To prosperity and beyond!

According to Glenn Stevens Governor of the Reserve Bank, it is said that as Australians, we handle adversity well but prosperity badly. In other words, we like to spend what we’ve got, with no regard for leaner times ahead. Although Stevens was mainly referring to the public purse, the extent of our personal debt suggests the assessment can probably equally be applied to us as individuals.

We are taught to “Just say No” in other contexts. When it comes to our spending, reinforced by our rampantly consumerist society, we find it difficult to deny ourselves. And when we want it now, we don’t like to wait. Hence the profusion of no-deposit, no-interest deals (what’s that they say about something too good to be true?).

Remember the marshmallow experiment conducted in the sixties – kids were offered a single treat immediately or two treats if they managed to hold out for fifteen minutes. Only 30% of the children held out for the full fifteen minutes. Those who resisted temptation grew up to be more successful teenagers - better at coping, at holding down friendships and achieving higher grades.

Granting ourselves each and every desire is akin to those four year olds unable to resist the puffy little treat although infinitely rational to do otherwise. Just as, against rationale, we find it hard to resist that perfect set of heels, or designer handbag.

Stevens correctly points out that consumption deferred can easily be enjoyed in the future. A gift to our future selves. Put aside, or even better, wisely invested in our superannuation or personal portfolios, we can enjoy potentially multiples of the original amount in the years ahead. Let’s resolve in 2011 to practice the lost art of denial in pursuit of a prosperous future. Off to do some Christmas shopping...

Wishing peace and prosperity to all our clients, followers, friends and family for the year ahead, 2011. Signing off ‘til then!

When is enough, enough?

It always seems that if we had just a little bit more then everything would be better. When you’re hunting for a home you seem to fall in love with the house that sits just out of your budgeted price range, the designer dress at $1000 seems to fit just so much better than the one at $250. These situations crop up in our life consistently as human nature seems hard wired into wanting what is just out of reach and keeps us aspiring ever higher. Yet nothing can disturb our peace of mind more than this quest for more or the “better” thing that is out there somewhere.

How can we achieve a balance between this striving for more and keeping our expectations realistic so we can enjoy a feeling of satisfaction in our lives rather than a low level of anxiety about not having “enough” to be happy?

Funny word, enough (try saying it quickly 5 times!). We use it often in our regular vernacular. For example “I’ve had enough” is regularly used by me in exasperation at my 3 children who despite consistent prompting NEVER put the towel back on the heated towel rail. No, seriously, I mean, NEVERRRR.

Enough conjures up images of sufficiency, adequacy or as much as is necessary but what all these definitions have in common is a requirement for subjective assessment on the part of the individual as to what is necessary and sufficient. And that is where the whole thing becomes a whole lot trickier to pin down.

Through the government’s compulsory superannuation system and the accompanying message that the 9% our employers make on our behalf will not be enough to fund a “comfortable” retirement we all must live with the reality that over our working lifetimes we will need to make considerable effort to grow our retirement savings to reach that desired level of “enough” – whatever that may be for each of us.

So what is required here is awareness of what “enough” means for you, your partner, your family. Translating this awareness into a dollars and cents budget of what your desired lifestyle costs provides a reality check on how much you need to accumulate to fund this lifestyle.

And finally, there is universal acceptance that working on our appreciation levels for all the things in our lives, even the most simple ones like a sunny day or the food on our tables is an antidote to feelings of dissatisfaction that can creep up on all of us from time to time.

So as we head into the Christmas period spend a moment each day in quiet contemplation of what you are grateful for and see how this can shift your mood.

And yes, I suspect I can work on my gratitude for having a bathroom with heated towel rails despite them never actually having a towel put on them!!

Some more equal than others...still striving for equal pay

I snuck off to a movie on my own last week, and ended up having to wipe my nose on my sleeve, as I didn’t have a friend to ask for a tissue. Relevance? Admittedly I well up easily, but even so I was unprepared at how moving I found the subject matter. I wondered about it afterwards, and concluded it was the age-old story of courage and strength displayed by the underling in pursuit of justice. Sisters in a struggle for equal pay. And they were successful, as their efforts were directly responsible for a change in legislation in the UK only two years later. It wasn’t that long ago in the scheme of things – 1968, not quite living memory for me, but for many.

It got me thinking, looking back through the millennia of civilization, how recently women have attained our modicum of equality in the political, economic and social spheres. Women’s suffrage was adopted arm-in-arm with property rights, then the birth control pill and legislated equal pay all pretty much in the past century. In the 1970’s, with the introduction of “no-fault” divorce family structures seemed to break down, leading to many single female parents struggling to support their families. Currently, nearly one in three marriages in Australia end in divorce.

Ruminating on all the above, I am mystified when I see yet another woman peeling herself off the mat after a financial knockout delivered by her marriage breakdown. Because she has played by traditional rules.

So, what is the implicit contract a man and woman enter into, when they adopt long established norms of male breadwinner and woman nurturer? On face value it’s an acceptance of a symbiotic team-based approach in quest of a happy balanced family. And when the marriage ends? More often than not, the female partner will end up significantly worse off and unlikely ever to attain the lifestyle she enjoyed in her married state (unless she remarries). All too many women spend their final years in poverty.

It’s a double whammy. Women experience enormous disadvantages in their accumulation of wealth as a result of stepping out of paid work as carers, and in the workforce the economic gender gap persists endemically (in Australia women’s pay stuck at only 84% of men’s).

So where’s everything that was fought for? We need our female leaders to take the example of the likes of Barbara Castle, UK Secretary of State in 1968, who forged ahead to introduce the Equal Pay Act of 1970, despite enormous resistance from her male counterparts. Julia Gillard, think of those hard working social workers struggling to support their families…Oh dear here we go again - tissue please. Anyone?

Going for Green – the case for ethical investing

How would you feel knowing your investment funds have been put to use in a mining company needlessly degrading the environment? Or a pharmaceutical group that tests their products on animals? Perhaps in a tobacco company, or gambling projects?

When you pass your money over to your financial adviser, where it ends up need not be completely out of your hands. It’s worth finding out from your adviser where your funds are going. Ask about ethical investing.

What does ethical investing actually mean? And can we afford to worry about moral issues when investing our hard earned dollars?

Funds promoting ethical investing undertake to funnel capital only into sustainable assets, those promoting social and environmental good. There are several Australian funds available that actively invest in clean technology, waste management and healthcare. And the good news is, having a social conscience doesn’t have to shrink your bottom line when it comes to making investment choices.

According to Morningstar, ethical funds as a group have outperformed mainstream Australian share funds over a five-year period (4.65% versus 4.21% for the five years to July 31, 2010). The best performer over the past 5 years has been Perpetual’s Wholesale Ethical SRI Fund with an average of 7.78% over the past 5 years.

And your adviser? Be prepared to probe deeper if a glib answer is forthcoming. Perhaps he/she has not thought about it – let them know that it matters to you. Many advisers remain oblivious or resistant to client demand for responsible investment decisions - it may be worth looking around for someone who shares your values. It’s ultimately your choice where your money is going.

Good vibes and great returns? Ethical investing definitely gets the green light from us!

Back in Black - are your finances fashionable?

The unfunded black hole? Or the budget surplus, aka being “in-the-black”? Interesting how the same colour is used to describe opposite ends of the spectrum. But the current political discourse shows which one is de rigueur. Yes, it’s fashionable to balance the budget. So why is it so important? And does it have relevance to us personally?

Committing ourselves to reaching surplus in our own mini-budgets is a mind-set that goes hand in hand with “having enough”. We all know those who manage to spend as much, or more, than they earn, whose expenditure swells to reach their incomes no matter the level. It takes a measure of restraint and control to actively conquer the consumption bug, or to rein it in.

And a budget can be difficult to keep to – who can predict those unexpected but necessary expense items that seem to crop up so regularly? We can’t hold off replacing the brake pads because “it’s not in the budget”, can we?

An effective and practical way to start becoming aware of our spending behaviour, is to take just three or four discretionary expense items, say eating out, clothing, gifts or personal grooming and to allocate a realistic amount to them, monthly or quarterly. Then the countdown begins. Note everything you spend on those items, and subtract the amount spent from your allocated amount until you reach zero. And then? You stop spending. Until the next period.

It’s a bit like when you’re trying to get a grip on your eating habits – writing down everything that enters your mouth can be very enlightening and may be somewhat surprising when added up… but invaluable. Because that’s when we can really start making pro-active choices. wisewomen’s equivalent of the saying: “A minute on your lips, a lifetime on your hips”, is: “Forgotten in your closet? Or towards a house deposit.” Try chanting it next time you’re slipping out your credit card to make that “gotta have” purchase.

So we’re in “surplus”, now what? Where does our first “allocation” go?

Well, our miniscule home budget is in principle not that different from the mega federal multi millions. Just like the government, when we spend more than we earn, we’re in deficit. The money we use to fund the difference is often from borrowings or debt. And it’s not called “bad” debt for nothing, because we pay for the interest in after-tax dollars. Financing our everyday lives with a credit card or personal loans is a no-no when it comes to balancing the budget. So, our first step is to get rid of “bad” debt – easy to say yet in reality it may take months to achieve. But slow and steady wins the race to surplus - remember the government is only planning to get there in 2013!

Then what? Back to our expected unexpected costs - we need to have an emergency fund or buffer, to cater for the types of costs that we can’t foresee, but know will turn up. The size of this buffer is dependent on your personal circumstances, but hopefully by this time you’ll be starting to get a good handle on where your money is going, and how much you’ll need to put aside (in a high interest savings account) for your emergency fund.

And after that the fun starts because the hard part has been achieved. The first and most difficult steps towards building wealth are the spending-less-than-you-earn and the paying-off -your-personal-debt bits.  

Now you can consider the possibility of a new experience: watching your monthly savings mount, your investments grow; the pleasure of receiving a dividend cheque – guaranteed to rival retail therapy in the personal satisfaction stakes… and what’s more it keeps coming!

Remember it’s not what we have but rather what we do with it that really matters. And it feels so good to be back in black.

Hug-your-Provider Day!

If you’ve been in a marriage, had children and one of you more or less stays home with children, the other being the main breadwinner, then you may well have had the age old “who’s got the harder life” argument. You know how it goes. The breadwinner, feeling grumpy as they traipse off to work on a Monday morning, pointedly asks what you are doing with your day and the SAHS (Stay at Home Spouse) defensively lists the domestic chores: cooking, cleaning, washing, food shopping and a bit of slugging it out in the traffic on the school and activity run. There are no winners in this game. Volumes have been written and endless hours of debate and discussion haven’t resolved whether having to show up to work 5 days a week for seemingly longer hours every year is a harder grind than the sometimes tedious, repetitive and often thankless role the SAHS plays as a support person to family and home life.

This is not intended to add fuel to the fire of this debate but rather to encourage those of us who are NOT in the role of the main breadwinner to spare a thought for the provider in our lives. If you don’t have one, then you may well be the main provider so then, spare a thought for yourselves!

Being the provider incurs a large sense of “the buck stops here” burden. It costs a large amount of money to run a modern family, it’s highly competitive in the job market and when you do have a job the pressure to keep performing is always there. Payrises, office politics, and business travel that’s not nearly as glamorous as it sounds can wear your enthusiasm down for having the career that you always wanted. Freedom from deadlines and calendar scheduling can feel very enticing to the person in a 9 to 5 routine.

Sometimes, providers manage their anxiety at being the one responsible for bringing home the bacon 24/7 with what appears to be controlling behaviour. Maintaining a watchful eye on the SAHS’s purchases despite feeling free to spend themselves because of a sense that it’s “their” money can result in subtle power games that can be detrimental to the relationship as a whole.

We are not minimising the vital role of the SAHS. That too has it’s challenges (don’t we know them!) but today let’s give our attention and yes, empathy to our provider. Because empathy is the way out of delicate disputes over who has the mantle of hardest done by. A spontaneous big hug and a kind word of recognition of the great job they are doing in keeping the money flowing in can go along way to smoothing the furrowed anxious brow of your breadwinner.

Having sat on both sides of the fence I can appreciate both perspectives but at the moment with bills rising constantly, Christmas on the way and the children reaching an age where they put their hands out for $30 every time they go the movies (and there are 3 of them!) I find myself on occasion wanting to lie down on the floor and throw a massive tantrum when mild panic over money ensues. Instead I have decided to give myself a big hug and pat on the back for the job I have been doing. No mean feat in this day and age.

So, I urge you to do the same for the provider in your life. If, like me, it’s you who shoulders the responsibility and there is no one to supply the necessary physical embrace, be kind to yourself today! Remember…wisewomen appreciate!

How you feel about your provider?

Of Fillies and Finance...betting on a rate rise?

Tuesday week is a golden day for those who love to back the odds.

The punters are furiously trying to deduce the winning horse in Tuesday’s Melbourne Cup, while economic pundits are jockeying for position to predict the possibility of a rate hike as the Reserve Bank holds its monthly meeting and as always, plays its cards close.

Inflation figures out on Wednesday were a lower-than-expected annualised 2.7%, so it seems unlikely the Australian Reserve Bank will increase rates above the current 4.5%. This will give borrowers a happy reprieve, for now at least.

The strong Aussie dollar and good harvests are translating into cheaper imports and lower cost fresh produce. This leads us to ask - what prices are actually rising? The answer is anything but shocking: electricity. It rose by 7% in the past quarter, 12% over the year and is likely to keep increasing.

Joe Hockey spoke of the Reserve Bank using interest rates as a lever to calibrate economic growth. How so? Well, in short the role of interest rates in Australia is no different from other Western economies – the cash rate is the price of money, and changing the rate affects the supply and demand of money. Using interest rates to regulate economic growth is called monetary policy.

When the Reserve Bank meets every month it considers many different economic indicators to work out when and to what extent it should use this lever: employment (which is up), Consumer price index (down), lending growth (slowing) and the global economic backdrop (risk of a slow down remains). All point towards the rate remaining at 4.5% when the board meets on 2 November.

So looking forward to Tuesday: the money seems to be on a constant interest rate at least for another month. It isn’t as easy to predict first over the line on the racetrack - or So You Think?

Parity time! ...offshore investing and currency risk

Yoohoo! Time to hit those online malls, or book that long due overseas trip. Yes, the little Aussie battler is enjoying its time in the sun. In the US, our fistful of dollars can buy a lot more juicy retail items than it could last month, year or 10 years ago. Fantastic! A decade ago our dollar bought US52 cents while now it’s on the cusp of buying one whole greenback. Last Friday night it actually surpassed US$1.00 for around 17 seconds! 

Along with being able to buy our favourite global brands more cheaply, comes the chance to buy US and global companies at far better value than previously. The past decade has not been a great time to be invested offshore as any positive returns were consumed by the strengthening currency, and most Australian funds invested in international stocks went backwards.

Australian shares represent about 2% of the global market so it makes a lot of sense to be exposed to offshore securities and nowadays you can do this relatively easily by buying units in Australian funds that specialise in overseas stocks. But before we rush off in pursuit of cheap US companies, we need to understand the impact of currency risk.

When we buy overseas stocks, in addition to the usual market risk we take when investing in shares, we also take on currency risk. This is essentially the risk we take as an investor that the currency will move in a way that reduces our return from our investments, despite their underlying performance being satisfactory. Obviously the converse applies too – the currency can move in such a way that it enhances your returns – and that is what many would be investors will be banking on as they start an offshore foray. Cheaper shares, and more for your dollar – a great combination!

As we know no-one can see into the future, even the gurus - our dollar may well still show upward movement. But chances are it will peak or plateau in the short-term, which means the timing may be perfect. Talk to your adviser before you take the plunge to fully understand the risks attached, or the hang-over may linger well past the celebration!

Eat, pray, love...spend, save, prosper - spot the difference!

Don’t laugh. Liz Gilbert’s mantra of self-discovery and wisewomen’s byline are more similar than they may initially seem!

In both cases the trio of little verbs encompass so much - abandon, endeavour and ultimately promise. Parallels?

Well we’ll start at the beginning: the feast. Eat, spend. Come on, not so different - both are essential to survival, both irresistible, sometimes enjoyed to excess. One of my favourite parts of Eat Pray Love the movie was watching Julia Roberts slurping her way through that delectable mountain of spaghetti. And who can shun the wonderful satisfaction following a successful day’s shopping, our arms overflowing, our purses empty? What would life be without these activities? Certainly a lot less enjoyable!

Onto pray and save – the more serious doing words muscling their way between gratification and actualization. They are underpinned with hope with an eye on the future. The driving force of having a goal and striving for something, they imply restraint, a sense of discipline and control. To perform these we need to harness our sensible or spiritual selves.

And then to our destination – the abundance of love, the luxury of prosper. These words represent the culmination of our striving, a blossoming of ourselves, a nirvana. And ultimately we can only reach this point when we are in a state of balance and understanding.

So the journey continues…will it be as dramatic and life-changing as that of Liz? Oh for a crystal ball - I only wish it could guarantee a blissful encounter in the arms of Javier Bardem!