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.

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.

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

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.

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

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