Michal Bodi

Monday 18 November 2013

Should I fix or should I go...(variable)?

Q:  It can be tricky to decide whether to fix your mortgage or stay on variable rates. What factors do I recommend people consider when making the decision (and what factors SHOULDN’T they consider)?
I think the concept of fixing needs to be positioned to people differently. I disagree with fixing of the rate based on a ‘theory’ that the rates will go up soon, and similarly not fixing because (we think) the rates will come down soon. This approach is based on timing the interest rate market – in other words, projecting which way the rates will go – and we all know that ‘timing the market’ is not a sound strategy and only leads to disappointment. Chasing the lowest rate or always paying the lowest rate can be nerve wracking, stressful and impossible. People can drive themselves into the ground worrying about it – mainly because it’s not something that we can control. I think the focus needs to be somewhere else; on things we can actually control and manage ourselves.
Don’t get me wrong, I’m not saying the rate is irrelevant. But as long as you pay a competitive or an average rate, you are doing fine. Every loan repayment requires careful consideration and quality advice. When it comes to debt people are being sold products (traditionally with an emphasis on a ‘current rate’) but not solutions. The rates will not pay off your home loan fast, a successful repayment strategy and debt repayment plan will.

As a planner, some examples of when we would consider with clients whether they should fix their home loan interest rate or not include:
-          During strategy considerations, for example where there’s a guarantor loan. As an example, in a guarantor situation a client might decide to fix, say, 80% of the loan on an interest-only basis to create certainty of having the same repayments for 5 years. We might then implement a 5-year plan to pay off the remaining 20% (the guaranteed portion) on principle and interest and a variable loan basis. Every client situation will be different, of course – this is just an example.
-          Any case where we need that certainty of having the same repayments while focusing on repaying the debt somewhere else (for example an investment property and home loan scenario, or where there is other personal debt).
-          A ‘Small Amount First’ repayment strategy – for people who get overwhelmed with the prospect of ever paying off large debts. We might fix a large amount of the loan and we then concentrate on paying off a small amount that we leave on variable rates and concentrate on paying off over, say, 3 years. Once that’s done we re-fix another small amount and repeat the process. People love it and generally do their best to achieve their small goals.
With our clients, we don’t really discuss the fixing part of things first. Rather we primarily agree on a repayment strategy that suits client’s situation and only then consider fixing their loan or part of it.
 Q: So who is ideally suited to a fixed and /or variable rate loan?
A person who understands that fixing or not fixing of the loan should never be considered based on “when’s the best time to fix”. It should only be considered as part of their repayment strategy.

by Michal Bodi

Originally published on www.canstar.com.au Posted by  on 27/09/2013
Picture courtesy of cooldesign & freedigitalphotos.net

Tuesday 1 October 2013

There's a story behind each of us...

There's a story behind each of us...


I started with nothing, I mean nothing material, but I had my desire to succeed, almost forcing me to make many decisions (including the bad ones)…

I have pursued my freedom and travelled the continents to the other side of the world. It was a crazy idea and yes it was difficult to leave my mum and dad, my brother, my grandparents and the rest of my family behind…but although I didn't know it then, I was pursuing my dreams and finding my purpose.

Over the years, I’ve learned a lot of lessons. I’ve learned about the importance of focus and the absolute necessity of having a plan. I’ve also learned that if you want something, you go and get it. It probably won’t be easy and it may hurt…but that’s when you know it’s worth it. You add some tough love coaching and you have a structure to hold on to. 





It was almost inevitable that I have become a successful financial coach myself. My beliefs are reflected in my work and they help others move forward. I always share my story because I use my own example to demonstrate that we are all creators of our own future.

If we surround ourselves with the right people, have a plan to stick to and focus on what really matters we can achieve the unthinkable.

Using ‘the best’ products, having complicated investment structures or managing an investment portfolio is something that every professional adviser should be able to help you with.

But if you want to make sure you are on the right path to accomplish something you always wanted, please make that step and connect with me. I might be able to help. There is no such thing as failure, only lack of trying.

I look forward to speaking with you and hearing your story.


by Michal Bodi


For practical financial tips and ongoing updates and my professional opinion please connect with me on LinkedIn or follow my tweets.

Tuesday 3 September 2013

How much do I need to retire comfortably?

How much do I need to retire comfortably?

Question:
What would be the super amount/balance needed for a ‘comfortable’ retirement for couples when we reach our retirement age, which I understand is $56,406 in today’s dollars? My husband and I are 56 and 50 respectively, and have an SMSF with $600,000.

My answer:
Retirement planning is an ongoing, evolving process that requires plenty of foresight and I applaud you for thinking about it now. 

This is a common question that unfortunately cannot be answered based solely on the information you have provided. The answer will depend on many variables and your own expectations in regards to longevity of your money. 

Are you happy for your capital to run out at a particular age or you would prefer a perpetual income and the ability to pass your wealth on to the next generations? When do you wish to retire and what is your own idea of a comfortable retirement? 

The figures you have quoted as a comfortable retirement income are based on averages (ASFA Retirement Standard survey, June 2013) and they very rarely reflect reality. For example they only include $2,725 per year for an overseas holiday and they don’t allow for any extra cash for gifts to your grandkids...

Once you work out your own retirement budget you end up with a retirement income figure that reflects your own financial reality and you've completed the first step of many.

It’s important to realise that the retirement planning process is not a mathematical equation. It’s not just a matter of plugging the figures into a calculator. We live in a fast pace society that suggests it should be that simple. But even a simple calculation is only as good as the figures and assumptions used.

It is absolutely critical to realise that retirement income planning is way more complex and way more important to people than a single conversation. It requires expertise and the careful consideration of many factors. It requires wisdom – we know that a tomato is a fruit but we don’t put it in a fruit salad.




The next vital detail is to remember that every date and dollar specific retirement income plan (that also addresses ‘what if’ scenarios) requires a financial coach and their ongoing assistance to ensure you to stick to your plan. This is the only way of knowing whether you are on track with your retirement plans or not. And having this certainty is priceless.

I realise that the hardest thing for most people is the first step – to recognise and overcome the fear of experience and make an appointment to consult an expert. But it will take a lot of pressure off your shoulders. It can also mean the difference between getting it right and living the retirement you always wanted … and getting it all wrong.

by Michal Bodi

As published on FPA’s Ask an Expert website dedicated to promoting the value of financial advice - ttp://askanexpert.fpadifference.com.au/



Image courtesy of Michal Marcol / freedigitalphotos.net

Monday 2 September 2013

Being smart about life insurance

Being smart about life insurance
Rather than looking at life insurance as something we need, it should be considered as something we want. It’s more about having peace of mind knowing that if things don’t exactly work out the way we want, it’s not the end. 
And who wouldn't want that? 
The problem is that life insurance is a very intangible thing and it’s only used at the time of grief – and no one wants to think about that.
The other problem is that our human nature loves shortcuts. We often seek the cheapest, the easiest, and the least painful way to obtain life insurance because, subconsciously, we don’t want to overcome the fear of new experience and seek a professional’s help.
 And that in itself is a tragedy waiting to happen.
We all make future plans for our family or a business. We assume these plans will be successful – pay off the mortgage, save for regular ski trips, having regular holidays, give our children education they deserve, retire worry-free, build our family’s wealth, grow our business, or how about simply maintaining and enjoying the good lifestyle, spending as much time as possible with the family and generally being happy… does it ring a bell?
I am no different and I sincerely hope you will be able to achieve all of them and more. But hoping is not planning and smart people have a plan in place
Proper planning requires relevant expertise.  There is no harm in 'googling' information and gaining some self-education prior to seeking help. We all do it every day. But when it comes to decision making there is simply too much to consider and you want to get every detail right. 
Only a qualified and experienced financial planner will be able to:
  • help you dig deep and articulate everything you value and need to plan for

  • translate it into financial terms and calculate the dollar figures reflecting the cost of not being able to achieve these

  • evaluate all the risks and asses the probabilities of them happening

  • work out a relevant protection strategy including appropriate types of cover, sums insured, structuring, ownership and potential tax consequences

  • consider alternatives and recommend a suitable insurer that will pay the claim


Every single step can make a huge difference. At the end of the day, you want to have the confidence that if needed, the cover will be used for what it is intended– to pay your claim.
Hiring a financial planner means having a professional looking at your personal circumstances and recommending a tailored solution that fits your plans, reviewing its appropriateness over time, as well as helping you through the overwhelming process of making a claim. 
So if you’re considering insurance or you have some in place but you never consulted a financial planner, I hope I've inspired you to take action. Your family or your business partner might thank you one day.

by Michal Bodi

Image courtesy of Vichaya Kiatying-Angsulee  / FreeDigitalPhotos.net

Monday 13 May 2013

The Federal Budget - What does it mean for you? Keep Calm and Focus!

The Federal Budget  - What does it mean for you? Keep Calm and Focus!


Ch - Ch - Ch - Ch - Changes...sings David Bowie in one of his classics. 

A change is one thing that will always be a part of our lives. In fact, the only thing that will never change is the change itself.

What does this have to do with the Budget? Everything. It’s all in the attitude.

The Budget never fails to surprise us, it never fails to headline in the media and create a buzz for right or wrong reasons... 

One would think it's the most important economic / social / financial event of the year with consequences that will greatly affect us all.

Hm, well, not really... At least not in the big scheme of things. 

Please don't get me wrong, the financial magicians, the economists, the financial planners will analyse the hell out of it and search for the loopholes, opportunities and consequences for their clients. It's their job to do it. But for the vast majority of us... keep calm and stay focused.
 
 
 
 
It really comes down to everything we ever talked about - Focusing on and controlling things we actually have any chance of controlling. And the yearly budget, together with interest rates, the market, or any other financial noise is just not one of those things. 

There will be changes and there are a lot of topics to get stuck into: the economic growth, the GDP, the dollar, the deficit, the Centrelink benefits, the income tax cuts, the super changes ... Etc. 

If the yearly budget does affect you in any way, your trusted adviser will definitely contact you and let you know. It might require a little tweaking of your contribution strategy or structuring of your assets. 
However, they're not going to be the end of the world changes.
 
You still will need to spend less than you earn to get ahead with building your wealth, you will have to keep being patient and disciplined with your strategies.
 
'The universal principles and practices of successful investing and preserving of your wealth will continue to be relevant.'

Leave the rest up to your adviser... and if you don't have one, no budget will save or destroy you. It will be done by YOURSELF.

by Michal Bodi

 

 

 

Thursday 21 March 2013

Not your crisis...

Not your crisis

News from Cyprus has shaken the markets...

Who would have thought an island in the Mediterranean (that most people didn't even know existed) could generate so many headlines...

What's important is to realise that the odds of this most recent 'crisis du jour' having any impact on you are slim to none (unless you’re a depositor in a Cypriot bank).

It's your financial coach's job to hold your hand and reassure you. 

Remember we talked about this in the past. We talked about we would only deal with things that:

1. are relevant to our plan

2. we can control

And another world 'crisis' doesn't fit in any of these categories. 


... So remember, 'that' crisis is very rarely your crisis.



Tuesday 19 February 2013

Hoping to retire one day? Consider this!



Hoping to retire one day? Consider this!



Retirement is a huge milestone in peoples’ lives. It has many faces and we reach it in a number of different ways. Sometimes it happens suddenly, sometimes it is planned for. Sometimes it is voluntary and other times it may be forced upon. 


One thing is certain though, retirement is the single biggest, most terrifying financial decision people ever have to make…and it involves large sums of money and lots of emotions.

Financially speaking, retirement is essentially an income problem

The only two objectives that matter and count in retirement are:


  •  Lifestyle sustaining income that lasts a lifetime

  •  The income needs to keep pace with increasing cost of living.


Unfortunately, due to extreme circumstances (the biggest, the most terrifying and emotional time) the focus of most retirees is everywhere else but on these two main concerns. The talk is about certainty and safety. But it is the concept of safety that’s usually misinterpreted and lures retirees into the trap of a financial tragedy.


Shift in retirement planning  


Most baby boomers have inherited their parents’ concept of ‘planning’ for retirement – being looked after by government and/or receive an employer supported pension. 

In past, many employers offered what were called ‘defined benefit pensions’. Although, far from perfect, these used to be a source of some income, which in combination with social security income, allowed the veteran generation to live a modest lifestyle they were used to.


Defined benefit pensions are no longer being offered. So unless you already have one in place or lined up, you will have to look after your retirement yourself. 

And the social security pension?


Firstly, it will hardly be enough to afford you a decent retirement.

Secondly, the demographics of Australian population are changing – the baby boomer generation has already doubled the long term average of people retiring per year. 

And it continues to increase it to an estimated number of 140,000 retirees per year in about ten year’s time. See the graph below:


The wave of new retirees is crashing over the next 30 years - started in 2008



So, what’s the point?
  • There is more retirees, with no retirement plans, relying on someone else to look after them in retirement
  • The government policies will inevitably have to change to deal with the dramatic increase in demand of age pension applications
  • Relying on government support(or any other income support in retirement for that matter) is simply not a sensible strategy if you want to retire on your terms

If you still think that the government will look after you and you are happy with that prognosis, stop reading now. I wish you all the luck in the world.


If, however, you wish to retire on your terms, keep your dignity throughout your retirement and stay retired for the rest of your life, you might want to pause for a moment and think about the steps you are taking towards your own retirement.


We have now established that we need to shift the focus from government and employer support to relying on your own savings in retirement.  

But you will need to plan to make sure you’ll be able to rely on your lifetime savings.

Please notice the use of the verb ‘plan’. 

There is no secret to a successful and independent retirement other than having a long term, time and dollar specific plan which will clearly determine whether you are on the right track or not.


By having a plan I do not refer to a ‘good’ superfund, a portfolio, good investment returns, low fees, great product features and benefits, healthy economy etc… etc….


What I mean is addressing and knowing more-less exactly:

  • how much money you will need at the time when you retire (so you'll be able to draw a lifestyle sustaining income for the rest of your life)
  •  how much money you currently have
  • how much money you need to contribute each year into your savings in order to get to the first number
  • how you need to invest your funds and why

The only way to even begin answering these questions intelligently is to sit down with a quality financial planner and have an honest conversation. 

This is a first step of the planning process which will ensure that one day you will be able to look back with a smile.


Because you will have some certainties in life and you will be in control. And it will only happen if you decide to do something specific about your future today.

It’s called planning.



by Michal Bodi
 



Image courtesy of photostock and  freedigitalphotos.net