My wife lost her job and is trying to get another. She won’t get jobseeker as I earn too much. Would it be right to take advantage of the new super policy and access 10k of her super early? We will struggle with mortgage repayments without her working.

Simon from Richmond in Victoria

Hi Simon,

I’m assuming your wife has lost her job because of the coronavirus crisis. Early access to super was one of the first financial reliefs announced by the government to help people in situations like yours.

Of course, there would be some advantages of doing that. However, as with any major investment decision, it's very important to seek professional financial advice rather than acting on your emotions.

Firstly, if you’re in a situation where you’re unable to afford basic living expenses, accessing super is probably the way to go. There’s a little point of discussing the pros and cons of it if you can’t afford to pay bills or groceries. This measure allows to you access two lots of tax-free lumps sums of up to $10,000 each and I know this will be a lifeline in a lot of cases.

If you don’t fall into the above category, there are important aspects of your super strategy that need to be considered. These include your age, your overall retirement plans, insurance benefits, crystallising capital losses, opportunity costs of withdrawing your capital, just to mention some.

People close to retirement may benefit as it allows them to access their super tax-free before reaching what’s called their ‘preservation age’. Under the announced measure, if they qualify, they could tap into some of their accumulation account before formally stopping work and switching into pension mode.

For the rest of us, accessing our super early isn’t such a good idea. As mentioned earlier, you’re likely to crystallise your losses. But that’s only part of the story. The other part is the opportunity cost – how much you’ll rob yourself in the long run. If you have a long way to go before retirement, accessing super now will almost certainly be a very costly exercise. Your super is your future employer. You want to make sure you maximise the opportunities during your working life to build your nest egg. Selling down quality assets in a well-diversified super portfolio (assumption) could hardly be called utilising an opportunity. Both time and compound interest will magnify the gap you cause by the withdrawal (potentially up to hundreds of thousands of dollars).

Being able to access your super simply doesn’t mean you should. There are now other financial relief options on the way that were not available at the time this superannuation measure was unveiled.

There’s the ‘JobKeeper’ payment – if your wife’s previous employer is eligible, they could register to receive $1,500 per fortnight for a period of six months for each employee (full-time, part-time and casuals employed over 12 months). This will potentially allow them to re-hire the employees they were forced to let go earlier. Simon, if your employer/or your business qualifies, you could also potentially receive this payment. The amount of $1,500 per fortnight is fixed and not income tested, meaning some people may end up earning more than they earned before. Most of the work needs to be done by the employer so clear communication between employer and employees will be crucial.

A lot of lenders have announced various mortgage repayment initiatives that allow people pause their repayments for a period of time. As you mentioned you will struggle to pay off the mortgage without your wife working, so it might be a good idea to call your mortgage provider and have a discussion. You might be able to negotiate a deferral of repayments of up to six months.

Lastly, I want to mention that there’s always some good in every bad. This crisis provides us with an opportunity to re-visit our expenses and re-set our priorities. It would be a good idea for you and your wife to sit down over the weekend, have a look at your bank/credit card statement and set up a spending plan moving forward. If you’re anything like me, you will be able to eliminate a lot of unnecessary expenses (some of them will come down automatically due to the lockdown).

One day, when this whole thing is over and your incomes will go back to normal, you may find that you suddenly have a cashflow surplus which you can allocate towards your future well-being.

I wish you all the best. Stay positive. This too shall pass.

Michal Bodi

Life hacks for coping with change in a new year

The entire science behind change fascinates me.  It’s also one of the critical variables in financial planning – without implementing a sustainable change the entire planning process fails to deliver the outcomes we’re after.

That’s easier to say than do. We get busy, distracted and we procrastinate. Procrastination is a real problem for a lot of people, and it’s a sneaky one. Quite often we don’t even realise it’s sitting on our shoulders making itself very comfy. Its level of comfort will depend on how we respond to change and how ‘change hungry’ we actually are.

Different people have different levels of readiness to change and it needs to be measured and respected. It allows a good coach to use the right approach and develop a framework that maximises the client’s potential.  After all, it’s all about the actual process of planning – taking clients from self-discovery to actioning digestible steps of a workable plan, fundamentally connected to personal values and goals.

It doesn’t just happen automatically though. The whole process is underpinned by changes in thought, attitudes and behaviour. And that’s where the rubber hits the road.

Studies after studies show us that if we address our behaviour, the results we're after are inevitable.

Coached investor behaviour can literally stop you from booting away your fortune. Up to two thirds of investor returns are lost annually, due to expensive mistakes because ‘human nature is simply a failed investor’ (annual Dalbar/Lipper analysis).

People’s improved behaviour can increase their savings by $90,000 after working with a financial planner (Saving Study by KPMG Econtech for the FSC).

Our behaviour and our decision mechanism is the dominant determinant of our financial outcomes. And managing the process of change forms a big part of what a behavioural coach does.

New Year’s Day is the single most popular trigger in our calendars, when we tend to think of change and how we can improve our lives. Without successful implementation, however, change won’t be sustainable.

So what can you do differently this time? The secret to getting ahead is getting started. These three, simple and practical life hacks might be the way to go:

- Don’t think (too much)– we tend to overthink things. Our minds love making excuses about the ‘right time’ and ‘perfect conditions’. These never happen. The best time to start was probably years ago. The second-best time is now. Often, it’s just a matter of starting and working out details later.

- Create external tension – if we tell other people and make our plans ‘official’, we subconsciously create a guilt trip if we stop. Sharing our goals and plans with friends fools our mind and holds it accountable.

- Start for 10 – break down the change into small bites you can introduce daily. Then, every day, practice the new habit for just ten minutes. Once the time is over we tend to continue as we already created a momentum.

Financial coaching can also reduce the anxiety about the irreducible uncertainty we all face. It provides a holding hand and objective point of view, that helps build our confidence when dealing with change.

Michal Bodi

Senior Financial Planner & Financial Coach

mbodi@sydneyfinancialplanning.com.au

My TOP 5 financial predictions for the New Year (and let's face it, every year after)

Predicting future can be difficult and mostly impossible. Especially if one’s trying to predict things which are completely out of their hands. Like, entirely! But guess what, surprisingly (not really that surprising to the scholars of human behaviour), most of predictions are made about exactly those.

We’re in the second week of the New Year and the mainstream media are already saturated with headlines about market predictions, interest rate predictions etc..

So I made my own list. However, the difference is, that these are about the one thing we can all fully control, if we choose to – our own behaviour.

I’m almost certain that my forecast won’t make the headlines because it doesn’t contain the information ‘the people want’. It’s not the sensational news or ‘the secret’ information that will bring them wealth. Well, actually it will, but not in the immediate form as they all expect.

So without further ado, here are my top 5 behavioural predictions for this year (and in fact every year thereafter, since human behaviour just doesn’t change):

1 . We will keep looking for ‘the right’ product that will ‘save’ us

Most corporations spend ridiculous amounts of money to employ top marketing agencies to sell their products. These behaviour wizards understand too well how human brain works and create wonderful campaigns that simply fool us. They play to our basic emotions - fear and desire, but lately also pride, frustration and self-esteem. And vast majority of population will follow and buy whatever they’re selling, not realising, the new product won’t make any difference in their long term well-being - financial or emotional. They will happily keep chasing it, year and year again, with their super fund, insurance company, mortgage provider…

2. We will ignore the behavioural (please read boring) issues that actually make all the difference

After over a decade of my professional practice, I’m yet to see a prospective client who will come to me asking for assistance with their patience, disciplined spending or emotional decision making. They all come asking to check if their super can be ‘’invested better’ (whatever that means) to deliver greater returns, for mortgage with a better rate or a cheaper insurance.

When I start explaining to them that it’s not the product that will deliver the outcomes they’re after and that it’s actually themselves who can do that via better money habits and mindful consideration of how they go about things, they get disappointed. Many don’t believe me. And subsequently leave and they continue pursuing the ‘whatever other crazy issues they’re convinced are important’ as everyone else and which will eventually drive them to the ground.

3. We will continue focusing on (out)performance

The ‘timing and selection’ culture we live in is obsessed with being better than average. We were told by our parents we can be the best so we expect nothing less from the results of financial products we buy. Not realising that the consistently best performance can’t be delivered year in, year out, we allow ourselves participate in the rat race we can never win.

Most of us will not want to see that it doesn’t have to be that way. That the best product performance (or the outperformance) isn’t required to pay off our debts fast, educate our kids or retire early (whatever that means).

Most of us will not accept that the only real outperformance is the one we can deliver ourselves via long term and disciplined plan, with a help of third party coach, keeping an eye on our vulnerable money behaviour.

4. We’ll keep buying things we don’t need

A decent number of books, movies and pieces of research has been done on how buying stuff does not make us happy (in the long term). Most of us just don’t want to (?) get the memo. It’s actually getting worse and more pathetic, with big companies now skipping parents and market directly to our children. And oh boy, do we all know what a kid shit behaviour does to a parent who is tired, lacking sleep and just wants to have a quiet moment or just wants to pop in the grocery store to only buy milk. So what do we do? We give in. To our kids, to fashion, to our marketing and social media driven culture. … but it’s so hard to save money these days, isn’t it…?

5. We won’t listen to financial advice professionals

Less than 5% of population has a dedicated financial coach who overlooks their family’s finances and long term interest. How can we expect to get ahead, to live lives on our own terms, to get financially independent, to retire early or whatever the headlines we buy into says, if we choose not to have hard conversations about the way we spend money?

Well, because it’s easier and so much more exciting, to look up stuff online or chat to our friends or read an article about the latest products and hottest suburbs to buy in right now.

Therefore, we will continue to choose to not engage a financial advice pro because we’ll continue to justify it to ourselves – don’t you read the paper or watch a TV report about them? It makes us feel better to say that and we won’t have to look for anyone (and use our brain). So we’ll just continue to Google…

Well, there you go. My top five (although the list goes on). I’ll be delighted to check in again in December to see if they came true. But I’m pretty bloody confident... Because they do every year.

All the best.

Michal 'Misho' Bodi

I've dedicated my career to educating people about what really matters about money, what they need to know and what is just noise. I believe that having practical understanding of what can appear to be a very complex issue and having a clear plan empowers people to achieve greatness.

I make money issues look simple, elegant, easy to digest and practical. I'm convinced it’s the only way to accomplish anything in the busy and dynamic environment we live in. You only need to know what's relevant to you. Everything else is commentary…

My specialty is helping people to open up and have an honest conversation about where they are financially and why. Then inspiring them to get proactively involved in the process of planning their lives by providing practical guidance and ongoing money coaching.

mbodi@sydneyfinancialplanning.com.au

Spoilt for choice, or choices spoilt?

I was buying an audio book the other day.  

And I was in the mood for a good book – there wasn't something in particular I was looking for.  I just wanted something on leadership.  

After 40 minutes (!!!), I ended up with five books in the shopping trolley and no idea what to do next.  I was completely stuck – it was like my mind was paralysed by the options I had available to me.

There was a book written by an author I've read (and enjoyed) before.

Two books had names that I found really intriguing.

Then there was a book recommended to me by a friend.

And with the last one, it was the summary blurb I what I found interesting and it made me press the ‘buy now’ button.

They were all fascinating in their own right and they all were what I was looking for.  

But there I was, sitting at my desk, completely frozen with no idea which one to choose.  

It was all going so well – I narrowed down the 25 search results to a shortlist of five, but I couldn’t get any further.

Did the muse leave me there at the crucial moment?

I wanted to pick the best one – the best of the best!!!  With work and kids, I don’t get a lot of time to relax and enjoy a really good, stimulating book, and so that time one-on-one with a good book is too precious for me to waste on the wrong book.

Unable to move any further, I ended up getting distracted by my kids, I turned off the laptop and didn't make a purchase...

It took me a good few weeks before I was able to go back and buy something. 

And guess what, I ended up buying one of the ones looked at previously.  I didn't bother with shortlists this time around – I just went in and bought the one that was recommended by someone I trust.

Because of that, I've got a good read waiting for me at the end of the day.  I’m really enjoying the book, and I'm so glad I went back and bought it.

It seems like everywhere you look these days, there’s yet another choice that has to be made.  Big choices, small choices, important choices, insignificant choices - they all seem to weigh us down and put pressure on us to get it right - to make the best choice.

The concept of the best is clouding our vision. 

It doesn't have to be that way. Once we allow ourselves to have the freedom to trust and be guided by an objective point of view, the weight is lifted. 

A choice made will always be better than the one you plan to make (one day).

by Michal Bodi

Have you had a similar experience? I'd love you to share with me.

You don't pay me for my time...

I recently had to go to an eye specialist. 

The guy I went to was recommended to me as the best in his field.

I showed up at the clinic on time, feeling a little nervous and unsure of what was happening next.  

One of his assistants explained the process to me step by step.  I was really grateful for that – I was getting a little freaked out, thinking about someone sticking sharp tools into my eye while I was watching!

I had to wait a little longer and then I was taken through to the surgery. The doctor’s assistants and a nurse started preparing my eye – cleaning the skin around it, putting on the protective material, adjusting the lights and laying out all the tools.  

I was laying there for about 20 minutes before the actual specialist came in.  He sat down next to me, looked into my eye and did a few tiny but precise moves with his tools.  Within a minute he was done and said, ‘There you go, all fixed.’  I thought, ‘wow, that was quick!’

As I was waiting to pay, l there was a guy in front of me who’d had the same procedure.  ‘That’s $745, sir,’ said the secretary.

He shook his head and said, ‘Wow, that a hell of an hourly rate!’  

The specialist overheard him.  He came out of his office and walked over to the guy.  He smiled and calmly said, ‘You don’t pay me for my time.’  Then he turned around and went back to his office.  He didn't need to say anything else.

I was gobsmacked!  This guy was spot on!  I immediately thought of the work I do with my clients.

Even though it takes me a little more than a few minutes to do my job, it’s not about billable hours, or the amount of time I spend in front of my client.  The value is somewhere else - It’s about the outcomes we can achieve together. The outcomes they care about.

I help them build the fundamentals which lead to the life my clients want to live.  

The value of that can rarely be expressed in numbers. 

by Michal Bodi

I thrive on a feedback, please let me know what you think, drop me a line to mbodi@sydneyfinancialplanning.com.au or simply comment on this article. I'd really love to hear from you.

Where the wild things grow…

I grew up in a small town, somewhere in the mountains of Europe. Life was easy for me; I didn’t have to do much. My parents worked and every time I needed money I just asked, and it was given.

Then there was my Grandpa. I spent more than half of my young years with him. Life was very safe and simple those days. I was only thirteen, but if I didn't come home for dinner my parents just knew I was staying with my Grandpa. No phones, no SMS, they knew I was safe.

My Grandpa has always been my hero, my mentor, my hope. He was also happy to fund my adventures (banned by my parents), whether it was a train ride to a nearby lake or camping trip with friends.   He always left money in the same spot – a decorative coffee cup in the living room bookcase; right next to Grandma’s black and white photo. Even after so many years, he missed her greatly.

Grandpa gave me so much more than just pocket money. As I was growing up, I started to face my first challenges. I received my first setbacks. I was often lost and I never seemed to know the answer to the question ‘what I want to do in life’.  I had no idea, but he always encouraged me.  He was my sounding board for everything. He told me that everything will happen at the right time – when I will be ready. And whatever it was, he would stay by me because he believed in me.

My parents were ‘too close’ to me emotionally to discuss my problems with them.  I always went to him.  He listened, he told me not to worry, he put things in perspective and showed me the bright side. ‘It’s never so bad; it can’t get any worse’… he used to joke. He told me to lift my chin up and to keep going. Then he played some old records and watched me smile again.

Even though he didn't necessarily tell me something I haven't already heard from my parents, he did it in style. He was bigger than life. Nothing was too hard not to have a go at. He’s been my inspiration and an example of how you will never lose in life if you always do your best and always see the good in people.

I couldn't be there when he finally left. He didn't want me to be there. They found him in the morning with a smile on his face.  He’s accomplished everything he wanted in life.

His Great Grandson, my son, will grow up learning the principles of perseverance, a positive attitude and courage. He will also witness his Dad teaching and spreading these qualities through his work, so as many people as possible will give things a go, and achieve their wildest dreams.

It’s the best way to make sure my Grandpa will always be around, and to make sure he’ll keep smiling proudly every time he looks.

I love you ‘stary oco’. And THANK YOU!

by Michal Bodi

If you connected to this story, please let me know what you think by sending me an email or commenting below. I'd really love to hear from you.

Acting vs Reacting

Regular readers of this blog would know that our success is dependable on the right choices. These go hand in hand with recognising what we can control and focusing on just that. 

Since we have zero control over proposed regulatory changes announced in 2014 Federal Budget, let's instead talk about how to be in the best position to cease the opportunities they bring.

In another words, we are far better off actively review our position on a regular basis, acting and planning our lives, compared to taking the re-active approach and get nasty surprises in the future.

Let's have a look at some things that will help you plan and be ready:

1. The government has done its yearly budget, have you?

When was the last time you had a look at how you spend your money and how much tax you pay? Your expenses dictate how much money stays in your pocket at the end of the day. 

Budgetting is where it all starts when it comes to be in control of your money. If you haven't done your personal (or family) budget yet, allow me to inspire you and do one. Of course, as always a good financial planner will be able to assist you to complete it. 

Here's an article I recently posted on @HumbleInvestors website and which has a link to a detailed budget - http://humbleinvestors.com.au/baby-steps-financial-freedom-ultimate-checklist/

A good budget will help you cope with the proposed fuel excise increase, the GP and medication co-payments and family tax benefit changes.

2. Tax management and planning

Increase in the tax levy is never popular, but good tax minimisation strategy and planning can help you manage that. If you earn over $180,000 per year, it's time to seek quality advice. You may be able to take advantage of many tax strategies available to you and decrease your taxable income back to pre-budget levels or even lower.

3. Planning your retirement means less dependence on government

The number of Australians retiring every year continues to increase to record levels and this government (as well as any future governments) has to address that. For them it practically means a growing number of people asking for government benefis. Naturally, the age pension eligibility will continue to be lower and more difficult to obtain. 

A solid, time and dollar specific retirement plan will address your future lifestyle and income requirements. It will make sure you will be able to retire on your terms, independently and stay retired. It will ensure you are on track to save enough money and make your savings last longer than you.

That way, neither the increase in age pension age nor the lower age pension eligibility will drastically impact your future.

4. Start early to invest in your kids' future

Having children gives you a lot to think about and one common goal that a lot of parents have is to give their kids the education they deserve.

Planning the education expenses in advance means starting having this conversation and implementing the investment plans nice and early. It will also put you in the best position to cope with future government deregulation of uni and Tafe fees.

5. Teach your kids about debt

We don't learn anything practical about debt in schools. Yet debt is part of the everyday reality for the most of us. 

Engaging a good financial planner can make a huge difference in your debt funding habits, correct structuring of loans and eventually in the amount of money you spend to fund your debt.

Your children learn from you and copy you (even they would probably never admit it). Learning how to tackle debt will equip you with great lessons to teach your kids. It will also help them focus on important issues when it comes to debt and help them repay any future education (HELP) loans in no time.

'Planning your life financially is not something you have to do on your own.'

There are lots of wise and helpful financial planners out there who will make sure that you'll have a plan and won't have to reactively adjust your lifestyle with every government budget.

After all, it's your family budget that you want to focus on anyway.

Let me know what you think and what steps you are going to do today. I'd be pleased to know I have inspired you to take action.

by Michal Bodi

Well done is always better than well said...Stop procrastinating!

Well done is always better than well said.

Procrastination is no doubt the number one reason why people don’t become successful at achieving what they dream of. 

It is caused by the change that needs to happen. And we, humans, don’t like change that much!

Why?

Well, it’s got a lot to do with our ego and the actual process of admitting that what we’ve been doing is wrong. 

It can be especially difficult when we’re surrounded by people with same views as us. Why should I stand out?

Generations Y and Z ...

When you’re young, it feels nice to have a first job, still live at home and spend the money on travelling and going out, but just think about where you are at the moment. Your whole life is only starting.

What you may not fully realise day by day (because you just don't) is that the time is on your side and you will never (ever) be in this position again. 

Use that competitive advantage! Trust me, you don’t want to end up like the vast majority of adults – looking back in ten or more years’ time, realising what a massive opportunity you had… And you blew it!

What I’m talking about is the power of ‘doing’.

You have two choices

Choice number one – do nothing and spend every cent. This is what most of you will do. Just like everyone else (I thought you wanted to be different?)

Choice number two – start implementing tiny changes into your spending habits. Time is your best mate here. It will do the rest, as long as you stay committed.

Remember, if you change nothing, nothing will change. The change doesn’t need to happen all at once, you can start with baby steps. 

One year later, you will be definitely in a better position compared to if you did nothing.

There are many ways to put money aside but here’s a fun example to start getting ahead – something that I call the reverse version of The 52 week savings challenge:

You start with $52 that you put away in the first week – that is the biggest commitment you need to make, it gets easier from here.

The next week it’s only $51. And as you continue, you decrease the money by a dollar every week, until you will end up with a dollar contribution in the last week, year later.

Over the course of the year, you will save exactly $1,378.

This can be used as a nice little deposit into an investment plan which can one day be converted into an investment property deposit. It will give you that competitive advantage.

It can be the difference between having to work every night to earn extra money for your ski trip compared to having a passive income to fund your travels so you can spend more time with your friends.

All you need to do is start. 

Anything. Just start…

by Michal Bodi

How to invest in property

Question:

I have just started investing in property. I want to grow my property portfolio as fast as possible. How do you recommend I achieve this while minimising risk? I currently own my primary place of residence with about $220,000 remaining on the mortgage (valued at $450,000) and have just used this equity to purchase an investment property valued at approximately $585,000 (will rent for approximately $540 per week). From here I would like to purchase additional 4 - 5 properties over the coming 5 - 10 years.

My answer:

Thank you for asking this question. Achieving solid investment outcomes only happens via disciplined strategies with a long term outlook. The trickiest part of investing is avoiding making bad behavioural decisions based on the emotional. 

Successful investing starts with realistic expectations, respecting the investment fundamentals and hiring a third party professional who will draw your investment plan and will ensure you stick to it.

You want to buy one property every year, or every two years – how? If you plan to put cash into each property (minimum deposit plus costs on each purchase) you’ll need to save hard. What is your cash flow position? If you want to keep using equity (by relying on future growth) your goal is not realistic.

From your question it kind of looks like you’ve made up your mind, so if you do go down that road, here’s a few things I would consider and encourage you to implement in your plan.

Avoid acting emotionally

Partner with a third party professional who can draw a time and dollar specific plan in order to help you making objective decisions about your future. This may sound basic but hiring an experienced professional with the objective point of view is money well spent.

Diversify 

If you’re going all property (which I would not endorse) then think of different types and locations. If you’re narrowing your investment strategy to only one idea, you’re putting all your eggs in one basket - all your planned assets would end up in same property. If  you don’t have exposure to different assets you have no backup plan. Also, consider investing in equities to increase an exposure to different assets in your portfolio.

Avoid euphoria

Don’t buy what’s popular, otherwise you possibly lose the sense of risk (when you’re worried that others are making more money than you, you’re in the euphoria zone). It’s the opposite of panic and capitulation and it’s equally dangerous. False expectations are set, your behaviour is completely emotional and the investment decisions are not being thought through. You also lose the sense of value and you end up buying overpriced assets.

Have plenty of equity

Protect yourself against unforeseen events (interest rates, loss of tenants, etc.) and make sure you put at least 20% of cash into each property. This will likely go against your goal of growing your portfolio ‘as fast as possible’, but it’s crucial you don’t expose yourself to high debt.

Don’t speculate

Take a long term view and look for an increase in value over time, rather than chasing short term price movements. You may still think you’re investing but you haven’t realised you crossed the line. If you’re looking at short term price fluctuations, you will end up burning your fingers. Don’t overthink the process; keep things fairly simple, an excitement belongs to Vegas.

Cover yourself and your plan

Have relevant protection strategies to protect your ability to earn income (may need it if property income doesn’t meet your expenses) and to have available cash to deal with the unexpected without pulling money out of your plan.

Lastly, you’re not mentioning this in your question, but what’s your end strategy? 

Assuming you reach your goal of owning ten properties, what do you plan to do with them? Keep them to fund your retirement? Sell them one by one to free up cash? You need to think about this before you start so you won’t get stuck at the end (you may have unnecessary problems with tax, liquidity – access to your money, reliability of income etc.)

Hope these tips help you clarify your points of focus. I believe you’ll consider them carefully before making any investment decisions. Shop around and invest in quality financial advice. It will be worth your while to look for someone who will focus on the dominant determinant of your financial outcomes – your investment behaviour.

Best wishes,

Michal Bodi