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

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.

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

Struggling to get ahead? Start transforming your dreams into goals

Struggling to get ahead? Start transforming your dreams into goals

We all have dreams. And we love to talk about them. We know exactly what they mean to us and how they make us feel. 

Reaching these dreams and making them true means that our lives matter. But most people don’t succeed and don’t realise their dream potential. 

Why?

What successful people do differently is that they also have goals. 

And it’s having goals and a plan to reach them what separates them from the pack and helps them achieve their dreams.

How do we set goals? Here are some practical tips:

1.       Think hard about your dreams and what exactly they make you feel. Think about why you feel that and what it would mean to you to realise these dreams. Write notes.

2.       Write them down (include the notes from the point 1). Unless we write our dreams down, they will forever remain in our head. Prioritise them, start with the ones important enough for you to take action and do something about. It’s the very process of writing your dreams down when you start transforming them into your goals.

3.       Match them with pictures – do this for every dream you have and display them in your home. Somewhere you look every day. This might sound silly but visualising is a very powerful trick especially at times when we feel like giving up. It’s when these pictures will remind you why you are doing what you are doing.

4.       Share them -You need a commitment to make to yourself. I find social media to be a great way to do this. Once you make your dreams public, it cements them in. They are official now.

5.       You have done as much as you can on your own. The next thing to finalise your dreams into goals is to make them specific - time specific and dollar specific. 

    

    This can only be done by a third party – a quality financial planner. They specialise in goal formulation and creating the journey – financial plan - to reach your goals and dreams. They will also remind you of your goals and ensure you stick to your plan.

Visit a few firms, take your time and find the right one - someone who will ask the right questions and you will feel comfortable that they understand what is important to you and why.

You will eventually find that it’s not necessarily reaching your goal itself but the actual process of getting there, the excitement of the progress what made you feel happy. You will now also have a blueprint and know what to do in order to successfully reach your next destination. 

So, go ahead; what’s your next dream?

by Michal Bodi

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.

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