Tag Archives: Lifestyle

The New Cost of being Comfortable

By Robert Wright /March 08,2016/

Australia’s perception of a comfortable lifestyle has shifted significantly upwards in recent decades, according to new research from MLC called the ‘Australia Today’ report.

For most, this new comfortable living comes at a high cost. Almost half of all Australians believe you need a household income of at least $150,000 to maintain a comfortable lifestyle in Australia.

So what do we think makes a comfortable lifestyle today? Seventy-six per cent of Australians believe ‘comfortable’ means ‘having enough money to do what I want, and buy what I want’, with the majority also believing an average lifestyle should include having a nice house and car, annual overseas holidays, regular entertainment and being able to afford private schools.

It’s certainly more than a basic standard of living. For most Australians, what we really mean by comfortable is ‘well-off’.

Laura Demasi, IPSOS Research Director, comments: “Australians have seen decades of relatively unbroken economic growth…these new expectations of lifestyle are the result of decades of elevated standards of living. It’s an evolved perception of how we should be expected to live. It just makes sense that people think that way, because we’ve ridden the wave of prosperity and this is the result.”

The tap-and-go mentality

While comfortable in the true sense means ‘relaxed, easy and contented’, research reveals that keeping up with the financial cost of comfort is making us surprisingly discontented, or rather uncomfortable.

Have you ever taken a brief pause after you ‘tap and go’ with your credit card, waiting for the word ‘approved’ to appear? Ever wondered what your account balance really is (because you never get the ATM receipt and all your bills are on direct debit anyway)? Or ever given a sigh of relief when your pay-cheque came in? You’re not alone.

To support our lifestyle, 46% of Australians say they live pay-cheque to pay- cheque – including those on high incomes – with 22% of households earning $200,000 plus and 27% of households earning $150-200,000 also agreeing their cash flow runs pay-cheque to pay-cheque. To add bang to buck, the majority of Australians are also worried about their financial security in the future.

It’s this tap-and-go mentality – buy now, pay (and think) later – that’s re-defining the way Australians live and spend. But if we do plan on budgeting later, since most of us are perpetually opening our wallets – when is later?

Cost of living or cost of lifestyle?

The worry of rising costs of living is clearly a concern for most of us, with 69% believing that the high cost of living means average Australians are struggling to make ends meet. Meanwhile 83% of us believe that today’s cost of living is much higher than it was even just ten years ago.

They’re big numbers, but when we look at what people think the cost of living is, we can see these perceptions arise from the fact we’re confusing standards of living with lifestyle. If we add in the lifestyle extras, such as travel and renovations, to perceived cost of living, naturally budgets are tight.

Demasi agrees: “People are confusing standard of living with lifestyle factors – this is the big shift in perception.”

The more we have, the more we want

Interestingly, the vast majority of us doing well, also aspire to greater wealth, and the more we have, the more we want.

Thirty three per cent of people earning $40-$69,000 per year aspire to greater wealth, 45% of people earning $70-$99,000, 55% earning $100-$149,000, and 71% of people earning $150,000 plus.

We’re enjoying our comforts…aren’t we?

You’d expect we’d be enjoying this comfortable life: the drive in our nice car to a night out at the new local restaurant, or our overseas holiday, or reclining on our comfy sofa watching our high definition TV, wouldn’t we? Especially since we’re spending our entire pay-cheque to get it.

Well, not entirely. The problem is that keeping up this lifestyle isn’t as easy as the word ‘comfortable’ suggests. The research showed that 67% of Australians are simply trying to ‘keep their heads above water’, citing their main goal for the future as maintaining their standard of living.

Sixty percent of respondents also said their salary hasn’t kept up with maintaining their standard of living, with a large majority (59%) shopping at discount supermarkets to save money. At the same time, almost half of all Australians believe the government should do more to support middle class families.

So it seems the cost of being comfortable isn’t just the pay-cheque, it’s many other things, most importantly the worry of making ends meet and the worry of wanting more. Both of which prevent the other.

What can you do to make ends meet tomorrow?

Consider developing a household budget and reviewing what unnecessary luxuries you could take out that would make a big difference over the long term and may help with your financial security and retirement age.

Source: MLC. Statistics mentioned are from the ‘Australia Today’ whitepaper by MLC. February 2016

Helping your child understand the value of money

By Robert Wright /December 01,2015/

“I want that one,” is a phrase that most parents hear more often than not, particularly as we enter the pre-Christmas period where advertisers aggressively compete for your child’s attention and your hard earned dollars.  Whether it’s the latest Lego incarnation, Barbie, or new release movie merchandise, there are plenty of childhood desires that eclipse the things they actually need.

There are plenty of demands for your spending over the holiday season, and the lead up to Christmas is an ideal time to involve your child in conversations about the family budget and how money works without spoiling the fun of the festive season.  It’s also a good opportunity to explain some basic principles about money such as the difference between needs and wants, budgeting, and how to make sensible financial decisions.

Here are some instances when you can introduce your child to conversations about the household budget.

When you decide to say ‘no’ to something they want

Those familiar occasions when your child asks for something can be a good time to introduce the concept of money and how the household budget works. You can use this opportunity to explain that money comes into the household through work and earning an income, and is used to cover a variety of costs from the family’s home (rent or mortgage payments), household food, and utilities such as electricity and internet bills. You can outline the importance of prioritising spending, and if they are still determined to acquire the particular item, you can explain the concept of a savings plan and how this may help them to achieve their goal.  Some parents initially offer to match every dollar saved by the child as a way to keep the discussion positive and to encourage them on their savings journey.

When they compare themselves to their friends

It’s normal for tweens to compare themselves to their friends, and from time to time they may complain that their friends have more things or more pocket money. This can be a useful time to explain that every family has its own budget, and some have more disposable income than others. While material assets are one thing, there are more important things in life including being part of a loving family. The key is to be thankful for what they have and when it comes to material things, there is a difference between needs and wants. Needs being those essential items we need to survive, and wants those luxury items or treats that are nice to enjoy once in a while.

Understanding the importance of prioritising needs before wants is a significant life skill we can apply from our early years of development right through to retirement. Learning how to differentiate needs from wants – and allocate money accordingly – will give your children a great head start in being able to understand and manage their spending behaviour further down the track.

For younger children, the regular grocery shop can be a great learning experience, particularly if you take along a shopping list that outlines all your grocery needs. Ask your child to help find the items on the list and tick them off as you go.  As an added bonus, perhaps suggest that after the essentials have been purchased, there will be enough money left over for a treat – which your child can choose. It can be an easy and fun way to learn how to prioritise buying needs before wants, as well as weighing up and choosing from the many ‘want’ items available.

Juggling needs over wants is one of life’s ongoing challenges, and just like adults, children may not always make the right decision, but simply becoming aware of the thought processes and implications of our choices can be a valuable life lesson.

The more your child feels part of the household decision making when it comes to money, the more they will appreciate how important the family budget is. Next time you are planning a significant purchase for the family such as a new car or overseas holiday, engage them in the conversation and decision making process. Asking for their opinion will make them feel valued and can help them to develop a sense of responsibility when it comes to making financial decisions in the future.

Source: Capstone

Would downsizing be worthwhile for you?

By Robert Wright /December 01,2015/

It seems to make logical sense. You retire, sell the now cavernous family home, buy a cosier place and use the cost difference to boost your retirement income – win-win right? The answer is – “it depends.”

Downsizing can be an excellent strategy to supplement your income and simplify your lifestyle, but it’s not right for everyone.

Here’s what you need to consider to see if downsizing is the right move for you.

Where you could save

Super: If you own your home outright and choose to downsize, that extra money could substantially improve your retirement income. The attraction of contributing money into super is that investment earnings on money in a super fund are generally taxed at 15%, representing a potential tax saving of up to 34%. This is because when you hold an investment outside super, the earnings are generally taxed at your marginal tax rate which could be up to 49%.

Mortgage: If you’re still paying off your home, downsizing could help you minimise your repayments or eliminate them entirely. You could even downsize and continue to make the same repayments to pay off your mortgage much sooner.

Utilities: A smaller home typically runs more economically. Why pay to heat or cool space you no longer need? If your new home provides renewable energy options such as solar power, you may even be able to sell energy back to the grid and make money.

Maintenance: Less space to occupy means less space to maintain. In the case of larger properties, downsizing could offer substantial savings on cleaning and garden maintenance.

Travel: Downsizing can help you relocate to a more convenient location. If the local shops, public transport and amenities are all within walking distance, you could make substantial savings on fuel.

Garage sale: Selling your home is a great time to sell any items you no longer want, need, or will fit into your new house. Any money you make could be contributed towards moving costs.

Costs to consider

Home value: If you sell your home during a market lull, you could lose some or all of the equity you’ve built up. This could eat into, or erase entirely, the cost saving you make by purchasing a less expensive property.

Fees and commission: Home selling is a highly competitive market. To ensure your home is positioned favourably to sell, you may need to appoint a real estate agent and potentially pay for marketing services, which can cut into your profit margin.

Moving costs: If it’s been a while since your last move, you might be surprised at how much it costs to pack up and transport all of the items you’ve accumulated. That’s why it’s a good idea to offload all the items you can live without before your move. Why pay to transport items you no longer need?

Strata fees: If you purchase an apartment you’ll have to pay quarterly strata levies. Although these fees can end up saving you money in the long term, compared to paying for the maintenance of your home and yard, they will eat into your profit margin in the short term.

Stamp duty: You’ll have to pay stamp duty to buy a new home or apartment so you’ll need to include this cost in your calculations.

Storage costs: One drawback of buying a smaller home is you have less space to store your treasured belongings. If you run out of room, you may need to purchase additional storage which can add up quickly.

Doing the sums

Balancing the potential savings and costs of downsizing can be tricky, and that’s before you take all the potential lifestyle impacts into consideration. A financial adviser can help you work out if downsizing makes sense for you as a part of a tailored financial plan.

Source: MLC

3 key considerations for SMSF investors in the lead up to Retirement

By Robert Wright /December 01,2015/

Australians are enjoying longer and more active retirements than ever before, so what can you do to help make sure your money lasts?

Baby boomers are retiring in greater numbers and many have taken more control over their retirement savings by self managing their super. Over a third of self managed super funds (SMSFs) are in the pension phase and 56 is the average age of SMSF members[1], which means that many are approaching retirement.

What’s more, Australians are living longer and healthier lives than previous generations[2]. This means that it’s important to have plans in place to help ensure your money lasts when you stop working.

So how can you try to make sure that your investment strategy caters for your long and healthy retirement? You may need to take a fresh look at your investment choices, as well as consider what your lifestyle and spending habits will be like when you retire.

Here are three key factors to consider.

1. The diversification of your assets

Investing in a mix of defensive and growth assets may lower the risk that all your assets will underperform at the same time. For Laird Abernethy, Head of Investment Sales at Colonial First State, the fundamental principles of a diversified investment portfolio stand no matter what your superannuation structure – and it’s something that SMSF investors need to be mindful of.

“If you look at SMSFs as a whole sector, there’s a significant portion in Australian direct equities and a significant portion in cash – and that’s not a diversified portfolio. I think SMSF members need to consider other areas to invest in and how they structure their portfolio to last them over the next 15, 20 or 25 years.”

Referring to the global financial crisis, Abernethy suggests that “baby boomers may be carrying an element of caution with investment decisions they’re making into retirement. They may not get the returns they need just by investing in cash and fixed income. They may also need some level of equity exposure to ensure they minimise the risk that they outlive their retirement savings.”

It’s also important to keep in mind that equities are tied to the ups and downs of the market, so they are generally considered to be a riskier investment than cash or fixed interest, although they offer the possibility of higher returns. It’s wise to seek professional financial advice to help you work out what types of investments are right for you.

2. Your lifestyle and financial needs when you enter retirement

The early years of your retirement are likely to be the most active, which means you’ll probably be spending money on things like recreational activities and travel.

“You don’t automatically stop your lifestyle when you enter retirement,” says Rick di Cristoforo, Head of Retail Sales at Colonial First State. “In fact, it might actually be more expensive because you’ve got more free time to spend money on your enjoyment.”

Abernethy agrees. “That first phase of retirement is probably where you’re pulling out the most in terms of your pension or other income streams, so it may be worth considering growth strategies and market linked strategies.”

For Abernethy, the trick is doing that in a way that ensures you don’t draw down your capital too early and protects against market risk.

“You want to lower the volatility of your investment returns so you have more certainty around the possible outcomes, especially if you’re investing in assets that are linked to the ups and downs of markets, like equities. What we’re seeing now are a lot of products that are focused on minimising volatility and products that minimise draw downs.”

3. How your needs may change during retirement

Your lifestyle goals and spending habits are likely to change as you get older, so you should also adapt your investment strategy.

“You’ve got to think about how you adjust your asset allocation as your needs change during retirement and that’s where advice is really important,” says Abernethy. “It can take into account not just the income stream you require, but also your goals, such as taking a trip every year.”

“Everyone’s different, so talking to a financial adviser is important.”

 

Source: Colonial

[1] Source: ATO: Self-managed super funds: A statistical overview 2012–13.

[2] Australian Federal Government: Intergenerational Report 2015.