New Year

4 financial resolutions to kick start the New Year

Updated on Finance

The dawn of a new year sees many people setting new year’s resolutions such as losing some weight or giving up smoking.

Similarly, the beginning of a new year is the ideal time for setting financial goals, and here are four practical ways you can kick your year off to a great start.

  1. Decide what you want to achieve. January is perfect for taking stock of where you’re at financially, particularly as those post-December bills start rolling in. So perhaps you’d like to start by paying off debt or commence a savings plan for a new car or family holiday. The main thing is to be decisive.
  2. Setting a realistic household budget will provide understanding of your finances and identify areas of unnecessary spending. This will not only assist in balancing your income and expenses, but will help you clear debt and allocate money to other financial goals like setting up an emergency cash fund.
  3. Tidy up your filing cabinet. According to the Australian Taxation Office, you should keep financial records for five years. Shred financial paperwork older than five years and file everything else, including bills, invoices and bank statements. Remember that any filing system you implement should be quickly and easily maintained so you’re motivated to keep your records in order.
  4. Review your paperwork; start with insurances – life insurance, house, car etc. Are they current and are you adequately covered? Are your premiums appropriate for your level of cover? Assess your superannuation and nomination of beneficiary. Is your will up to date or have your circumstances changed? While we’re experiencing record-low interest rates, do a few sums and work out whether you’re getting the best deal on your mortgage. Perhaps it’s time to renegotiate with your lender!

While the idea of setting a new year’s resolution is common, sticking to resolutions and accomplishing them are less so.

The key to achieving any goal is to be SMART about it:
S – be Specific. Clearly define your goal.
M – ensure it’s Measurable so you know when you’ve achieved it.
A – make it Achievable. Planning to complete a marathon in February may not be achievable if you’ve never run before.
R – be Realistic; could you really lose 20 kilos in a month?
T –set a Time by which you want to achieve your goal.

If you’re not sure where to start, talk to us. We can help you put processes in place to get your SMART goals underway.

With a little planning and organisation, being clear about what you want to achieve, and mapping out how and by when you expect to achieve it, you’ll be giving yourself the best possible start to a successful year.

 

This is general information only

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Investing 101

Investing 101

Updated on Finance

Whether it’s taking a more active interest in our superannuation, starting to build an investment portfolio, or even trying our hands at playing the stock market, we can all benefit by understanding the language and key concepts of investing.   Asset classes There is a huge range of potential investments out there, and these can be grouped together in asset classes that are based on shared characteristics. There are many asset classes, however the major ones that most mainstream investors focus on are shares, property, fixed interest and cash.   Shares give investors part ownership in specific companies. The share market sets the value of each share and prices can fluctuate significantly, even from day to day. This price volatility means that, relative to other asset classes, shares are higher risk, particularly in the short term. However, investors expect to be rewarded for taking on this risk by the potential for shares to deliver higher long-term gains than the other asset classes. Property also provides investors with full or partial ownership of growth assets. Income is received in the form of rent, and property can also provide capital growth. As property can, at times, fall in value, it is considered a medium to high-risk asset class. Fixed interest refers to investment in government or corporate bonds. Bonds are a type of loan, and each bond has a maturity date (the date the loan is repaid), a maturity value (the amount returned at the maturity date), a coupon rate and a market value. The coupon rate is fixed for the life of the bond (hence the term ‘fixed interest’), but the market value can fluctuate depending on movements in interest rates. Cash covers bank accounts and term deposits. Returns are in the form of interest payments, and cash is generally considered to be a low risk asset class. Why are asset classes important? One of the golden rules of investment is that when seeking higher returns, investors must take on a greater degree of risk. Quality fixed interest investments provide a high certainty of a particular return. They are low risk, and the returns they offer reflect this. However, for any given share, we don’t know what its price will be in a week, a month or a year. Prices may be volatile, the return is uncertain, so a share is a higher risk investment. However, that risk can be a positive thing – upside risk – which is the potential for the share to generate a higher than expected return.   Asset classes bundle together investments with similar risk and return profiles. By blending these asset classes together in different proportions – a process called asset allocation – investors can construct portfolios that provide levels of risk and return that suit specific needs.   This blending of different asset classes results in diversification, which is a critical risk management tool. As different asset classes over and under perform at different times, mixing different asset classes lowers the volatility, and hence the risk, of a portfolio.   As far as returns are concerned, studies have shown that over 90% of a portfolio’s performance is determined by the asset allocation. It’s vastly more important than individual investment selection or the timing of purchases and sales.   Help is at hand Of course, there’s more to investing than can be conveyed in a short article, but that’s no reason to delay putting the various markets to work. Speak to us today and we can help you understand your risk comfort level and design an investment strategy that’s right for you.   The information provided in this article is general in nature only and does not constitute personal financial advice.

Quarterly Economic Update: April – June 2024

Quarterly Economic Update: April – June 2024

Updated on Economy, Finance, Investing

The economy continues to slow, with inflation remaining sticky, the new federal budget making waves, and global events that may have a significant impact. Uncertainty at home and abroad The current outlook indicates uncertainty both domestically and internationally, making it unlikely that inflation will reach the target range of 2-3 per cent in the near future. May forecasts suggested that inflation would return to the target range by the second half of 2025 and reach the midpoint by 2026. However, recent indicators point to weak economic activity, such as slow GDP growth, an increase in the unemployment rate, sluggish wage growth, and uncertain consumption growth. Advanced economies are experiencing a slowdown in growth, although there are signs of improvement in the Chinese and US economies, along with increased commodity prices. Nevertheless, geopolitical uncertainties remain high, which could potentially disrupt supply chains. The Federal Budget focuses on social matters Treasurer Jim Chalmers presented the 2024-2025 Federal Budget on May 14, 2024. The government aimed to alleviate the cost of living without worsening inflation. Key announcements included: Interest rates remain steady, but the pain may not be over The Reserve Bank of Australia (RBA) kept interest rates on hold and the cash rate steady at 4.35 per cent throughout the quarter. At the June RBA board meeting, Governor Michele Bullock stated that the board has not dismissed the possibility of further rate hikes. Interest rates will stay at this level until the RBA’s next board meeting in early August. Inflation persists, despite slowing Inflation remains persistent, with the RBA predicting that it will take some time to consistently stay within the target range of 2-3 per cent. Although inflation has decreased significantly since its peak in 2022, the rate of decline has slowed. At the same time, economic growth has been limited as households cut back on non-essential spending due to income constraints. What are we spending on? Households are continuing to limit their spending on non-essential items. Spending on discretionary goods has shown a slow increase, rising by only 0.6 per cent over the year. On the other hand, spending on non-discretionary goods and services has risen by 5.8 per cent, mainly due to higher fuel and food costs. Household spending on health has significantly increased, showing a 15.7 per cent rise compared to this time last year. Health spending made the largest contribution to the overall 3.4 per cent rise in household spending in April. China lifts Aussie beef bans China has lifted bans on most beef and other exporters. The bans began in 2020 when China suspended beef exports from eight processors and imposed official and unofficial trade barriers on barley, coal, lobster, wood, and wine, costing exporters $20 billion Australian dollars ($13 billion) a year. These measures were viewed as politically motivated actions to penalise Australia, although China claimed they were related to trade issues. With the lifting of these bans, less than $1 billion worth of Australian exports are still being impeded. This marks a significant reduction from the previous $13 billion impact on Australian exporters. Trump down but not out Donald Trump’s conviction on 34 felony counts of falsifying business records has not stopped his campaign for President. As the November election looms closer, economists have expressed concerns about Trump’s campaign promise to impose a 10 per cent tariff on all US imports. If implemented, this and other trade policies could trigger another round of trade wars, disrupt international trade, and impact global growth. The information provided in this article is general in nature only and does not constitute personal financial advice.

Quarterly Economic Update: July-September 2022

Quarterly Economic Update: July-September 2022

Economy, Finance

As geo-political tensions tighten in Ukraine, economies around the world are reeling from mounting energy prices, soaring costs of living and in a desperate attempt to bring down inflation, higher interest rates.  The US economy appears certain to fall into recession. Markets have suddenly become volatile as shares are sold in preference to holding funds in defensive assets such as cash. This in turn is reaping havoc on world currency markets. Funds are flooding into US dollar denominated investments and in doing so, are sending the value of the greenback sky high against other currencies.  Speculation is mounting that the British pound may fall to historic lows in coming months and may even reach parity with the US dollar, driven by the newly elected Prime Minister Liz Truss, implementing a big borrowing, low taxing budget. This controversial attempt to boost the British economy comes at a time when central banks around the world, including the Bank of England, are lifting interest rates in order to reduce economic activity and so, dramatically slow the rate of inflation.  The Organisation of Economic Co-operation and Development is now forecasting economic growth will slow from 2.8 to 2.2 per cent during the next twelve months as the United States, China and Europe all cut back on economic activity.  While Australia is not spared from this global slowdown, with the OECD forecasting domestic growth will tumble from 2.5 to 2 per cent during the coming year, it should survive this turbulent period better than most. Much will depend on this month’s Federal Budget. The first by the newly elected Albanese Government, it will tread a line between its reform agenda including much talk about tax cuts and trying to slow the economy and so reduce inflation.  Although the employment rate across the nation remains high, spiralling prices for basic foodstuffs and other essentials is putting enormous pressure on the Government to provide relief to those struggling to get by. In the meantime, petrol prices are set to bounce higher as the Federal Government restores the fuel excise tax, adding 23 cents a litre to both petrol and diesel sold in Australia.  In addition, the Reserve Bank has made it clear it will continue to lift the domestic cash rate and with it most other local interest rates, until it has clawed back the rate of inflation from an expected high of 7 per cent, to less than 3 per cent.  Higher interest rates are already impacting homebuyers. Five rate rises since May, mean a couple earning $92,000 each, can now borrow $264,000 less than they could in April according to analysis by the research house, Canstar. So even with a 20 per cent deposit, a couple’s maximum budget has dropped from more than $1.63 million to $1.37 million and this in turn is being reflected by prices in the property market. As buyer’s budgets have fallen, so too have property prices. CoreLogic Home Value Index shows house prices in Sydney have dropped by 7.6 per cent this year while Melbourne prices have fallen by 4.6 per cent.  With the Reserve Bank determined to force even higher interest rates on the economy in order to defeat inflation, there is no end in sight to higher interest rates and further property price falls.   The information provided in this article is general in nature only and does not constitute personal financial advice. 

Does the value of the Aussie dollar affect you?

Does the value of the Aussie dollar affect you?

Updated on Finance

You might think that only importers and exporters pay attention to the value of the Aussie dollar, but movements in the exchange rate affect us all. After peaking at US$0.81 in late January 2018 the Australian dollar fell as low as US$0.70 in October. It also fell against a number of other currencies. A falling Aussie dollar makes it more costly to travel overseas and increases the local cost of imported goods. On the upside, it makes many of our exports less expensive for foreign buyers, giving a boost to our farmers and other exporters. The reverse applies in the case of a rising dollar, but movements in exchange rates don’t just influence our living costs. Most people with superannuation will have a portion invested in overseas assets, and changes in currency values can also influence the performance of retirement savings – a lower dollar boosts the local value of our overseas investments while a higher dollar has the reverse effect. So what are the main influences on exchange rates? Ultimately it comes down to supply and demand, and that can be determined by a number of things: Interest rates. Imagine an Australian investor earning 1% interest on her money. She looks across the Pacific and sees that she can earn 2% in the USA. Here’s an opportunity to double her income! To do so she needs to buy US dollars, increasing demand for the greenback and thus increasing its value against the Australian dollar. Exchange rates respond very quickly to both actual changes in official interest rates, and to expectations of where interest rates in different countries are heading. Commodity prices. From wheat and wool, to iron ore and natural gas, Australia produces a wealth of commodities. When demand for materials falls, less money flows into Australia, and with decreased demand our dollar falls in value. The economy. If the economy is doing it tough the Reserve Bank of Australia may drop interest rates to encourage borrowing and stimulate investment. This takes us back to item 1. A weak economy relative to other countries attracts less overseas investment, causing the local currency to fall. Politics. Elections and referenda can create a climate of economic uncertainty that investors, on the whole, don’t like. However, if the market thinks that a more business-friendly government is likely to be elected, this could boost the value of our dollar. Fear. In times of market volatility and global political upheaval, investors flock to the US dollar as a ‘safe haven’ currency. Most other currencies, including ours, usually fall relative to the US currency. But it’s not that simple Other things can influence currency values, such as speculation or central bank intervention. There’s also a lot of interaction between the influences outlined above. For example, strong commodity prices may give a boost to the economy, which leads to higher interest rates. Throw in some political uncertainty add a touch of speculation and things quickly become very complicated. So, will the Aussie dollar rise or continue to fall? History suggests flipping a coin may provide as useful an answer as following the opinions of ‘experts’.   Does the value of the Aussie dollar affect you? 18/11/2018 This is general information only

Making interest-free deals work for you

Making interest-free deals work for you

Updated on Finance

They have been around for decades, but interest-free deals can still be confusing and costly when not managed correctly. Excitable advertising can make these offers almost too good to refuse, particularly with longer terms applying to higher levels of finance. For example, to get five years’ interest-free on purchases from some retailers, the minimum spend is $1,000. This simple condition could turn a necessary purchase of say, a new fridge, into a multiple purchase prompted by the seemingly innocent question, “do you need to upgrade your TV?”. Five years up your sleeve to pay off a larger purchase may sound too tempting to pass up but never forget the age-tested maxim “buyer beware”. In the case of interest-free it’s not always as simple as it sounds. How do these deals make money? Not to be confused with the newer “buy now, pay later” products where no interest is ever charged, interest-free deals simply defer the interest to the end of the promotional period and then it appears with guns blazing! Interest will be charged on any outstanding amount at ridiculously high levels, often close to 30% per annum. For instance, if you had a loan of $3,000, how would you feel about paying an extra $1,000 interest per year? That’s not smart buying. Although some do, the credit provider is not obligated to warn that the interest-free period is ending. It’s up to you to calculate the monthly repayments to clear the debt during the interest-free period and pay that amount – or more if you can. It’s not just interest It may seem attractive but having a longer period to pay off a purchase will cost you more, particularly when it’s for a relatively inexpensive item, e.g. a $1,000 TV. The monthly account-keeping fee will add up considerably over a longer period. Five years (60 months) at $5.95 is an extra $357 in fees. Reducing the period of the loan will save you money on these fees. There are also late payment fees if you miss the monthly due date. As part of the deal, you will usually be provided with a store card or another credit card for this purchase. The card credit limit may be much higher than your initial purchase as a way to encourage you to spend more, so if you don’t need the extra credit ask for the card limit to match the full purchase price when completing the application. The salesman may explain that you might not be able to increase it later but take control and stick to your decision. The card could also have an annual fee so if you repay the total balance within the first 12 months and don’t plan to use it for another purchase make a note to cancel it before the provider charges another annual fee. Buying smart If you intend to buy using an interest-free offer, check your budget and make sure you can repay the entire purchase price (plus fees) before the expiry of the interest-free period. Managed well, interest will be your friend. If not, it will be a very expensive enemy. Looking to learn more about interest? Check out our free Understanding Credit Cards course – we’ll tell you what you need to know to ensure you never let your credit card get the best of you!   This is general information only

Financial Education for a Successful Future 

Financial Education for a Successful Future 

Updated on Education, Finance

Think back to when you got your first job and that sweet taste of financial independence. Regardless of what age you started working, it’s unlikely you knew how to manage that first paycheck.  Let’s face it; our world isn’t particularly adept at teaching financial literacy to the younger generation.   I don’t know about you, but when I was in school, we learned trigonometry (SOH-CAH-TOA is still permanently etched in my brain), which has been helpful for all the times I’ve needed to solve the missing sides and angles of a right triangle, but not so much for managing my financial affairs as an adult.    It’s time we change that narrative by sparking open, honest discussions about money and giving our young adults the financial tools they need to flourish.  The Need for Open Discussions About Finance  Money talk has often been cloaked in secrecy, even considered taboo in some households. This needs to change.   Parents can play an integral role in setting their children up for financial success by fostering an environment where money conversations flow freely. Open dialogue demystifies the world of finance and empowers young adults to make informed decisions.  Using Positive Language  As we foster an environment of open discussions around money, it’s important to remember that the language we use significantly impacts the subconscious beliefs and attitudes our children will develop.    Just as negativity can breed fear and anxiety, positive language can cultivate a healthy relationship with money.   Instead of saying, “We can’t afford this,” try saying, “Let’s work out how we can save for this.” This small shift in dialogue encourages a mindset of abundance and possibility rather than scarcity. It helps young adults view financial challenges as opportunities for growth, aiding them in building a positive and proactive belief system around money.  Financial Goal Setting  Goals give us direction and purpose.   Whether saving for a first car, paying off a student loan, or investing in their first property, encouraging young adults to set and work towards financial goals from an early age is a great way to help them build discipline and a future focussed mindset.  It’s equally important to celebrate milestones, no matter how small. This positive reinforcement nurtures a sense of achievement and motivation, propelling them further on their financial journey. The Essentials of Budgeting  Ever heard of the saying, “Failing to plan is planning to fail”?   That’s precisely why budgeting is so important. Budgeting is not about limiting yourself; it’s about making your money work for you.   The 50/30/20 rule, where 50% of your income goes towards needs, 30% towards wants, and 20% towards savings, is a great place to start for young adults because it’s simple and gets them in the habit of saving from an early age.    Understanding and Practicing Responsible Spending  Managing your money doesn’t mean you have to miss out on the things you enjoy. It’s all about responsible spending.   Need versus want is a timeless debate, but helping young adults to understand the difference is key.   Impulse spending is something that can often sabotage budgeting and saving efforts. A great tip for young adults to help them avoid impulse spending is to implement a 48-hour waiting period for non-essential spending. This allows time to consider whether the purchase is within their budget and aligned with their financial goals.    We’re not just equipping our young adults with financial knowledge but empowering them to build a successful financial future.   So, let’s keep the money conversations flowing and start helping our young adults build habits that will set them up for financial success. The narrative changes today!     The information provided in this article is general in nature only and does not constitute personal financial advice.