Did someone say red??

Yes Peter I love my red shoes!

As you can see from the photo, I have quite the collection.

Which brings me to the topic du jour. The finer things in life….

A considerable amount of the financial planning we do in our lives involves sacrifice. We often go without in the short-term for the longer-term reward.

But sometimes we can get so caught up in the long-term sacrifice that we forget to “treat” ourselves every now and then. The problem is that this can be a little like crash dieting. If we completely deprive ourselves then we run the risk of becoming discouraged and never actually achieving our ultimate goal.

It’s ok to factor a few indulgences into your financial plan, in fact I absolutely recommend it. Sure, the bigger picture stuff is essential for our long-term financial security, but if we don’t treat ourselves from time to time along the way, it can all become rather oppressive.

You’ll recall from my budget tips, that I have a set weekly grocery budget. From this budget I allocate 10% to “discretionary” spending. You know - the fun stuff. For me, that includes little luxuries like cosmetics, getting my nails done, books, and of course shoes!

Those of you who know my partner Mick can just imagine his utter inability to fathom why I “need so many shoes.”

And I guess my message is that it’s not always about “need”. Sometimes it’s a simple case of indulging ourselves just a little, to keep us on track towards our major financial targets.

Now before you get too excited, bear in mind that I’m not advocating binge spending here. You’re not to go out on a shopping spree and tell all your friends that your Financial Planner told you to do it. Like everything else, it should form part of your formal budget. You’re welcome to use my 10% strategy, or you may have a different idea for incorporating it into your overall financial planning. However you do it, just make sure that you take the same care, and exercise the same control, as you would for all aspects of your finances.

At the end of the day money is about choice. And not all your choices have to be about the long-term or sacrifice. Make sure you allocate some of your savings for the “just coz” stuff.

Talk soon,

C

Managing your Christmas spending

I’m putting up my Christmas decorations this weekend, despite everyone in the office telling me that I have to wait until December. No one tells me when to start celebrating Christmas!! If it hadn’t been for my eldest step-daughter completing her VCE, I would have had them up 2 weeks ago….
Yes, I’m a Christmas fanatic and in my opinion it’s given a bad rap by being called the ‘silly season’. It doesn’t have to be that way at all. There are lots of things we can do to make sure it doesn’t get out of hand and that it’s fun and festive.

We tend to forget that money is just like other aspects of our life, it requires careful planning and commitment to achieve true success. You wouldn’t go on a camping trip without planning, so why should your Christmas spending be any different? You need a plan!

First you need a Christmas budget. Make a list of everyone you need to buy Christmas presents for, and an amount you expect to spend beside each name. I go one step further and try to actually think of an appropriate gift at this point as well. There’s nothing worse than being flustered at the shopping center because you can’t find a suitable gift and you end up spending more than you intended just for convenience.

When buying pressies, try and do it in a planned, controlled manner without getting too emotional about the purchases. Not leaving it to the last minute, and making a list before you reach the shops, can really help guard against impulse buying.

And of course you also need to think about:

•  Decorations;
• Christmas get-togethers;
• Christmas lunch/dinner etc;

The Christmas break (whether it’s camping, a resort, or just staying at home and taking the kids to the movies – it all costs money).

So how do you ensure the money is there in December?

I was talking to a client a while back who has a Christmas Club account. The best thing about these types of accounts is that they enforce discipline. You usually only have a short window of opportunity when you can access the funds to ensure that the money is there come Christmas.

The drawback to these types of accounts is that they don’t pay a very high rate of interest, so if you have confidence in your own discipline then you could choose a higher interest bearing account instead.

Alternatively you may even want to implement a longer term strategy that you can draw-down from each year.

Don’t wait until the end of the year to spend. Realistically, you can start preparing for next Christmas as early as the January sales. Christmas wrapping paper, decorations, toys, games and much more are often discounted by a significant amount. Or you can take advantage of sales throughout the year – if you see something on special that you know would make a great gift for someone, grab it or put it on lay by.

I always do this. In fact one year I bought all the presents for my nieces and nephews in July, and put them on a “Christmas lay by” which meant I could pick them up as late as Christmas eve. So this solved the problem of where to store them!

It also meant I was also able to stagger my Christmas spending. I will offer one tip for this strategy based on experience, is to make sure that as you choose each present write it down next to the name of the person you’re buying it for. Nothing worse than staring at a really great present and wondering who on earth you bought it for…

A warning about credit cards. ‘Plastic money’ makes spending very easy. You need to use your credit card wisely because at the end of the day, it’s a very expensive loan. If you do need to use your credit card over Christmas, pay it off as quickly as possible - it’s high interest and not tax deductible.

So if you are finding Christmas finances difficult this year, don’t ignore the situation – put a plan in place, and if it’s too late this year then do it for next year. Because if you don’t do something different, you’ll find yourself in the same position next Christmas.

Please let me know if you have any other Christmas budget tips, or if you’re going to try any of mine!

Talk soon,
C

Keeping fit financially...

So with the lovely weather last weekend, I started thinking about Summer. And that got me thinking about the beach and bathers, which lead to my annual resolve to get fit. It’s probably something that crosses all our minds at some point, but I wonder how often we think about our “financial fitness”.
And just like physical fitness, age plays a significant part in financial fitness. One of the reasons that all Australians need a financial plan, and have it regularly checked and updated, is that our needs change throughout life.

Financial plans should recognise a number of aspects, including current income; income prospects; lifestyle; expectations; and very importantly, age.

At the risk of stereotyping in the extreme (I don’t care, I’m allowed), I’ve put together some thoughts and tips for different stages in life.

20s
You’re young, you’re independent and you’re about to set spending habits that are likely to stick with you for the rest of your life. At this stage in life, retirement planning is probably the furthest thing from your mind. It’s all about having what you want and having it now.

If you’re single, have little or no debts and wish to one day own your own home, this is one of the most important periods in your life because it’s about the only time when savings are discretionary. Many 20-somethings may think saving is a dirty word, but this is the time you need to set a budget and stick to it. If you get into good financial habits at this stage they will last the rest of your life.

Top Tips for the 20s
• Set a budget and stick to it
• Start saving a small amount each month for a home deposit
• Take out income protection insurance
• Direct a percentage of all salary increases into savings
• Make minimum superannuation contributions
• Set your superannuation approach for the long term by investing in quality growth assets

30s
This is the time you’re supposed to get serious about your life and your finances. It’s a high commitment decade with many paying off a mortgage, starting a family and working hard. It’s also the time when you start to realise you must begin to seriously plan for the future if you haven’t already.

It’s the time when finances may start to get tight as commitments increase. It’s very important at this time in your life to avoid a high consumption lifestyle in an attempt to “keep up with the Joneses.”

Important considerations include life and income insurance, investing for growth, possibly saving for children’s education and buying or upgrading the home. Earning capacity often increases considerably from that of your 20s. For people without children this can mean you are well equipped to invest for the long term as well as to meet short term needs. But it can be the time to set a solid foundation for their future financial security.

Top Tips for the 30s
• Don’t get into the habit of spending all your income
• Set up an “emergency fund” to see you through if times are tough in the business
• Focus on mortgage reduction – don’t let debt stay at the same level or grow
• Make sure you have adequate insurance and a will
• Diversify investments
• Set a savings plan in place for children’s education
• If you don’t already have a Financial Planner, it’s time to get one
• Stick to a budget and avoid taking on debt to pay for luxuries, even though it’s easy to access loans.

40s
Many people in their 40s have paid off, or are close to paying off, their mortgage. This, coupled with the fact that for some it’s the time children start to leave the nest, can mean that the 40s are a period of greater financial freedom. The 40s is also often a peak earning period but it’s important not to counter these benefits by also making it your peak “spending period”.

Often, for the first time in their life, as people turn 40 they start to become aware that retirement is not so far away after all and the need to plan for it becomes more pressing. It’s the time to start really focusing on retirement savings if you are to have a comfortable retirement lifestyle. The minimum superannuation contribution will not be enough.

Top Tips for the 40s
• Increase life, disability and income insurance
• Increase super contributions
• Continue to build a diversified share portfolio
• Continue mortgage reduction strategies
• Reduce lifestyle debt, such as the mortgage, so that you can consider using equity in your home to diversify into other investments

50s
For many this is a period of major lifestyle change. Possible career uncertainty and impending retirement can have major financial and emotional effects. Many people’s dream becomes early retirement. However most people can expect another 10-15 years work and then another 15-20 years in retirement and, after working hard for years, you should be able to enjoy the fruits of your labour. The question is, at your present rate of savings, can you afford to fund the style of retirement living you would like? If not, there is still time to do something about it.

Generally, this is a decade of low financial commitments, high earning capacity and a time when you should be able to commit the maximum available income to your investments.

Top Tips for the 50s
• Add to your investment portfolio and continue to top up your super
• Maintain income insurance but focus less on life insurance
• Consider risk in relationship to your investment portfolio
• Make sure your will and power of attorney is up to date

60s
It’s time to sit back and enjoy the pay-off from years of hard work and financial diligence. More than ever this is a time when financial decisions are heavily influenced by lifestyle aspirations – perhaps you want to start travelling the world or spend your days soaking up the sun. However you may still need to fund 20 years or more of living. At this time of life many people also consider moving to a smaller home. It’s important to start re-positioning investments and assets for income rather than financial growth (but not to the exclusion of growth!). You’ve worked hard for your money long enough, so now you can enjoy the fact that it’s working hard for you.

Ideally, debt should be eliminated at this point and all large purchases, such as a new car, should be financed debt-free.


Top Tips for the 60s
• Continue boosting super entitlements until you retire
• Look at the variety of income streams available and consider what suits you
• Ensure you have investigated all entitlements such as pension options
• Review investments, still maintaining some growth assets to help fund a long retirement
• Consider eliminating or reducing life and income insurance but maintain health insurance
• Enjoy life to its fullest!

Obviously, I’ve made lots of generalisations as part of this post, but I hope it’s been a bit of fun and that there’s been a few good tips you can use or pass on.

Talk soon,
C

Are you the risk in your rental property?

Ok, so I stole the idea for this blog entry from my brother Dean. Doesn’t make the message any less valid right? He has no copyright on it, so I’m more than justified (methinks the lady doth protest too much).
Watching The Block a few weeks ago was a fairly grim experience. Fact - Melbourne’s property market is struggling a little at the moment. Even though most (all??) of the properties sold afterward, it was pretty clear that potential buyers are wary and holding their cards pretty close to their chest at the moment.

I read in the paper that the average purchase price of the homes on The Block including stamp duty was apparently $950,000.

Major renovations including stumping, plumbing and re-wiring etc averaged $300,000 per property. With cosmetic renovations averaging $100,000.

According to what I was reading, the average total cost per house was $1.35 million….

Now it was a TV show, and I really have no idea of how much of their own money contestants had to spend over and above prize money, all I know is that when it comes to property these days we’re dealing with pretty big numbers.

Along with the big numbers, tends to come the big loans.

We prepare hundreds of tax returns at The Hendrie Group, and we’re always surprised by the number of people with rental properties, but no income protection insurance.

A rental property is a huge investment in your long-term financial security, and no one wants to be in the position of having to sell in a downmarket because you’re unable to work for a while. It makes sense to spend a comparatively small - and tax deductible - amount to protect yourself.

Something I’ve always told my clients is that when it comes to property, if you need money quickly, you can’t just sell the bathroom, you have to sell the whole house. And times like these are a good example of why you don’t want to be forced into a position where you have to sell.

I have a very close friend who was diagnosed with breast cancer on Melbourne Cup Day last year, and she still hasn’t been able to return to work. And it looks like she won’t be able to go back to work until about June next year – that will be almost 2 years! Imagine two years unable to work. Fortunately she does have Income Protection, so can concentrate on getting well without having to worry about being able to service her debts, let alone her day-to-day living needs.

My advice to anyone that owns a rental property (or frankly, anyone earning $40,000 or more) is if you don’t have income protection cover, then you should explore your options. At the very least, you should be in the best position to make some informed decisions about your financial security.

Talk soon,
C

PS. I have oodles (technical term) more information on income protection insurance if you’d like to know more. Just email me at askcaren@hendrie.com.au.

The Removal of Wisdom – a great tip and another chance to win a prize.

I’m just back from sick leave after having my wisdom teeth removed (how brave am I showing you a photo – you have to give me points for good sportsmanship????). After putting the surgery off for more than ten years it turned out to be much ado about nothing.

Ok, so that’s two gratuitous literary references already, clearly I’m feeling the need to remind you of my History and English Literature background. I must be feeling insecure.

Actually, there is a reason, but you’ll need to follow my strange logic for a bit. When I had my teeth removed, a few of my friends made references to the Henry Handel Richardson novel, “The Getting of Wisdom.” It boasts possibly one of the best character names in history - Laura Tweedle Rambotham.

One of the themes of the book is “loss of innocence”. Remember when you were young and you didn’t have to even think about money? I can still recall at the age of 10 sitting with my girlfriends in the playground as we listed all the things we’d buy if only we had $100. If I could go back in time, I’d sure be able to burst 10 year old self’s bubble about how much she can actually get with $100…

Money begets choice, but it also brings with it much responsibility, stress, and yes, loss of innocence. And it can all get so complicated and overwhelming at times, that we can easily forget about the more simple money strategies that can make a big difference.

Being a Financial Planner and living with the world’s best Accountant (apologies to my dad, brother, uncle, and esteemed work colleagues) one thing I do well is budgeting. Don’t get me wrong, I like to spend as much as the next woman. In fact I’m currently trying to convince Mick that spending $200+ on a pair of Burberry gumboots is not a waste of money (if you’re male you just went “WHAAAAT?!!”, and if you’re female you just smiled and thought “wouldn’t that be lovely”). But I can save and I can budget. For the record I’m not winning the gumboot argument.

I’m often surprised when I discuss budgeting with my friends and clients, to learn that most people don’t actually have a weekly household budget. You know, the money you allocate to groceries, eating out, alcohol, petrol, dry-cleaning, getting your nails/hair done etc. This is one of the most simple budgeting tips and best of all – it really works.

Every Thursday, we take out a set amount to last us for the week, and for the most part we stick to it. Of course there are times when we have to go over the budget, but it’s a conscious decision and at least we know we’re doing it. Knowing what you’re spending is a critical element of any budget and that can’t always be achieved by handing over the plastic every time we make a purchase. On the other hand, opening the wallet/purse and seeing exactly how much cash you have for the rest of the week makes a huge difference to your decision making.

Do yourself a favour and don’t get so bogged down with the complicated money “stuff”. Take my simple tip and put it into practice. All you need to do is determine a realistic amount that you need to spend each week to meet those expenses, and that’s the amount to take out. It may take a bit of getting used to, but after a few months or so you won’t look back.

So there ya go, I still have my wisdom, and even some innocence. Now, if I can just get rid of these gaping holes in my gums….

Your chance to win – I’m currently compiling a list of budgeting tips for a paper I’m writing. Could you please send me any tips you have that I can include? You will receive full credit in my paper, and the best tip wins a bottle of wine (and for the record, it’s nice wine).

All you need to do is enter your tip in the comments section below, or email it to me at c.hendrie@hendrie.com.au

Congrats Steve (Kernohan), a bottle of wine is on its way to you for your Fifth Element quote - "Now, don’t get me wrong, I’m all for conversation, but maybe you could just shut up for a moment?" Extremely apt, given my recent experience where I had no option (refer to photo).

Talk soon,
C

Where is Bruce Willis when you need him?

My brother and I meet in the lunchroom each day to do the Herald Sun quiz. Sometimes when the clues for the “Who Am I?” are too easy, we make up our own. A few weeks ago Dean gave me the clue “we owe him everything.” Of course, too easy, that’s Bruce Willis.

You know what I’m talking about right? That feeling you get when you sit down to watch a movie and you see Bruce’s name in the credits. It’s relief. It’s conviction. Coz, you just know that it’s all going to be ok.

So where is he right now? The USA are up to their oozit in debt (oozit is a highly technical term, so don’t feel badly if you’re not familiar with it), Standard & Poor’s reduced their credit rating from AAA to AA+, and a minority government is not helping matters (MS Palin, you need to come back and answer me some questions ma’am….).
So exactly how did the US get themselves into this mess?

Well, the Treasury of the United States of America reached the legal limit of its debt in May of this year. In the past, this has never been a real problem because Congress (House of Representatives and the Senate) just kept increasing the “debt ceiling” as required, so that Treasury could continue to borrow in order to run the country and service the nation’s debts.

This time is different. In November last year, the Democrats lost control of the House of Representatives, and this has caused some major headaches, including a standoff regarding raising the debt ceiling. This came to a head when Treasury announced that as of 2 August 2011 it would not be able to meet all of its obligations, including social security cheques (due the following day), interest on its $14.3 trillion of bonds (due 15 August) and a host of other payments.

Of course, an agreement was reached at the last minute, reminding me of a famous Winston Churchill quote “You can always count on Americans to do the right thing—after they’ve tried everything else.” However, I’m still trying to work out if any party actually came out of the agreement as a winner.

I should mention that other than suburban Melbourne, America is my absolute favourite place in the world, and I love Americans. BUT (yes this is one of those some of my best friends are buts….) they’ve possibly been getting a tad too big for their star spangled britches.

I’ve no doubt that the government will act swiftly and sensibly to get their house in order (yep, a very deliberate pun), but it won’t be a smooth ride so fasten your seatbelts.

The big question on everyone’s quivering lips at the moment is – are we heading for GFC 2? Will all this uncertainty and tea party politics send us back into recession? Of course, no one knows the answer to that, but I think it’s highly unlikely.

The sharemarket is over-reacting at the moment (and how!!), but hopefully it will settle down soon and we can all breathe out.

In the meantime, Bruce if you’re reading this blog, it sure would be great if you could yippee-ki-yay yourself on over to save the day. Oh, I just realised, America can’t afford him right now….

So after a real rollercoaster of a week, let’s end on a fun note. Here’s one of my fave Bruce Willis quotes from Die Hard 2 - the lesser of the Die Hards let’s be honest, but still very watchable:

“Hey, well, as far as I'm concerned, progress peaked with frozen pizza.”

Ahhhh it makes me giggle. And after the past few days, I’m hearing ya Bruce, I’m hearing ya.

Add your favourite Bruce Willis movie quote in the comments section below, and I will award a nice bottle of red wine for the one I like best*.

* Please note that judging is completely arbitrary and subjective.

Talk soon,
C

A reminder about what “simplified tax returns” actually means.

I know I covered this last year following the 2010 Federal Budget, but I thought it was worth re-visiting as it’s a topic that seems to have caused some confusion.

You may recall at the time, Wayne Swan tried to promote the proposal by saying it will give most people “more time with their loved ones.” Talk about a stretch!! Methinks he needs a tad more spin doctor training.

The idea is that from 1 July 2012, individual taxpayers will have the option of claiming a standard deduction of $500 for work related expenses and the cost of managing their tax affairs. From 1 July 2013, the Government will increase this standard deduction to $1,000.

This is supposed to make it easier to lodge your own tax return, and in some instances this will be the case. The standard deduction is optional, you can still claim your full “actual” expenses if you believe they will be higher.

An important statistic to take into account that the government is not promoting is that the ATO have released figures showing that the actual average deductions claimed is more than $2,800.

So it begs the question - do you trust the government with your tax deductions? And please bear in mind they are talking about $1,000 of deductions, not a $1,000 refund. At the 30% marginal tax rate the ATO’s actual average taxpayer will be doing themselves out of almost $600 refund.

By making it simpler, are they really hoping that we’ll get lazy and forego our higher tax refund for the easier option? After all, it’s the government trying to save themselves money through reduced administration. Call me cynical, but I just don’t see the government introducing this policy to make my life easier, there has to be more in it for them.

Talk soon,
C

FEEL THE NOISE?

Oh man, it has been a noisy few weeks in sharemarket land. And most of that noise has been coming from the media – bless their often misguided, sometimes completely irresponsible, cotton socks.

This will be a fairly lengthy blog, but I think (hope) well worthwhile for anyone that’s wondering what on earth is going on. More importantly, it will provide some perspective.

But most importantly, there’s a prize offer at the end!!!!!

At my business, The Hendrie Group, our approach to managing finances has always been to identify long term goals and then to develop strategic plans to help meet those objectives.

As with all plans, nothing is set in stone, and there may well be variations along the way, to respond to changes both in your goals and to investment markets.

But we try to keep those changes to a minimum, by having a long term strategy, and filtering out the market “noise” which fills the media on an almost daily basis.

Those of you who regularly read my blog or listen to my radio program (98.1FM Radio Eastern Thursdays after the 9am news), will be accustomed to my periodic harangues about the need to be wary of sensationalism in media headlines and reporting. Not to mention, inaccurate reporting, media focus on “short termism” particularly in relation to investment returns, over-emphasis on the issue of fees, etc, etc ….. and to remain focused on the long term.

So, given the market gyrations of recent weeks, and the associated reports, I was pleased to read two articles which – in differing ways - reflected my philosophy.

In a topical article titled Why the fear industry has moved on from the Greek ‘crisis’ well-known and respected Australian finance journalist Michael Pascoe wrote:

“Is anyone feeling a little sheepish after all the hype about the potential Greek Armageddon last week? Probably not. The fear and worry industry immediately moved on to beating up the importance of China’s manufacturing industry numbers on Friday.

For all the theatre of protesters and police, the whiff of tear-gas in reporters’ constant pieces to camera, the repeated lines about the danger of Greece causing another global financial crisis….nothing much really happened.

…….Meanwhile, back at the headline factory, China’s indicator of manufacturing activity, the purchasing managers index (PMI) came in lower than expected for June. The Australian stock market allegedly saw that as a bad thing, indicating that China is slowing, albeit to a growth of about 9%. The Shanghai market saw it as a good thing, indicating that China is slowing and therefore Beijing won’t have to increase interest rates again. So it goes.”

(Market Perspective, The Sunday Age, July 3 2011, p22)

Jim Stackpool, a leading management consultant to financial planning businesses, says:

“Good financial professionals deliver certainty in a constantly uncertain world. Mining booms will come and go, international markets will fluctuate, countries - and companies the size of continents - will not perform predictably, natural and unnatural disasters will occur, and unforeseen threats will raise their ugly heads. The ramifications of each of these events will affect the assurance people seek, and good financial professionals anticipate this.

… (they) also understand our ‘natural financial wiring’… adversely affects most peoples’ decision making (that is most of us mere mortals tend to buy high and sell low), and they know how this thinking will most significantly affect the attainment of greater financial certainty in our lives.

Even more importantly, they understand their clients well enough to deliver the wealth management services required to reinforce and lead their clients on the financial journey most appropriate to deliver the assurance each and every client seeks.”

(Asset Financial Review, July 2011, p40-41)

(Note: All the bolding is mine for emphasis).
And finally, eminent Australian economist Shane Oliver (so not the media) wrote in his latest issue of Oliver’s Insights:

“A massive increase in economic and financial information flow is adding to investor jitters and driving a shift further away from long term-investing. This is likely to work against investors over time.

Investors should consider turning down the ‘news volume’ and refocus on investing for the long term, remembering the best time to invest is when everyone is gloomy. Averaging into weakness is a good way to go.”

(Oliver’s Insights, Edition 18, 29 June 2011)

So my message remains the same - stick with your long term strategy. Unless you really can’t stand the strain, in which case talk through your issues with your adviser.

Ok, now to the prize offer. If you have a Facebook account all you need to do to enter our draw is “like” our new Hendrie Group page before 31 July. The prize is a 26" Full HD LED Kogan TV with built-in DVD player and PVR. How good is that?

Talk soon,

C

A lesson in finance from Tulips

If you’ve read all the guff about me in my profile, you’ll know I have a background in literature and history (yeah, small career swerve!). One of my favourite novels is Thomas Hardy’s Far From the Madding Crowd. Great title eh? It was borrowed from a Thomas Gray poem (Elegy in a Country Churchyard).

Given my background, you can imagine how excited I was upon first entering the finance industry, to attend a lecture “Tulip Mania and the Madness of Crowds.” And I wasn’t disappointed. The protagonist of the story was the humble tulip, and I’m still not sure whether the moral of the story was supposed to be the role of supply and demand in economics, or the stupidity of the human race.

In the early 17th century, the Dutch literally went mad for tulips and demand ultimately outstripped supply. If I remember rightly, someone brought (stole?) some back from Turkey and didn’t want to share. Of course we know what happens when someone tells you that you can’t have something – you want it even more right? So began the manic trade of tulips.

There are stories of farmer’s mortgaging their farms just to get hold of a couple of tulip bulbs. Tulip traders made a fortune, and there was even a future’s market for these much sought after flowers!!

Obviously they became waaaaaaaaaaaaaaaaaaaaaay over-priced, and what has to happen then? Yep, you guessed it, a market correction! It started with some astute businessmen deciding that they would sell out and take some profits. This proved to be a prudent move given that new tulip varieties were being introduced, and thereby increasing the supply. Then a few more sold out of their “tulip position”, then a few more, and suddenly people started to panic, and the tulip market went into freefall.

To put things in perspective, tulip prices fell more than 90% in a matter of weeks. It’s impossible to accurately convert this to current monetary value, however popular consensus puts the comparison at something like $80,000 per bulb to less than a dollar per bulb.

You have to wonder at what point it occurred to some people that they had spent their life savings on flowers! OUCH.

More than one historian has linked this tulip phenomenon to the onset of the Great Depression in the Netherlands, not to mention “the madness of crowds”…

If you’ve seen the Wall Street sequel, you’ll recall Gordon Gekko showing Jake a painting and comparing Tulip Mania to the GFC. Not a bad analogy. When it comes to the sharemarket, crowd behaviour is both fascinating and frustrating. And unfortunately sometimes it is just plain mad. Think back to Greece, Portugal, Spain, Ireland, and more recently, Egypt. The way the market reacted was not in proportion to the relative potential market impact. And don’t forget our friend “Fat Fingers” who shook the US market by accidentally entering a trade in billions instead of millions.

I often tell my clients that if we took emotion out of the market, it would be extremely rational. However, it’s risk that drives reward so if there was no emotion there’d be little opportunity to make money. I guess we can’t have our proverbial cake.

The best advice I can give is to make sure you take a leaf out of Hardy’s book (pun intended), and stay far from the madding crowd when it comes to investment decisions. Make your decisions based on fact and fundamentals, and with professional guidance from your Financial Planner.

Talk soon,
C

How to think like a DINK

 Remember when a “dink” meant travelling on the back of someone’s bike? Now it’s also an acronym for an ever-increasing demographic – Double Income No Kids.

To all of us that have children (or stepchildren in my case), the idea of two incomes and no kids conjures images of couples swimming in cash, with perpetual smiles on their faces (faces free from worry lines I might add).

Nevertheless, I’m sure my DINK readers will quickly assure us that financial security is just as important to them as to anyone else. They just have different financial needs.

With absolutely no data to support my claim other than personal experience as an adviser, I would hazard a guess that DINKs are the group most likely to seek advice from financial planners because they are often very career oriented and accustomed to delegating resources. This means that they tend to be very comfortable seeking and pay for specialist advice.

At end of the day, the basic fundamentals of long-term financial planning are the same for DINKs as any other group – time-frame, diversification, quality management etc, however there may be a different emphasis on the types of strategies and financial products.

In particular, because we are generally talking about relatively high incomes, personal risk protection (insurances) can form an important part of the strategy.

Overall, the choice of investment products and strategies depends totally upon the individual not a demographic – one size fits all products just don’t exist when it comes to investment planning. What you may find is that often the level of income can mean that DINKs are happy to direct a larger portion of their savings to longer-term strategies. They also may include more aggressive investment choices.

DINKs may not have some of the shorter-term financial expenses that families might have, such as education, endless doctor appointments, clothing that only fit for a few months…, however they often work longer hours, and therefore look for fully serviced products, more expensive holidays than other groups – in other words, different short term goals.

The idea that DINK couples have a higher disposable income is largely a fallacy because people with higher incomes tend to also have higher debt levels, and/or higher spending patterns (but that is not to say that many couldn’t or shouldn’t save more.) This may change later in life once the mortgage is paid off, however they may also have fundamentally more expensive lifestyles that include travel, eating out more often etc.

It’s probably more accurate to say that if you’re a DINK couple, you often have a greater savings potential because you usually have a consistent dual income and don’t have the time away from the workforce or expenses that come with raising children. Therefore DINKs can really benefit from working with a financial planner for assistance and advice on budgeting and long-term planning to maximise their savings capacity.



Often DINK couples can actually have quite a significant focus on saving rather than spending. Because they are often career-oriented, they can also be very goal oriented, and happy to make sacrifices to achieve longer-term ambitions.

And of course with aged care accommodation becoming an expensive issue, this can be critical for couples that decide not to have children – they often need to plan and finance this phase of their lives entirely on their own behalf. Perhaps a good reason to be kind to the nieces and nephews!

Overall, stereotyping any particular group is risky. Financial planning is based on the needs and objectives of individuals rather than specific demographics. I’d love to hear from any DINK readers who may disagree with my points, or can shed some light on other financial issues that are especially important to them. Just add a comment below, or email me on askCaren@hendrie.com.au.

Talk soon,

C

Let My People Go

  I was folding some washing last week (yes, I lead a very glamorous existence), when my partner Mick said to me “Now this is why I don’t want to travel to Egypt.” Visiting Egypt has been the subject of a fairly lengthy battle between us over the years; as an ex-historian I want to go with a passion but Mick has always maintained it’s dangerous.

So I turned to see what he was talking about, arming myself with my usual arguments, and was greeted with scenes of horrific rioting. Suffice to say I didn’t win any points that day.

Then on Monday morning I was driving to work and one of the radio stations was interviewing an Australian woman who was in Egypt waiting to be evacuated. She had a bird’s eye view of the rioting from her hotel window, and understandably feared for her life. When it was finally safe enough to travel to the airport, rioting began in the terminals amongst sleep-deprived, hungry, and frightened people.

She had been told she would be on a flight Wednesday, but many Australians had no idea when they would be able to leave the country. Ugh! Scary stuff.

I may have been physically safe at home in Australia, but a few swear words escaped my potty mouth on Saturday morning (darn, jeepers, gee willikers) when I learned that the DOW had dropped a 166 points overnight. This was effectively its greatest one day loss in almost 6 months.

I couldn’t help wondering if there were a lot of people out there wondering how the geopolitical instability in Egypt could have such a sizeable impact on the US stockmarket, and of course our own.

Well that’s what I’m here for right? Grab your favourite beverage, get comfy, and let me tell you all about it…

Regular readers will know that the market can behave a little like a skittish horse and spooks easily. Egypt is something like the 40th largest economy in the world, so you could be forgiven for being surprised when it has such an effect on an economic powerhouse like the US, but remember a little country called Ireland a few months ago….

Before I go any further I do need to point out that the US market had been red hot and was just spoiling for a correction.

On top of that, we need to look at Egypt not just as a country in its right, but as part of the Arab region. Suddenly the insurrection takes on a bigger meaning when we acknowledge that tenuous relationships involved, and the overall political impact.

You see there are many that would argue the US needs to take some responsibility because the programs they’ve implemented to improve their own economy, has exacerbated the food price situation, not to mention opened the door to at least a measure of exploitation by investors.

Alan Kohler made a poignant observation in his article The economic roots of revolution yesterday when he stated “A sudden increase in the prices of both food and energy is very bad news for both the world economy and world peace.” Simple but true.

Of course, to suggest Egypt’s troubles are solely food and oil would be a gross over-simplification, but they are definitely providing significant fuel.

Anyway, Hosni Mubarak has announced his “resignation” and the Dow Jones index was up almost 150 points when it closed this morning, and our market ended the day almost 1% higher. Great news, but I’m not sure the cage has stopped rattling just yet. We’ll see eh?

In the meantime, let’s hope Egypt let’s our people go and everyone is home safe and sound soon.

Talk soon,

Caren

PS. Thank you to everyone who rang/emailed to tease me about my photo in the local paper. And no, they didn’t need to re-touch the picture – grrrrrrrrrrrrrrrrrrrrrr.

This Christmas will be different!

It’s unfortunate that Christmas is often called the ‘silly season’. It doesn’t have to be silly, there are things we can do to make sure it doesn’t get out of hand, and that it’s fun and festive. So continuing on with the resolutions theme, perhaps we can implement some Christmas savings ideas for 2011.

We tend to forget that money is just like other aspects of our life, it requires careful planning and commitment to achieve true success. You wouldn’t go on a camping trip without planning, so why should your Christmas spending be any different? You need a plan!

First off you need a Christmas budget (sorry FIDO doesn’t have an online version). Make a list of the people you need to buy Christmas presents for, and an amount you expect to spend beside each name. I also try and actually think of an appropriate gift at this point – it makes it sooooooo much easier when you actually hit the shops.

When buying gifts, try and do it in a planned, controlled manner without getting too emotional about the purchases. Not leaving it to the last minute, and making a list before you reach the shops, could help guard you against impulse buying. When you’re desperate, you can end up spending a lot more than you intended.

Make sure you also think about:
• Decorations;
• Christmas get-togethers;
• Christmas lunch/dinner;
• Cards;
• Kris Kringle;
• Shopping Centre wishing trees.

And don’t forget the Christmas break, whether it’s camping, a resort, or just staying at home and taking the kids to the movies – it all costs money.

So how do you ensure the money is there come December?

I was talking to a client recently that has a Christmas Club account. The best thing about Christmas Club accounts is that they enforce discipline. You only have a short window of opportunity when you can access the funds to ensure that the money is there for Christmas.

The drawback to these types of facilities is that they don’t pay a very high rate of interest, so if you have confidence in your own discipline then you could choose a higher interest bearing account instead.

Alternatively you may even want to implement a longer term strategy that you can draw-down from each year.

These days there are also food hamper plans. These allow you to stagger the cost of food and gifts for Christmas over the year rather than in one big hit at the end of the year. I’d certainly advocate doing your homework to make sure you’re not paying a large premium for the convenience and payment plan.

I’d be very interested in hearing from anyone that has used these services, to find out whether they found them to be worthwhile. Just add a comment below or email me at askCaren@hendrie.com.au.

Don’t wait until the end of the year to start spending. You can start preparing for next Christmas at the January sales! Christmas wrapping paper, decorations, toys, games and much more are often up to 50% off. Or at least take advantage of sales throughout the year – if you see something on special that you know would make a great gift for someone, grab it or put it on lay by.

I always do this. In fact one year I bought all the presents for my nieces and nephews in July (12 in total) and put them on a “Christmas lay by”. By doing this I didn’t have to pick them up until as late as Christmas Eve, so it even solved the problem of where to store them.

With hindsight this was a great idea, because not only was I able to buy presents that were on sale, but I was also able to stagger my Christmas spending. My only caution is to keep a list detailing the present and the person you’re buying it for, otherwise it can be very confusing when you eventually collect that lay-by.

Have you thought about introducing a family Kris Kringle? In my family, the brothers, sisters, brother’s-in-law, and sister’s-in-law all put their names in a hat and rather than buying for everyone, we buy a really nice gift for one person each. Of course this didn’t work out so well for my sister this year when my brother in Byron Bay decided he wasn’t coming down until February…

A quick warning about credit cards….. ‘Plastic money’ makes spending very easy. So much so, that many people are left with a ‘spending hangover’ (thanks to my friend Vivienne James, author of The Woman’s Money Book”, for that term). Use your credit card wisely (remember it’s the most expensive loan you’re likely to ever have). Then get rid of the credit card debt as quickly as possible because it’s high interest and not tax deductible.

So if you found the Christmas finances tough this year, don’t ignore the situation – put a plan in place for this year. After all, if you don’t do something different, you’ll find yourself in the same position every Christmas. Try even one idea, and let me know how you go.

Talk soon,

Caren

Happy 2011!

So what were your New Year’s resolutions? Get fit? Give up smoking? Lose weight? Spend more time with the family? Work harder?

Did you make any financial resolutions?

The new year is a great time to take stock and make some decisions about your finances. Let me start you off with a few examples:

Create a Budget (or update the one you have).

This is the most basic step to getting your finances in order. It’s pretty tough to save money if you don’t have an accurate picture of what you’re spending. Creating a budget allows you to prioritise your spending and determine the patterns. Furthermore, you can work out where you don’t actually need to spend money.

It’s important to make your budget realistic so that you can stick to it. I suggest http://www.infochoice.com.au/distributions/asic/calculators/budgetplanner/index.asp This is a very comprehensive online budget tool. If you don’t already have a budget, it’s a great place to start.

If you do have a budget, then make sure you re-visit it each year in order to ensure it remains up-to-date and appropriate.

Get your credit card under control.

Eliminating debt is one of the most important aspects of any financial plan. Credit cards are probably the most expensive loan you’ll ever have (unless you’re planning a visit to a loan shark a la Sopranos style, in which case nothing I can say will help you).

Credit cards are very convenient, but you shouldn’t be spending more than you earn where you can help it.

Try to pay out your balance once a month – or at least make a decent payment.

Once you have that credit card under control – keep it that way!

Commit to investing:

There are many good reasons for investing, some include:

• provide for retirement;

• retire early;
• children’s education costs;
• sheer pleasure of knowing your money is working for you.

Make this year the year that you stop saying “I need to get around to seeing a financial planner” – do it, we don’t bite.

Perhaps you could make a commitment to save at least $100 per month into a regular investment plan.

Or if you have a lump sum of cash sitting in the bank that you know you don’t need for a few years, explore your longer term options

Invest your tax refund before you spend it! Instead of banking your refund along with the grocery and bills money this year, consider an investment that you can allow to grow over the next few years.

Protect what you have.

If you earn more than $40,000 and don’t have income protection insurance then you need to have enough income producing assets behind you to replace that income in the event you are unable to work due to illness or injury.

If you’re not in such a fortunate position, then you need income protection insurance. Simple as that. If you don’t have it, this could be your most important and valuable resolution.

Review Current investment strategy and portfolio.

The Australian Securities and Investment Committee (ASIC) recommends that all investors review their portfolio at least once a year. In fact, they have made it a legal requirement for all Financial Planners to offer an annual review service to their clients.

Investment is not a “set and forget” exercise. The reason reviews are so important, is because you can factor in changes to the market, economy, and your lifestyle.

Set financial goals and time frame:

It’s always easiest to save money when you have a specific goal – retirement, house deposit, paying off the mortgage, a holiday etc etc. It's important to work out what you want to achieve, and how long you have to achieve it.

A short-term strategy is just as important as a long-term strategy – but they are different. Don’t assume that what you’re doing is the most suitable just because it’s the way you’ve always done it.

Write down your short-term and long-term goals, as well as what needs to happen so that you can achieve those goals.

Learn more about the sharemarket.

Accepting that the value of your investment may go up or down over the short-term could greatly improve the potential for your money to grow over the long-term. Don’t be scared off by the last few years – learn from them.

Get good advice.

Engage professional advice to steer you through the investment maze. Like any professional service, check the financial adviser’s experience, qualifications, fees and services. Knowing your goals is one thing, but finding the best investment strategy to help you reach them can be difficult without guidance.

And yes, I would love it if you chose me and my terrific team to be the ones to help you!


Ok, I hope that gives you some ideas for this year’s financial resolutions. If you have any others, I would love to hear them! Just add a comment below or email me at askCaren@hendrie.com.au

Talk soon,

Caren