Avoid the Christmas and New Year Debt Hangover: Page 2

Avoid the Christmas and New Year Debt Hangover

By Matt Hern on October 30, 2009

Today is just eight weeks until Christmas; and nine weeks until 2010.

The Pleasure

The festive season is awesome. There are so many invitations to functions: drinks with each group of friends, your work, your sports clubs and other associations. And with the beautiful warm weather and high spirits it’s hard not to hand over the cash and join in. Then there are gifts, it can be fun shopping, wrapping, giving and receiving.

The Pain

Whilst lots of fun the festive season actually can be one of the biggest creators of financial pain. All the spending burns a hole in your pocket. And when all of your pockets are burned through, most people start wearing out the stripes on their credit card.

Pause for a moment now and take a guess at how much you think you will spend through the festive season, both on gifts and on entertainment.

The Hangover

Then January hits and the debt hangover begins. You’ve spent your savings, and January’s pay packet isn’t enough to repay your credit card. So you pay what you can and incur the interest – often a whopping 15-18 percent. But worse, did you know that on most cards every purchase you make from then will immediately incur interest too? You’ll only get back to using interest free days when you’ve fully repaid a subsequent statement balance in full by the due date.

Ooh, the pain of the good times just keeps lingering. Hand me some paracetamol.

Build Your Fitness

To avoid the New Year debt hangover start early and build your financial fitness. Start now and write a list of everyone you intend to buy a gift for. Then, next to their name write approximately how much you may spend. Divide the total by ten and start saving that amount each week from now.

Yes, that may require you to sacrifice some of your current spending. But if you are going to spend the money anyway, you will need to sacrifice at some stage. If you make the sacrifice after the pleasure, then the pain lasts longer due to you having to pay the credit card interest. So you may as well make the sacrifice up front and minimise the pain.

If you are planning on travelling for the holidays ensure that you include the cost of that in your calculation. And while you are at it, you may as well include an allowance for the parties.

Make It Easier On Yourself

Simply writing a budget for the festive season may be an interesting eye opener. What proportion of our annual income are you supposedly planning to spend during that brief festive season? Would you like to have more to show for the effort?Here’s some suggestions for cutting the pain while maintaining, even increasing the pleasure:

Among family, friends and work groups suggest that gift giving be operated under the “Secret Santa” method
o Make some gifts. It doesn’t have to be fancy – I was thrilled one year when a friend in our Secret Santa group made me chocolate balls and shortbread. (They were sooo yummy.)
Make it fun and creative. Once, in the same Secret Santa group of friends, we had to find the most fun and crazy gift under $5. Perhaps this year I’ll suggest that we do a “hand-me-down” toy – that’ll clean out my garage for me.
Volunteer to help them do something. Do it before Christmas, take a photo of you in action and include the photo in your hand made Christmas card.
Have a garage sale of old gifts you don’t use anymore and use the proceeds to fund this year’s gifts.

I’m sure there are plenty of other wonderful ideas. Please share your ideas in the comments below so we may all benefit.

Merry Christmas!

P.S. I’ve just thought of another idea. You could give people a very valuable but inexpensive gift by telling them about this article

Posted in Saving | Tagged christmas saving, debt hangover | 1 Response

How to Invest in Gold

By Matt Hern on October 19, 2009

I read in The Weekend Australian on Saturday that you can now walk into Harrods in London and walk out with some gold bullion. Of course you can also buy a matching designer vault to keep it in.

After many years (even decades) of languishing out of sight, gold is back on many people’s radar as an investment. Partly this has been driven by fear that paper currencies will collapse. Partly it is driven by fashion and the old band wagon.

Besides walking down to your local jeweller (or Harrods) how do you actually invest in the commodity of gold?

Here are three ways:

Buy physical metal
Via an exchange traded product
Through investing in a gold mining company

Please note I am not recommending an investment in gold. Talk to your financial planner to assess if it is appropriate for your goals and circumstances.

Buy physical gold

To buy physical gold head to the Wild West where The Perth Mint provides three methods of investing in gold.

You can buy bullion bars and coins and take them home with you. Awesome show and tell for your next party, but where do you keep it?

More conveniently you can buy legal title to a portion of the gold held by the mint, through their certificate program. If you fancy having your own “private vault” at the mint you can pay a bit extra and have your own bullion bars segregated from the others.

Investing in gold on the stock exchange

The third method offered by The Perth Mint is to buy a gold product listed on the Australian Stock Exchange (ASX) that is designed to track the actual gold price. It’s structured as a call warrant giving you the right to exchange your paper for physical gold. (ASX: ZAUWBA)

Also listed on the ASX is an exchange traded managed fund. The fund buys and stores physical gold. By purchasing a share in the fund you buy a portion of the gold in their stock, which is audited. (ASX: GOLD)

Investing in a gold mining company

This is a less direct method and your investment value will not necessarily track movement in the gold price. Further, many mining companies have investments in more than one commodity. Plus you have the management and operational risk associated with any company.

The best investment in gold…

For me, the shadow of my wife over my shoulder as I write this article reminds me that my best investment in gold may be the decorative kind. (Oh, and apparently gold’s an even better investment when combined with other precious gems.)

Posted in Growing | Tagged gold | 2 Responses

Life Saving Advice

By Matt Hern on October 2, 2009

These days many people survive a serious illness like cancer, heart attack and stroke. But the experience leaves many financially crippled. It shouldn’t and doesn’t need to be that way.

“My reaction was, if this is going to save my life, I don’t care how much it costs.”
Breast cancer survivor, Bronwyn Wells quoted in The Weekend Australian, 26th September 2009. View article here

Yes of course if you are faced with a life threatening illness you’ll happily sell investment assets to fund your lifestyle and medical expenses.

But what if that is not enough?

And what next once you’ve pulled through?

“The financial impact of something like breast cancer is enormous”, said Wells in the article, which also reported that she had taken two years off work to fight her illness.

If that financial impact concerns you then it’s time to look at another strand in your safety net.

A Valuable Tool – Trauma Insurance

If you want to be able to fund your choice of medical treatment then trauma insurance can provide you with the money.

If at the same time you want to protect your family’s lifestyle and avoid financial stress then trauma insurance is essential.

Trauma insurance pays you a lump sum benefit on the diagnosis of a serious illness. The most common four conditions are cancer, heart attack, stroke and coronary surgery.

A beautiful partner to income protection insurance

If your serious illness means you are unable to work then you may be able to receive a benefit from your income protection policy. This replaces up to 75% of your income so it goes a long way to helping you maintain your existing lifestyle commitments.

However, a serious illness will increase your expenses. So you need additional protection. That’s where the trauma insurance helps a lot.

The Cost of Treatment

Treatment costs vary widely but its probably much higher than you think. The article in The Weekend Australian noted that many modern drugs used for cancer treatment cost between $25,000 to $50,000 per year.

Importantly not all are subsidised on the Pharmaceutical Benefits Scheme (PBS).

If your doctor told you of a new wonder drug that could save your life but it was not yet on the PBS would you find some way to come up with the money?

It’s human nature to. But then if the drug works you will survive but may be financially crippled or at least strained.

Trauma insurance can support those choices.

Take Action then Sleep Easy

I don’t advocate dwelling on what could go wrong and the consequences if it does. But I also don’t advocate putting your head in the sand and not thinking about or planning for it.

This is how I recommend we deal with such potential speed bumps:

Become aware of the possibility
Acknowledge the true likelihood of occurrence
Investigate and consider the potential consequences
Implement an appropriate safety net
Rest easy knowing you have protection

Don’t assume you can’t afford insurance. It’s often much cheaper than you think – especially once you properly consider the true cost of no protection.

Call me or e-mail me now for a no obligation discussion and quote about the investment in trauma insurance for your safety net.

Posted in Featured, Protecting | Tagged Protecting, trauma insurance | Leave a response

The Three Fatal Financial Behaviours

By Matt Hern on September 11, 2009

Have you ever thought you are not getting as far ahead financially as you think you should, but are not sure why? Then maybe one or more of these three behaviours may be the cause.

Your current financial situation is the cumulative effect of all the financial and lifestyle choices you have made to date. Over time your possible lifestyle outcomes diverge greatly and not necessarily towards the outcome you most want (represented by the star on the diagram to the right).

The purpose of comprehensively planning your financial situation is to maximise the probability that you will meet or exceed your desired lifestyle.

Implicit in this is to minimise the impact of negative outcomes from your choices and from external events.

Why we don’t meet our financial goals

I believe there are three main categories of reasons we don’t meet our financial (and therefore lifestyle) goals:

Knowledge – we don’t find out the right things for us to do right now
Behaviour – we don’t do the things we already know we should be doing
Time – we take action too late (delay)

In this article let’s look at three financial behaviours that can prove fatal to the achievement of your goals and what you can do to overcome them.

There are other destructive behaviours. I have chosen these three because they eat away at your foundation and are counter-productive to your other efforts. Long term readers may notice they link to the three Cs of Money Mastery.

The Three Fatal Behaviours

”three

1. No idea what you spend

The common impact of this behaviour is that you end up spending way too much money on insignificant things and don’t have enough for really important things. The longer term impact is that you will not be diverting enough savings to longer term wealth creation meaning you may never be able to retire on your terms.

A symptom of this behaviour is thinking “wow, where did all my money go?” Another symptom is having an ad-hoc important event creep up on you, like a wedding or milestone birthday and you not being able to afford to fully participate. A variant of that symptom is that whenever that happens you whack it on your credit card and spend months trying to repay it.

What to do

You know what to do to solve this one just like I know what to do to get fitter. If you exhibit this behaviour hire a personal trainer for your money to support you in getting financially fit.

Call me about cash flow coaching and read my last article for additional suggestions.

2. Haphazard investment decisions

We make haphazard investment decisions when we don’t really know what is the best option for us but we can’t be bothered spending the time and energy on the research. So we tend to do what others are doing and take emotional comfort in being part of the crowd. (For most people this will be sub-conscious.)

The impacts of this behaviour are many and include:

Mediocre returns – you may make money but probably nowhere near enough for the ‘risk’ you took, and also not as much as the rest of the market. So you miss your lifestyle target (the star).
Stress – you are not confident about the investment so you are stressed about what could or is going wrong. You saved time doing the research but traded it for emotional stress – what’s the point?

What to do

The solution here includes:

starting early (like right now) so time is on your side
starting simple with only what you currently understand
Taking incremental steps forward in your knowledge so you can increment forward in complexity of investments
Hiring a mentor to educate you and thereby increase your confidence and capability. (A good financial planner will not only advise but also educate you.)

3. Blind optimism

This behaviour is all about the impact of negative outcomes from your choices and from external events.

buried head in the sand Optimism – you think it’ll never happen to you. You underestimate both the likelihood and the consequences of something going askew.

Blind – You don’t even bother to investigate, consider and evaluate what could go wrong and its impact.

What to do

“Sometimes maybe curiosity can kill the cat-astrophe before it actually happens. Ask questions, seek answers, find possibilities.” Wise words from one of my mentors, Glenn Capelli.

Next erect your safety nets so if you fall off the tight rope of life you bounce rather than splat.

Do It

You probably know this stuff already – I write about it all the time. But if you are not doing the positive things you are robbing yourself of riches. One day the party is going to end and you will wake up with a rude hangover (that could last decades).

Party responsibly and you can enjoy both today and tomorrow.

Just like health, if you need support and accountability to implement new financial behaviours hire a personal trainer and even buddy up.

To have enough money to live the life you’d love stop researching new trends (K), start doing the foundation actions (B) and do it now (T).

Yours in prosperity

Matt Hern CFP
Financial Educator and Adviser

Posted in Behaviour, Featured, Growing, Saving | Tagged newsletter | 1 Response

Rely on newspapers for property research at your peril

By Matt Hern on July 30, 2009

I don’t usually watch ABC TV’s Media Watch show but on Monday night I was pleased to have flicked over at just the right time. Newspapers love criticising financial planners in their usual sensationalised way. One Media Watch story uncovered a dirty little secret about newspapers and how they appear to be so influenced by who pays their bills – the real estate advertisers.

So when you are investing in real estate don’t trust or rely upon property information published by newspapers. It very well could be only part of the full story – the part favourable to agents and developers. Broaden and deepen your research using other information sources.

Watch or read the full Media Watch story here on the ABC website. (5 min video)

Media Watch revealed that The Age newspaper had published an online article critical of real estate agents and their ‘dirty little secrets’. The article received lots of reader comments but was quickly removed after The Age received “a forceful complaint from the Real Estate Institute of Victoria”.

So why would The Age remove such a popular story that was driving people to their website and engaging them in the content? This is what Media Watch revealed:

“Well, perhaps because of another “dirty little secret”: property ads placed by real estate agents are worth around $60 million a year to The Age, we’ve been told. That’s more than a quarter of its total advertising revenue.

So keen is the paper to keep on the good side of the property-wallahs that it takes up to seventy of them on an annual junket – this year’s trip departs to China soon.”

And newspaper journalists and editors think the financial planning industry is corrupted by how some advisers are paid? Sounds like a case of the pot calling the kettle black!

(P.S. I am a fee based planner who rebates any commissions to you.)

Posted in Growing | Tagged property | 1 Response

Take The Financial Pressure Down

By Matt Hern on July 24, 2009

Today is Stress Down Day, to raise funds for Lifeline. As part of their promotion of Stress Down Day Lifeline conducted a Newspoll to discover what was stressing Australians.

The Newspoll found that two thirds of Australians are stressed about money, second only to being stressed about work. Does that include you?

The Lifeline poll reminded me of research published last year by Relationships Australia, which found that financial stress was the second largest contributor to relationship breakdown, affecting 35 percent of relationships.

This may be a stretch, but if we can work together to reduce our financial stress we may be able to lower the divorce rate and bring more joy into everyone’s lives.

Causes of financial stress

I started writing a list of what has caused financial stress among people I’ve met. Most of the causes fell into two broad categories:

Not enough money (to do, buy or retain)
Doing it for the money

In this article I’ll share some tips for reducing your stress caused by “not enough money”. Later, I’ll write about “doing it for the money”, but if you’re keen to learn how to earn money doing what you love then please call me now.

Stress about not enough money

Our stress seems to rise when we don’t have enough money for something that is really important to us. For example:

To join our close friends on a big interstate or overseas holiday (maybe to celebrate a milestone birthday)
To buy a bigger house when our family has well and truly outgrown the current shoebox
To keep our car and house when we lose our job and fall behind in the mortgage repayments

Our stress doesn’t appear to rise when we decide we can’t afford the $2 chocolate bar or $15 movie ticket. I believe that is because those things aren’t really that important to most of us.

Financially related decisions can also stress us, and I believe they fall into this broad category. Our stress level is affected by the materiality of the loss or by the consequence of a wrong decision. If we get the decision wrong it may mean we won’t be able to upgrade our shoebox house when we want to, so then we stress about the decision.

Save for the Significant. Minimise the Insignificant

To reduce your financial stress plan to have enough money for those things that are most important to you. This is a personal thing and is based on your values.

Once you have plans to be able to afford the most important things in your life you can spend the rest of your money on whatever you want, guilt free.

You need to move your thinking from “next pay” to “next year” and then onto “next decade”.

I believe it is through spending too much on daily insignificant things that we end up not having enough for the significant things. This is often because the significant experiences and achievements are lumpy and irregular, so they can sneak up on us.

Bring far away important things into focus

”binoculars” Here’s an exercise that you can do.

Get a blank piece of paper and place it in landscape orientation. Across the middle from left to right draw a thick line. The left represents now; the right represents your passing, say at age 100.

Divide this line representing the remainder of your life into bite size chunks. The length of each chunk is not fixed, just make it meaningful to you. You may like symmetry and therefore make each chunk an even five years. Or each chunk could be of different length representing different life stages you have in mind.

Next fill the rest of the page with all of those achievements and experiences that are really important for you in each of those meaningful chunks of life. For example:

Career transitions you’d like to make
Places you’d like to see in the world
Experiences you’d like to have with your family
Time out of the workforce to study, reflect or travel
Contributions you’d like to make to your community and world

For inspiration on what is really important reflect on your personal values.

Now implement plans

Implement a clear plan to manage your money so that you achieve and experience what is really important to you. Then you can happily spend the remainder on whatever insignificant pleasures you want, guilt free.

This is how you can achieve what I call financial fulfilment. And this exercise is part of the process that I call Fulfilment Financial Planning. To learn more call me on 1300 669 101. I take clients from all around Australia and would love to hear from you.

Posted in Behaviour, Featured, Planning | Tagged cashflow control, financial advice, newsletter, tools | 3 Responses

Find the right property mentor

By Matt Hern on July 13, 2009

One of the messages I teach is to “Do What You Love; Outsource The Rest“. When it comes to direct investment in residential property it can be tricky to implement this due to the presence of too many biased spruikers. Neil Jenman refers to them as “selling machines” in his insightful article, which I recommend you read in full here.

Following the recent drop in real estate prices I have noticed many spruikers coming out again in force promoting their services and properties. If you perceive property to be “cheap” and are tempted into buying now please read Jenman’s article.

One of the valuable insights in Jenman’s article is when he busts the myth that property prices double every seven to ten years:

“In 1890, the average Sydney home price was $1,446 (£723). If property really does double every seven years then, in 2009, the average Sydney home will be worth $189,530,112.”

Neil Jenman has been in the real estate industry for decades and is now also a consumer advocate. Here’s his view on investing through property investment clubs and the like:

“In my opinion, investing in property via a Selling Machine company, which is rapidly becoming the most common way to invest in property, is the worst way to invest in property.”

“…all [investors] have been ripped off because they have paid far too much at the start – and they often pay far too much in holding costs.”

When direct investment in real estate becomes the right strategy to achieve your life goals find the right mentor to help you and ensure they are biased and/or incentivised to achieving your best outcome rather than theirs.

Posted in Getting Advice, Property | Tagged investment, property | Leave a response

More Money To Pursue Your Passions

By Matt Hern on July 1, 2009

Do you want to create wealth but your eyes glaze over with number talk?

Would you like ideas to manage your money in a way that doesn’t take much time and doesn’t require you to read the business news every day?

Do you like the idea of outsourcing to a professional but are not sure how?

If so, you should download and read my latest free e-book here.

This version includes a targeted introduction for information entrepreneurs, but the recommendations are equally applicable to most people. Download the e-book for free now.

Posted in Growing, Planning, Saving | Tagged free stuff, infopreneurs, investment, Managing your money | Leave a response

I’ll huff and I’ll puff and I’ll…

By Matt Hern on June 23, 2009

…blow your house down.

For years I’ve been earbashed by people enamoured with investing in residential property. Apparently it’s THE best investment and “you can never lose money in property”.

Out of curiosity I enquire of these people what makes them hold that belief. Sadly most can only regurgitate the words of others and have never done thorough comparative research.

I am not against residential property investment. I am against blind faith in absolutes, especially in the area of investing.

If you would like to add some breadth to your views of property investing I recommend the following two resources:

Read Scott Pape’s article from the Herald Sun (20th June 2009) “Wealth starts at home” where he and Neil Jenman share some of the lies spread by property spruikers.
Watch the documentary “The Ascent of Money” by Niall Ferguson on ABC TV this Thursday night. This episode is about property. If you miss the show you can either buy the DVD or read the book of the same title.

Coupled with the recent publicised falls in property prices you should by now realise that ’safe as houses’ is absolute rubble!

If you are going to invest in residential property be broad and deep in your research so that when the wolf comes along he can’t blow your house down.

Posted in Property | Tagged property | Leave a response

Thwack! Zero income. How long will you last?

By Matt Hern on June 11, 2009

If life pulls the plug on your income
will you go down the drain?

The economic down turn and publicised retrenchments may have caused your mind to wonder “how will I cope if I lose my job?” Maybe the answer has stressed you.

Whether or not you are facing the potential of losing your job I recommend you seriously ask yourself “how long could I last on zero income?”

Situations that could create zero income

It is much more likely than you think. Your income could drop to zero as a result of:

Retrenchment
Injury
Illness
Exasperation (“I can’t take this job/work any more”)

Exasperation is one cause not to be lightly dismissed. What proportion of people do you know who are working within their passion, in a role and environment that fulfils them? Are you? Would you like the freedom to change and pursue your passion?

Tools to help you cope with zero income

The best tool to give you the ability to easily manage either of the above causes is to have already amassed enough assets and/or passive income.

If you are not yet financially free then consider implementing these other tools until you are.

Liquid savings

How much do you cost to run each month?

If you take the amount of your liquid savings (such as cash) and divide it by your monthly expenses how long will it last?

How long before you fall behind in your loan repayments and start negatively impacting on your credit rating?

One valuable tool for all scenarios is to build up several months, sometimes a year or two of liquid savings. Some of the savings will be in cash or cash-like accounts, some may be in highly traded shares or managed funds.

How much you need in liquid savings depends on you and the choices you’d like to be free to make. At the very least I suggest having three months supply or more.

Insurance, especially income protection

In 2007, 62% of bankruptcies in the USA were medically related. “Most medical debtors were well educated, owned homes, and had middle-class occupations. Three quarters had health insurance.” Forty percent of these bankrupts lost income due to the illness or injury.
(Source: “Medical Bankruptcy in the United States, 2007: Results of a National Study”. Himmelstein et al.)

Private health insurance alone will not help you survive a serious illness or injury. The type of insurance that covers your ability to earn an income is called income protection insurance. It pays you a regular monthly amount to replace up to 75% of your income.

If you don’t have income protection then I highly recommend that you act. Plus the premium is tax deductible – so purchasing a policy now could save you tax this year.

One other type of insurance to consider is Total & Permanent Disability (TPD), which pays a lump sum amount. You probably have some in your superannuation but do you have enough? Most people don’t even have enough to repay their mortgage and give them the security of a roof over their head.

If I was seriously ill or injured the last thing I would want is the stress of being kicked out of my home. If you too don’t want that possibility then either get adequately insured or win lotto division one this week.

Your Actions

To ensure you can easily cope with a loss of income:

Build liquid savings
Purchase income protection insurance
Create flexible wealth
Become clear on your needs and your cost to run

I can help you with all of the above:

Cash flow coaching to build liquid savings
Selecting an insurer who will actually pay a claim
Building wealth for lifestyle freedom

Call me now on 1300 669 100 to book your first, complimentary appointment.

Matt Hern Yours in prosperity

Matt Hern CFP
Financial Educator and Adviser

(This article appeared in my free newsletter “On The Money“. You can subscribe for free here.)

Posted in Protecting | Tagged newsletter, Protecting, redundancy advice, safety nets | Leave a response

The credit crisis explained visually

By Matt Hern on June 4, 2009

For those still a little bit baffled by how the credit crisis started and then snowballed I recommend you spend 11 minutes watching this video. The concepts are very simply explained including: leverage, collaterised debt obligation and sub-prime. The knowledge will help you become a better investor in the future so that you can better understand the true risk of your investments.

Much kudos to creator Jonathan Jarvis. You can also visit the official website for the videos.

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

Posted in Economics | Tagged Global financial crisis, video | 1 Response

What a CFP represents

By Matt Hern on June 3, 2009

Certified Financial Planner, or CFP is the top level certification for financial planners. It takes quite a bit of knowledge, skill and experience to be awarded this certification.

When seeking financial planning advice, especially for the first time I recommend that you start by speaeking with CFPs. You can find them on the Financial Planning Association website.

To raise awareness of Certified Financial Planners the Financial Planning Association has released a 60 second video, which you can watch below (or here on YouTube.)

Please leave a comment below to let me know if you think it is effective. Would you now want to see a CFP in preference to any other financial adviser?

I genuinely want to read your comments as I often send my two cents worth to the FPA. You can leave an anonymous comment if you like. Thanks.

Posted in Getting Advice | Tagged certified financial planner, financial advice, Financial Planning Association (FPA), video | Leave a response

I declare the downturn to be over

By Matt Hern on May 7, 2009

I wonder…if together we all declared “I’ve had enough! The downturn is over. From now the economy and markets are growing;” could we create a self-fulfilling prophecy?

Yes? You think we could?

Great, then join me now in making the declaration and spread the word to your friends, family and everyone you know. Blog it, tweet it and share links to those declarations in the comments below.

——-

Legal note: This is not a recommendation to buy long, sell short or hug your co-workers. Just spread the positive vibe man.

Posted in More Tips | Tagged Global financial crisis, wealth mindset | 2 Responses

Forecasters are so trustworthy

By Matt Hern on April 28, 2009

This cartoon accompanied the front page article on The Australian today, 28th April 2009. Beautiful work Jon Kudelka!

Posted in Economics | Tagged forecasts, Global financial crisis, humour | Leave a response

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