Tag Archives: financial

For Financial Independence – Let The Seeds Grow

By on November 23, 2012 in Professional Posts, Quick Money Saving Tips, Retirement

Let The Financial Seeds GrowI opened the paper today…just kidding; I tapped on my Twitter app this morning and went through the financial news section. Even though I kind of know the sort of ‘breaking news’ stories I’m going to find, I still read them. Dow Jones is down 12 points overnight, EU political pressures on Greece continue, Facebook shares hit (apparently and surprisingly) new lows.

I take another bite off my toast and smile…

It’s time to switch the TV on. I can’t wait for the next ‘expert’ analysis of these stories in the regular money segments of the morning show. My two year old son screams in my ear, he wants me to change it back to cartoons. How do I explain to him that I simply need to know what is going on in the financial world out there and what impact it has on my money?

I know I am not the only one going through this daily morning routine. In one way or the other, we are all victims of the daily noise surrounding us from the moment we open our eyes.

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The media and marketers use good old fashioned fear, but more recently also frustration, desire and family values – all emotional drivers that stay stored in our memory bank. And they stay there for a long time. Until the right time comes, and a very important emotional and financial decision needs to be made, they reappear. And they subsequently drive the decision process.

In a nutshell –  most people make their important (often life changing) financial decisions based on what they see, read and hear in the media. Permit me to say, that’s why most people are not financially independent and what’s worse, a lot of people become financially destroyed.

Financial independence comes from a thoroughly planned journey, where decisions are not made based on the latest news. It’s created by a series of sound financial decisions, which are made proactively. It utilises virtues as patience and discipline. It doesn’t chase the latest hot trends or funds and it doesn’t chase any price movements either.

Financial independence is shaped by a long term plan and strong fundamentals, but it’s flexible enough to adapt to changes in personal circumstances. It’s formed by a plan that never changes its course because of variables it cannot control. It only deals with variables that it has some chance of predicting and controlling.

But importantly, it’s designed and regularly assessed by a financial coach. He/she constantly makes sure you are on the right path to maximise the probability of achieving what is important in your life.

However, the timing needs to be right in order to hire a financial coach. It requires an acceptance that escaping the noise means gaining focus. It’s hard to gain focus when life sort of happens every day.

Without going into expertise and experience of a financial coach, the practical and emotional value added is priceless. Once you allow yourself overcome the fears of this new experience you’ll allow yourself plant a seed that will one day grow into a strong and healthy tree. 

This is a Professional Adviser Post from Michal Bodi - Senior Financial Planner, Financial Coach – Sydney Financial Planning (Authorised Representative of Charter Financial Planning)

 General Advice Warning

The Information on this page has not taken into account your financial situation, needs or objectives. Before acting upon any advice, you should consider whether it is appropriate for you.

 image source

 

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How To Manage Your Cashflow For Your Lifestyle

By on October 6, 2012 in Featured, Professional Posts, Retirement

Planning for you financial future is critical to your success – It’s often said “If we fail to plan, we plan to fail”

In this short video, Dave Rae presents a framework that takes into account the key issues that you must consider when planning your financial future. As you plan ahead you need to make sure you can do the things you want, when you want.

Dave draws upon the analogy of a road map and highlights:

“There are many ways to get from A to B, but understanding which way suits you best is the most important”

 

You can see more of Dave Rae at  DavidJRae.com 

This is a professional post – If you would like to see your blog posts published at humble savers, please review our Professional Posts page – Thank you.

General Advice Warning

The Information on this page has not taken into account your financial situation, needs or objectives. Before acting upon any advice, you should consider whether it is appropriate for you.

Dave Rae is a Financial Planner and Director – Beames & Associates Accounting and Financial Services Pty Ltd (ABN 56 129 943 031) is a corporate authorised representative of Count Financial Ltd (ABN 19 001 974 625) AFS Licensee 227232.

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What is the Real Cost of 1%?

By on August 3, 2012 in Featured, humble savers commentry, Property, Quick Money Saving Tips

The Real Cost of 1%Did you know that 60% of all statistics are made up? Okay so maybe I made that statistic up. But when it comes to the financial world, there are people out there who love to use many statistics and mathematical terms to confuse you, or at least, make their story more appealing!

One of the best examples is the selective use of highlighting fees as a percentage as opposed to the real ‘dollar’ cost. Financial institutions have always tried to use percentages when explaining fees as it ‘softens the blow’ compared to quoting real dollar value figures.

The use of percentages is also often misrepresented in the media. For example, when banks raise their interest rates by a nominal rate of 0.25%, the media may report it as ‘Interest rates went up today by 0.25%’. This is technically not correct. For example, if interest rates were at 2.5% and they moved up by an additional 0.25%, the percentage increase is 10%! A big difference on your mortgage bill.

To highlight these issues in more detail we have created two tables, one for investments and the other for mortgages.

The Real Cost of a 1% Fee on your Investment

Table 1 – Value of $100,000, earning 7% each year

Years

0% Fee

1% Fee

2% Fee

3% Fee

10

$196,715

$179,084

$162,889

$148,024

15

$275,903

$239,655

$207,892

$180,094

20

$386,968

$320,713

$265,329

$219,112

25

$542,743

$429,187

$338,635

$266,583

30

$761,225

$574,349

$432,194

$324,339

 

At the end of the 30 year term, the $100,000 investment would have grown to $761, 226 before fees. After a 1% fee, the value  is $574, 349. A difference of $186, 876 – The true cost of a 1% fee.

Now, you will need to pay fees so lets look at the difference between a fee of 1% and 2%.  After 30 years at a 1% fee, the $100,000 investment is now worth $574, 349. The investment at a 2% fee is only worth $432, 184. The true cost of this extra 1% fee is $142, 155. 

You can see why institutions prefer to use percentages, 1% sounds a lot less than a fee exceeding your initial investment!

What should you do about your Investments?

As mentioned, fees will need to be paid when it comes to investing. Your goal is to ensure that you are getting the right value for the fees you are paying. Therefore, you should challenge every fee and ask the advisor to demonstrate where the value is being added. And of course, shop around.

The Investment Fee Comparison Calculator will show you how fees will impact your own investments for your time frame. 

If you are looking for a financial planner (adviser), you will also find the Financial Planner Checklist – 8 Questions You Must Ask as a good resource

 

The Real Cost of 1% on your Mortgage

Table 2 – Yearly Repayments on a $400,000 Mortgage 

Term

4% Interest

5% Interest

6% Interest

7% Interest

10

$49,316

$51,802

$54,347

$56,951

15

$35,976

$38,537

$41,185

$43,918

20

$29,433

$32,097

$34,874

$37,757

25

$25,605

$28,381

$31,291

$34,324

30

$23,132

$26,021

$29,060

$32,235

 

The table shows that a yearly repayment over 30 years at 5% interest is $26,021, and at 6% the repayment is $29,060. The difference is $3,309, or an additional 11.7% – The true yearly cost of an additional 1%!

It should also be noted that at the end of 30 years, the loan at 5% requires total repayments of $780, 617 (30 X $26,021). The mortgage at 6% requires total repayments of $871, 787. A difference of $91, 170 which is the true cost of an additional 1% over 30 years.

What should you do about your mortgage?

Shop around for a great rate! Mortgage products can offer different features that may be beneficial but they normally come with additional costs, normally stated in percentage terms. These features may be worthwhile, but as you can see, when you know the true cost, you are in a better position to evaluate the features.

The Mortgage Loan Calculator will provide a detailed analysis of the effect of interest rates on your mortgage.

 

Image: FreeDigitalPhotos.net
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Five Ways To Invest – Investing In The Stock Market

By on May 30, 2012 in Five Ways To Invest

Five Ways To Save - Investing In The Stock MarketInvesting in the stock market has been a path to both riches and financial calamity. It has always been a mysterious place to invest but that mystery also makes it fascinating.

In this article we look at five practical ways to invest into the stock market and highlight the advantages and disadvantages of each option.

 

1.    Buy stocks directly through a stock broker

Using a stock broker has been the traditional method of investing directly into the stock market. There is usually a high minimum financial requirement for the purchase of each stock. The stock broker will provide advice and guidance, however, you will have to accept the consequences of any stock the under performs.

Advantages

  • Brokers can be a good source of information
  • Buying stocks directly gives you a sense of ‘control’
  • The ability to buy and sell quite quickly
  • The stock broker can act as a good sounding board

Disadvantages

  • Difficult to diversify your investments unless you have a substantial amount of funds to invest
  • You might end up with a poor stock broker
  • As most stock brokers receive fees (commissions) by each transaction, they may encourage you to trade (buy and sell) shares. This might not be in your best interests
  • Fees charged are usually quite high compared to an online stock broker
  • Paperwork can become onerous, especially at tax time.

2.   Buy stocks directly through an online stock broker

Using online brokers has become very popular. In Australia, Comsec have become very successful at attracting ‘mums and dads’ to invest directly into the stock market. Online stock broking businesses put you in the driving seat. They will provide a significant of information through research papers but make no mistake about it, the decision to buy and sell will be yours and yours alone.

Advantages

  • A cheap and easy way to invest in the stock market
  • Ability to track your stocks online – you just need an Internet connection
  • Research papers can be very good and easy to access.

Disadvantages

  • Can be difficult to build a diversified portfolio without substantial investment funds
  • You have to make the decisions
  • Paperwork can be difficult especially at tax time
  • Reliance upon the Internet and other technology. When it fails, it tends to do so at the worst possible time.

3.   Buy directly from a financial planner

Financial planners can also be registered stock brokers but most work in-conjunction with a ‘panel’ of stock brokers. This means the financial planner will review stock brokers and appoint their preferred selection to work for their clients. This means the financial planner is dealing with a select group of brokers as opposed to relying upon just one.

Advantages

  • The financial planner will provide advice for your total portfolio of investments, not just the portfolio of stocks
  • Stock brokers will be aware that the financial planner is watching and comparing each broker – creates good competition
  • The financial planner gets to see a full range of recommendations from the panel of brokers – makes it easier for him/her to question each recommendation
  • Administration of your stocks can be included as part of the service, making it easier at tax time.
Disadvantages
  • Fees can be a little higher as the planner and stock broker need to be paid
  • You may not feel like you are in full control as the financial planner acts as a filter between you and the stock broker

4.    Buy stocks through a managed (mutual) fund

This has been a very common way to make a start in the stock market. There is a great range of managed funds that offer a broad mix of stocks that can be accessed at a low price, when compared to buying a broad mix of shares directly. You can also purchase a number of managed funds to create greater diversification. Most managed funds are purchased from a financial planner.

Advantages

  • The ability to buy a diversified portfolio at a low cost
  • You can purchase a fund that has specific goals. For example, buy a fund that aims for growth, or buy a fund that creates dividend income
  • Paperwork is reduced as you get one statement from the fund manager
  • Professional fund managers aiming to achieve specific goals.
Disadvantages
  • Funds can have expensive on-going management fees as there are often several layers of fees. For example, the fund managers, the administrator and the financial planner all want to be paid
  • Some of the marketing can give a wrong impression – read the fine print
  • A lack of transparency – You don’t always know what is going on in the fund.

5.    Purchase Exchange Traded Funds (ETF)

Exchange Traded Funds (ETFs) are similar to managed funds. The main differences being that you can purchase them directly, just like buying stocks. Another difference is that the funds are not specifically managed, they are managed to ‘track’ a benchmark. For example, they follow the overall return of the ASX 200 or S+P 500. This means they are automated and in-turn, cheap to administer.

Advantages

  • Cheap access to a portfolio of stocks
  • Reduced paperwork compared to a portfolio of stocks
  • Easy to purchase a mix of ETFs to create a very diversified portfolio (risk reduction)
Disadvantages
  • The best you can do is achieve the benchmark – no room for out performing the broader stock market
  • They are meant to be simple investments but some can be very complex – read the fine print before you invest.
Investing in the stock market can be rewarding but is not without its risks. It is vital that before you invest that you fully understand the risks involved and therefore, do your own research. Working with a professional that you can trust will also have its advantages as they act as a sounding board and will challenge your thoughts.
 
And one last thing to consider – For a stock to be traded, you need a willing buyer and a willing seller. This means that one person needs to be convinced that it is time to sell and another person to be convinced that it is time to buy!
 
Important – This article is general advice only – You should seek professional advice before investing.
 
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Newsletter – Money Myths, Greek Trivia and Superannuation

By on May 17, 2012 in Newsletter

humble savers - The NewsletterLatest Articles

Five Ways to Save Money – Money Myth Busters. We have all heard the old money sayings that have become myths of their own, but which ones are true? We take a look at five popular money myths and give them our verdict. One myth that we believe to be true, is: ‘Where there’s muck, there’s money….Read more

The Official Australian Interest Rate Cut – What You Need To Know. A lot of hype was created when interest rates were recently cut and we followed the news using ‘Storify’. As highlighted a few times by humble savers, the interest rate cut may seem to be good news, but there is a sting in the tail. The interest rates are coming down because the economy is not performing…. Read more

Five Ways To Invest – How To Start Investing. To secure your financial future you’ll need to invest wisely. The last few years have been both confusing and disappointing for investors. This latest article aims to ‘clear the mind’ to help you make a fresh start…. Read more

Financial Trivia

Greece as we know is suffering a financial crisis and the world is again getting worried. The Greek debt is estimated to be $500 Billion, US Dollars (CIA World Fact Book).

The stock markets have got nervous over the past couple of weeks, worried that Greece will not pay back the debts. During this period of time, the US stock market as measured by the S+P 500, has lost over $600 Billion in value! The total value lost around the world is estimated to be three times the debt of Greece. If you are having difficulty making sense of it all, you are not on your own!

Interestingly, Apple is now worth $510 Billion (May 16, 2012). The GDP of Greece is $308 Billion.

A Super Program

Regret Nothing is a great website for younger people who want to take control over their finances. They have an exciting campaign commencing very soon that will help everyone to better understand their superannuation. Superannuation is important, 9% of our wages gets directed to it and this will climb to 12%.

For most people superannuation will become their largest asset, even larger than the family home. However, we often take very little notice of our superannuation until it’s all too late.

By signing up for the free six week program, you’ll learn more about superannuation and have quite a bit of fun along the way (I’ve seen some of the videos!) Click here to find out more

Cheers

The humble savers team

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