4 financial problems that only women face

We’ve always been passionate about encouraging women to take an interest in their money, rather than taking it for granted or surrendering the responsibility to a partner.

Having seen friends struggle to make ends meet when the unexpected happens, we know first-hand how important it is to have an independent understanding of finances. This is especially true given the fact that women face a unique set of challenges compared to their male counterparts.

To get the ball rolling, here are four financial issues which women have to deal with… and how to handle them.

1. Less time in the workforce


Despite the introduction of the term ‘house husband’, when it comes to raising a family, women are most likely to stop work to take on the role of primary carer. It has a ripple affect through everything from the amount of superannuation at retirement and reduced opportunities for advancement.

This makes it incredibly important to sit down and build a financial plan as far in advance as possible if you’re thinking of starting a family.

Can you afford to live on one income plus cover all the additional costs babies bring? Are you insured in case something happens and your partner can’t work? Does your work have a maternity leave policy and have you satisfied the conditions to benefit from it?

The last thing you want to do when the baby arrives is worry about how to pay the bills.

And what about getting your partner sharing a greater load of the caring so the woman can maximise her career opportunities.

2. Income inequality


According to the government’s Workplace Gender Equality Agency, the national gender pay gap is 17.1 per cent, with the average male taking home $1,532 a week compared to $1270 for females.

One common explanation is that women are notoriously less likely to ask their boss for a pay rise, whereas men are more comfortable having conversations about money.

So don’t get left behind. Make sure you understand the benchmark salary for similar roles and have regular performance conversations with your manager.

Check with recruitment consultants and online job search sites to asses your real market worth.

When discussing pay, be prepared and list the tangible reasons you deserve a pay increase, focusing on what you can bring to the business and what you’ve already achieved.

3. Divorce hits harder


The median age for divorce for women in Australia is 38.5 years old.

At this age many women have been in and out of the workforce raising a family and could have lower earning potential as a result. In many cases, women will also take on primary responsibility for looking after the kids after a split.

To combat this, take the time to get on top of your family finances. Have regular and open conversations with your partner about money, and make sure to have a full understanding of the family’s financial position.

Not only will this help you manage money better, it will also be a huge help in the event the relationship ends.

4. Living longer


On average, women live for approximately five years longer than men.

But on top of everything we’ve already mentioned, the average super pay out for women at retirement is 43 per cent lower than that of a man.

These two factors mean it’s crucial for women to take steps as early as possible to address the retirement savings gap.

Contributing extra to super through salary sacrificing, combining multiple super accounts and investing in appropriate assets will ensure you’re maximising your balance at retirement.

6 reasons why we have a lot to be grateful for

Right up front, we declare we’re optimists by nature.

But we’re not naive. We don’t look at the world through rose colored glasses. We do see the problems, we know things could always be better, we know some people do it a lot tougher than others, but we also look for the positives.

We like to think of ourselves as realists. And we’re driven by facts… not political spin, not negative social media rantings or unfounded scaremongering predictions.

Give us the facts anytime. So what are the facts when it comes to the financial well being of average Australians at the start of 2018?

The answer is; pretty good indeed. Despite the profound negativity, and general grumpiness, permeating through the media and social media, the facts are we have a lot to be grateful for. Here are 6 reasons why;

1. We’ve never been richer

The latest household net worth figures show the average Australian is worth about $400,000 which is up $22,000 over the previous year. To put that in some context, according to the Credit Suisse Global Wealth Databook, the average Australian is the second wealthiest in the world behind the Swiss.

We acknowledge it doesn’t feel like it to a lot of Australians because that increase in wealth has come through superannuation returns and a rise in property values at a time when wage gains are very subdued. In other words, we’re asset rich but cash poor.

Our wealth is rising but we don’t get the cash-in-the-pocket benefit until we retire or sell the house… it doesn’t help with the weekly groceries or buying new school shoes for the kids.

Hopefully a continuing strong jobs market will solve this. More on that later.

2. Our superannuation has been performing well

Of the average net wealth of Australians, 21.6 per cent is held in superannuation.

Even though those compulsory contributions are often unseen, superannuation is becoming a big deal for all working Australians… which is why we all need to take a closer interest in its performance and management. So check those statements when they come in and get good advice on whether you’re in the right fund.

Our superannuation funds have also been performing pretty well. Over the last year, the best funds returned around 10-14 per cent which, given the low interest rate and inflation environment, is pretty good. The 3 year and 7 year averages for the better balanced funds is around 10 per cent.

The results last year were certainly helped by a rise of 12.5 per cent in sharemarket returns (prices plus dividends) which was up on the 11.6 per cent return of the previous year. To put that in perspective it was half the return of the US sharemarket performance and ranked 52nd out of 73 global markets followed by the Commsec research group.

So a good sharemarket return but certainly not getting overvalued like other markets.

3. Taxes are low

Shock horror. But that’s the facts. Forget the political spin out of Canberra, the latest figures from the OECD show Australian income tax rates are below the average of other first world industrialised countries and even below that of the US.

Now we acknowledge that there is much debate about the definition of what’s included in assessing income tax rates. Each country has its own unique system. For example, the US has state income taxes while a lot of European countries have extra social security taxes. We don’t have those extra layers but do have the Medicare Levy and compulsory superannuation, which you could argue are a type of social security tax, and the States have payroll tax.

But using thge OECD figures, which are regarded as the global benchmark, we are not overtaxed by comparison to the rest of the world.

4. Job creation is strong… and impressive

Unemployment dropped from 5.8 to 5.4 per cent last year and up until the end of November (the most recent figure) 383,000 new jobs had been created… which is the best jobs growth in 12 years. Yes, the media headlines focussed on the closure and redundancies at “old school” businesses like Holden and traditional retail stores but failed to recognise huge job creation in infrastructure and new age on line businesses.

Digital design group Canva is a classic example of this. Founded less than 10 years ago by Melanie Perkins and Cliff Obrecht, two of our favourite young Aussie entrepreneurs, Canva is now valued at $1 billion, has 250 staff and will double its workforce in the next year.

Job advertisement figures are also currently strong which is a good lead indicator that this boom in jobs will continue and, hopefully, lead to a pickup in wages growth.

5. Our personal debt is better than we think

We’re going to be a bit controversial here because, on the face of it, Australian household debt is one of the highest in the world. It’s these raw figures which make the headlines and scare everyone.

But look at the breakdown and it shows Australians have never been savvier. The cost of money (interest rates) are low and we’re using it to our advantage by borrowing more “good” debt and using less “bad” debt. Borrowing to invest in appreciating assets is regarded as good dent and bad debt is borrowing to consume.

Around 92 per cent of an Australian’s borrowings are good debt and just 8 per cent is bad debt. The average American, by comparison, holds just under 30 per cent in bad debt.

Australians have been using credit cards less and switching to debit cards to manage their bad debt better.

The risk with the good debt, of course, is that the assets behind the borrowing fall in value. With most of this good debt in housing, a fall in home values or a rise in interest rates could have serious consequences.

But, again, looking at the facts Australians have built a buffer and are generally well ahead on their repayments and interest rates look to be stable for some time.

Plus housing affordability isn’t as bad as portrayed by some who crudely just divide, say, a median Sydney house price by the median household income. Pretty naive really because it doesn’t take into account the interest rate on home loans. A 14 per cent home loan rate has as huge impact on affordability as compared with a 4 per cent rate.

Taking into account interest rates, and you find housing affordability is at about the 30 average

6. The economy is improving… and still a miracle

Well into our world record breaking 26th consecutive year of positive economic growth, the Australian economy has been underperforming its 2.7 per cent 10 year average. When the official figures for 2017 are released the average growth will be about 2.5 per cent.

But the economy started to pick up steam in the second half of the year so 2018 is expected to beat the long term average with annual growth of 3-3.5 per cent.

Inflation is under control at 1.8 per cent, we’ve been chalking up record trade surpluses (except for the most recent month which was a surprise), commodity prices are strong (both agriculture and metals), interest rates are low, business and consumer confidence has improved markedly.

Overall, the economy is in good shape.

Want to be a millionaire? Here’s how you can do it!

If you want to have a million dollars in the bank, forget Lotto tickets or waiting for an inheritance from a rich relative… the only guaranteed way is to start investing early and regularly.

The key is discipline and time. Saving little amounts, on a regular basis over an extended period of time will guarantee $1 million.

A $5,000 deposit and an additional $300 a week will turn in to $1 million after 25 years at a 6 per cent annual return.

A 21 year old on $60,000 a year who salary sacrifices an extra 9 per cent (on top of the compulsory contribution) in to a growth oriented superannuation fund ($6,300 a year or $121 a week) will have a $1 million balance by age 65.

In fact, we believe anyone can achieve that lofty goal of becoming a millionaire if they start early and follow these simple tips.

1. TAKE CONTROL OF YOUR CAREER


Forget the house, that portfolio of sure-thing-shares and any savings you might have squirrelled away. You are your biggest asset.

Your ability to work, whether it’s a part-time wage, a full-time salary or income from a business, is worth millions in the long run.

So treat your career as an investment, and see the income you receive as the return on that investment. That means taking control of your earning power to maximise that return.

Set some goals about what you want to achieve, because whether it’s doubling your wage in five years, building skills to advance from a current role or making the shift to a job with a better future (and which you’ll enjoy), it helps to have a plan.

And while we’re big believers that life is all about taking advantage of opportunities that present themselves, we also think if you’re proactive in developing skills, confidence and a personal brand, more opportunities will ‘magically’ present themselves over time.

Think about it. Change careers and earn, say, an extra $25,000 a year which you invest (and not spend) and that becomes a powerful wealth building tool.

For those that hate their current job, feel underpaid or even unloved, remember that we’re always learning and our experiences play a big part in shaping who we become.

2. THE MAGIC OF COMPOUNDING


Compound interest is an incredibly powerful wealth creator. So much so that Einstein is said to have referred to it as the ‘eighth wonder of the world’.

As with other investments, making the most out of compounding requires a long-term outlook. And as the following example shows, it’s critical to start early.

Sarah is a young investor who starts putting away $200 a month at age 20, earning an average interest rate of eight per cent compounding monthly (remember this is an example only). She stops making deposits at age 30 after popping away $24,000 and doesn’t touch her money until she retires at age 65.

Her friend Brian, on the other hand, is a late starter. He starts to save when he hits 30, but diligently saves $200 a month until he retires at 65, by which time he’s deposited a grand total of $84,000.

Who do you think will have the bigger nest egg to retire on?

If you said Brian, you’re wrong.

By the time Sarah stops investing, she will have earned $12,833 in interest on top of her $24,000 in deposits. A decent return for ten years of saving.

But over the next 35 years, that $37,033 nest egg will grow to $603,362, assuming she continues to earn the same eight per cent rate. Meanwhile, Brian’s strategy will only earn him $462,035 in the same period.

This compounding doesn’t just apply to savings accounts either. Research data shows the Australian sharemarket returned an average 11.1 per cent per year over the last 30 years, assuming dividends are reinvested.

So ditch the Lotto ticket and get serious about building your earnings power and putting regular savings away. Discipline and time will always be the most assured ways of reaching that magic million dollar mark.

Bonus compounding question… which would you choose?

5 easy ways to change your money mindset forever

Humans are creatures of habit, and unfortunately when it comes to money many of us have picked up a few bad traits over the years.

However, we all have the power to change, and if you make an effort to ingrain positive financial habits into your life chances are they will end up sticking.

Here are five easy ways to change your money mindset forever.

1. Save 10 per cent of your income… without fail


Every time you get paid, send at least 10 per cent of your income to a high interest savings account that you simply don’t touch. If you receive a salary, set up an automatic debit from your transaction account to a separate investment account to make sure this always happens. This may not be enough to achieve all your financial goals, but it’s a great start.

2. Become a year-round negotiator


From bank fees to televisions, gym memberships to insurance, you’d be amazed at how many things are negotiable. You’ll be even more amazed how much you can save when you commit to negotiating on every transaction you make.

To do this, you need to be informed about the product or service you’re buying, leave any emotions at the door and always be prepared to walk away. Yes, it takes up a bit of time and confidence, but the savings will be more than worth it.

3. 15 Minute Monthly “Money Love”


We understand that learning about money isn’t everyone’s cup of tea, but you’re doing yourself no favours by staying in the dark about finances. Take the time to think about your financial goals and how you will achieve them, then build a basic budget and make sure you’re living within your means.

If you have amassed big credit card and other bad debts, put a strategy in place to pay them off as quickly as possible. My Money Makeover can help you do this.

Every month set aside just 15 minutes to THINK about your money and give it some love. Not to pay bills or do financial admin, but to set goals, assess how you’re doing financially, or adjust behaviour. In other words, working on your finances rather than in them.

Kochie’s advice on how to ask for a pay rise

4. Take super and insurance seriously


When it comes to money, superannuation and insurance are often put in the too hard basket. They seem complicated and you don’t benefit in your regular day to day life today. However, superannuation and insurance are vital to your long-term financial well-being.

For many people, their superannuation account is their single biggest asset. It will determine your lifestyle for 20 or 30 years of retirement. How much thought have you given to how it’s invested and the fees you’re paying. The Money Makeover will show you how to get informed and take an interest in your superannuation to maximise your nest egg.

Meanwhile, insurance could be the only thing standing between you and financial ruin. Make sure you understand your policies and read the fine print. Are you adequately covered?

5. Set-aside an ‘opportunity’ fund


An emergency fund is money you set aside and don’t touch unless you really, really need to, and we think this is a great idea. But instead of thinking about this as money for an emergency, we prefer to think about it in terms of the opportunity it affords you.

We recently heard a story about an American named Matt Becker who lost his job, but used the financial flexibility that his “opportunity” fund gave him to take a chance and start his dream business… a financial advice firm for new parents.

It’s a good story, and goes to show that improving your money mindset isn’t just about having a bulging bank balance.

It’s also about giving yourself the opportunity and flexibility to make good decisions in your life.

6 things you can do now to maximise your super

With life expectancy climbing and the government tightening its belt on Age Pension concessions, it’s never been more important to make sure your super is in good shape. And we’re not just talking to those approaching retirement.

Younger people should keep in mind that the current (relatively generous) Age Pension and associated concessions will likely look very different by the time they reach retirement age.

This means that having a healthy stash of super will be even more critical to enjoying a comfortable retirement. And younger people are in the box seat because they have time on their side… a little extra contribution today will make a massive difference to a retirement payout.

We know that super isn’t the sexiest subject, but the shifting landscape means that it’s one you need to be across. Here are six things to do now to put your super on the right path.

1. Consolidate your accounts


Around 15 million Australians have a superannuation account, 43 per cent of those Aussies have more than one account and 18 per cent have more than 3 superannuation accounts. On top of that, there are 5.7 million accounts which have “lost” track of their owners worth $14 billion.

Multiple accounts means multiple sets of fees eating away at your savings, so it’s crazy not to pool them together. Sign up for a myGov account and link it to the ATO to see a list of accounts in your name and get the consolidation process started.

2. Understand the fees you pay


Once your super’s all in one place, it’s important to understand exactly what the fund is charging to manage it so dust off that latest statement and read it through.

New legislation has forced super funds to be clearer about the fees they charge, which makes it easier to compare the market and work out if you’re getting a good deal. At the end of the day, being informed will help you make better decisions about who manages your money.

3. Choose your investment option


One of the most important decisions to make about super is where to invest the money.

Most super funds offer a choice of investment options ranging in complexity from balanced funds to highly leveraged growth funds and even direct shares. Each option comes with a varying degree of risk compared to the expected reward, and where you decide to invest will have a lot to do with how comfortable you are with risk and your stage of life.

All funds have a default option which is usually very conservative. Ultimately, it’s a personal decision, but as an example people close to retirement often take on less risky investments to protect their nest egg against a drop in the market. Young guns in their twenties can afford to take a few more chances because they have time on their side to ride out a downturn.

4. Review your insurance


Super funds often automatically provide new members with some combination of death, permanent disablement and income protection insurance. This cover’s usually fairly basic in nature though and often isn’t enough to cover people’s actual needs.

It’s important to account for your personal situation when taking out insurance, so review cover carefully and if necessary enlist the help of a financial adviser.

5. Nominate a beneficiary 


If you pass away unexpectedly and haven’t nominated a beneficiary, the distribution of the money in your super account (as well as any insurance payout you’re entitled to) will be handled by the fund’s trustee.

They’ll go through a formal process and make a judgement about who has claim to your super estate, but their decision may not correspond with your wishes. So take the time to lodge a beneficiary nomination form with your fund to get some peace of mind.

6. Maximise contributions


Salary sacrificing allows you to benefit from tax concessions by kicking in a portion of your pre-tax salary (on top of your compulsory contribution) into superannuation up to an annual limit which is determined by your age.

It’s also possible to make after-tax contributions to take advantage of the concessional tax on any investment earnings.

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Not fair: why women need to pay more attention to super than men

While we have taken many positive steps towards gender equality in Australia, it’s a sad truth women retire with fifty per cent less super and will live five years longer than men. How on earth does this happen?

First, there’s the gender pay gap. The average women in Australia earns 17% less than her male counterparts, and as a result receives less compulsory employer super contributions.

Second is family. Many women still take on the role of primary carer when they have kids, meaning extended time out of the workforce. Many only return to work part-time (if at all).

In the face of these challenges, we can’t stress enough how important it is to take control of your super now. Here are five simple strategies to boost your retirement savings, regardless of income.

1. Consolidate


Having multiple superannuation accounts means you’re paying multiple sets of fees. The result? Less money in retirement.

You are in total control of where your super lives, so it’s up to you to reduce these costs and consolidate your super into one account.

Register with MyGov (my.gov.au) and link your account to the ATO to get an overview of all the super accounts held in your name, including some any you may have forgotten about.

You can kick off the consolidation process from there. Alternatively, contact your main fund and ask for help moving your money across, they’ll be more than happy to assist.

2. Government contributions


If you earn less than $50,454 each year and pass the eligibility test, you can take advantage of the government’s super co-contribution.

That means, if you make an after-tax contribution to super, the government will make a co-contribution into your fund, up to a maximum of $500.

People earning less than $37,000 may also be eligible for the low-income super contribution, or LISC. This is currently equal to 15 per cent of the concessional super contributions your employer makes into your fund over a year.

And for low income earners, your spouse may also make contributions to your super account (and in certain circumstances receive a tax-offset). Visit the ATO website (ATO.gov.au) for more details and to see if you’re eligible.

3. Salary sacrifice


Salary sacrificing allows you to take some of your pre-tax earnings and funnel them directly into your super fund.

These contributions are taxed at a concessional rate, and not subject to the marginal tax rate your take-home pay would be.

Plus, any investment earnings you make inside super will be taxed favourably too, and you’ll also pay less income tax. Salary sacrificing can be an effective way to really boost your retirement savings, particularly for people approaching retirement.

4. Seek advice


Super is a complex area littered with confusing jargon, which means working out the best course of action to maximise your balance at retirement can be difficult. But don’t let confusion turn into apathy.

If you’re struggling to make sense of super, a good financial adviser will have the skills and knowledge required to boost your balance and educate you on how it works. We really believe that sometimes the best investment is good advice.

5. Focus on career


Finally, this isn’t directly related to your super fund, but it’s still important.

Research shows women are less likely to negotiate when it comes to their pay packet compared to men… or they don’t negotiate as hard.

Over the course of a career, this can really hurt your pay packet… and your super balance. So if you are working, make sure you understand your worth and don’t be afraid to negotiate fairly when the time comes.

Taking control of your super by following these five steps is another simple but positive step towards gender equality in this country.

5 ways to change your money mindset forever

We reckon old dogs can learn new tricks. Here are five ways to change your money mindset forever.

1. Save 10 per cent of your income… without fail


Every time you get paid, send 10 per cent of your income to a high interest savings account that you simply don’t touch.

If you receive a salary, you can set up an automatic debit to make sure this always happens.

We’re not saying that saving 10 per cent is the magic number or will be enough to achieve all of your financial goals, but it’s a great start.

2. Become a year-round negotiator


From bank fees to televisions, gym memberships to insurance, you’d be amazed at how many things in this life are negotiable.

And you’ll be even more amazed about how much money you can save when you commit to negotiating on every transaction you make (which can be as simple as just asking for a better deal).

To do this, you need to be informed about the product or service you’re buying, leave any emotions at the door and always be prepared to walk away. Yes, it takes up a bit of time, but the savings will be more than worth it.

3. Stop ‘winging it’ when it comes to money


We understand that learning about money isn’t everyone’s cup of tea, but you’re doing yourself no favours by staying in the dark about finances.

So take the time to think about your financial goals and how you’ll achieve them, then build a basic budget and make sure you’re living within your means. And if you’ve amassed bad debts like credit cards, put a strategy in place to pay them off as quickly as possible.

4. Take super and insurance seriously


When it comes to money, super and insurance are probably the two things that most people know the least about.

They’re also two of the most important aspects of your finances.

Thanks to our aging population, the government can’t afford to keep providing generous handouts to retirees as they have in the past. This means super is what you’re going to live on in retirement. Is yours appropriately invested?

Insurance meanwhile is the only thing that stands between you and financial ruin if something bad happens (it’s even more important if you have a family or financial dependents). Are you adequately covered?

5. Set up an ‘opportunity’ fund


An emergency fund is money you set aside and don’t touch unless you really, really need to, and we think this is a great idea.

But instead of thinking about this as money for an emergency, we prefer to think about it in terms of the opportunity it affords you.

We recently read a story about an American named Matt Becker who lost his job, but used the financial flexibility that his opportunity fund gave him to take a chance and start his dream business – a financial advice firm for new parents.

It’s a good story, and goes to show that improving your money mindset isn’t just about having a bulging bank balance. It’s also about giving yourself the opportunity and flexibility to make good decisions in your life.