Australia is in crisis! | The Finn Review March 2018
I’ve been inspired by a post one of our members shared this month on Facebook, and wanted to share my opinion on what I think is responsible for the biggest destruction of wealth creation and happiness today…
Here are the facts:
As of December 2017, there are over 16 million credit cards in Australia netting a national debt and accruing a whopping $31 billion in interest annually.
WE have a zero tolerance credit card policy. What that means is ‘No credit cards. Full stop! And nope, not even for emergencies.”
We’ve seen the evidence demonstrating just how destructive they are.
But we didn’t always think this way…
My personal journey with credit cards
I personally once believed in the use of credit cards.
Because I always paid them off in time, I never paid any interest and I benefited from the attached rewards programs.
At one stage I even used interest-free balance transfers and used the funds to invest and make money. *insert surprised face emoji!*
I thought I was so clever until it all came crashing down.
I lost track of the interest-free period on one of the cards, and was crushed with interest penalties.
Then I racked up a bunch of debt on an overseas trip and suddenly had all this credit owing and no money to pay any of it off.
Since we’ve been tracking our member’s spending, we’ve accumulated a lot of data and discovered other startling facts.
People who use credit cards spend approximately 20-30% more.
It doesn’t matter if you pay your card off in full each month, this still means 20-30% less you can allocate toward your investment or savings goals. This additional 20-30% is usually made up of mindless purchases and adds no value to your life.
Remember, credit card companies aren’t in the charitable business, there’re in the business of making money!
They employ very smart people who’re focused on psychologically manipulating you to purchase more, and to make mistakes so they can capture more of your hard earned $$ into their greedy margins.
To illustrate this point, minimum repayments are so low, allowing the consumer to carry more debt. Someone who can only afford to repay $100 per month can maintain a credit limit as high as $5,000. (The $100 repayment represents 2% monthly interest on the $5,000 owing.)
Don’t allow yourself to be a sucker
Cut up your credit cards and get yourself into a strong financial position where you’re always ahead and have your own money to make your purchases, rather than using credit.
Be more like our WE member who feels free and empowered:
Superannuation is one of the best savings vehicles we have in Australia. It’s the most tax-advantaged structure to invest your money in, and for millennials is most likely going to become one of our largest investments.
On top of this, having a self-managed super-fund (SMSF) could be one of the smartest decisions you make for your financial future.
When’s a good time to establish an SMSF?
If you have $150,000 or more in your super, it may be time to consider asking your adviser to determine if this may be a suitable option for you.
Back to School
WE Investment Philosophy Additional Principle 9: Invest in what you know for part of your strategy.
A great way to ensure you stay interested in your investments, and also potentially add some extra return to your portfolios, is to allocate a small part of your investment strategy into things you personally either have interest in or have knowledge about.
My favourite thing about working with Gen Y / Millennials is the majority of you are extremely well educated, are achieving well in your careers (potentially experts in certain fields) and are also often very well connected. This means there are investment opportunities you may even know more about than we do, and these could form part of your investment strategy.
We’re very open to working with you to incorporate some of your own investment decisions into your strategy. In fact, we love this! It generally increases your engagement with your investment portfolio, helping us to get better results overall for you!
It goes without saying: your coach won’t simply just accept anything you propose without questions. We need to ensure you have a good understanding of what the investment is, the potential risks involved and together we’ll determine how it’ll fit best into your investment strategy.
We absolutely won’t allow you to jeopardise your goals and values because of a “great” investment opportunity.
Remember, we’re investment agnostic. Please come to us anytime you’re thinking of making an investment decision to ensure we can help coach you through the decision making process.
Finn’s fun facts
I often find playing around with a calculator really helps me understand concepts.
What I love about playing around with this calculator is how important the amount you actually live on, and also what your saving rate is, in determining your financial freedom number.
- If I desire a $100k in annual income to be financially free then my financial freedom number is $2m.
- If I am currently earning $100k and saving $10k annually, then this will take me approximately 34.9 years to achieve.
- If I saved an extra $10k each year, it’d wipe 7.7 years off the time it’ll take to reach my $2m target.
Playing around with this calculator will show you the greatest thing to help you reach your financial freedom number is not actually earning more money, but about increasing your annual savings amount.
Back in late December 2016 I declared I was going to attempt to buy no items of clothing in 2017. When I say clothing I mean everything… ski gear, workout clothes, even socks and underwear!
Why did I set this goal?
I had a few reasons:
- to save money;
- to make use of what I already had;
- to minimise my environmental impact; and
- to embrace the minimalist movement.
So, how did I go?
Well, I am stoked to announce I made it through the year without buying a single item of clothing!
However, what’s even more important to me is how my mindset shifted during the year. It’s now March 24, 2018 and I still haven’t bought anything new, even though I don’t have any restrictions around this now.
What changed for me?
I learned through this experience we seriously have way more than we need.
I really thought I’d struggle through the year and on January 1st I’d go out on a massive shopping spree to make up for all the lost time.
But then New Year’s Day rolled around and I didn’t have this desire at all. Through my experience, I’d come to realise I no longer wanted to buy new things just because I could or just because there was a new model of something available.
I now only want to buy something if I really need it and will greatly value it.
This isn’t about being cheap, in fact, it’s probably the opposite.
It’s about being intentional and conscious with my buying decisions and making sure I’m really getting a good return on the value equation (personal value and satisfaction in return for the money I’m spending).
I discovered some items in my wardrobe were so much more valuable to me than others. As such I’m now actually more willing to invest good money in these types of items.
I love my ski gear, however I don’t need three sets and a new one each year.
I love my black wool jacket I thought was an extravagant purchase when I paid $800 for it 9 years ago. Considering how long I’ve had it, it’s probably one of the best value items I’ve ever bought!
I love my red check jacket from Oscar Hunt (I get comments on it every. single. time. I wear it!).
I love my lulu lemon workout clothes.
And most of all (confession) I love good quality underwear and socks.
What’s been the biggest surprise to me however, is when I share this journey with others.
The most common response is people not being able to understand how I managed to do it and how they don’t think they could ever do it.
This made me realise the consumerist and materialist epidemic is potentially worse than I’d previously imagined.
This journey is about a lot more than just saving money.
I came across some super interesting research that’s proving the more we have, the less happy we actually are.
My all time favourite book on this topic is Stuffocation.
I challenge you think about this:
Could you go the rest of 2018 without buying any new clothes? What could you learn from the experience?
At the same time, perhaps reflect on what you spent last year on clothes. What it could have meant to have invested 50% of those funds toward your goals and spent the other 50% on experiences?
My guess is you’d have been a lot happier for doing it.
Until next time,
PS: you can check out my Oscar Hunt jacket in action at one of my recent speaking gigs, here.