I can’t buy a home, am I financially doomed? Episode 19

There’s a template that all Australian’s are meant to follow.

  • Study,
  • enter the workforce,
  • buy a house,
  • raise kids,
  • pay off a mortgage,
  • retire.

It’s served us pretty well for the past 100 years or so, so you know the saying about if it ain’t broke…

But for an increasing number of Australian’s this model is broken.

The original spark that started me on this Financial Autonomy journey was the realisation that the path from studying until around your early 20’s, then working in paid employment for the next 40 odd years, then retirement – the traditional path – was becoming less relevant, and a serious re-think was needed.

Home ownership is an unspoken overlay applied to that traditional life path.  And whilst I certainly don’t believe that owning a home is a bad thing, in re-thinking how our life’s journey might unfold, I certainly think it’s worth questioning the place of home ownership as a core belief in one’s financial life.

And it’s not even just the core assumption that we will buy a house, it’s the assumption that this should happen in our 20’s, or perhaps early 30’s if you’ve been really wild.  It’s really quite a rigid prescription for life.

So in today’s audio blog we’re going to explore alternatives to the traditional home ownership path.  How can you achieve the Financial Autonomy goal of having choices in life, but chose the life path that makes sense for you.

You’d have to have been living on Mars for the past decade to not be aware that house prices, especially in Melbourne and Sydney, have risen sharply.  The combination of extremely low interest rates, a growing population, and in some cases a lack of supply of new homes, has resulted in existing home owners becoming wealthy, at least on paper, and those outside the home ownership club wondering how they will ever break in.

Reflecting this challenge, between 2002 and 2014, home ownership rates for 25 to 34-year-olds dropped nearly 10 points, to under 30 percent.  HECS/HELP debts certainly don’t help.

Now those facing this home ownership challenge could rail against the unfairness of it all, but in truth that’s likely to have as much impact as putting up an umbrella during a cyclone.

How about instead, focusing on a Plan B?  Sure Plan A, the traditional path, worked for your parents, but so did smoking and Saturday afternoons at the TAB.  Things change.

So how could you re-imagine your life journey, where the purchase of a home in your late 20’s or early 30’s, probably with a partner, is not in the plan?

For the purposes of this episode I’m going to assume you’ve already looked into moving further out of town, going smaller etc.  You’re at the point where buying a home is just not possible right now, or in the foreseeable future.

If we’re to find an alternate path that works for you, it might be useful to consider why buying a home has been seen as such a cornerstone of financial security.  Home ownership is attractive because:

  1. It provides a guaranteed roof over our head – shelter is a basic human need, and if you own your home, no-one can kick you out.
  2. When you retire and have less income coming in, you have a roof over your head at little cost.

Let me know if you can think of other reasons.

So in finding an alternate path, we need to consider how we can solve for those two objectives.

If you don’t own your home, then you’re renting.  And if you’re renting, then there is always the chance that the landlord could ask you to leave.  Now, if you pay your rent on time, and look after the property well, this isn’t a risk with an enormous probability of arising.  It does happen, but I think it’s a risk that is over estimated.

Put yourself in the landlord’s shoes.  They’ve bought this property, and almost certainly borrowed to do so.  They want nice regular rent and no headaches.  They don’t want turnover of tenants, because then they have periods with no rent coming in, and they usually have to pay the managing agent to find a new tenant.  Landlords are vulnerable.  No rent coming in for a month, or damage to a property, and they’re likely to be hurting.  Smart landlords value a good tenant.

So pay your rent on time and take care of the place, and the risk of you being asked to move becomes really quite small.  Not zero, for sure, but not highly probable.  Be the tenant a landlord wants to have in their property.

Longer term financial security is certainly the stronger argument for becoming a home owner.  Finding money to pay rent when retired may well be a challenge unless it is well planned for.  So if it is the case that buying in the area where you want to live isn’t feasible, it becomes really important that you build financial wealth in other areas.

So what might that look like?

To start with you need a savings capacity.  If all your income goes back out the door in rent and living costs, then clearly there is no ability to build wealth and create a position of Financial Autonomy.

I worked with a client recently who will be a long term tenant.  She was having trouble making the monthly finances work.  We explored various ways to solve this, but what it really boiled down to was that she was just paying too much rent given her take home pay.  We ascertained that rent was gobbling up 42% of her take home pay.  And then when she paid other housing related bills such as gas and electricity, half her income was gone.

This wasn’t sustainable.

So as a starting point, aim to have your rent at no more 30% of your take home (ie. after tax) income.  Of course the lower the better.  That may require some compromise as to location, or size of the place you rent, but it’s absolutely critical.

With less than 30% of your income going towards putting a roof over your head, you will have enough money to live, and also have funds available to save and invest.

Okay, so now you have a savings capacity, a foundation stone to you gaining choice through Financial Autonomy.  Initially that will build up in the bank, ideally in a separate account specifically for savings.  But with interest rates of next to nothing, the growth of your savings will be limited to how much you can tip-in.

If you’re to really maximise your ability to build financial wealth, those savings need to be invested.  You need to develop an investment strategy that works for you on all levels – risk, time frame, and ethics.  Educate yourself and/or get professional help.  Check out episode 15 – The sharemarket – a beginner’s guide, and also the 3 part series on Common investment mistakes – episodes 12 to 14, to get you started – episode 12; episode 13; episode 14.

You could set-up a strategy where you invest a regular amount every month, no different to paying a mortgage.  Unlike a mortgage though, it’s changeable as your circumstances change.

Need to suspend contributions for a while whilst on maternity leave say?  No problem.  Get a pay rise and want to increase your contribution.  Easy.

Over time your investment will grow to a very handy nest egg.

For the person perusing the alternate path of non-home ownership, superannuation is likely to take on increased importance.   When (if?) you retire, either you will want to buy a home, or you’ll need sufficient income to continue to pay rent.  Either way, your super can help.

A larger balance enables a large sustainable income to be withdrawn, covering rental costs.  Or, perhaps you withdraw a lump sum from your super to buy a home.

Now of course the primary purpose of your superannuation savings is to provide income in retirement, so it’s no good taking out so much of your balance, such that the remainder won’t produce the sustainable income that you need.  So this is certainly something you’d want to think through carefully, and I’d strongly urge you to get some expert help. But the key takeaway for now, is that your super definitely provides a potential solution to the challenge of having an affordable roof over your head in later life.

Share-houses are not a new concept.  Co-working spaces are a rising trend.  Whilst most of us like having some private space in our lives, going it alone in a housing sense is expensive.  Is there scope to team up with others to solve your housing need?

This could play out two ways.  One would be to buy a place with someone else if that was affordable.  The traditional way is to do this with a life partner, but could you do it with friends or siblings?  Maybe 3 or 4 of you could go in together to buy a property, whether it be something you live in, or something you rent out.

Alternatively you go for the share-house model whilst renting, as a way to bring down your housing costs and have more money available for savings and investment.

Earlier I mentioned the increased importance of building wealth if you are to achieve Financial Autonomy without owning the home that you live in.  Just because it’s not viable to buy a home in the area that you wish to live, doesn’t mean you are prohibited from having a stake in the residential real estate market.  Could you afford to buy a property in another more affordable city, and rent that property out?  You may be able to use the negative gearing provisions to help with affordability.  In brief, negative gearing means that, where the interest expense on your loan each month is more than the rental income that you receive, you can claim that difference – that loss, to reduce the tax you would have ordinarily paid.

Hopefully over time the value of the property grows, and perhaps you pay down the debt.  One day, you’ll own a home that either produces income for you later in life, or is perhaps an option to retire into.

It’s not something that you want to build your life around, but receiving an inheritance from parents is a reality for many of us later in life.  Indeed, the rising price of housing that may have priced you out of the market, may have an upside in also inflating the inheritance you one day receive.

Perhaps then the long term solution to your housing is that you rent until the inheritance occurs, and those funds provide you with the capital to buy something of your own.

As mentioned, I wouldn’t encourage this as your primary strategy.  Your parents might spend all of their money, or simply chose to send their estate elsewhere.  I also find it just a bit distasteful to absolve yourself of doing anything towards your own financial security and rely on the work of those before you to provide.

But with that caveat stated, when thinking through how you will achieve the security of owning a roof over your head in later life, perhaps an inheritance is an important component of the solution.

The solution that’s right for you may well be a combination of these different strategy options – perhaps you buy a rental property and negative gear in your 30’s and 40’s, contribute a bit extra into super throughout your working life, and when an inheritance comes through, sell the rental property and buy a home for yourself.

Regardless of the approach that’s right for you, I think a key change is that, if you do ultimately become a home owner one day, it will be later in life than may have once been assumed.

So rather than beating yourself up about not owning a home, or paying down a mortgage, perhaps there just needs to be an adjustment in time frame.

Perhaps it suits you to live inner city and rent during your peak earning years.  Sure, properties cost more in Melbourne or Sydney, but wages are also higher than most other parts of the country, so there may well be a robust argument to be made that your long term financial position is improved through you renting in the vicinity of the highest paying work.

Then later in life you move out to a rural area, or a city where you can afford to buy.  Maybe the goal should be to own a home by the time you’re 60 say.  The reality is that whilst in recent memory, Australian’s have always worked to a formula of buy a home asap, that doesn’t have to be the only way.    You can achieve Financial Autonomy without buying a home in your 20’s or 30’s.  With good planning, you won’t be financially doomed.

In this week’s toolkit I’ve created a document called “7 Strategy options for non-home owners”, which dot points the various strategy options I’ve mentioned here.  There’s also the Budget tool, a piece on Risk vs Reward, and a summary of Sharemarket basics to get you started in learning about investments.

Felicity’s transformation from New York Fashion Journalist to Digital Creative Director – Episode 18

In our first interview episode on the Financial Autonomy Podcast with talk with Felicity Loughrey. She shares her career transition journey from journalism to advertising that spanned across two continents.

In this interview we cover:

  • How this Australian freelance journalist ended up working in New York
  • Why she finds Americans are good to work with
  • How she handled the transition away from the dying industry of journalism into writing advertising copy
  • The interesting journey of getting better at her craft but getting paid less for the work
  • The subculture of freelance creatives in the US
  • The importance of consistency pitching for work to maintain constant cash flow
  • Overcoming the hurdle of getting paid for your work as a creative
  • The need to be constantly learning when entering a new industry
  • Her time at VaynerMedia and what it is like working for digital thought leader Gary Vaynerchuk
  • The role a Digital Creative
  • Running an autonomously team in a HR focused digital agency
  • Hiring from outside your industry to create a dynamic team
  • The difference between the use of social media between the Australia and the US
  • Advice for those currently working in declining industries
  • Understanding your core skills and how you can adapt them into a new career and industry

Links mentioned in the podcast

Procrastination – 9 tips to combat this number one killer of Financial Autonomy dreams – Episode 17

How hard is it to get started?  I’m sure we’ve all had things that either need to be done, or that we’d like to do, but we put them off – shift them to the bottom of the pile or check out our Facebook feed instead.

Procrastination is evil, and it afflicts us all at some point or another.  When it comes to Financial Autonomy dreams, I think procrastination is quite possibly the number 1 impediment to you moving forward.  So with this in mind, I’ve done some research on strategies to overcome procrastination woes, and today I’m going to share with you the key things I’ve learnt.

When it comes to achieving something great, something worthwhile, taking the first step is often the hardest part.  Perhaps it’s not knowing where to begin.  Or a sense of overwhelm – the goal feels like this huge inflatable ball – impossible to get your arms around and difficult to know where to grab it.

Procrastination does not equal lazy.  It’s likely driven more by fear of uncertainty or failure, or anxiety, which is often closely associated with overwhelm.

But if you’re to make progress on your Financial Autonomy goals, then making a start is essential

I’ve seen quotes and interviews from incredibly successful authors Stephen King and Jodi Piccoult, who both have routines that require them to just sit down and write.  It can always be edited latter, but waiting for the inspiration lightning bolt to strike is not the way achieve anything – just make a start!

A common strategy deployed to overcome procrastination is to break down the thing – the goal, task or whatever – into smaller tasks, and then work through these small tasks one at a time.  I find Trello really helpful for this so you might like to check that out – it’s free for individual users.

Create one column titled “Things to do” and create cards in there for all the components you can think of that need to be done to reach your goal.  Then you create two other columns, one titled “Doing”, and the other “Done”.  Work on one card at a time from the “things to do column, and progressively move them across into the “Done” column.  It really helps clarify your thinking and overcome the sense of overwhelm, and also self reinforces as your see the “Done” column start to fill up – you feel like you’re making progress.

Tip 1 to overcoming procrastination – break the goal down into smaller components and deal with one of them at a time.

Making a start is hard, but let’s say you’ve taken action on the first tip and broken your goals into small actionable pieces.  Another thing you might want to include is a time frame.  When will you get these done?  I personally wouldn’t set time frames for each small item you’ve identified, because before you start working on them, it’s tough to judge how long it will take – inevitably some tasks will take on the fraction of the time you would have guessed, whilst others are like an old woollen jumper your grandma made you – what starts of a as a single lose thread ends up going on and on the more you pull on it.

So don’t set time frames at the individual task level would be my advice, but I think there is value in setting yourself times frames to achieve broader milestones.

Let’s say your goal is to start up a side line business online.  Something to generate some extra income, and potentially even develop into your primary source of income one day if it really took off.

So you break that down into lots of different things that you need to do – register a business name, buy the website address, get a logo designed, etc.  It might be helpful to set yourself a deadline that by the 1st of March, I’ll have my idea to a point where I can start showing people and getting realistic feedback.  A deadline like that provides flexibility around the individual components, but helps you stay the course, and push on when the energy levels flag a bit.

I should add here too that what you don’t want to do is set unrealistic deadlines.  They will just create disappointment and frustration and potentially make you give up on your goal.

Tip 2 – is set realistic time frames to get things done.

Who hasn’t sat at the dinner table as a kids and seem something on the plate that made you want to run and hide – brussel sprouts, parsnip, fish – we’ve all got something.  And what did our wise elder folk advise?  Eat the things you don’t like first – don’t leave it to last.

The same can definitely apply here to you overcoming your procrastination.  What is the ugliest bit that needs to get done if you are to make progress on your Financial Autonomy goals?  Can you tackle that first?

I’ve certainly had instances, and I’d imagine you have too, where there’s some task you’ve been dreading, and so you’ve taken every opportunity to put it off.  But the day comes where it just has to get done.  So I grudgingly get started, and after 10 minutes realise, this isn’t nearly as ugly as I thought it would be.

And with that ugly bit out the way, it’s downhill from here.  You’ve got momentum now.

Tip 3 – can you tackle the worst bit first?

Perfection.  A good thing right?  When it comes to overcoming procrastination, no.  A statement I know is often used in software development, but has broader application, is that perfection is the enemy of progress.

We all want to produce the best that we can, but sometimes striving for perfection can mean nothing gets produced.  Much better to do the best you can within a reasonable time frame, and then improve from their – it’s certainly an approach I’ve taken with this podcast.  I’m always thinking about how I can improve the audio quality, the structure of the program, how I speak – it goes on and on.  The point is, if I didn’t release a single episode until I thought I had these things perfect, there’d never be a Financial Autonomy podcast.

This train of thought aligns with the Lean Start Up methodology that I’ve mentioned in the past around Minimum Viable Product and the Build Measure Learn development cycle.  Rather than procrastinate in not launching your idea because you’re worried it’s not perfect, think instead about how you can get your idea out into the world and test whether it works – then improve from there.  Perfection is perhaps something to be achieved over time, or at least perhaps aspired to over time, rather than a hurdle that needs to be strided over before you can move forward.

And this can be applied quite broadly.  We’re not just thinking about launching a new business idea here.  Perhaps it’s doing your household budget, or planning for early retirement.  Do the best you can, make a start, and then adjust and improve as you go.

Tip 4 – don’t let the aim of achieving perfection prevent you from making a start, rather, aim to adjust and perfect over time.

Ever write yourself up a to-do list either at the start of the day or the night before?  Perhaps you’ve felt a bit frustrated that you didn’t achieve what you’d hope to achieve the day before and so you’ve given yourself a good taking to and today you’re going to kick some gaols.

As you achieve those things on your list, do you cross them out?  I certainly do.  It makes you feel good.  You’re getting somewhere.

This is measuring progress and is a really helpful way to overcome procrastination and make progress on your goals.

Ticking off a list makes you feel good.  It provides a positive feedback loop.

Tip 5 in overcoming your procrastination – measure progress.

Could your environment be holding you back?  When you wre at school, studying for end of year exams, was it better to do it in a quiet place, like perhaps your bedroom, or in the family room with the TV going and people talking all around you?

When you’re looking to put off doing something – procrastinating – distractions are your enemy.  Distractions are an enabler.

“I really need to get my paperwork together to lodge my tax return, but, hang on, what’s that coming up next on TV?  The latest David Attenbourgh documentary of the life cycle of the African dung beetle?

Sounds like something important.

Perhaps I’ll just give that a watch and then I’ll do the tax stuff afterwards”.

If you spend a good portion of your day in front of a computer, this can be an enormous distraction source.  Pop-ups that you’ve receive yet another spam email are not helpful – perhaps you could turn those notifications off.  Is social media your Achilles heel.  Maybe make a rule with yourself that you won’t check it between 9am and 5pm.

We’re all susceptible to distractions, so if this is a factor in your procrastination, think about how you could escape them.

Tip 6 – is your environment enabling your procrastination?

As I mentioned at the start, in preparing for this piece, I did quite a bit of research.  One cause of procrastination that I’d never previously considered was the situation where you feel you need to ask someone else for their wisdom or help.

But you feel uncomfortable asking.

Perhaps you’re worried about interrupting them, and feeling like you’ll look stupid or weak in asking.

So you don’t ask, and that gives you the excuse to put it off – make no progress.

If this is your procrastination road block, then either you need to push past that concern and just ask, or, perhaps more helpfully, figure it out for yourself.  If you get onto Youtube and type “how do I …”, chances are you’ll find 300 videos showing you step by step instructions on whatever it is that you need to know.  If that doesn’t do it, then you could start Googling.  Or perhaps there is someone else you could ask.

Tip 7 in overcoming procrastination is – figure it out for yourself.

If you’ve played a game on your smart phone recently, chances are that in the course of the game you will have been given some sort of badge, or token, or coin.  These are valueless outside of the game, but game makers include them because we humans like rewards.  We like recognition that we are making progress or we have achieved something.

So how about using that same approach to develop your procrastination beating strategy?

Recognise progress and reward yourself.  So for instance, your motivating reward might be “if I can get 3 months in a row where I live within my budget and build up my savings account as planned, I’m going to have a weekend away down at the beach to celebrate”.  Awesome.

Perhaps even you tell someone about the deal you’ve made with yourself, or maybe even invite them along – that would really up the ante.  I’m pretty confident it would help you push past your procrastination barrier.

Tip 8 therefore is, recognise progress and reward yourself.

Finally, if procrastination is something that impacts you, do some self-reflection on what impact procrastination is having on your life, and the circumstances that often lead to procrastination.  This insight might point to a strategy or combination of strategies that can enable you to move forward on your Financial Autonomy dream.

I think I’m more susceptible to procrastination in the afternoon than in the morning.  I’m fresher in the morning, more energy, and therefore possess more of a willingness to push through.

So by having an awareness of this, when I know there’s something I need to work on that I think will be difficult, and where therefore there’s a chance I might be inclined to put it to the bottom of the pile for another day, I’ll make that the first thing I do in the morning.  For me that’s a strategy that works.

I used to have a housemate who had a routine that whenever she got on the phone to have a chat to a friend, she’d light up a cigarette and sit on the back step.  Like most smokers, she had a desire to quit smoking, but of course she procrastinated, in no small part no doubt due to the addictive qualities of nicotine.  But when she did finally decide to quit, she realised that she needed to change her phone catch-up with friends routine.

Tip 9 – think about the circumstances that often lead to you procrastinating.  What can you do to prevent those circumstances from disrupting forward progress?

Well, hopefully that gives you some good ideas to enable you to push through your procrastination barriers.  As always I’ve put together a toolkit for this episode and in that I’ve included a simple list of the 9 tips shared here.  I’ve also included the Dream Planner template, and listing of useful books that includes info on the Lean Start Up that I mentioned earlier, useful websites that includes a link to the Trello software that I also mentioned, and a piece on SMART goals.  So be sure to download that.  Our toolkits are free and hopefully really helpful in you taking impactful actions.

Here’s the 9 tips to help you overcome your procrastination demons:

  1. Break the goal down into smaller components and deal with one of them at a time
  2. Set realistic time frames to get things done
  3. Can you tackle the worst bit first?
  4. Don’t let the aim of achieving perfection prevent you from making a start. Rather, aim to adjust and perfect over time.
  5. Measure progress.
  6. Is your environment enabling your procrastination?
  7. Figure it out for yourself
  8. Recognise progress and reward yourself
  9. Think about the circumstances that often lead to you procrastinating. What can you do to prevent those circumstances from disrupting forward progress?

Getting your debt under control doesn’t need to be difficult – Episode 16



How good would life be if you were debt free? No mortgage payments, or car loans.  No credit cards.  Imagine the weight off your shoulders.  The financial freedom you would gain.  The financial autonomy.

Of course many people, probably most people, achieve debt free status over their working life.  This episode is not for those who have already achieved this milestone.

This episode is for those of you on the journey.  For whom debt obligations comprise a significant portion of your regular income.

We’re going to look at some strategies you might be able to use to get to debt free status quicker.  And that acceleration in clearing your debt brings you closer to whatever your financial autonomy goal is.

For the purposes of this article, I’m going to assume you, the listener or reader has debt, and debt you’d love to see the back of.  Given the title of this post, I’d imagine self-selection should deliver us this outcome.

In the modern era, establishing yourself financially without taking on debt is near impossible.  The only way I could imagine this happening is either if you were fortunate to be born into a wealthy family who bought you a home, or else you never owned anything, perhaps rented your whole life.

Most people I meet will have a mortgage, or if not a mortgage, then at least a loan for a car, with the hope or intention of having a mortgage one day.  Very often there are credit cards as well.  Sometimes there are debts for whitegoods or a holiday.

Debt is not evil.  Borrowing to buy your house is likely to have been a smart investment.  Over time the home’s value rises and you hopefully reduce your debt, so that you build up equity in your home.  One day you will pay off the debt entirely and will have a roof over your head without having to find mortgage or rent payments each month – incredibly liberating.

Debt to fund consumption on the other hand is not so wise, but who hasn’t done it?  Financed the brand new car when a 2 or 3 year old vehicle would have been significantly cheaper and still done the job.  Or come back from holidays with a credit card bill you couldn’t pole vault over.   I’ve been there and I’m assuming you have too.

So how can we get these debts under control and fast forward your journey towards financial autonomy?

Let’s say you decided you needed to lose a few kilo’s.  What’s the first thing you would do?  Would you jump on the bathroom scales and weigh yourself?  That would seem to be a sensible first step.  You need to know your starting point to understand the task ahead – do you need to lose 5 kilograms or 20?  You also want to measure progress.  You want to know if the actions that you are taking, say increasing your exercise, is paying dividends.

So in planning to get your debt under control the first step is to establish where you are now.  I’ll put in the tool-kit for this episode a table you can fill in to help make sure you don’t miss anything.

In putting this together, you’ll get an accurate picture of how much income you need to generate each month to cover your debt repayments, the different interest rates on each loan, and your total loan balance.

It’s also helpful when putting together your list of debts, to establish whether they’re tax deductable or not.  Later, we want to decide which debt to focus on clearing first.  Typically you’d focus on the debt with the highest interest rate, but if it were tax deductable, that could alter the thinking, so it’s useful to know the tax status of each debt.

If you have any debt that is tax deductable, you’ll probably already know about it, but to clarify, tax deductable debt arises when the thing you bought with the money you borrowed, generates taxable income.  The most common example is an investment property.  You borrow to buy the property, and the property then brings in rent.  The rent is taxable, and the interest on the debt associated with buying the property is tax deductable.

Tax deductable debt could just as easily be for buying shares, a business, and in some cases a vehicle where you use it to generate income.

Something that comes up from time to time when ascertaining whether a debt is tax deductable, is which asset the debt is secured against, versus the thing you bought with the money from that debt.

The debt on your home is not tax deductable – your home doesn’t generate any income.  But what if you buy another home, and keep your old place as a rental.  You will borrow against you previous home and use the money to buy the new home.  Now people will often assume that given the debt is against the property that is now a rental, it would be tax deductable, but that is wrong.  Tax deductibility has nothing to do with what asset is used as security.  Tax deductibility is determined by how the money that you borrowed was used.  In this case the money was used buy your new home, something that won’t generate any taxable income, and so the interest on that debt is not tax deductable.

If you’ve got any uncertainty as to whether a debt is tax deductable or not, best to give your accountant a call to clarify.

Anyhow, back to your list of debts and their details.  You’ve now got your starting point.  If you want, you could also write down a list of your assets and their values, and then subtract the total debt value from the total asset value to determine your Net Worth.  For some people, tracking Net Worth can be an empowering way to reinforce the positive progression they are making towards financial independence.

So which debt to focus on first?  Well logic would dictate that you’d start with the most expensive debt.  Let’s assume for the illustration that is a credit card debt.

For the time being we’re going to leave the other debts as they are – just keep paying the repayments as you are.  Our focus will be clearing this credit card.

So the low hanging fruit is to pay more off this debt.  A tax return, a bonus, pay rise or gift.

Next, could this debt be refinanced at a lower interest rate?  This is often termed debt consolidation.  Now approach this with caution.  Debt consolidation can certainly lower your debt costs.  But some people simply use it as a way to take on more debt, so don’t head down this path unless you’re serious about getting your debt under control.

The other potential trap with debt consolidation is the length of the new loan.

Check out this example:

Loan amount for both is $20,000

Loan 1 is at an interest rate of 10%, with a repayment term of 3 years.

Loan 2 has a lower interest rate of 5%, and with a loan term of 10 years.

So which loan results in you paying the least interest?

Loan 1: $6,620 of interest paid by the time the loan is paid off in 3 years.

Loan 2: $12,577 of interest paid by the time the loan is paid off in 10 years.

So the key message here is consider debt consolidation, but be wary of solutions where the loan term is stretched out significantly.  The banks or lenders aren’t your friend.  They survive by making money from you, so if you’re considering debt consolidation, make sure you understand your numbers – get some outside help if you need it.

With credit cards, something you could look for is deals where you can transfer your card from one provider to another where they offer an interest free period on balance transfers, often for 6 or 12 months.  Now again, the credit card provider isn’t your friend.  They’re offering this in the hope you don’t pay off this debt, and they’ll make lots of interest from you at the end of the interest free period.  So be sure to really knuckle down on reducing the debt during the interest free period, and when that period ceases, look around to see if you could shift to another credit card provider with a similar deal.

Okay, so you have your debts listed, and you’ve prioritised them from most expensive to least expensive.  You’re keeping then all up to date, but focusing any extra repayments on the most expensive one first.  Awesome.

Progress too slow for you though?

The steps so far have been fairly painless.  But if you really want to make an impact on your debt, there’s one more thing you’d need to do.

No lasting progress will be made unless you get your budget under control.  The hard reality is that if your debt challenges relate to personal debts like credit cards and car loans, you’re in debt because you’ve been spending more than you’re earning.

You need to recognise and acknowledge that, and then take steps to rectify the situation.  What non-essential expenses can you cut?  Subscriptions for magazines, pay TV, or software.  Memberships to the gym or sporting club – would it be cheaper to just pay when you use the facilities?  Clothing.  Eating out.

After housing, food is likely to be your next largest expense item.  Reducing what you spend eating out is the most obvious way to reduce expenses – bring your lunch from home and just eat at home whenever you can.  When buying your groceries, is there any branded products that could be replaced by no-name equivalents.  Think of other ways to play it smart – you feel like some beef for dinner, but do you really need that Eye Fillet steak?  Rump steak is about half the price and mince around a quarter.  Whole chickens are much cheaper by the kilo than chicken pieces.  Just watch a 3 minute video on Youtube on how to break down a chicken and you’re away.

Think how you could save some extra dollars and then send that money towards your debt.  The more you reduce your debt, the less interest you pay to the bank, which means even more of what you pay each month goes towards reducing the debt, and so your loan reduction strategy just snowballs until one day …. YOU’RE DEBT FREE!!!!

I hope this content has been helpful in getting your debt under control.  Be in touch if you need any assistance.  As with all of the Financial Autonomy posts, there is a free toolkit for you to download to help you take action.  In this one I’ve got the debt table that I mentioned earlier so you can get on top of things debt wise, our Budget Tool and also some useful books and web sites.

Next episode we will be looking at Procrastination, so be sure to subscribe to the podcast to ensure you don’t miss out.

The Sharemarket – A beginner’s guide – Episode 15



If you catch a snippet of the radio in the morning on your way to work, you’re likely to hear what happened to the Dow Jones overnight.

If you read your news online or watch the news on TV it’s likely you’ll hear about the All Ords or maybe the ASX200.  You might even come across acronyms like the NASDAQ and the FTSE.

Probably, you know this is something to do with share markets.

If you turn your mind to it a bit more, you probably know that the share market is where people buy and sell shares in companies like Telstra or BHP.

Maybe you have in mind that the share market is risky and people lose their money sometimes.

Well, if this is about the extent of your share market knowledge, you’re not alone, and this episode’s for you.

I think it’s fair to assume that you have an interest in achieving financial independence.  That is what we’re all about here.

In working towards that goal, building wealth is likely to be an important feature.

With wealth you can generate investment income with which you can then live on.

Or perhaps you can use that wealth to buy a business, or invest in starting a new business if that’s where your Financial Autonomy goal points you.

Or perhaps Financial Autonomy for you means remaining as an employee in a business with a team of people that you enjoy being around, but with the financial resources to resign if ever management changed or something else happened that meant you no longer enjoyed coming in each day.

The goal of this audio blog is to provide you with choice in life, and that sort of goal is a common one I see with many of my clients.  Being in a position to say no.  It’s very empowering, and very liberating.

One avenue towards financial independence is to build wealth via investment in the share market.  I should make it clear here that what I’m talking about is investing, not trading.  If you’ve listened to the common investment mistakes series you will recall I covered off on the dangers of trying to be a share market trader.  In short, it’s an almost guaranteed way to get poorer.

So we’re talking about investing.  Buying shares that you intend to hold for at least a year, and profiting from both the dividend income, and growth in the value or price of the share over time.

There are different ways you can gain exposure to the share market.  Your super fund likely has at least some exposure right now.  Later I’ll look at a couple of options for your non-superannuation money, but let’s start by explaining a few of the terms and elements you will come across when you take an interest in investing the share market.

There a multiple markets

We refer to the share market like it’s one thing, but that’s not true.  All developed countries have their own share market, and some such as the US have multiple markets.

There are 60 major stock markets around the world.  There’s a good infographic on world share markets here.

Technology is gradually bringing these markets together in a practical sense for investors, but for the moment at least, as an Australian, if you want to buy shares in Apple let’s say, it’s not easy.  Why?  Because Apple isn’t listed on the Australian share market, and it’s not straight forward for an Australian investor to invest in the US share market (where Apple is listed) directly.

Our local market is called the ASX. The Australian Stock Exchange.  Should be ASE really shouldn’t it, but presumably someone felt the X looked trendier.

On the ASX you’ll find lots of companies you’re familiar with – the banks, the big miners, Woolworths, Telstra, etc.  Of course there’s also plenty there you’ve never heard of too.  About 2,000 companies all up I believe.

In the United States the main market is the New York Stock Exchange.  This is the largest share market in the world. On the NYSE you’ll find companies like Johnson & Johnson, Exxon Mobil, AT&T, VISA, and Pfizer.

The second largest share market in the world is also in the US – the Nasdaq.  This market tends to be more technology focused, so Apple, Amazon and Microsoft are listed here.

There’s also the London Stock Exchange and on and on it goes – typically one per country.

You’re buying a piece of a company

The next thing to recognise is that when you buy a share, you are buying a small piece of a company.

Let’s say you buy a share in JB HiFi.  You are now a part owner of that business. If that business performs well, you will get a share of the profits.  If it grows and becomes worth more, the value of what you own will also rise.  Of course if things go badly – maybe Amazon enters Australia and JB HiFi loses a whole lot of customers, then the business might decline, and so the value of your little piece of the company will do the same.

As a part owner you have the right to attend the company’s annual meeting and vote on issues like who should sit on the board of the company.

I sometimes have clients tell me that they prefer property investment to share market investment because they can touch a property.  It’s a physical thing.  They don’t feel that with shares.

Whilst I can understand that, if you think of the share you bought as a small piece of a company, then you can generally find something physical to attach to that.  Walk into the JB HiFi store.  You own a little bit of this.

 

Blue chip

If you start to take even a passing interest in share market investing you will soon come across the term “blue chip”.  So what does it mean?

A blue chip share is a large, high value company.  The expression is usually meant to infer that it’s a company that is so big it will never go broke.  In Australia, the big 4 banks, BHP, RIO, Telstra, Woolworths, Wesfarmers – these are all businesses that would typically be described as blue chip.

There is no formal definition of a blue chip company, and you won’t see that as a descriptor on the ASX anywhere.

Interestingly, the term blue chip apparently comes from poker, where the most valuable chip was traditionally blue.

What to buy

So let’s say you’ve decided to dip your toe in the water and buy some shares.  How do you decide what to buy?  Well of course you could come to us for advice, but perhaps initially you just want to have a small go yourself to gain some experience – a great idea.

Some important numbers you might come across in your research are the dividend yield and the price earnings ratio.  You’ll come across these numbers in the newspaper and on most share trading websites.  So let’s take a quick look at what these mean.

Dividend yield – this is the income rate of return from the share and can be compared against bank interest rates to make it meaningful.

Resources companies such as BHP typically pay quite low dividend yields of around 2%, because they tend to pour a lot of their profits into expansion of the business, rather than paying out dividends. The banks on the other hand are more generous, usually paying 5-6%. And then there’s franking credits on top, but that’s for another day.

Price Earnings ratio – Commonly abbreviated to the PE, this is a ratio of the price of the share, divided by the earnings per share. So if company XYZ was trading at $10, and in its last earnings notice it declared earnings of $1 per share, then the PE would be 10. That is, its price is 10 times its earnings.

Most companies trade on PE’s of between 10 and 20 times. I find PE’s are most useful when comparing companies in the same industry, e.g. the banks, to see which banks the market is rating more highly than their peers.

A high PE often reflects an expectation that earnings will grow strongly in the future. In contrast a PE under 10 typically suggests that the market anticipates earnings will decline in future. As an investor you can consider whether you believe the market assessment is correct.

Importantly both these statistics relate to the share price on that day. If you already own the shares, and purchased them at some other price, it has no relevance, I guess unless you are thinking of selling.

It is also important when considering both of these measures to remember that the earnings numbers they are working off are historical, backward looking – nothing is certain in the future.

How else to get started with investing the share market

So you’re keen to invest, but don’t really want to get into the nitty gritty of choosing and monitoring shares yourself.  Or maybe you’ve done a bit of that already and decided it wasn’t for you.

Fortunately for you, most investors who build wealth in the share market don’t personally do the research, buying and selling.  As happens within your super fund, most people invest via a pooled fund where your money is combined with others and a process is used to spread your investment over many shares to reduce your risk.

The most common way to achieve this is through either a Managed Fund or an Exchange Traded Fund (ETF).

The difference between the two is that with a managed fund you apply to invest directly with the fund manager, quite possibly through an adviser.  And when you want to take your money out, you similarly apply to the fund manager for a redemption.

Exchange Traded Funds however are bought and sold on the stock exchange.  This means you can buy and sell more quickly, but it also means you will need to pay some brokerage to your stock broker each time you do so.

Another difference is that typically an Exchange Traded Fund is replicating a particular index, such as for instance the ASX200 – the largest 200 companies on the Australian Stock Exchange.  The composition of the portfolio within an Exchange Traded Fund is therefore determined by some sort of mechanical, computerised type process.

Whilst some Managed Funds have this investment style too, more often Managed Funds will have a team of people doing research, and making buy and sell decisions based on this research.  Within the industry this is known as Active investing, whereas the approach used by most ETF’s is Passive investing.

There is much debate within the investment industry as to whether Active or Passive approaches are best, and in my view each have their place.  But an important thing for you to understand at this point is that ETF’s are usually cheaper than Managed Funds with respect to the management costs associated with running them, and this is because their process for selecting which shares to buy doesn’t require research and analysts.

The ETF market is growing increasingly popular, leading to considerable new product development.  Given ETF’s are usually cheaper than their managed fund counterparts, this development is likely to be a positive for share market investors.

 

How to avoid the most common financial mistakes – Part 3 – Episode 14



Today’s episode is the 3rd and final look at the most common financial mistakes I come across when advising clients.  Thanks for your comments and feedback on the previous 2 posts, it seems that many of you have battled with some of these issues yourselves, and there were a few other mistakes that you’ve managed to make that, whilst being proud of them is perhaps not quite right, they are certainly something good for a laugh well after the fact.

I’ve got 5 more for you today, so let’s dive in and help you avoid the most common financial mistakes.

In episode 9 we looked at Jenny’s story, where her husband suffered pancreatic cancer and was without any personal insurance.  They had looked into obtaining personal insurance, and indeed Jenny had done so, but he took the “I’m tough as nails, it’ll never happen to me” attitude, to the detriment of their family.

So the next common financial mistake I see is people not having appropriate personal insurance.  There are 4 types of personal insurance, and I’ve got explanations for what they each do in the Toolkit for this episode, so be sure to go to the financial autonomy web site and download that.

But in summary, the 4 types of insurance available are Life insurance, Total & Permanent Disability, Income Protection, and Trauma.

Now if money was no object you would ideally have a package that includes all 4 of these.  But for most people, there is a need to balance the ideal with the realities of their budget.   The crucial thing though is to review your needs, and make a conscious decision as to what cover you will hold.   Personal insurance is very customisable, so there is usually a solution available that can manage your risk, whilst also fitting within your budget.

Too often, people get some default life cover within their super fund, and give no thought to whether it is actually fit for purpose.  And they just never even look into Income Protection and Trauma cover.

Personal insurance is applicable to us all during our working lives, but especially if you have a mortgage and children, it’s just so crucial that you sit down with someone and put together a package that makes sense for you and your family.  Remember, as we saw in Jenny’s case, the implications of you not having insurance are far broader than just you.

Another common financial mistake that I see is not having goals.  In episode 10 – is your ladder against the wrong wall? , we looked at the popular SMART goals acronym as a process to flesh out your goals.

Once again, I’ve included detail on this process in the free downloadable toolkit.

Sir Edmund Hillary, the great Kiwi, didn’t get to the top of Everest with Tenzing Norgay by just going out for a stroll and happening to find himself at the summit. He set himself a goal, and then went about planning how he would achieve it.  I really like this quote from him:

You don’t have to be a fantastic hero to do certain things — to compete. You can be just an ordinary chap, sufficiently motivated to reach challenging goals.

You don’t have to be a hero to reach your Financial Autonomy dreams either.  You just need to set your goals, develop a plan that will get you there, and then get started.

If you’re a home owner, you likely have equity in that home.  This represents the portion of the asset that is yours, once the mortgage is cleared.  So for instance if your home was worth $1 million, and you had a mortgage on it of $600,000, then your equity is $400,000.  If the house was sold, and the debt paid off, you’d have $400,000 in your pocket in very simple terms.

Over time, as you pay-off your mortgage, and as hopefully the value of your property rises, your level of equity rises.  In a balance sheet sense, you are becoming wealthier.  The end game is to eventually pay off your home loan entirely, and own your home outright.  That way, later in life when you no longer have any wages coming in, you know you’ll always have a roof over your head, and you have an asset there that could potentially be sold, to get you into a retirement village or in some other way look after you in your final years.

A common mistake I often come across is people viewing this equity as their personal piggy bank.  Banks make this easy with things like re-draw and Lines of Credit, because there business is charging you interest on debt, and so they don’t really want you to pay your home off.

This is where regular monitoring of progress towards achieving your goals is important.  Is your debt going down from one year to the next?  All too often I sit down with clients and we find that despite having made home loan repayments all year, their loan balance is about the same as it was when we last reviewed things 12 months ago.  The culprit will usually be the family holiday or the new car.

Now housing your savings in or against your mortgage may well be a very sensible strategy, but be really wary of taking back out not just what you’ve saved, but also the repayments that were intended to bring that debt down.

Remember, by the end of your working life, and ideally much earlier, you need to own the roof over your head if you are to achieve financial independence and security.

I think most Australians are aware that superannuation is important.  But it’s also kind of boring.  It’s easy therefore to pay it little attention, at least whilst in your 20’s and 30’s, and perhaps even into your 40’s.  Hopefully by the time you get to your 50’s, retirement is close enough, and your superannuation balance large enough, that you’ve started to pay some interest.

But ignoring your super in those early years is a mistake.  Let’s talk about wonders of compounding for a moment.

Let’s say you put $1,000 into an investment, and it earned 10%.  At the end of the year, you’d have $1,100 – the original amount invested, plus the 10% interest you earned.  Now if you left those earnings in the investment, the next year, instead of earning $100, it would earn $110, because not only have you earned 10% on your original $1,000 invested, but you also earned 10% on last years earnings.

Go another year and you earn $121 and your balance is now $1,331.

This is the principal of compounding in action – you are earning interest on the past interest that you were paid.

For compounding to work, you need time.  The longer your money is invested the greater impact compounding will have.  To illustrate the impact, let’s say you wanted to have $1million when you retired, and that was 30 years away.

You could figure 30 years is a long way away, I’ll worry about it closer to the time.  Or, if you were able to get your hands on $132,000, and earn 7% a year over that 30 years, you could sip pina colda’s on the beach for the next 30 years because compounding will do your work for you.

Now you might say, yeah, but where am I going to come up with $132,000.  But if you’re figuring on retiring at age 65 say, then 30 years out is age 35, and you could very easily have that much in your super fund after 10-15 years of working and earning.

The levers you can pull superannuation wise are how your money is invested.  Investing conservatively might seem prudent, but it’s coming at a huge cost in what compounding can do for you.  $10,000 invested and earning 5% over 10 years grows to $16,289.  Had it earned 10% instead it would be almost $26,000.  That’s a big difference.

Fund costs are another lever you can pull.  Is the insurance in their appropriate for your particular circumstances?  Are the costs reasonable for what the fund is offering?  The cheapest isn’t always the best, but it’s unlikely the most expensive is either.

And then of course you can control any top-up contributions that you make.  Your employer will put in the standard 9.5%, but could you put in a little more?

Compounding is extraordinarily powerful, and it’s at its most potent for investments held for a long time.  Your superannuation savings are therefore perfectly positioned to exploit this financial gift.

And the final common financial mistake that I see people make is listening to the wrong people.  Now I’ve left this one to last because, as someone who provides financial advice as a profession, I of course have a bias here – you should be listening to me clearly!

But in all seriousness, the number of people I’ve come across over the years who go down a financial path because their uncle told them it was a winner, or someone on the radio said the world was coming to an end, would shock you.

Just for a moment, let’s assume that the person giving you this advice does actually know what they’re talking about.  You will have noticed that at the start of each episode we have a warning that the information we provide is general information only and you should seek advice that is specific to your circumstances.  Now that’s there because legally it has to be, but it’s not just fluff, it’s a really, really important message.

The uncle who tells you that property in woop woop is a really good buy may well be right in so far as he’s looking for an investment that provides a good income return.  But perhaps that’s not what you want.

Maybe what would be right for you is a negatively geared investment with strong capital growth.  Perhaps you already have a lot of debt, and borrowing to buy another property would put you under significant strain.  Maybe just paying off your mortgage or salary sacrificing to super would deliver a better outcome for you.

Without understanding your complete financial position, these often well-meaning sages have the potential to steer you towards disaster.

In 2008 when the share market halved during the GFC, there was no shortage of headline seekers happy to jump on the radio and profess that the world was broken and we’re staring into a bottomless chasm.  This lead plenty of people to conclude that they had better change the way their superannuation savings were invested, moving out of shares and property, and across to cash and bonds.

Now perhaps for some people who were quite close to retirement, this may have been prudent.  But for people with plenty of years still to go, this was a terrible decision.  Shares and listed property were cheap at the time, so buying in these sectors via your regular superannuation contributions was really smart and impactful on your balance.  And whilst the value of your existing holdings went down, you weren’t selling so it didn’t matter.

Your financial affairs can have such an enormous impact on your life.  Get professional advice.  And with web video calls so good now, you’re not restricted to only getting advice from whoever is local to you.  I deal with clients all around Australia, and when we have a video call on Skype or Zoom, it’s like we’re in the same room.  It’s the modern day equivalent of a home visit.

So there you have it, the 12 most common financial mistakes that I see.  Keep those comments coming – what mistakes have you made or come across?

Don’t forget to download the free toolkit for this series of episodes – I’m keen to help you take action on the ideas that I share, and the toolkit is a really critical piece in delivering on that.

As mentioned previously, I’ve put together something of a bumper toolkit, covering all 3 parts of this series on common financial mistakes.  I have the 12 most common financial mistakes listed so you can tick them off as you’re confident you’ve worked through or around those. I’ve also included the Budget tool to help you get your cash flow under control, a piece on risk vs. reward, useful books, personal insurance options so you can cut through the jargon in this area, and a piece on SMART Goals.

So there should be tonnes of useful info in there, so be sure to visit the financialautonomy.com.au website and grab your copy.

 

How to avoid the most common financial mistakes – Part 2 – Episode 13



Welcome back.  In the last episode we explored common investment mistakes people make.  It’s not really essential that you listen to Part 1 before giving this one a listen, but if you haven’t listened to that one yet, perhaps make that the next episode you grab.

Today we’re going to explore common cash flow mistakes that I see people make.

I mentioned in the first episode that when I was first planning this post, I jotted down 12 ideas – financial mistakes I’d seen regularly over my 18 years as a financial planner.  Last episode we covered the three that I grouped together as investment related – procrastination, being too conservative, and trying to be a share trader.  In this episode I’m going to start with three more, that all have cash flow as a common theme.

Hopefully you’ve listened to a few Financial Autonomy episodes by now, and if so you’ll know that a common pre-cursor to making progress on your Financial Autonomy goal is having a good handle on your household’s cash flow.  How much comes in, and how much goes back out.  In the Toolkit for the episode I’ll make sure that our Budget Tool is included.  I know the “B” word strikes fear into many, which is why I typically focus on cash flow instead.

The thing is, getting on top of your Cash Flow is much easier now than it used to be.  That’s courtesy of internet banking.

Our Budget Planner template has Expenditure first and income second, but if you want to get some quick progress, fill in the income figures as they’re the easiest to get.  You want the after tax number here – how much actually goes into your bank.

Now go back to the top and work through your expenses, referring to your bank statements in your internet banking to get the numbers.  Focus on the bills first because they are easily identifiable.  For things like your phone bill, they’re pretty stable month to month, so you should be able to just check a couple of months’ worth and then get a good estimate of what they will cost you over the year.

Bills like Electricity and Gas can vary quite a bit between summer and winter, so you might need to go back and get the whole years figures for these ones.

Once you’ve filled in the clearly defined expenses, then go back and perhaps focus in on 2 months’ worth of figures and tally up what you spend on food, clothes, and the like.  Things that you will always spend money on, but for which it varies a bit, and drips out over the course of a month.

I would print out the 2 months worth of bank statements and tick items off as I allocate them to a group such as food.  Perhaps you could use a few different coloured highlighters – one for food, one for entertainment, etc.  The end game is that once you’ve completed this exercise, everything you’ve spent money on in the past 2 months has been put into a category in your budget.

So now you total up your expenses, compare that to your income, and hopefully you like the answer.  If the answer is that you should be saving $x per year, reflect on whether that has been your actual experience over the past year.  If not, why not?

One key element of the exercise, probably the most important, is for you to see what you spend your money on, and whether that’s really bringing you the greatest happiness.  Is the way you are currently running your finances bringing you closer to your Financial Autonomy goal?  In know that money and finances can be a point of stress in some relationships too.  Perhaps going through this exercise together might help you both have a deeper conversation about where you are currently going, and whether that is taking you to the destination you both want to arrive at.

So not having an understanding of your cash flow is common financial mistake number 1 this episode. Very much related to this, common mistake number 2 is spending more than you earn.

You don’t need the mental powers of Einstein to figure out that this can’t work, yet it is an easy trap to fall into.  The most common ways I see this unfold is through credit cards, and the generosity of well-meaning but ill guided parents.

Credit cards, and I guess general consumer debt like interest free periods on white-goods, is the most common way of spending more than you earn.  If this is you, you’ll know it.  So do the budget exercise mentioned earlier, understand why your expenses exceed your income, and devise a plan to do something about it.  Perhaps you can come up with a way to increase income.  Most likely there will need to be some strategy to reduce expenditure.  As with the investment problem identified in part one of the post, the key is don’t procrastinate.  Identify the problem and take steps to resolve.  You may not come up with the perfect solution straight away, but make a start in changing things, and refine as you learn more.

The less well recognised way that people fall into the habit of spending more that they earn is through the generosity of well-meaning parents.  I’ve had retired clients over the years whose retirement savings have been drained by adult children constantly putting their hand out for financial help, or just where the parents say “oh well, poor Tina’s doing it a bit tough so we paid her credit card off for her”.  These parents are well meaning, they love their kids.  But by “helping” in this way, their children, who are adults, never get on top of things financially.  They never get to the point of standing on their own two feet.

I’ve dealt with one family where mum and dad provided the daughter with quite a bit of financial help in her 20’s, enabling her to drive a Mercedes and live a really high material standard of life.  She met a lovely guy and they got married.  Her expectations of what life should be like were really high though, and as a couple, that lifestyle just couldn’t be maintained.  The husband felt like a failure because he couldn’t support his wife in the lifestyle she had become accustomed, and ultimately they separated.  It was sad story because they are both lovely young people, but her parents, with the best intentions in the world, effectively sabotaged that marriage by not making their daughter at an early age understand the fundamental need to live within your means and spend less than you earn.  Unrealistic expectation were baked in at an early age.

In contrast to this, I saw an article recently that criticised the celebrity chef Gordon Ramsay for flying in first class, whilst his kids flew in economy.  Now I have no idea if this story is true, or, if it is, what the back story was.  But if his thinking was that he doesn’t want them to have an expectation that every time you fly in an aircraft, it will be in the first class section, then I think he’s doing his kids an enormous favour.  If his kids enjoy success later in life and can buy their own ticket in first class, then good luck to them, they will have earnt it.  But if dad just shells out and they think nothing of it, then surely, roll forward 5 or 10 years and you’ve got a train wreck of a life waiting to unfold.

Continuing on with the cash flow type common financial mistakes that people make, feeling the need to keep up with the Jones is my third offering for you.  Back in Episode 7 – How to retire early, I touched on the interesting findings from the authors of The Millionaire Next Door.  You’ll recall the two authors studied households whose net-worth (ie. assets minus debts) exceeded one million US dollars.  One really interesting finding was that millionaire households were disproportionately clustered in blue collar and middle class suburbs, and not in the higher income, white collar, more affluent suburbs that you would assume.  Digging into why this was the case, the authors found that the higher income earners devoted more of their income to luxury items and status symbols, often funded with debt.  These people tended to neglect savings and investment.

This finding delivers the double whammy of linking the problem and the consequence.  Feeling the need to keep up in a material sense with friends, neighbours, or whoever, results in you being less wealthy.  And in the context of what we’re trying to achieve – your Financial Autonomy, your financial independence, gaining choices in life – less wealth directly pushes against you achieving your goals.

Let’s finish off today’s episode with another financial mistake that I commonly see, and that is often really quite sad.  That is the scenario where one member of a couple handles all the finances, and the other is totally ignorant of all things money in the household.  I say it’s really sad, because I’ve seen this scenario unfold in a number of ways.

One is where the person who controls the finances dies, and the surviving partner is completely ill-equipped to manage their affairs.  Sometime they don’t even know what assets the couple owns.

A variation on this is where a relationship ends in divorce.  The person who took no interest in the finances (or perhaps wasn’t given an opportunity to be involved) is now rudderless.  I can think of one instance where, post-divorce, the wife, who had previously just left everything to the husband, was utterly shocked when she did learn of the state of their finances and how money was being spent.

On the flip side, I’ve had clients in total despair, because they are trying to manage the household finances, but their partner just whips out the credit card at a moment’s notice and buys something that they simply can’t afford.  Sometimes the person in despair feels like a failure because they can’t support the lifestyle that their partner seems to feel is the norm.

So if you’re in a relationship, I really encourage you to ensure that both of you have a working understanding of your finances.  Sure, one of you might do more of the tracking – you’ve got to play to your strengths.  But you need to be able to discuss things as a couple.  Finances are a potential point of stress in any relationship.  Openness is the best medicine.

Well, I think that’s enough for this episode.  That’s 4 more of my original 12 common financial mistakes that I see people make.  I’ve got 5 left, so look out for part 3 in a fortnights time.

A reminder too, don’t forget to download the free toolkit for this episode – I’m keen to help you take action on the ideas that I share, and the toolkit is a really critical piece in delivering on that.  There’s no “fluff” here at Financial Autonomy.

I’ve put together something of a bumper toolkit, covering all 3 parts of this series on common financial mistakes.  I have the 12 most common financial mistakes listed so you tick them off as you’re confident you’ve worked through or around those. I’ve also included the Budget tool to help you get your cash flow under control, a piece on risk vs. reward, useful books, personal insurance options so you can cut through the jargon in this area, and a piece on SMART Goals.

So hopefully tonnes of usefulness in there, so be sure to visit the financialautonomy.com.au website and grab your copy.

How to avoid the most common financial mistakes – Part 1 – Episode 12



Enough people have hit their thumb with a hammer for you to know that it hurts quite a lot. You don’t need to do the experiment yourself.

I’ve been helping people as a Financial Planner now for almost 18 years, and I’ve meet many, many wonderful people. Often people put off seeing a financial planner until they’re at some sort of cross roads – they’ve been made redundant, or retirement is rapidly looming, or they’ve separated from their partner. So prospective new clients often come in to see me with some baggage. Something that’s not working, or that they’ve put off dealing with, and that’s why they need our help.

Of course over that time you see some common challenges that people face. Issues that repeat again and again. So today I’m going to share some of those with you, the product of my 18 years of helping people, so hopefully you can skip over these common financial mistakes, and reach your goals sooner.

We’ve talked a lot so far in past episodes about strategies you can use to help get you to your goals and dreams. Getting a handle on your cash flow, the Survival and Capital strategy mix in moving to self employment, and things like side hustles.

Equally helpful though in getting to whatever goal you’ve set, has to be avoiding financial mistakes that don’t need to be made.  Now don’t get me wrong, there are some things we have a go at, and they don’t quite work out as planned.  But we get really valuable learning from them.  I think you can often learn a whole lot more from things that don’t work out as you’d expected, than when things do just fall into place.

But what we’re talking about today are mistakes that have been made by people over and over  again, and for which you can get the learning without having to repeat the exercise.   As I said at the top, enough people have hit their thumb with a hammer for you to know that it hurts quite a lot without you needing to do the experiment yourself.

When I started planning for this episode, I wrote down a simple dot point list of the common financial mistakes that I see, and I came up with 12.  I’ll try to group them together a bit for ease of absorption.

Let’s start with investing, because several of the most common financial mistakes fall into that broad category.  Number one is Procrastination.  Not starting.  I appreciate this can be a broader life problem, but for now I just want to focus on procrastination in an investment context. Whatever your Financial Autonomy goals are, having some wealth behind you is likely to make it easier to succeed.  The stronger your financial position, the more options you’re likely to have.

Now building up some savings in a bank account is a really great start, and an essential foundation, but at some point those savings need to be put to work.  The problem is we fear the unknown, and even more so when the unknown involves money that we’ve worked really hard to save.

But at some point you need to invest.  Buy some shares, or Exchange Traded Fund (ETF), or invest in a managed fund.  It doesn’t need to be enormous amounts to start with, more important is the learning.

An element of the initial discussions we have with new clients is to discuss their risk tolerance or risk profile.  There is no exact science to this.  We have a series of questions we often go through with clients, but sometimes we just have a discussion about their past experiences.  The interesting thing is how people’s thoughts around risk vary depending on what they’ve experienced in the past.

So for instance I spoke with a client recently who initially told me they were a fairly conservative investor.  Now in a Financial Planning context, a text book conservative investor would have somewhere less than half of their investment portfolio in shares and property, and somewhere north of half the portfolio in low risk things like bonds and term deposits.

So this guy tells me he’s a conservative investor, but we then get into how he has invested his super and it’s 95% in shares.  So we have a discussion around that and he tells me that he just focuses on the dividends, he doesn’t worry much about the prices going up and down.  So when he says conservative, he means he only invests in shares that pay nice steady dividends.  To him, having a portfolio that is 95% in shares is conservative, whereas most people would consider that very aggressive.

So why is he comfortable having such a large exposure to investments that fluctuate in value.  Well it’s because he’s invested in shares for over 20 years.  Has dabbled in things here and there.  Some have worked out, and some haven’t.  But over time he’s found what is comfortable for him, and what works for him.  So when markets had a tough time through 2008, he didn’t love it, but he didn’t get particularly distressed, and importantly he didn’t sell anything.  He could do that because he had experience investing, was familiar with the up and downs, and knew that his dividends wouldn’t change much, even if prices did.

He’s a better investor now, because he has experience, and he has experience in investing because one day he made his first investment.  He made a start.  He got past procrastination.  So common financial mistake number one is, avoid procrastination – make a start.

Mistakes 2 and 3 are opposite sides of the same coin.  Either investing too conservatively, or trying to be a share trader.  Of the two, I’d say the share trader approach is the one with the potential for the most damage in the short term, whilst investing too conservatively is more of a slow burn.  You don’t notice the damage initially, but 5 or 10 years out from retirement, you look at your super and realise it’s not going to get you to the lifestyle that you want.

Let’s start with investing too conservatively.  The mindset goes, I don’t want to lose any moneyTherefore I can’t invest my money in risky things likes shares and property.  I need to keep my money in term deposits, or the low risk options in my super fund.  At the extreme end, maybe I keep it all in cash.

Now whilst you think you’re protecting your capital from the potential for loss, in fact what you’re doing is baking in disappointment in the future.

Some research done by annuity provider Challenger a few years back highlighted this really well.

They focused on the risk that your savings will run out during your life time – ie. you run out of money.  They used historical return data from 1900-2013, so it covered a wide variety of economic conditions.  They then analysed portfolio’s with different compositions and considered the results based on drawing down at different rates.  They found:

  • If you planned on drawing down on your retirement savings at the rate of 5%pa. a level we would typically suggest, and you wanted your retirement savings to last 25 years (retire at 65, money lasts through to age 90), were you to invest in the “low risk” option of 100% bonds and cash (ie. no shares), there is only a 34% chance of success.  That is, a 34% chance that your money will not run out during the 25 year period.
  • If instead you were invested in a typical “Balanced” option, with 50% in growth assets such as shares, and 50% in defensive assets such as bonds and cash, the likelihood of success jumps to 69%.
  • Still not certain enough?  Move up to 75% growth assets and the success rate rises further to 90%.  Interestingly though, move to 100% growth assets, and the success only increases 1% to 91%.

These figures illustrate really well that investing too conservatively, in the traditional sense of minimal exposure to shares and property, is actually the most risky option from the perspective of having your money last throughout your retirement.  The same would apply to building assets to enable the achievement of your Financial Autonomy goals.

In the downloadable Toolkit for this episode, I’ve include a piece on risk vs reward that I think you might find really useful, so be sure to visit the financialautonomy.com.au web site to grab that.

But as mentioned, there is another side to this coin, and that is the day trader.  If you bump into one of these people socially, run a mile.  There are all sorts of books and bits of software that claim to teach you how to make your fortune trading shares, or sometimes things like foreign currencies or futures contracts.  At the heart of this approach is a belief that you are smarter than the market as a whole (or can be taught some secret formula to make you smarter than the market), and so you can buy shares in the morning, sell then in the afternoon, and make money.  Some people might hold their shares for multiple days, some even weeks.  But the process is the same – they are not buying the share because they have a belief in the prospects for the company, but rather it’s just a trading item.

What people who embark on this common financial mistake fail to appreciate is that every time they buy or sell, there is someone else on the other side of the transaction doing the opposite thing.  So for you to win at this game, you need to know something that the person on the other side of the trade doesn’t know.  And because every time you trade, you will have to pay some sort of transaction cost, usually brokerage but also the buy/sell spread, you need to be right a lot.  By chance you’d hope to be right 50% of the time.  To recover your transaction costs and make the whole enterprise financially sensible, you’d need to get that up to 60% as a minimum I would think.

So who are the dummy’s on the other side of your trade?  Well increasingly they are super-fast computers that identify opportunities to buy and sell in 100th’s of a second.  Are you going to beat them consistently?

If it’s not a computer on the other side of your trade, then the next most likely person on the other side will be a trader acting for a professional investor like a super fund.  Here the fund manager has determined that the appropriate action is to buy or sell a particular stock, and then a professional trader is engaged to carry this out at the best possible price.  Fancy beating that combination on a consistent basis?  Amazingly, day traders think they can.

When investing, get started, but don’t be too conservative, and don’t be duped into believing you can be a millionaire overnight by share trading.  These are our first 3 common financial mistakes, and with that I think we’ll leave the investment bucket.

In the 2nd part of How to avoid the most common financial mistakes, I’ll share with you another 4 common mistakes, focusing mainly cash flow mistakes people make.

I’ve put together something of a bumper toolkit for this and the next 2 podcasts, covering all 3 parts of this series on common financial mistakes.  I have the 12 most common financial mistakes listed so you can tick them off as you’re confident you’ve worked through or around them. I’ve also included the Budget tool to help you get your cash flow under control, a piece on risk vs. reward, useful books, personal insurance options so you can cut through the jargon in this area, and a piece on SMART Goals.  So hopefully tonnes of usefulness in there.  It’s the biggest toolkit I’ve ever produced.  So be sure to visit the financialautonomy.com.au website and grab your copy.

There’s another great article on this topic that I highly recommend you check out. It’s by Daniel Wesley of the CreditLoan blog.  Some of it is specific to US readers, but there’s enough that has broader application to make it a worthwhile read.  12 Common Investment Mistakes (And How to Avoid Them).

And finally, a quick note to let you know that from here on we’ll be getting new episodes out to you each fortnight.  We’ve had an initial flurry since our launch – so many ideas I wanted to share with you, but I need to get a bit more disciplined and of course I don’t want to compromise on quality, so from here on, expect a new episode to drop into your podcast app every two weeks.

The security illusion – Episode 11



Having a job and a regular wage is comforting and secure, except if you lose that job.   UK stats say that 45% of workers will be made redundant at least once in their working life.  I’d expect the Australian numbers would be much the same.

In that sense, being a full time employee is very binary.  Very secure and reliable whilst you’re employed, but when you’re not, there’s nothing.

If Financial Autonomy is about having choices in life, then how does that align with being fully reliant on an employer to provide you with the income that you need to keep all the balls in the air?

Most of us do work for an employer, and that suits us very well, so how can we align the desire for financial independence, with the financial dependence associated with being a full time employee?

I’ve called today’s episode The Security Illusion, because I think for many people, they overestimate the level of financial security provided by their employer.  So what steps can you take to truly be financially secure?  Well, that’s what we’ll be looking at today.

Financial security.  Who wouldn’t want that?  I often talk about financial independence, using it fairly interchangeably with financial autonomy as I think the difference between the two is fairly minimal.

Could financial security be another interchangeable term?

To me, the difference is in the mindset.  Someone whose goal is financial security is thinking about controlling the down side risk.  The risk that things will go bad.  And that’s no bad thing.  The old “hope for the best, but plan for the worst” is certainly something we try to incorporate into our client’s financial plans.

But can you really control poor management decisions made by your employer, or industry changes that render your area of expertise redundant?

When I think about the goal of Financial Autonomy, I think of it as something more proactive.  Unlike financial security, where the goal is to find somewhere safe, Financial Autonomy is about consciously building a situation where you have control, and where you’re not reliant on others.

Financial security, in the form of full time employment alone, is I think an illusion.  But that doesn’t mean that you can’t be a full time employee and achieve Financial Autonomy.  Indeed that’s how most people would achieve their Financial Autonomy goal.

So how can you transition from valuing your job for the illusion of financial security that it brings, to valuing it for the potential it provides you to achieve Financial Autonomy, a far more useful aspiration.

Here’s a few ideas I’ve come up with.  I’d welcome your feedback as to other options you can think of.

Broaden your skills – always learning

To me the most obvious way to reduce the risk of being out of work for a sustained period is to have more strings to your bow.  If your desirability to an employer is built around your skill with a particular software package for instance, then what happens when the industry moves on and a new software solution becomes the norm?

This is an exercise in seeing the forest for the trees.  You need to take a step back for your day to day activities and think about where your industry or profession is heading.  Are you building the skills now that will be relevant in 5 or 10 years?

Very often employers have budgets for staff development and training, so if you see an area where you think you should develop your skills, hit up the boss to support you.

The other good thing about undertaking some learning is that it highlights to your management that you are someone with aspirations.  You don’t plan on sitting in the current role forever.  You want new challenges, and if they don’t find them for you, they run the risk of losing you to a competitor.

It may be that you take that helicopter view of your industry or career path and find that the road ahead isn’t paved with gold.  In fact what you need to do is plan for a shift altogether, to an area with better long term prospects.  This is something we looked at in the last episode – Is Your Ladder Against the Wrong Wall?  So check that one out if you haven’t already given it a listen.

The side hustle

Another way you could improve your financial security is to be less reliant on that one employer.  Is there a second gig you could be doing to earn a few extra dollars?  I only came across the term side hustle in the past year, but I love it, and it’s certainly a viable way towards Financial Autonomy.

Let’s say you have an office job Monday to Friday, but have always enjoyed photography.  Perhaps you could develop a little business photographing weddings or children’s portraits after hours.  That way, if ever you where to find yourself out of your regular work, you have some money coming in from the side gig, which you could potentially even ramp up some more with some spare time.

A side hustle could be a good way to try out an idea you’ve had and see if you can find a market.  If you get some traction it could even become your full time gig.  I was listening to a pod cast this week where they interviewed the comedian Wil Anderson.  He did 6 stand-up shows whilst working in a regular day job, before deciding to throw it in with the Herald Sun and devote himself full time to comedy.

Creating an online course, app development, registering with Airtasker, building niche websites, an eBay store, pet sitting, freelancing on freelancer.com.au or fiverr.com  , Uber driver – there’s just so many things you could potentially do on the side to reduce your dependence on a single employer.

One good resource you might like to check out is the web site Side Hustle Nation, and their podcast The Side Hustle Show.  There’s lots of good ideas and downloads there.

Closer to home, Rock Star Empires would also be worth some of your time.  The principal there, Troy Dean, speaks with great clarity and frankness.  They’ve got a Facebook group that’s fairly active too.

Build wealth

The stronger your financial position, the less reliant you are on your employer.  If you’ve got debt up to your eye-balls, then a few weeks with no wages coming in and you’re in big trouble.  But if instead you had little or no debt, and several thousand dollars in the bank, then the pressure’s off, at least for a while.

One way you could frame this is financial resilience.  How long could you support yourself and your family if you found yourself out of work?

Hopefully your job gives you a sense of purpose and satisfaction.  But even assuming that were so, I doubt you’d do it without getting paid.

So the great thing about your job is that it throws off money.  Now of course you need that money to live, but hopefully you can manage your budget so that you can also save.  Your full time job then, provides you with the fuel to create financial independence – money.

One path to escaping the insecurity of a full time job is to have a plan to build independent wealth, using the income your job throws off to do so.  Now the strategy appropriate to achieve this differs for everyone, but the key is to have a plan.  Pay down debts, build up assets, and in time you can put yourself in a financial position where if the boss stuffs up, the business declines, and you find yourself out of work, you can smile inwardly with the knowledge “you might be broke mate, but thanks to you, I’m in good shape, I’ll be fine, whatever happens”.

Become self employed

I guess the ultimate way to escape the insecurity of full time employment is to not be employed, but instead run your own show.

Now, as anyone who has ever run their own business will tell you, being self-employed is far from stress or risk free.  Not everyone should run their own business.  Most people who move from being an employee to being their own boss find they put in more hours, not less, and success is certainly not guaranteed.

But having provided that important caveat, shifting to self-employment is certainly an option that you should weighed up.

A successful business will have multiple clients, and perhaps multiple products or services, so your risk attached to any one party can be dramatically reduced.

It could be that you can do a few different things, possibly even some as an employee.  For instance if your background was in sales and marketing, perhaps you could consult to several different small to medium size businesses, whilst also having a regular 2 day per week job running the marketing arm of a small retail chain.

If moving to self employment holds appeal to you, go back and listen to Episode 1 – how to be financially ready to start your own business.

Perhaps true financial security comes from deriving your income from several sources, be they different clients, different things that you do, or investment assets that you own.   One thing’s for sure though; whilst you can use your job to create financial security, without conscious effort and planning, your job won’t generously grant you that security.  Indeed it may provide you with the false confidence to put you into an extremely insecure position.

As always, we have a free toolkit to go with this episode so be sure to visit financialautonomy.com.au.  In this episode’s toolkit we’ve got a few of the key messages from this post, plus our Budget Tool, Useful websites list – and I’ve included the links to a couple of sites I mentioned earlier, and also the Freelancing resource.

I hope you’ve gotten some useful information out of today’s episode.  Be in touch with any feedback.

 

Important Information:
This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.

Is your ladder against the wrong wall? Episode 10



How long since you’ve taken a step back from your professional life and considered where it’s taking you?  Is your current professional activity taking you to somewhere you want to be in 10 or 20 years?  Is it leading you towards inner happiness?

It’s easy with the pressures of mortgage repayments or rent, perhaps kids, and just the normal expenses of life, to push on, head down bum up.  The problem is that can lead you to a destination when you are perhaps in your 40’s or 50’s and with plenty of working life ahead of you, of middle management restructures, possible redundancies, and industries changing.

Or perhaps the outlook for your profession is good, but will it take you to your personal goals?  How many people throw their whole life into their work, only to neglect their family and home life, and then one day find themselves divorced, or just distant from their kids and partner?

So today we’re going to ask the question, “is your ladder against the wrong wall?”.

So you’re climbing the corporate or professional ladder.  There’s the normal politics and set-backs, but on balance, you’re progressing, you’re moving up.

But have you paused and looked at what’s at the top of that ladder?  Is it actually where you want to be in 10 or 20 years?  And if you were at the top of that ladder, how’s the view?  In reaching that pinnacle, are you living the life that you aspire to?

The aim of today’s audio blog is to get you to take a step back and consider whether in fact you are on the right ladder.  You’ve only got the one life.  Let’s make sure you don’t look back in your old age and regret how you used it.

The first step in determining whether your work life is taking you in the right direction is to develop your goals, and for this exercise, it’s the medium, and especially the long term goals that count.  Where do you see yourself at 50, 60, or 70?  Will you still be living in the same city?  The same country even?

Do you hope to have family around you, perhaps even later in life some grandkids?  Or would you anticipate a life interacting within your particular communities, be they professional, cultural, or geographic?

Setting out some long term goals is such an important foundation stone, not just in a financial planning context, but in a broader life planning context.

A goal that my wife and I set several years ago is that once our youngest child completes secondary school, we’d like to be able to live in a foreign city for 2-3 months each year.  We don’t want to be tourists.  We want to continue working, just remotely, and experience what it’s like to really live in the city – to read the local news, to develop in your head a bit of a mental map of the area, to hopefully get to know a few locals, and just take in the little differences.

Now it’s still 8 years away, but when I’m thinking about how I grow my business, or even if I grow my business, I’m in part thinking about it with a side thought as to “is this going to help me be able to work remotely for 2-3 months a year one day?”

Similarly my wife works in tourism, and she determined that as a sector, it was where she wanted to be.  But the employer that she had worked for was not where she wanted to remain.

So in thinking through her next step, we again discussed, “well, how is whatever you do next going to help in us achieving our goal of being able to work remotely for 2-3 months a year?”.  It was a factor in deciding that a good solution would be for her to buy a business in the tourism sector that she can develop, and build it over time so that working from the other side of the world for a few months each year would be possible.

In developing your goals, a common framework to use is called SMART goals.  This acronym stands for:

Specific

Measurable

Achievable

Realistic

Time bound

Regular listeners will know that with each Financial Autonomy audio blog there is a downloadable toolkit to help you in implementing the ideas in each episode.  In the Toolkit for this episode I have a template for you to flesh out your SMART goals. We’ll also have in there our Dream Planner template, which helps you make progress on achieving the goals that you’ve set.

Let’s take a quick look at how you might use the SMART goals framework to flesh out one of your goals.

What if you had a goal that you wanted to own a house near the beach one day.  It’s something that perhaps you would retire to later in life, but you’d like it to be a holiday house until then, just somewhere you and your family can escape to.

So the first step is Specific.  Where do you want to have the beach house?  How many rooms would it need to have?  Your goal might then become, I want to own a house near the beach, in the Inverloch region, that has at least 4 bedrooms and two bathrooms.

The next step is Measurable.  Do a little bit of internet research and determine what it’s likely to cost.  Let’s say you determine that a suitable property is likely to cost around $400,000.

On to Achievable and Realistic. Given your current financial position, and income, is there a genuine likelihood that you can get to this goal?  You may not know the exact path, but you should have a sense of whether it’s likely to be possible.

Then finally Time bound.  So that might be, “by the time I’m 50”.

So your original goal was to own a house near the beach one day.  But your goal, re-expressed as a SMART goal becomes “By the time I’m 50, I want to own a house near the beach in the Inverloch region, which has at least 4 bedrooms and 2 bathrooms, and expect to need to spend around $400,000.”

Your goal has gone from a one-day, maybe, proposition, to something that is quantified and really specific.  With this nailed down, you can now work on a plan to get you there, whereas before, who would know if you were making progress?  There’s a really good chance that with the original goal, you’d never get there, because there would always be other things that popped up and kept your goal, your dream, out of reach.

Okay, so you’ve determined your goals.  If you continue climbing the current corporate or professional ladder, will it get you there?

If the answer is yes, fantastic, continue on as you are.  You’ve now got some good quality goals, and a plan to get you there.

But if the answer is no, it’s time to consider the alternatives.

If you’re happy working in the industry that you’re in, but your current career trajectory isn’t going to see you achieve your personal goals, then you could look at how you can accelerate your career progression, or perhaps move sideways into a sector with more room to grow.

Would some extra qualifications help? A Masters or an MBA for instance? It would certainly demonstrate to your employer that you’re keen to develop your career, and that you hold ambitions to grow and progress.

Maybe it’s time to look around at what other employers are offering.  Sometimes it’s possible to do a bit of leapfrogging on the corporate ladder by jumping from one employer to the next to broaden your knowledge and experience.

Or maybe the industry that you’re in just won’t get you to where you want to go.  What re-training do you need to make the transition?

I went to Uni at night as a part-time student.  One of my fellow students was an Engineer in the Oil & Gas sector but had determined that he had got as far as he was likely to go in that sector, and wanted to move across to finance.  He’s now an analyst with a fund manager, looking at the resources sector.  His prior Oil and Gas background gives him fantastic insight, and he’s been very very successful.  So don’t think that changing industries midway through your working life necessarily means starting all over again.  It’s very likely that the skills you’ve already learnt will be of use in your new career path, and those skills may actually make you a rare and therefore highly valuable commodity!

What about a move out of town?  In episode 6 we looked at Nish’s story, where he moved from inner Melbourne to a seaside town about an hour and half away.  In the process he and his wife dramatically reduced the size of their mortgage, providing far more options around what they needed to do employment wise.  If you haven’t already listened to this episode I encourage you to go back and do so.

Perhaps you could start a business, or buy an existing one.  Higher risk, but with higher risk comes the potential for higher reward.  As with the example I gave earlier of a goal that my wife and I have to be able to live and work overseas for 2-3 months a year in the future, having the flexibility and control that self-employment provides is really important in enabling us to achieve that goal.

So over to you now.

Take some time over the coming days to think about what your goals are.  If you have a partner, ideally discuss it together.  It’s so easy to just float along with the current.  Determine what you want out of life, and start taking deliberate steps to get you there.  Make sure your ladder is against the right wall!

 

Important Information:
This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.