving your Money:

TT #1 Draw out cash for groceries each fortnight according to your budget amount. The aim is not to spend above this amount. Never shop when you are hungry – otherwise you will spend more!

TT #2 Give yourself a fortnightly allowance. We have an allowance that gives us freedom to spend or save, it is our choice.

TT #3 Enjoy the outdoors, a park or beach and take a thermos for tea/coffee and pack a lunch when you go out for the day. I am sure that Gen X, Y or Z will keep the Café owners in business with the occasional boost from a “Baby Boomer” who is having a special treat. It is always your choice where you allocate your money. The key goal is to ensure you have enough. Reality Bites: if a retiree couple had coffee out three times per week they would need to allocate $1,500 in their yearly budget; lunch and a coffee for a couple once per week would cost around $2,600.

TT #4 Save money by not buying magazine or books, apart from the occasional one from your allowance. A little indulgence is always permissible. Go to the Library and borrow magazines, books and read the newspapers.

TT #5 Do not get takeaways. Cook extra and freeze. You can then have this on your night off. Just like someone else has cooked for you!

TT #6 For any savings shop around for the best interest rate to grow your money. If you are someone who just has to have that takeaway coffee several times a week then perhaps this will be your method to indulge yourself without the “budget blues” kicking in.

TT #7 Make or bake gifts. If this is not for you then keep all your gifts to a certain price that fits nicely within your budget. Never buy on impulse, purchase sale items or negotiate on the price at all times.

These are just a few tips of many. You can live the retirement you deserve as long as you take the time to track where your money is going and keep some of it. Money was made round to go around (see photo) but it was also made flat to stack! Money matters and “the safest way to double your money is to fold it over and put it in your pocket” – Kin (Frank McKinney) Hubbard.

Keeping the lid on your money!

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In my first blog on “money matters” I finished with a quote “money is a wonderful thing but it is possible to pay too high a price for it”. This is so true and we can all pay a high price for financial advice if we don’t find the right advisor. Many who thought they were making the right decision later discovered they paid a very high price for advice they accepted and now they have to accept their position of financial ruin. We need to take measures to keep the “lid” on our money.

My story begins over twenty years ago when we saw a financial advisor and invested money in a number of investment products. We were quite naïve in regard to investments and trusted the advisor. Through more recent experience over the past few years I discovered that advisors are similar to other “sales people” and have a behavioural profile. Mine is not a scientific approach but an experiential one, borne out of my experiences. The first level of engagement for advisors is to make you feel comfortable and that the advisor is your “friend”. Rule #1 – the advisor is NOT your friend, it is a business arrangement. Secondly, the advisor has your best interests above all else is wrong. Rule #2 – if an advisor receives commission or incentive payments from a product they recommend they may well be acting in their own interest, not yours. Thirdly, an advisor wants you to trust them. They want you to feel as though they are part of your solution to managing your money. I experienced an advisor who talked about “we” such as “when we sell the property”. This I would suggest is a strategy to entice us that “we” are all in this together. This could not be further from the truth. Rule #3 – you are paying for a service and the advisor is just that an “advisor” they are not going to live with any decisions made, you are.

Due to major investment disasters such as Storm Financial and Great Southern the Rudd Government introduced the Future of Financial Advice (FOFA) reforms so that advisors such as bank staff are not paid commissions and/or incentives for selling products to clients. Last night the ABC 7.30 Report signalled that the Abbott Government is committed to reversing the FOFA reforms. Without the continuation of these reforms people will continue to suffer serious financial loss. The more recent example is the Timbercorp Investment Scheme where people lost their investment funds and now are likely to lose their homes as a consequence. This is devastating news and the FOFA reforms must stay in place as a protective mechanism so that advisors are singly focussed on their client’s financial welfare and not what their advice means for their own bank account.

For me getting to the heart of the matter is crucial. If an advisor receives a commission and or an incentive payment when they recommend you buy a product then there exists a “conflict of interest”. The advisor cannot be totally subjective and therefore cannot be acting in mine or your best interest. It is different if an advisor receives no commission or incentive payments and they give a range of options for investments, outlining the pros and cons. It does not mean that this is fool proof however it is way ahead of an advisor being influenced by a payment. Can I go so far to say that it is a corrupt system if commissions and or incentive payments are part of the financial advisor landscape? Flat fees for advice are the best and only option, in my view. An independent advisor can only be independent if they only get paid for their advice and not for “selling a product”.

When I was nearing retirement to use a colloquial term I was “between a rock and a hard place”. I needed financial advice however I was concerned about getting the right advice. Prior to retiring I had gone to an advisor three times over a period of a couple of years and keeping in mind the “rules” mentioned above I became more cautious as a result of earlier experiences. I would always recommend taking the “helicopter view” to see what is happening. Don’t become so involved in the discussion that you do not take notice of the “bigger picture”. What I found was that the advisor was dazzling us with science. By presenting graphs and talking to us for a couple of hours we could have easily thought “this person is the expert” all we have to do is trust/rely on him. Rule #4 – never make a decision on the spot or when tired. Always, go away and take time to assess any advice or proposals which we did and I later terminated with the advisor. What the advisor was proposing is that upon retirement I take all my superannuation funds out of my industry funded super account (an account that has low fees and pays no commissions to financial advisors) in order to purchase a range of smaller products. If I had continued down the path recommended by the advisor my capital would have been eroded through fees to manage my money (initially around $4,000 per year), plus commissions as he played with my future as though it was monopoly money.

Rule #5 – never sign any authorisations such as giving your advisor permission to contact/talk to your bank and or superannuation fund, without the authorisation having an “end date”. I discovered this when I asked for a copy of an authorisation and I had to cancel this and talk with my bank and super fund. Rule #6 – never sign a document on the spot after the advisor talks you through the paperwork. Take the document away and read it thoroughly over several days and if necessary get others to read it as well and seek their feedback. Rule #7 – always read the fine print.

The bottom line for me is that there should be no benefit or gain for an advisor in recommending an investment product. It matters who we allow to dabble with our money. If you are at work then you need to preserve your financial situation and grow this for the future. If you have worked a lifetime and about to enjoy retirement your “money matters” because this is all there is! Rule #8 – always proceed with caution (like the traffic light, stay on amber for a while) when making financial decisions that will impact on your future. Those retirees who have been victims of failed investment schemes know just how much “money matters”. After a working lifetime, it is all gone. As the saying goes “if it sounds too good to be true, then it probably is”.

Keep in mind that financial advisors need to hold an Australian Financial Services Licence (AFSA). Only engage an advisor that holds a licence. I would recommend that before seeing a financial advisor go to the Australian Securities and Investment Commission (ASIC) website and in the Money Smart area read the guide and advice . Why? Because you matter and your “money matters”.