Saving

NYE Reflections: The best way to achieve your goals in money (or anything else)

piglet-3045299__480.jpg

Happy New Year!  This time of year is perfect for reflection on the year that has passed and to make goals for the coming year.

When making financial goals (or any goals in fact), they need to be S.M.A.R.T:

Specific

Measurable

Attainable

Relevant

Timely

E.g.

Specific: A clear goal in mind

Measurable: If you cant measure it, you can't improve it. Whether it be in dollars, percentages, kilos, you must be able to measure it

Attainable: Not unrealistic (e.g. I want to be the world's richest person tomorrow)

Relevant: This one is pretty obvious, but is has to be relevant to what you desire to achieve

Timely: You have to put a time frame on the goal. When you intend to start and when you intend to reach your goal

One final tip: You should also write these goals down and tell others about your goals. This will help to hold yourself accountable and increase the likelihood of reaching your goals.

What are your SMART goals for the coming year? Feel free to let me know in the comments below

_____________________________________________________________

Click here to sign up to our Newsletter to receive the latest in Financial Empowerment and Personal Finance.

_____________________________________________________________

Mawer Money is a Social Enterprise assisting the world with Financial Empowerment.

www.mawermoney.com

_____________________________________________________________

Credit cards – drugs for the weak!

ecommerce-2140603_1920.jpg

Nearly all personal finance strategies involve strength, persistence, dedication and time.

Why are credit cards like drugs? They are easy to get your hands on, provide a temporary high, but are bad in the long term and will destroy your life.

Credit cards at their best are fantastic tools for managing cash-flow, minimising interest (not a misprint) and acquiring frequent flyer points. At their worst, credit cards lead the weak in a downward spiral to financial oblivion.

You should only use credit cards if you know you can pay off the balance in full when due.

Let’s look at a situation where a household spends $6,000 on their credit cards each month. If the balance is paid in full from a mortgage account (or preferably offset – will back link in future article), the cost (more opportunity cost in this instance) at current mortgage rates of 4% is $240. If the balance is carried (e.g. one month behind where the balance and the where the interest is charged) at 20% is $1,200 a year. This is a difference of $960.

EVERY SINGLE YEAR OF YOUR ADULT LIFE!

Taking into account compounding and inflation (a couple of my favourite topics) over 60 years is $569,909. OVER HALF A MILLION DOLLARS!

Banks love that you carry a balance on your credit card because the above is the income they receive from a large number of the Australian population over their lifetimes. People love criticising banks over their massive profits.

If you can’t beat them – join them. Perhaps buy some bank shares (unless you think Australian property is overvalued on a range of metrics and Australian banks are holding a ticking time bomb of bad debts if interest rates increase, unemployment increases, wage growth continues to stagnate etc).

Take away points:

1.     With discipline, credit cards are an effective interest free tool;

2.     You should only have a credit card if you have the cash (or a 100% certain future cash-flow) to pay off the card in full;

3.     You should never pay a single cent of credit card interest in your life;

4.     You should never pay a single dollar of annual fees (one caveat – if you can acquire masses of frequent flyer points at efficient cents per point rates – I will back link once I write the article); and

5.     Zero interest introductory rates can be used with caution (but please compare the effective after tax hourly rates of the effort).

What are your opinions on credit cards?

You’re welcome.

_____________________________________________________________

Click here to sign up to our Newsletter to receive the latest in Financial Empowerment and Personal Finance.

_____________________________________________________________

Mawer Money is a Social Enterprise assisting the world with Financial Empowerment.

www.mawermoney.com

_____________________________________________________________

           

Income and Wealth of the average Australian: How do you compare?

piggy-2889046_1280.jpg

Our friends at the Australian Bureau of Statistics produce statistics on the distribution of wealth and income of Australians each two years. Really interesting data (wish it was released every year!).

People often ask me “how do I compare to others?” Below are the key wealth and income metrics of Australians for 2015-16.

1.     Gross Household Income in Australia 2015-16

1.PNG

 

2.     Household Net Worth in Australia 2015-16

2.PNG

3.     Households by Net Worth Range 2015-16:

3.PNG

 

4.     Households by Net Worth Range 2015-16 (showing only up to $2 million as this encompasses 90% of the population):

4.PNG

5.     Mean Worth by Age Australia 2015-16

5.PNG

6.     Median Net Worth by Age Australia 2015-16 (interesting to note that the median is much lower than the mean – the exceptionally high wealth of some households brings the average/ mean up significantly):

6.PNG

 

A few other interesting statistics that I found:

1.     33,700 households are worth 8 figures (more than $10 million)

2.     135,200 households are worth more than $5 million – this represents 1.5% of households

3.     1.2% of households have a net worth of less than zero

The above is for your information only. You are reading this because you want to be different to the average. You want to save more, invest wiser and achieve financial freedom earlier.

Want to review the numbers in more detail? You can find them on the ABS website:

http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6523.02015-16?OpenDocument

How do you compare? Feel free to comment below.

You’re welcome.

_____________________________________________________________

Click here to sign up to our Newsletter to receive the latest in Financial Empowerment and Personal Finance.

_____________________________________________________________

Mawer Money is a Social Enterprise assisting the world with Financial Empowerment.

www.mawermoney.com

_____________________________________________________________

 

Lotto and Investment Returns: A unique case study

AAEAAQAAAAAAAAgHAAAAJDVkNTk3ZGRlLTY0ZDMtNGExYi04MTUyLTIzYmE3NTk3NGZjZA.jpg

Everyone who knows me knows I love spreadsheets. I have a hundreds of spreadsheets for a range of different purposes (investment, taxation etc.) which come in useful for both my clients and my personal interests. I have recently revisited one of these models which analyses a person’s ‘investment’ (I use the term loosely) in lotto.

I speak to a variety of people every day about making prudent financial decisions. I frequently state that your net worth is the culmination of every small and large financial decision you have ever made.

One of the topics I speak about often is compounding (Albert Einstein was once asked “What do you, Mr. Einstein, consider to be man’s greatest invention?” He didn’t reply the wheel or the lever. He is reported to have said, “Compound interest.”). Investing small amounts on a periodic basis and leaving the income in the investment to ‘earn interest on the interest’ can lead to great outcomes.

This concept can be applied to lotto and the decision whether to buy a lotto ticket or save / invest the same amount each week.

Let’s picture the scenario where at the age of 18, a person purchases a lotto ticket every week until they retire at age 65. All we need is two assumptions (and a spreadsheet) to illustrate this example:

  1. The lotto ticket costs $17.70 (current price of a Saturday Lotto Ticket (Slick pick 25))
Capture.PNG

2. An after tax rate of return of 5% (relatively conservative)

Below shows the growth in the value of the funds built up over time (send me a message if you want the full spreadsheet):

Capture.PNG

At retirement, the person will have over $175,000! Given the latest second division prize for Saturday lotto, this is equivalent to winning second division more than 15 times (once every three years!):

Capture.PNG

Therefore if you never buy a lotto ticket, you are guaranteed to win second division many times over. Even if you put the money in the bank and achieved an after tax rate of return of a measly 1%, you would still end up with over $50,000.

Knowing this, what is your opinion on lotto tickets now? Are you still willing to risk over $175,000 for the very slim chance (don’t get me started on these odds!) to win a million or two in first division? Feel free to comment below.

You’re welcome.

_____________________________________________________________

Click here to sign up to our Newsletter to receive the latest in Financial Empowerment and Personal Finance.

_____________________________________________________________

Mawer Money is a Social Enterprise assisting the world with Financial Empowerment.

www.mawermoney.com

_____________________________________________________________

 

Start Investing and Saving early in life – it will make it easy on yourself!

unnamed.jpg

The earlier you start saving and investing, the easier it will be to achieve your goals. Not only will the regular amounts you need to save be lower, but the total amount you need to save will also be lower.

Let’s take a look at the worked example below. You want to have $2,000,000 in investable assets (not your house or your belongings, but in shares, property, term deposits, cash etc) by the time you are 60. I have chosen $2,000,000 for two reasons. Firstly $1,000,000 is so cliché. Second, for the younger crowd, by the time you retire, $1,000,000 will definitely not be enough to provide you with an income stream for life given inflation over the timeframe.

Given the current savings rate, property prices and consumerism mindset, most people of my generation will have to work until they are 75. And still probably have nothing to show for it. But you are reading this because you are different!

1.PNG

The more interesting part is below. This shows the breakdown of the $2,000,000 between the amount you have to save and invest, and the return on these investments. If you start at 20, you only need to save $650K and the remaining $1.35M is investment returns. But leave it to 55 and you will have to save and invest $1.75M, with only $250K being investment returns.

2.PNG

This is due to the magic of compounding (remember the class at school on compounding that you didn’t pay attention to – I bet you wish you did now!). Compounding occurs when you earn ‘returns on your returns’ (or interest on your interest). This is where many people fall down in their quest for financial freedom. They save and maybe invest, but the ultimate goal of the saving is to buy something and not keep the funds for the long term to grow.

This is the pure definition of not working hard for your money, but letting your money work hard for you.

“Start today, because sometimes tomorrow becomes never”

Contact me if you would like a custom model built with your age, current balance, inflation adjusted with the age you wish to reach financial freedom.

You're welcome.

_____________________________________________________________

Click here to sign up to our Newsletter to receive the latest in Financial Empowerment and Personal Finance.

_____________________________________________________________

Mawer Money is a Social Enterprise assisting the world with Financial Empowerment.

www.mawermoney.com

_____________________________________________________________