What is financial independence and why is it so important?

We bang on about financial independence a lot at Money School. It features heavily in our blogs, and it appears in our education for kids.

But what does it actually mean, and why should you care?

What does financial independence mean?

We define financial independence as being able to support your lifestyle without having to work.

In money terms: you don’t need a wage to meet your costs. You’ve got enough income (rent, dividends, interest etc) coming in from your assets (cash, shares, bonds, property etc) that you can feed, clothe and house yourself in the style to which you have become accustomed.

These are technical definitions and can seem a bit nebulous. Here’s what financial independence really means (in my personal experience): Read more

Misconduct in Australia’s financial industry: a risk management view

The Australian taxpayer is currently funding the Royal Commission into Misconduct in the financial industry (or in more detail: Banking, Superannuation and Financial Services Industry). Lucky us.

We got screwed by these guys. Now we get to pay millions to find out what we already know:

This is not a ‘few bad apples’ problem.

This is a structural problem.

Read more

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Bitcoin, Blockchain and Banking

David Yermack is a Professor of Finance at NYU Stern. He teaches Bitcoin and Cryptocurrencies, including the concept of Blockchain Banking. When the opportunity arose to hear him speak at UWA recently, I leapt. Now, after years of saying ‘it’s just another currency’ and ignoring it,
 

I understand what all the fuss is about.

I learned a lot from this session, and below are my main takeaways. If I’ve gotten any of this wrong, it’s my fault, not the Professor’s. Apologies for Professor Yermack in advance if I’ve butchered his eloquent explanations.

  1. Cryptocurrency is coming, regardless of whether we want it or not. Possibly, sooner than you think. It seems unlikely there will be an ‘opt out’ available. You’ll have an online cryptocurrency account or you won’t have money.
  2. Employment prospects for future lawyers, accountants, and those considering banking look grim.

So, what did I hear that lead me to these conclusions?

Short-term share trading: for when you don’t like traditional gambling

 
I have a confession: I indulge in a form of gambling. It’s called short-term share trading.
 
It’s akin to a bout of binge drinking after nine months of abstinence while pregnant. Ill advised, and I like it.

Read more

Real lost super: could 93% of your superannuation disappear?

When we hear ‘lost super’, we imagine lots of funds that we don’t know about. This story is about another kind of lost super. It’s the money you had in your super account, but it’s disappeared.
 
So, could 93% of your superannuation disappear?
 
Very short answer: yes.
 
Longer answer: if you stop contributing, and you’re paying fees and premiums, it can happen. Do that for over a decade, and you could have next-to-nothing left.
 
My statements come from a real-life example, not a hypothetical one.

Read more

Can you learn about share trading by playing the ASX Sharemarket Game?

Twice a year, the Australian Stock Exchange (ASX) runs a Sharemarket Game (I’ll call it ‘The Game’ from here on in). There’s a public version for any adult and a school version for students. I’ve played it several times and I’ve sucked at it. The photo at the top of this post is how my portfolio performed the last time I played.

This has been a conundrum for me, given my real life experience with shares has mostly been successful.

I have gone back to my engineering training and done a root cause analysis (RCA) on why I can’t seem to do well at this game. I won’t bore you with the RCA diagram. I’ll skip straight to the bottom line, the root cause of my problem, and it is this:

I am lazy. Read more

Free and cheap financial education resources

Want to learn how to manage your money wisely? Good news! There are truckloads of solid financial education materials available – for free – to help you get up to speed.

Unfortunately, sometimes you’ll come across a financial product dressed up as education – a wolf in sheep’s clothing. It can be hard to tell the difference. To help you avoid the wolves, we’ve curated our favourite resources into this list.

Read more

Lacey Filipich - Money School Financial Training Courses

Becoming a self-funded retiree: more of Fran’s story

If you’ve read anything about Money School, you’d know we wouldn’t be here without Fran, the mother half of the our mother-daughter team.

Fran’s a bit shy. She’s more than happy to be in the background. Getting in front of a camera was a daunting task for her, but with a little coaxing we got there. It’s a shame she’s shy because Fran’s is the more inspirational story in our opinion. Starting investing at 48 years old and now a self-funded retiree, her life proves it’s never too late to start.

We’ve finally convinced her to tell more of her story. Here it is, in her own words:

Read more

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Are Extra Superannuation Contributions the Best Decision?

I recently had an interesting (and somewhat frustrating) discussion with a financial planner about making extra superannuation contributions. In general, she thought it was a good idea. In general, I was against it. We both agreed that specific situations warranted different approaches, but in my specific case – a mid 30’s woman – she thought extra contributions were wise. I disagreed.

I believe most financial advisors would recommend extra superannuation contributions to minimise tax and boost retirement income. So, what else should you be aware of when making this decision?

Read more

Wading into the ethical banking quagmire

Ethical banking started in response to educated consumers wanting assurance that their money is not being used to cause damage. Like recycling, taking shorter showers and buying your food from the local farmers market, it’s another way you can personally contribute to a sustainable future.

Inevitably, the devil is in the detail:

  • Who decides what’s ethical?
  • How do we ensure those with the ‘ethical’ badge are really doing the right thing?
  • What’s the cost to the consumer?
  • And the bottom line: which institutions could you bank with if you want to bank ethically?

Read more

Can today’s teens break into the property market?

Having bought property in 2001 at 19 years old, I get asked this question at least once a month:

 Could a 19 year old do the same today, in 2016?

My short answer is: yes, they could. I’ll outline how in this post.

The far more important question is: if they could, should they? Well, that’s a slightly longer answer. Read more

Money Matters – Fran’s Perspective

By Fran White

There’s Death and Taxes and then there’s Money – another certainty of life is that money will have an impact on it.

We Baby Boomers will have to manage money for more years than any prior generation as we outlive old life expectancies, and this includes a lot of years still to come (hopefully!)

As a fairly typical Baby Boomer, the blueprint I had was a hard-working dad whose aim was to pay off the family home and live out his retirement, with mum, comfortably on his company pension. My dad succeeded, he worked for a company with a great pension scheme, retired early and lived comfortably to his standards for more than 25 years till he departed this world. Read more

Book Review: Money Master the Game by Tony Robbins

When asked what books about finance I recommend, my response ten years ago was:

They’re still my go-to books for self-education on finance and I haven’t seen anyone do better on those topics yet. Reading those books has been pivotal in my investing life.

In recent years I’ve added to my list:

Then, in late 2014, Tony Robbins released ‘Money: Master the Game’. I immediately preordered the book, wondering if it would become another financial ‘Bible’. Read more

Ask and ye shall receive

By Lacey Filipich BEng(Hons) MAICD Cert Gov (NFP)

‘Thanks for seeing me without an appointment.
I’ve received offers of 3.99% variable on my loans from three other banks.
I’d like you to match that.’

‘The other gas company has offered me a 20% discount for the next year if I switch to them.
What can you offer me to keep me as your customer?’

‘I see these vacuum cleaner bags are $27.95 per box.
Can you do a better price for me please?’

These are real sentences uttered in the last month. I spoke the first and third, a colleague of my husband spoke the second. In all three cases, it resulted in a discount – not always the requested amount, but a discount nonetheless.

When I tell people that I asked for these discounts, I get a variety of responses:

  • Noses wrinkled in distaste at the thought of asking for a discount (how low-class).
  • Smug looks of the ‘I already get a great deal so I don’t need a discount’ variety.
  • Blank looks of the ‘I didn’t know you could do that’ variety.
  • Blank looks of the ‘why would you bother’ variety.

I’ve met only a few fellow discount-seeking kindred spirits in my time. I ponder why that is.

Read more

Money Mindset: Ask the right question

By Lacey Filipich BEng(Hons) MAICD Cert Gov (NFP)

When talking to people about their financial goals, a common question they seem to ask themselves (and me, and I assume their financial planner) is:

How much money do I need to retire?

It’s an interesting question, but it’s not the right question. Read more

Correction, Recession or Depression?

By Lacey Filipich BEng(Hons) MAICD Cert Gov (NFP)

It’s official – China is not indestructible. The 8%+ growth machine has faltered, sending shock waves around the globe. In our own backyard, we’ve seen a sharp decline in the stock market then a small recovery (today anyway). The Australian dollar has plummeted causing widespread happiness for our nation’s export businesses, and my ASX Sharegame portfolio has gone to pot.

So is this the start of Global Financial Crisis version 2.0 (GFC v2.0), or just a to-be-expected blip in the heartbeat of finance?

And whatever the answer, what should investors be doing right now? Read more

Five steps to getting the most from your tax return

By Lacey Filipich BEng(Hons) MAICD Cert Gov (NFP)

Next year I’ll be clocking up my 20th as a submitter of tax returns. That’s twice as long as my relationship with the father of my children – a looooong time in my book.

Over nearly two decades, I’ve seen the methods of submission change: when I first started, you had to lodge via a form that you posted to the Australian Tax Office (ATO). FY15 will be my seventh online submission via eTax, which has evolved and improved significantly since my first experience with it in FY08. I’ve also seen the rules change over time: health care levies have been introduced, medical claim limits have dwindled away and superannuation limits and levies have changed considerably to name but a few.

You can take this lesson from my experiences: tax is not static.

Every year there are new advances in how we submit, and changes (sometimes subtle, sometimes not-so-subtle) in what we can and should claim. It doesn’t do to be complacent about your tax return because you could be missing key opportunities to maximize how much you get back… or minimize how much you pay, whichever way you prefer to look at it. It’s also not mandatory to get an accountant to do it for you. Most people can handle their own tax returns if they want to, especially with the increased efficiency of the online system these days.

Through all this, one thing remains certain: you’ll be submitting a tax return. Why not make the most of the experience? Read more

A ‘Good time to borrow’?

By Lacey Filipich BEng(Hons) MAICD

On Tuesday, the Reserve Bank dropped the official interest rate to 2% – an all-time low. On Wednesday, Joe Hockey sent out the message: now is a good time to borrow.

But is it really?

There’s no doubt it would be great for the Australian economy in the short-term if we all went out today and got a loan. Joe would certainly sleep better. More money means more spending, which stimulates employment and a bunch of other wonderful things we’ve taken for granted in this 20+ year period of growth.

It’s just not sustainable.

Australia has the highest rate of household debt vs. Gross Domestic Product (GDP) in the world. Since the Global Financial Crisis (GFC), we’ve continued to borrow instead of paying down debt – individuals and governments alike. We are still living beyond our means. Eventually, this debt has to come down, or at least stop growing at such a rate. We’re just delaying the inevitable by increasing our debt, and setting ourselves up for a bigger fall.

It is irresponsible for Joe Hockey to make a blanket statement like ‘go out and borrow’. Shame on you, Treasurer. Unfortunately this isn’t all that surprising from the man who recently proposed we should use superannuation to buy our homes.

Perhaps Joe could have said it better if he expanded the statement:

‘Now is a great time to borrow
if you can afford it and you’re borrowing for assets.

An asset is something that puts money in your pocket. It is NEVER a good time to borrow for liabilities – those things that take money out of your pocket. Things like cars, computers and holidays are not what smart people spend their credit on… unless they’re beating their interest charges with solid, consistent investment returns.

Most importantly: now, more than ever, it is important to take your personal financial position into account before taking on more debt. Australia’s economy is in transition. The mining investment boom is over. Taking on debt in this environment is only a good idea if you can afford it, just in case you’re the unlucky recipient of a redundancy or simple firing. Think carefully before leaping.

That’s two strikes, Joe. If you were my personal financial advisor, I’d be firing you.

The Potential Perils of Paid Financial Advice

By Lacey Filipich BEng(Hons) MAICD

In my professional past, I spent a lot of time flying into mining sites for a substantial fee to tell management teams two things:

  • Your only targets should be Safety, Volume and Cost. The rest is window dressing.
  • Stop doing most of what you’re doing. Just do a few things, do them properly, and be relentless in your de-prioritisation of the distracting crap.

The KPI targets and the contents of the not-to-do lists vary, but the concept is essentially the same everywhere. We have too many targets and too much to do, so we lose sight of the important stuff. It’s part of the human condition.

In my advice to their bosses, I add a third point: the management team bonuses should be delayed by two years. Why? Because they should not reap the rewards of meeting their targets until it can be shown that those results are sustainable and they did not cause long term damage by making poor decisions. Paying them in the same quarter or year as they achieve the targets means they have an incentive to rape and pillage with little thought to the future. It may not be the most significant incentive and it raises uncomfortable issues of trust and integrity, but it’s there.

So what the hell has that got to do with the Senate inquiry into the poor financial advice some of our biggest banks have been giving their clients? Read more

Super and your home do not mix

By Lacey Filipich BEng(Hons) MAICD

When I saw Joe Hockey on the news in March suggesting that superannuation (super) may one day be available to help First Home Buyers get into the property market, my jaw dropped. Could it be possible that our country’s most senior financial decision maker has such a limited understanding of the purpose of super? Or was this simply an off-the-cuff comment aimed at taking the population’s temperature on this issue?

Though it would still make me unhappy, as it’s an irresponsible way to poll opinions, I hope it’s the latter. If it’s the former and Hockey’s understanding of super and what constitutes an asset is that dismal, quite frankly we’re up the creek with no paddle. Read more