comfortable retirement australian

Comfortable retirement slipping out of reach for 80% of Australians

23 Jan, 2018

If you’re dreaming of a comfortable retirement (and who isn’t?) then you’ll probably need a lot more in savings than you realise.

New research carried out by Griffith University on behalf of financial education service No More Practice Education suggests that a staggering 81.3% of Aussies are failing to save enough to retire comfortably.

And it’s no surprise when you discover that Gen X Aussies will have to get their retirement fund as high as $4 million if they want to enjoy their golden years.

The stats estimate that Australians born after 1984 will need to save $2.09 to $3.98 million in order to self-fund a comfortable retirement in 26 years’ time.

 

Starting young

The study certainly highlights the importance of budgeting and saving from a young age – and you’ll appreciate that nest egg when you’re older. No More Practice Education Founder Vanessa Stoykov points out that the age pension today is only a third of the amount required to fund a “comfortable lifestyle”.

“Although these numbers highlight the ‘worst case’ situation, preparing for this low growth scenario is essential because it’s been occurring in countries like Japan for the past two decades, so there is nothing to say it won’t happen to us too,” Ms Stoykov said.

 

A leg up

Fortunately, many younger Aussies will get a helping hand in the form of inheritance. McCrindle Research estimates that over the next 20 years, $3.5 trillion will be passed on from Baby Boomers.

This equates to a handout of $110,000 for 75% of all Gen X and Y with surviving parents. The question is, will it be used wisely?

That $110,000 could be a deposit for a house or another big investment, or it could easily disappear on a dream holiday and a new car.

“The expected inheritance figure is a huge amount of money that Gen X and Y is predicted to receive, however the unfortunate truth is that Australians simply don’t know how to invest it,” said Ms Stoykov.

“Through decades of experience in the wealth creation space I’ve learnt that to truly grow long-term wealth, people need to ‘unlearn’ everything they think they know about money.

“I can wholeheartedly relate to why people get overwhelmed when it comes to thinking about their retirement funds. For most people retirement seems like forever, or not something they are going to be able to do.

“The good news is that reinvention is the new retirement, and it’s entirely possible for Generation X and Y to achieve their goals.”

 

So what now?

If these statistics have shocked you into taking action, you’re probably wondering where to start.

The first thing you need to do is to understand how your finances look at the moment and what you can do in the short term to reduce your debt and establish your savings.

Entering some simple details into Monefly will help you build up a picture of your assets, liabilities, and cashflow. This lets you develop better budgeting habits to improve your finances.

Then, working with your financial adviser, you can create an investment strategy to make sure any spare cash you have is being put to good use.

$4 million might seem like a tall order, but the sooner you start working on it, the more achievable it will be.

 

In short:

  • Over 80% of Aussies won’t have enough saved to retire comfortably, new research has shown.
  • Those born after 1984 will need $2-4 million in savings.
  • Don’t expect to rely on a government pension.
  • Any inheritance should be carefully invested.
  • Consult a financial adviser to discuss your options and create an investment strategy.

 

monefly saving money refinancing

Think loyalty to your bank is saving you money? Refinancing could save you more

21 Jan, 2018

Your bank might give you the impression that you’re getting a good deal by sticking with them, but your loyalty could actually be costing you money.

Customers who stay with their childhood bank, or the same bank their parents use, could be losing thousands of dollars a year to unfavourable home loan interest rates. This is according to new data from online mortgage broking platform uno.

The Australian home loan market is fiercely competitive right now, and many customers stand to save by refinancing.

 

Failing to switch, failing to save

Almost a quarter of Aussies still hold their mortgage with the same bank they used as a child or their parents’ bank, the research shows. This adversity to switching could be adding tens of thousands of dollars to the lifetime cost of the loan.

These loyal owner-occupiers are paying 4.5% interest on average, compared to an average of 4.3% among customers who have moved to a different lender.

It’s a similar picture for investors; those who have never switched pay 4.8% interest on average, compared with 4.6% for those who have.

“A home loan is one of the biggest financial decisions most people will ever make so it’s important to review the entire landscape of options to ensure you’re getting the best deal,’’ said uno founder and CEO Vincent Turner.

“The start of the year is a good time to do anything financially related, you get time to think about the year ahead and you have plenty of time on your hands.”

 

Pick and choose

Mr Turner also cautioned against holding your home loan and savings account with the same bank. Usually customers can find better deals by taking out different products with multiple financial institutions.

According to uno, customers with a 30-year, $363,650, principal-and-interest home loan could save $1,176 a year by switching from a rate of 4.1% to 3.63%. Over the course of the loan, that’s a massive $35,000 reduction in interest.

Crackdowns on lending in 2017 have made things harder for consumers, meaning they face tighter restrictions and need to save larger deposits for their homes. Even so, there is no harm in considering your refinancing options to see if you could get a better deal.

With many people keen to make a fresh start at this time of year, Tribeca Financial’s CEO Ryan Watson says this may well mean switching banks.

“Unfortunately Australian banks don’t reward loyalty, as a rule they fall ‘out of love’ with their existing clients,” he said.

“Banks take existing clients for granted so the only way to get a competitive rate is to shop around. Banks only respect consumers who do their homework and push for a really competitive rate.”

Mr Turner said that in the current market with all-time low interest rates, owner occupiers should be aiming for an interest rate below 4%. Investors, depending on the size and type of their loan, should find a competitive rate in the low 4% range.

 

Next steps

You might start your search for a more competitive home loan on an online comparison site, but a mortgage broker’s insider knowledge will help ensure you’re really getting the best deal.

If you have multiple loans eating into your finances, you might consider refinancing to consolidate everything into one product. Speak to your financial adviser to discuss this if you feel like your debt is getting out of hand.

 

In summary

  • Home owners who have their home loan with their childhood bank or the bank their parents use pay on average 20 basis points more in interest than those who have switched lenders.
  • Refinancing could save you tens of thousands of dollars over the life of your home loan.
  • Shop around for the best savings offers too – you don’t need to use the same lender for your loans and savings.
  • A mortgage broker can help you find the best deal on the market.

 

Gen Y budgeting savings

Turns out Gen Y smash their savings targets just as well as their avocado

18 Jan, 2018

Despite Gen Y facing greater financial stress and savings challenges than other generations, young Australians are showing a strong commitment to saving more.

Supposedly flippant spending habits have seen them dubbed the ‘smashed avocado generation’, but new studies show that Gen Y might actually be more frugal than they are given credit for.

Homeloans.com.au’s annual Christmas Spending Survey found that it’s young Aussies who are most committed to saving in the coming year.

Of the 800 people surveyed, 52% of those aged 18-24 said they intended to save more in 2018. In the 45-64 age bracket, however, only 16% showed the same commitment.

When it comes to Christmas spending, 68% of 18-34 year-olds said they saved up during the year so they didn’t feel such a pinch come December. Only 24% of 35-44 year-olds and 19% of 45-65 year-olds said they did the same.

 

Realistic about the future

Will Keall, National marketing manager at Homeloans.com.au, believes young people are reacting to the financial challenges facing them.

“The smashed avocado segment, as they’re referred to … that’s an unfair generalisation because they are focused on saving,” Mr Keall said.

“From last year’s survey to this year, wherever there’s a change, it’s to do with people saving more and spending less.”

House prices, energy prices and other bills are all on the rise, and interest rates are expected to increase in 2018. But savvy Millennials are doing what they can to prepare for this future by budgeting and saving.

“There has been inflation across the board, the costs of living have increased and property prices are off the scale,” Mr Keall said.

“People have bigger commitments to mortgage repayments and something’s got to give. When interest rates go up it will change the goalposts even further.”

Eliane Miles, social researcher at McCrindle, says part of the reason Millennials are feeling the pressure is that they are more financially aware than previous generations.

“One study found the top financial regret for all generations was not saving enough, but Millennials topped all with 42 per cent, compared to 38 per cent for Gen X and 28 for Baby Boomers,” she said.

“Another showed 36 per cent of Millennials considered themselves extremely financially stressed and 87 per cent somewhat financially stressed, compared to just 13 per cent of Baby Boomers.”

Meanwhile, ABS figures show that 25-34 year-olds are the only 10-year age bracket whose income has reduced in the past two years. Household income has been flat across the board since 2009.

“House price growth has doubled wages over the last 10 years and young people feel locked out of the market,” Ms Miles said.

She also commented on the added pressure created by social media. What people post online is often far from their reality, but these sugar-coated profiles leave others feeling left behind and always lacking.

Many Gen-Y-ers are getting creative in a bid to stay ahead with their savings and investments. If you’re in need of some extra income, it doesn’t mean you have to take on a second job. Platforms like eBay, Etsy and Airtasker all provide opportunities for people to earn cash on the side in a variety of different ways.

For others, more frugal living means buying second hand where possible or having a night in rather than a night out.

Wherever you find yourself financially right now, the Monefly app can help you track your financial goals and analyse your spending – smashed avocados and all.

 

In short

  • More 18-24 year-olds (Gen Y) plan to save in 2018 than any other age group.
  • Younger Aussies are also more likely to save throughout the year for their Christmas spending.
  • With living costs rising faster than wages, Gen Y are doing what they can to prepare for a financially challenging future.
  • Generating extra income or cutting back on expenses can free up more cash for investing and saving.

 

monefly 5 financial resolutions.jpg

Get your 2018 finances in order with these 5 financial resolutions

15 Jan, 2018

Whether you take New Year’s Resolutions seriously or see them as a bit of a joke, there’s nothing funny about feeling like your finances are out of control.

Think about what you’d like to achieve by the end of 2018. Book that dream holiday? Upgrade your car? Clear your debt? Start investing? Whatever your money goals, you’re far more likely to achieve them if you have a plan.

If you’re committed to ending the year in a better financial position than you began it, here are five financial resolutions for you to start working on.

 

1. I will understand my spending better

We know so many people tune out when they hear the b-word, but a budget really is the best place to start if you want to sort your finances out. Especially if you currently find yourself at the end of each month wondering where your money went. With a budget, you KNOW where it went and you can start changing your spending habits to give yourself more financial freedom.

Creating a budget needn’t be complicated. To begin with, you need to list all your income from any wages, investments and other allowances.

Detailing your expenses will involve a bit more work. You need to include regular weekly, monthly and annual expenses like rent, rates, insurance and loan repayments. Then think about what you spend each month on groceries, eating out, clothing, gadgets, holidays, etc. If your total expenses exceed your income, you’ll have to start cutting back in some areas.

Check out a more detailed budget plan here. Or if you don’t have the time to create a budget simply put your details into your Monefly account and it will automatically tell you how much you have flowing in and out of your accounts.

Also factor in a buffer to allow for an annual increase in the cost of living. For the year to September 2017, the Consumer Price Index rose by 1.8%. If you have regular monthly expenses of $3,000, for instance, that equates to an extra $54 a month.

Build that increase into your budget from the beginning, and you won’t find your finances squeezed when prices rise a little during the year.

 

2. I will work on clearing my debts

The longer you’re in debt, the more you lose on interest payments. Getting back in the black should be a priority if you want to set yourself up with a secure financial future.

If clearing your debts completely this year seems like an impossible task, at least commit to chipping away at them as much as you can.

You might want to look at switching loan provider to get a better rate, or consolidating several debts into one more manageable repayment. If you’re feeling weighed down by all your debt, it could be worth getting professional help from a financial adviser.

 

3. I will achieve better cashflow

Do you ever struggle to pay your regular expenses, even though you know they’re coming up? Living from one pay cheque to the next is a risky strategy because it gives you nothing to fall back on if you’re out of work for a while.

Improving your cashflow means either increasing your income, decreasing your expenses, or a combination of the two. You might up your hours at work or do another job on the side, or perhaps you just need to take an honest look at your non-essential spending.

If you’re prepared for a more drastic change, how about switching to a more economic car or downsizing your home? The more cash you can free up to pay off your debts and start investing, the better. 

 

4. I will save more

Saving is pretty hard when you have a mountain of debt or cashflow problems (which is why those two points came first). Once you have those things under control, you can turn your attention to creating a savings plan you can stick to. Even if you’re just saving a small amount each month, it will soon start to add up.

Use a high-interest savings account if possible, and set up a direct debit so a fixed amount is automatically deposited each month (ideally straight after you get paid). This way, your savings become just another part of your budget and you hardly notice the money is gone.

If you have a specific money goal, like a new car or a deposit for a home, work out how much you need to put aside each month to reach your target in your desired timeframe.

You can also apply this methodology to regular annual expenses like car registration and insurance. Wouldn’t it be nice to already have the money set aside instead of scrabbling around to gather the funds at the last minute?

 

5. I will start thinking long-term

Taking these positive steps to sort out your finances will put you in a better position to start thinking about longer-term investments.

You might choose to focus on super or non-super investments, depending on your situation.

One way to grow your super faster, provided it suits your financial situation, is though salary sacrificing. This arrangement with your employer means a certain percentage of your salary is ‘sacrificed’ to super, and they contribute a bit extra on top. If you keep doing this for the rest of your working life, it can make your retirement fund a lot healthier.

You’ll need to keep in mind the annual super contribution caps if you do choose to invest this way.

There are lots of ways you can invest outside of super, too. You might not receive the same tax concessions, but you do have more flexibility over when you can access your capital and earnings.

It’s a good idea to speak to a financial adviser before making any big investment decisions. They can create a personal investment plan and provide guidance on the most suitable investments for your current situation.

 

To recap on our five financial resolutions:

1. Create a budget to track your income and expenses and understand where your money is going.

2. Work on clearing your debts – even if you can’t pay them off completely this year, at least make a serious dent in them.

3. Improve your cashflow by generating some extra income, cutting down on unnecessary expenses, or both.

4. Find a way to start saving towards your money goals, even if it’s just a small amount each month to begin with.

5. Consider your long-term investment strategy – should you be salary sacrificing to super or investing elsewhere for the future?

We reckon these are some of the best New Year’s Resolutions you’ll ever make!

 

 

cryptocurrency everything you need to know

Curious about cryptocurrency? Our guide to the basics of Bitcoin and more

08 Jan, 2018

There has been a LOT of talk about cryptocurrency in the news recently.

Bitcoin, the original and best-known cryptocurrency, made headlines in December 2017 when its value sky-rocketed to over AU$25,000 for the first time. But within a few days it was back down below $15,000, and it started 2018 worth just over $17,000.

These might sound like pretty big fluctuations, but that’s nothing when you consider that a year ago one Bitcoin was equivalent to around $1,200. This means the currency has achieved growth of over 1500% in just a year.

So come on, even if you have no interest in economics, you have to admit you’re a little bit curious about what’s going on here.

 

An evolving technology

Cryptocurrency is a highly technical field which combines tech, economics, money, maths and social factors. Although it’s been around for almost a decade, it’s still in the early stages.

Once viewed as a niche product for nerds and those who were up to no good, digital currencies are rapidly becoming a mainstream vehicle for trading and investing.

But before you jump on the cryptocurrency bandwagon it’s best to have at least a basic understanding of what you’re getting into and how it works. So here you’ll find answers to common questions about Bitcoin, blockchain technology, and the wider digital currency market.

 

Where did cryptocurrency originate?

In 2009, a person or group calling themselves Satoshi Nakamoto released Bitcoin onto the scene, stating a goal of creating “a new electronic cash system” which would be “completely decentralized with no server or central authority.” Once the concept and technology had been established, Nakamoto handed the source code and domains to other members of the Bitcoin community in 2011 and was never heard from again.

 

What makes Bitcoin different?

Unlike the money we’re used to, Bitcoin has no physical representation – no notes or coins. Its decentralised structure means there is no bank, governing body or other authority in charge and issuing new currency. Instead, it’s ‘mined’ by powerful computer networks.

And you won’t be asked about your address, tax number and mother’s maiden name when you buy Bitcoin; ownership is completely anonymous and transactions are conducted through encryption keys.

 

What does ‘mining’ Bitcoin involve?

It’s not something you can take up as a hobby for the weekend, put it that way. Mining Bitcoin requires advanced maths, excellent record-keeping, and a lot of computing power.

All the transactions that occur in a certain period of time are recorded by the network in a ‘block’. The ‘miners’ are computers (run by individuals, groups or companies) which run special software to create an enormous digital ledger from the transactions in each block. Once combined, these blocks form the ‘blockchain’ – an open transaction record that will keep going forever.

The software that miners user converts the data in a block into a sequence of code known as a ‘hash’. Doing this requires powerful computers and large amounts of energy. When a new block is released, thousands of miners race to be the first to successfully process it. Why the competition? Because there is a nice reward on offer to whoever is the first to create a perfect version of the hash.

New hashes are placed at the end of the blockchain and are available to view publicly. As a reward, the successful miner receives payment in Bitcoins. The block reward currently stands at 12.5 Bitcoins (about AU$225,000 at time of writing) but this is set up to gradually decrease over time.

 

How are Bitcoins valued?

The value of a Bitcoin is largely determined by how much people are willing to pay for it. In this respect, it’s similar to shares.

According to the protocol put in place by Satoshi Nakamoto, only 21 million Bitcoins can ever be mined. So far, just under 17 million have been mined. This limited supply but no real intrinsic value makes Bitcoin different to shares, which have value based on a company’s actual or expected revenue.

Since there is no central governing body controlling supply and other factors, Bitcoin value fluctuates more than most established currencies. Being the first of its kind, there is really no way of knowing what may happen to its value in the future – particularly when that 21 million maximum is reached.

 

How do you buy Bitcoin?

If you have weighed up the risks and decided to dabble in the cryptocurrency market, you can use a digital currency exchange to buy and trade Bitcoin, Ethereum, and thousands of other digital currencies.

Coinbase, Coin Corner, GDAX, Coin Loft and Independent Reserve are just a few of the exchanges operating in Australia. Since there are so many to choose from, do your research and make sure you pick one that’s suitable for the types of transactions you want to carry out.

Some digital currency exchanges will allow you to purchase a certain amount of currency anonymously, but for larger transactions you’ll probably need to verify your identity. You fund your virtual wallet from your bank or PayPal account, and once that transaction is complete you can use the funds to buy Bitcoin or other currencies.

 

What do you do once you own Bitcoin?

The list of merchants in Australia who accept Bitcoin as payment for goods and services is still relatively small. However, adoption rates are growing and some Bitcoin ATMs were introduced last year.

But you don’t have to spend your Bitcoin; you can just hang onto it in the hope it will rise in value. It doesn’t cost anything to own, but you’ll probably have to pay an exchange fee whenever you buy or sell the currency.

 

How risky is it?

Aside from the lack of regulation and legal governance, Bitcoin is risky as both a currency and an investment. You don’t wake up in the morning wondering what the $10 in your wallet is worth. But when it comes to Bitcoin, a lot can change in just a few hours. Of course, it’s the thrill of this uncertainty that attracts some traders.

The anonymity of Bitcoin transactions appeals to people who don’t like the idea of companies, governments and marketers tracking their every move. However, it also means you don’t know who is selling Bitcoin to you or buying it from you. Money laundering is, unsurprisingly, rife.

There is also a substantial risk of theft, both for individuals and exchanges. You don’t have to do much Googling to uncover plenty of horror stories. And unlike credit cards which come with fraud protection from banks, with Bitcoin there is no guaranteed way of recovering your losses or getting refunds. A transaction can’t be erased from the blockchain.

 

What about other cryptocurrencies?

There are over 1,300 different cryptocurrencies floating around on the internet, although many have a value that’s in the cents rather than the dollars. These are sometimes collectively referred to as ‘altcoin’ (alternatives to Bitcoin).

Since each currency operates in a different way technically and offers different benefits, there is room in the market for many to thrive. However, only time will tell which ones survive this volatile initial period.

 

Is it worth investing in digital currency and blockchain technology companies?

Although there has been talk of a cryptocurrency bubble, the market is still going strong. Yes, it’s volatile, but there is certainly a place for it in this digital age.

As with shares, you should do your research to find out about the currency or company you’re investing in, and who is behind it. Blockchain technology is constantly advancing so there are many undervalued currencies and platforms out there.

We’d suggest you start off small while you get to understand the market, and certainly don’t re-mortgage your house just so you can buy Bitcoin.

 

A quick recap:

  • Digital currencies like Bitcoin exist only online.
  • The market is still quite new and highly volatile.
  • The supply of Bitcoin is limited, and it is released to ‘miners’ who process transaction files and add them to the blockchain – a giant ledger.
  • Digital currency exchanges allow you to buy and trade cryptocurrency.
  • Investing in cryptocurrency or blockchain is risky so approach with caution.