Tag: Newsletter

Many younger Australians are joining the Financial Independence, Retire Early (FIRE) movement. Is it right for you?

When you’re starting out in the workforce and building your career, retirement can seem like a long way away. 

And with the age at which you can access your super and age pension creeping up—not to mention the increasing cost of living—you might be steeling yourself for a longer working life. 

The stats don’t lie—Australians are staying in the workforce for longer and any thoughts of retiring early are becoming a distant dream for many of us.ⁱ

But there’s a growing movement of younger Australians who believe that by following the right set of rules, it’s possible to achieve early retirement. 

Popularised by US-based blogger Peter Adeney, better known as Mr Money Mustache, the Financial Independence, Retire Early movement looks more closely at what makes us happy.ⁱⁱ

Changing your spending and saving habits

FIRE is all about following an extremely frugal lifestyle with the aim of retiring as early as your 40s…or even your 30s! 

At the core of the FIRE philosophy is changing your attitude towards spending and saving. 

But FIRE is more than just following a budget. It’s a whole-of-life movement that inspires fervent belief in its followers. 

The FIRE movement encourages its followers to build up seven levels of financial safety by:

• investing in property 
  
• investing in dividend-yielding assets 
  
• building tax-effective super 
  
• working part-time 
  
• taking full advantage of social security 
  
• looking for entrepreneurial work opportunities 
  
• adjusting their lifestyle to live a simpler life.

When it comes to saving, every little bit counts

Like any movement, FIRE inspires some committed followers and some of the lifestyle advice can seem a little extreme—churning credit cards to access freebies, living in a truck to avoid rent and even sifting through bins outside restaurants for free food. 

Now, if the thought of going without your daily latte…not to mention movie outings, fine dining and regular holidays…sounds like a living nightmare, then perhaps FIRE isn’t for you.

But if this sounds too much like hard work, don’t worry. You don’t have to be quite so committed. You could consider making some simple changes to your daily habits to reduce your spending and boost your savings.

• Understand your money habits. 
  
• Make a list of where you could cut back to reduce your waste. 
  
• Cycle all or part of the way to work and save on transport costs. 
  
• Shop around for the best deal on utilities like gas, electricity and water. 
  
• Entertain at home—a monthly Netflix subscription costs less than a single movie ticket.

How to light your FIRE and retire on your terms

Once you’ve ramped up your savings, you could think about being a little more savvy with your money.

• Bring your super together into one account to avoid paying more than one set of fees.
  
• Look at ways to save and invest your money to increase your potential returns. 
  
• Consider investing in property…but watch out for aggressive gearing, especially if interest rates change.

You may not retire quite as early as the more committed FIRE followers. But you may just put yourself in the box seat to retire on your own terms. 

And along the way, you might find yourself reappraising your attitude towards money and happiness. 

i Australian Bureau of Statistics – Retirement and Retirement Intentions, Australia 

ii https://www.mrmoneymustache.com/about/ 

© AMP Life Limited. First published November 2018

Challenges and financial strategies

Many women are still lagging behind in their longer term super savings.ⁱ There are several reasons for this that are often out of a woman’s control. However, women can try certain strategies to improve their financial situation.

What’s holding women back financially?

Women face some very real and specific challenges when planning to put money aside for the future, including: 

Juggling day-to-day demands – Caring for others and managing household activities can make it a challenge to balance work and family life. Research shows that providing for daily family needs was a high priority for 80% of women surveyed and is a key reason women feel limited in committing resources towards their own financial futures.ⁱⁱ

Taking time out of the workforce – Close to half of employed females currently work part time, with those aged 25-44 indicating raising children or looking after family members as their main reason for not working full time.ⁱⁱⁱ Other major reasons include study and not always being able to secure full-time work. This often means earning less, which results in lower employer-paid super contributions. 

Lower salaries – Among full-time workers, men in Australia earn around $17,000 more each year in their base salary. This inequality extends to $27,000 when including super, overtime, bonus payments and other discretionary pay.^iv

Lower super savings – The average super balance for women by retirement is $231k, compared with $454k for men6. However, women, on average, live around four years longer^vi than men and therefore usually need more savings to live off for those additional years. 

Six ways for women to start taking control of their finances

1. Set personal goals – Life goals can be important for wellbeing,^vii but they can also provide a focus for financial goals. Make sure life goals are clearly defined, measurable and attainable. If they’re linked with family goals (eg. buying a bigger house), factor in your own financial safeguards too (like being a co-signature on all assets). 

2. Prioritise time for money management – Juggling family life can leave little or no time for anything else. However, putting aside an hour a week to prioritise money management and savings could make a big difference in the long run. Use this time to make budgets, set savings goals, check current spending, and examine accounts to make sure your current savings are working for you. 

3. Get on top of super – Taking control of super today is future self-care. It may help provide more choices and opportunities when you are no longer earning an income. Think about how long your super will last. You can also try completing a lost super search, consider consolidating super accounts, and consider making additional contributions to your super. 

4. Have a safety net – Life doesn’t always go to plan. Research shows women are resilient when it comes to dealing with challenges involving money, including divorce, separation, or illness. However, the impact of these challenges could possibly be reduced by having a safety net in the form of emergency savings or insurance.^viii

5. Do some salary research – Understanding the market value of a role arms you with important information that can be used to levy future salary negotiations, or to spark a conversation about a pay increase if a review is overdue. 

6. Consider investing for the future – research shows that women make better investors than men because they spend more time researching investments, are better at matching their goals to their investments, and don’t get panicked in fluctuating markets.^ix

If you want help putting strategies in place for your financial future get in touch. 

i RMIT University Research: Women and money in Australia, across the generations, 2016. Page 11 paragraph 5, paragraph 2, 

ii 6 ASIC Money Smart website, Women’s money challenges infographic 

iii Reserve Bank of Australia, The rising share of part time employment, bulletin, September Quarter 2017, page 21, graph 4 & 5. 

iv Australian Government Workplace Gender Equality Agency report – Gender Equality Insights report 2016, Inside Australia’s gender pay gap. Page 13, paragraph 2 

v ASIC Money Smart website, Women’s money challenges infographic 

vi ABS Gender indicators, life expectancy, Feb 2016. 

vii Entrepreneur magazine. Article: Why our brains like short term goals, by Monica Mehta, January 2013 

viii RMIT University Research: Women and money in Australia, across the generations, 2016. Page 12, paragraph 1. 

ix UNSW Business School article. Business Think.Sorry guys, but women make better investors than men. January 16, 2018. Paragraph 2. 

© AMP Life Limited. 
First published November 2018

Whatever your age, if you’re thinking of dabbling in investments like shares, managed funds or cryptocurrencies, here’s a list of common mistakes which are generally worth steering clear of.

1. Failing to plan

When looking to invest, it’s generally wise to think about: 

• your current position and how much you can realistically afford to invest (consider what other financial priorities you have or existing debts you may be paying off?)
• your goals and when you want to achieve them
• implications for the short/medium and long term
• whether you understand what you’re actually investing in
• whether you know how to track performance and make adjustments
• if you want to invest yourself, or with the help of a broker or adviser.

2. Not knowing your risk tolerance

As a general rule, investments that carry more risk are better suited to long-term timeframes, as investment performance can change rapidly and unpredictably. However, being too conservative with your investments may make it harder for you to reach your financial goals. 

Low-risk (or conservative) investment options tend to have lower returns over the long term but can be less likely to lose you money if markets perform badly. 

Medium-risk (or balanced) investment options tend to contain a mix of both low and high-risk assets. These options could be suitable for someone who wants to see their investments grow over time but is still wary of risk. 

High-growth (or aggressive) investment options tend to provide higher returns over the long term but can experience significant losses during market downturns. These types of investments are generally better suited to investors with longer term horizons who can wait out volatile economic cycles. 

3. Thinking investment returns are always guaranteed

The idea of guaranteed returns sounds wonderful, but the truth when it comes to investing is returns are generally not guaranteed. 

There are risks attached to investing, which means while you could make money, you might break even, or lose money should your investments decrease in value. 

On top of that, liquidity, which refers to how quickly your assets can be converted into cash, may be an issue. Depending on what type of investment you hold or what may happen in markets at any point in time, you mightn’t be able to cash in certain investments when you need to. 

4. Putting all your eggs in one basket

Investment diversification can be achieved by investing in a mix of: 

• asset classes (cash, fixed interest, bonds, property and shares)
• industries (e.g. finance, mining, health care)
• markets (e.g. Australia, Asia, the United States).

The reason diversifying may be a good thing is it could help you to level out volatility and risk, as you may be less exposed to a single financial event. 

5. Believing the opinions of every Tom, Dick and Harry

Changing your strategy on the basis of market news may or may not be a good idea. After all, people have made all sorts of market predictions over the years, all of which haven’t necessarily come true. 

On top of that, we all have that one friend that likes to pretend they’re a property, share or general investment guru, who while may come across as persuasive in their market commentary, does not have the qualifications to be giving people advice. 

With that in mind, if you’re looking for guidance, you’re probably better off consulting your financial adviser who may be able to give you a more well-rounded picture of the current climate and the potential advantages and disadvantages you should be across. 

6. Making rash decisions based on fear or excitement

Many investors get caught up in media hype and or fear and buy or sell investments at the top and bottom of the market. 

Like with anything in life, it is easy to get stressed and concerned about the future and act impulsively but like with other things this may not be a smart thing to do. 

While there may be times when active and emotional investing could be profitable, generally a solid strategy and staying on course through market peaks and troughs will result in more positive returns. 

We can help you make investment choices that are right for you. Get in touch today. 

© AMP Life Limited. 
First published December 2018