Newsletter No.  19                  January  2008

Your New Years Money Resolution 

Around the Christmas – New Year period each year many people make what is commonly known as New Years resolutions. Now these cover many different areas of people’s lives and often include matters like personal finances. New Years resolutions seem to have a poor success rate and I think most people treat them as a wish list rather than actual goal setting. The first step I believe you need to do is to write these goals down and then save them in a safe place where you will look at them a couple of times each year. You might say why should I write them down? Writing them down makes you accountable.

I remember attending a personal development course approximately 20 years ago. The part that really impressed me from that course was that successful people tend to write down important things to do. This could be a daily to do list or major goals. They don’t leave things to chance. Stick it notes and mobile phones are great tools to use in this regard. 

Once you have set some major goals, the next part is to set up a plan. Often we are trying to change a habit just like the goal of money100.

“Our goal is to assist people in developing conscious and successful money habits” 

I once read about changing habits and a good example of how to go about is for someone who wants to improve their fitness by jogging. They might have a plan to jog every week day for 30 minutes. What often happens is they over do it in the first few weeks and then after a couple of weeks if not before it all becomes too hard. A better way would be to concentrate on the routine and enjoyment factor by not spending longer than 15 minutes in the first 2 weeks and after that by extending the time frame by 5 minutes each 2 weeks. Concentrate on making the exercise enjoyable by a combination of fast walking and jogging and varying the route. Also have a plan for inclement weather. The key is to develop a habit. In this case, of having a regular exercise program that you enjoy.

Now back to a money resolution. Most people tend to make their resolutions end result focus ie: 

“I am going to have my credit card paid off within 6 months”. Now this is a worthwhile goal to have however lacks a reason as to how this will be achieved.

A good system to use is to have an affirmation that you repeat to yourself a number of times a day. This goal would be developed to be like this:

“I am going to have my credit card paid off within 6 months as I will now pay for all purchases with cash and will transfer money to my credit card on pay day.” 

The New Years resolution has now changed from a wish to a goal which has been written down to make ourselves accountable and developed into an affirmation which we can now repeat to ourselves out loud a number of times a day. Our resolution now has a much better chance of succeeding.

See if you can set some worthwhile resolutions that you can check with pride in late 2008 after achieving them. 

Have a prosperous and happy new year 

Monthly Quote 

The only place where success comes before work is in the dictionary

Vidal Sassoon.

                   Newsletter No.  20               February  2008  

A simple retirement formula

Say you would like to retire on $50,000 per annum and plan to retire at age 60. What amount would you need in your superannuation and other investments to do this? A common formula often used in the investment industry is to multiply your required annual income by the number 15. This number takes into account life expectancy figures. In the above example the amount required in your investment portfolio would be $750,000 ie ( $50,000 x 15 = $750,000 ).

Examples at different retirement ages are as follows:

55         $50,000 x 17      =$850,000 

60         $50,000 x 15      =$750,000

65         $50,000 x 13      =$650,000

As you can see, it is just the retirement age that is the variable. Have a go and work out what you need to have in retirement. Note this is today figures. So using the 1^st example, someone planning to retire at age 60 on $50,000 needs $750,000 in today’s dollars. This last point is important. Who knows what inflation and interest rates will do in the next 25 years? No one, this formula is a reality check. If you are aged 40 and plan to retire at age 60 and have $100,000 in superannuation with no other investments then you know where you are at.  

How do you compare?

Start working on your retirement income now.

If you are thinking, I earn $50,000 now and there is no way I will manage to have $750,000 in today’s dollars in 20 years time. Don’t panic. Do you really need $50,000 to retire on? The Australian Prudential Regulation Authority estimates that on average, most people need an income equivalent to about 60% of their annual salary. Therefore in this case $30,000 - $35,000 may be more realistic. 

N.B. This formula is just a guide; however it is a start and provides a goal for people to aim for. When they are getting closer to retirement say 10 years to go it is worth considering having a financial advisor to assist you through this period.  

Investment Offers 

Every now and again I receive a glossy investment proposal in the mail. A recent one was typical. It came from a company registered own 4 months before sending out the information. This proposal is called “Arbitrage” and involves betting on sporting events throughout the world. The key point is they try and take advantage of “unbalanced books” This occurs where a certain fixture/event is expected to be a pretty close contest for example an English Soccer Team playing an Italian team in England. Even though there may be no favourite, in England the local punters will bet mainly on their side while the Italian fans will do the same for their team. You will get better odds in England for the Italian team and better odds in Italy for the England team. This seems to be the basis of the plan ie bet equal amounts on each competitor with the bets made in the 2 different cities/countries. It makes sense to me, however it is still gambling, just on a bigger scale and therefore a risk. 

Their proposal would make you think the opposite with comments like:

“It is impossible to lose” 

“We have the no risk trading record” 

“YOU now call the tune…you can now manipulate those markets to YOUR benefit because only YOU know what the size and direction of YOUR investment will be”

 Will it work? I don’t know however it does require you to purchase computer software, the cost of which isn’t outlined. Like many direct investments the result usually is determined by time spent working at it. If you have the time why don’t you study the stock market?

To me it sounds too good to be true? 

The definition of ‘arbitrage” in my dictionary:

The buying and selling of stocks or bills of exchange to take advantage of varying prices in different markets. 

I must admit these investment brochures often have similar features: 

• Impressive forecast returns
• Glossy brochures usually with pictures of people on yachts
• Bold statements with nothing to back them up

Remember the old saying ‘if it sounds to good to be true it probably is’

Watch out 

Monthly Quote

If you learn from a defeat, you haven’t really lost.

Newsletter  No.  21              March  2008 

Financial Counselling Service

Are you struggling with loan repayments, rent or bills and have concerns that you are not able to work your way through your difficulties?

It could be you need to talk to a financial counsellor. A financial counsellor is different to a financial advisor. A financial advisor will talk to you about your investment requirements and can talk to you about issues like budgeting. However they do charge which makes it harder still to overcome your predicament. 

Financial counselling is generally a free service helping people with problems keeping their head above water. Financial Counsellors work for different organisations so it can be difficult to find them. They might work in your local shire office, for a religious organisation or care agency.  

They will sit down with you to find out your current financial difficulties and work with you to overcome your problems. 

The services they offer include: 

·      Assisting you with applications and other financial paperwork

·      To negotiate on your behalf with creditors if required

·      Preparing budgets

·      Presenting you with a range of options 

To find the nearest financial counsellors in your state please phone one of these numbers: 

·      ACT               02         6257 1788

·      NT                 1800     898   500

·      NSW             1800     808   488

·      QLD              07         3257 1957

·      SA                08         8202 5180

·      TAS               1800     243   232

·      WA               08         9481 7665  

Home Loan Fees  

When we are looking at home loans, we usually pay attention to interest rates, establishment fees and ongoing fees. The home loan we apply for is almost always between 20-30 years and yet on average home loans only last 7 years. 

It is this last fact that is so important in ensuring an often overlooked fee doesn’t cost you an arm and a leg. Exit fees used to be applied on fixed rate and introduction/honeymoon rate loans. Now days exit fees are applied on all types of home loans even the standard variable rate in some cases. Therefore when comparing loans make sure you find out whether exit fees apply. 

There can be two types of exit fees, early repayment fees and deferred establishment fees.  Early repayment fees are charged if a loan is repaid for any reason before the contract loan term. In most cases this is 20 years or more. It is therefore worth working out what the cost would be if paid out in 5 years and then 10 years. You can use our loan calculator to give you an idea of what the loan balance will be at that time. A better way is for your personal lender or broker to provide this information for you. In some cases particularly in fixed rates the fee can’t be accurately given. You can still ask for a ball park figure just to enable a sound decision to be made. 

Deferred establishment fees usually apply when a loan is offered with a nil fee however if you pay out the loan within the 1^st three years the establishment fee is charged. The costs to set up a loan, are probably between $500 - $1,000 for the lender. In some cases they are prepared to waive this knowing the profit made on the loan over a long period will cover this. If the loan is repaid early then the lender charges the full establishment fee or part depending on how long the loan has gone for. 

The key point here when assessing home loans is to include exit fees into your assessment criteria just like interest rates and other fees. 

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Regardless of your past, your future is a clean slate   

Newsletter  No.  22                 April  2008 

Credit Cards 2 interest rates

Most credit cards have one interest rate however some have different rates for purchases and cash advances. Why? 

Cash advances on a credit card are a key indicator that the customer may have lost financial control says the banks. Of course they continue to be proactive in limit increases and selling line of credit products that are promoted with the option of living off your credit card!  

The banks also receive little in fees for cash advances as compared to purchases. On purchases they receive merchant fees while on cash advances they have to pay for the upkeep of ATM’s and branch networks.

If you do happen to obtain cash from your credit card regularly, check the interest rate charged for cash advances. It may be worthwhile to shop around. The best way to do this is to start now. Log onto www.infochoice.com.au 

Then follow these steps: 

1. Click on “Find the Best”
2. Credit Cards
3. Key in some requirement then hit continue
4. Select up to 3 different cards by clicking on the right hand side and hit compare
5. Compare the difference in the interest rates for cash advances.

In fact while you are there, compare all the other areas of interest like: 

• Purchase interest rates
• Fees
• Interest free days etc

In fact use a site like infochoice to review all of your banking needs. 

Another way to buy a car

Back in our newsletter of December 2006, I outlined the process we went through to work out which car to sell. At that time it was expected to retain our 2^nd car for 3-4

years. In fact we only held onto it for another 18 months with the decision to go for a newer car based on the more driving that car was doing. A newer and more reliable car was required. Now there was no way I was going to consider a brand new car however I managed to buy a 2 year old Holden Commodore for only $14,000 which included  road worthy and new tyres. Now the car is insured for $20,000 which is about what they were selling for in car yards. How did I do it?

Most of it was good luck in that I was in the right price at the right time. However I was alert to any attractive deals going around. In this case someone I know was about to trade in his work vehicle that is part of his salary package. We were talking about different things and cars came up in the discussion and he asked me whether I was interested in buying a car? I said yes and it turned out the car he is looking to trade in was exactly what I was looking to buy. After looking at the car I agreed to buy it for what ever he was offered via trade in. This is the best bit. He went to 2 different dealers and one offered $13,000 and the other $16,000. The dealer offering the $13,000 had the car he wanted so he went for that car. I was rapped. On top of the $13,000 I paid for the road worthy and 4 brand new tyres which I was comfortable about. To me a great deal.

The point here is you may know someone who owns a car that you would like to buy. Why not tell them that you would consider purchasing it off them if they were looking to update that car. If the car is for private use it enables them to negotiate on a purchase without having to involve a trade in. If it is a work/business vehicle then they may just be happy to help you out. 

Good luck with your future car purchases. 

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When your image improves, your performance improves.  

Newsletter  No.  23                 May  2008

Financially supporting your children 

It’s tough being a parent. Many sacrifices are made to ensure our children are looked after as best as we can. This often requires us putting our hands in our wallet. Now we expect to do this when they are attending school while living at home, but at what stage do we stop this? Traditionally once they left home they were on their own with parents only supporting them financially once more for their wedding. 

Information recently announced by the Australian Bureau of Statistics outlined some parents are still helping their adult children financially even though the parents are past 75 years of age. In that case 6% of those parents were providing assistance while those parents between the ages of 55 to 64 over 33% were helping.  I must admit to being surprised that the percentages were that high.  

The concern to me is that the children and their children (grandchildren) are being able to live a lifestyle they in fact can’t afford. If at some point the grand parents aren’t able to keep the money tap flowing, how are their children all of a sudden able to change their standard of living which they may have enjoyed for 20-30-40-50 years? 

Unfortunately for the grandparents they have tried to help however they have not allowed their children to grow financially independent. They may also have reduced their own enjoyment of retirement due to the money tap they haven’t been able to plug. 

To avoid this it is important to teach our children money skills when they are young and to reinforce the fact that when they are working full time they are on their own. Have a read of our kids section to help.   

ATM Fees 

Interesting to see that the 4 major banks (ANZ, CBA, NAB & Westpac) have all increased charges for those using another bank’s ATM’s. The charge which was $1.50 is now $2.00 

This was discussed in our first newsletter back in July 2006. Our perspective hasn’t changed. The headline focuses on the fee which we as consumers can’t change. What we can do is use our own Bank’s ATM instead, therefore saving some money. Go back and read the full article from July 2006 for more details. 

What is now changing is that recent regulations ensure you will soon see ATM’s advise you of this fee before you transact giving you an opportunity to decline and go for a walk to your own ATM. This provides an opportunity to be more money conscious just like our goal. 

Also the extra exercise can’t hurt. 

Bankruptcy figures 

Bankruptcy figures in Australia for the financial year ended June 2007 show new bankruptcies have increased to 31,971 an increase of just over 4500 on the 2005-06 financial year. An increase of this amount was probably expected given the level in credit card debt and also interest rate rises. 

The main reason given for individual bankruptcies is unemployment and excessive use of credit. We are seeing people using excessive credit and in most cases managing with it or appearing to. In some cases they are slowly seeing their debt levels rise however the loss of a job has seen their financial position deteriorate very quickly. This reminds me of my time working in a credit management section just when the recession was in its early days. The number of files for people in their late 20’s early 30’s who were tradesman was large. A common occurrence back then was just being out of work and large debts. The debts were for new houses and cars as well as items like boats. These people had seen their parents obtain these items but instead of waiting they had obtained them quickly and paid the price. 

This type of spending is more common these days with the easier credit now available. An interesting statistic is the occupations most likely to be affected were clerical workers, service workers, labourers and road and rail transport drivers. The last one probably relates to the reduced margins in this industry no doubt higher fuel prices has played a big part. The first two in my opinion probably are due to the greater availability of shops to spend money while at work. These people walk from their cars or public transport stations to their job past shops all advertising great things. They get this continuous hard sell to and from work as well as having a stroll at lunch time. These additional purchases add up and help to create an unconscious shopping/spending behaviour that is hard to stop.

Also there is an expectation to look the part in how they dress which can be costly which those in other occupations don’t have to worry about.  If you have trouble controlling your spending at lunch times or on the way home, perhaps you need to change jobs to help change your money habits or walk a different way to avoid the temptation.  

Monthly Quote  

Success occurs when opportunity meets preparation 

Newsletter  No.  24         June  2008 

½ Way Point for New Year’s Resolutions

It is now 6 months since some of you completed your new year’s resolutions and 6 months until you review what happened in your life this year and whether you achieved some of your goals. 

How have you gone so far in achieving your goals? 

Have a read of our January 08 Newsletter to help with your resolutions.  One important factor in being successful is regularly setting aside time where you can think about where your life is headed and plan ahead. For me this is every morning where I take my dog for a walk. Getting up at 6AM and going for a walk when it is quite is a perfect time for me to think about my life. 

If you are really interested in growing as a person, give some time for yourself where you can think. Some suggestions are: 

·       Going for a walk/jog (This is also healthy) 

·       Driving to work with the radio off. Have a note pad available to jot down your ideas (preferably at traffic lights – not when driving!) 

·       On public transport. Why not put some headphones on and pretend to be listening to music. Again a note pad is worthwhile 

Go on achieve some goals now!  

The Benefit of Books

I have been reading a great book lately called “Think and Grow Rich” which I am reading for the 3^rd time. One of the areas that I found of value was in the specialised knowledge section which made the following comments. 

“The missing link in all systems of education known to civilisation today may be found in the failure of educational institutions to teach their students HOW TO ORGANISE AND USE KNOWLEDGE AFTER THEY ACQUIRE IT” 

“Any person is educated who knows where to get knowledge when needed, and how to organise that knowledge into definite plans of action.” 

“Knowledge has no value except that which can be gained from its application towards some worthy end.” 

“Successful people, in all callings never stop acquiring specialised knowledge related to their major purpose, business or profession. Those who are not successful usually make the mistake of believing that the knowledge-acquiring period ends when they finish school. The truth is that schooling does little more than point one in the direction of how to acquire practical knowledge. 

There is so much to take out of a book like “Think and Grow Rich” and many others. We are actually gaining information from the writer’s experiences and people they meet and this is much different to the people most people meet. After all about 5% of the population are wealthy and we tend to mix with people who have similar interests. Often our income levels are pretty similar as well. 

Think about this. Write down 20 people you know well. Of these 20 are there any in that group who you would call wealthy or heading that way ie into the top 5%? Would any of them be suitable as a mentor who could assist you to gain more knowledge and how to use that knowledge to grow your wealth? 

If you are like most people the answer is no. 

If you had asked the same question to someone like Napoleon Hill author of “Think and Grow Rich” or to Paul Clitheroe, Noel Whittaker and Lance Spicer who are respected Australian financial writers they would have a great deal of the 5% in their group of friends/associates. The reason is they would enjoy their company and value their knowledge. 

So a great way to grow as a person and become wealthier is to read many books from respected authors and then use that knowledge. Take advantage of the author’s own group of friends/associates.   

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It’s not whether you get knocked down; it’s whether you get up.  

Vince Lombardi