Better Finances. and Sleep.

Transcription

1 Better Finances and Sleep. A discussion paper for busy families on managing debt, creating wealth and other financial issues that may be keeping you awake at night. By Lachlan King

2 I worry about our big mortgage, big repayments, and big household bills. No matter what we get paid, we never seem to have enough money. Mary, 40 Overview of this paper Does worrying about money keep you awake at night? Maybe it s not money directly, but the implications of not having enough now and in the future. To reduce debt and build wealth, busy families with children must navigate through many challenges and stressors around their personal finances. This discussion paper highlights Octane Partners research into the issues that keep busy people awake at night when attempting to manage debt, create personal wealth and live life. 2

3 Contents What this paper is about...4 Research...4 Australians financial situation today...5 What motivates us to earn? 6 Providing opportunities for (and protecting) the kids Enjoying a nice lifestyle now Saving enough for retirement What keeps us awake?..7 Lack of savings Not paying off the mortgage Household expenses out of control What stops us asking for help? We don t know who to see It s going to be expensive We should be able to do it ourselves Case study: Stephen and Kate. 10 Tips for choosing an adviser Conclusion About the author About Octane Partners References

4 What this paper is about So you ve probably purchased a house, settled into a career, and have children. You may have a partner, or you could be separated or divorced. Either way, you are likely at the stage of your life when you are thinking about making the most of now, but also with an eye on the future. Life is busy. Life is satisfying. And life is probably a little more serious than it used to be. You might be earning more money, but you ve got lots of expenses too a mortgage, children s education, holidays, lifestyle, and opportunities not to be missed. And all of these come with a price tag. Sometimes, the stress of debt, falling behind, or not having enough for a comfortable retirement might be keeping you awake at night. I am good at managing our household cashflow but not in managing the bigger picture. We ve never paid interest on our credit card but don t have regular savings. And when it comes to strategy and investment decisions, we are rubbish. Scott, 46 In this discussion paper, Octane Partners explores: 1. What motivates us to earn a good income. 2. What financial burdens keep us awake. 3. What stops us asking for help with managing our personal finances better. In a real case study with Stephen and Kate, we highlight some typical issues that you will likely relate to. We also provide a checklist of what to look for when choosing a financial adviser to guide you through becoming better managers of your personal finances. Research For many years, Octane Partners has worked with busy families with children at this middle stage of life couples, individuals, separated, or single-parent families. More recently, Octane Partners has conducted formal research by interviewing people within this group. Throughout this process, Octane Partners has identified the common issues that busy families face and what most likely is interrupting your peaceful night s sleep. As a part of this ongoing research project, Octane Partners has put together this discussion paper to share these thoughts. 4

5 Australians financial situation today Australians today generally have more debt than ever before. Some of us struggle to manage cashflow or pay bills. But we also have more wealth than previous generations. The Australian Bureau of Statistics (ABS) regularly looks at the way spending patterns change for Australian couples as they have children and grow older. In , Australian households spent, on average, $1,236 per week on goods and services. However, spending varied considerably according to the household s life stage. For example, younger couples without children spent $1,429 per week, while older couples over 65 spent $855. The highest weekly spending was couples with children aged between 5 and 14 years spending $1,670 per week 1. Household costs included were rent and mortgage repayments, food, transport, recreation, medical expenses, household furnishings, clothing, electricity and gas. I worry about the amount we spend on our credit card each month. Both my husband and I are currently wired as spenders and we need to change that. Mary, 40 The ABS reported that discretionary spending recreation, eating out, alcoholic drinks, and personal care reduced for couples when children arrived. But these reductions were offset by increased spending on more basic items such as food, child care, power, health insurance, nappies, and children's clothing and footwear. Despite there being more expenses for families in this life stage, most families admit their discretionary spending could be better controlled. Recent research from Moneysoft 2 indicated that simply tracking discretionary spending on items such as entertainment, travel, hobbies and espresso coffee decreases people s spending from $ to $5,730 over 12 months 3. 1 ABS Budgeting, cashflow software provider 3 Adviser Innovation

6 What motivates us to earn? I am motivated by three key drivers 1) security and being able to provide for my family, 2) financial independence from credit, family and debt, and 3) success in knowing that I have achieved something. Mary, 40 Most of us are motivated to earn money some more so than others. Some people are keenly motivated by pride and the sense of accomplishment in doing well. In our experience in working with clients, we find there are three primary motivators to earn. 1. Providing opportunities for (and protecting) the kids For people with children, being able to provide for your family and for your children is a big motivator. Maybe you feel you didn t have much as a child and want to give more to your own children? Or maybe you want to send them to the best school and ensure they do not miss out on extra activities? Either way, you probably feel a strong sense of innate protectiveness for your partner and children. You don t want to burden them with the stress that money (or lack of it) can bring. Similar drivers motivate others to assist ageing parents. This stems from a real sense of responsibility towards elderly parents and wanting to provide some financial assistance in those final years. 2. Enjoying a nice lifestyle now Having enough cashflow to LIVE now not just for household expenses is another big motivator to earn. Paying off the mortgage, and keeping up with the Joneses are all motivators that our clients say encourage them to earn. Enjoying life now, time with family and friends, holidays that build lasting memories are big motivators for many clients. 3. Saving enough for retirement For some this is a long way off, but if you re over 40, it s probably starting to edge into your thinking. You don t want to work forever. You probably want to retire early enough so you can still enjoy life. And aged care is getting more and more expensive. Knowing when you can comfortably afford to retire will help you look forward to your retirement years with confidence. 6

7 What keeps us awake? Sleep disturbance is an increasing problem for people in their prime (middle age!). Chronic pain, menopause, alcohol or caffeine, relationship worries and children all keep us awake. However more than half of us stay awake at night because we are worried about finances. Many of us do it wake at 3am pondering thoughts about money-related issues. Our research indicates there are three main financial worries on clients minds. 1. Lack of savings Many people live from pay to pay with little savings. This lifestyle can cause significant stress, particularly at the end of the pay period when funds are running low. You may feel you re on a treadmill, as you cannot afford to put even a small amount of money aside for savings. To avoid unnecessary worry, budgeting is essential. Drawing up and sticking to a monthly or weekly budget can really help to take the pressure off. Money worries can definitely interrupt my sleep but it s more likely to be the whole feeling of being overwhelmed. I worry about our financial structure, or the pace of improvement being too slow. I lie awake writing lists in my head. Mary, Not paying off the mortgage In a similar vein, many of our clients feel like they re not making significant enough headway on their mortgage. Some express this in terms of the pressure of matching it with friends who have paid off their house, while others still have expensive cars and credit card debt which limits their ability to reduce their mortgage. Universally clients who have paid off their mortgage feel a big sense of relief, knowing that the building blocks are in place for a prosperous financial future. 3. Household expenses out of control With mortgages and other family and household expenses on the rise, more and more families are finding it difficult to afford discretional spending on lifestyle items such as espresso coffees and takeaway. We attribute this in part to almost a sense of giving in, or avoiding their financial reality. Well managed cashflow can help organise household expenses and provide a greater sense of control. 7

8 What stops us asking for help? You probably know intellectually that you need and would value help in getting your personal finances in order. In our research we identified some fascinating reasons why many people don t actually seek help. Here are some of the common reasons why people don t ask for financial help. 1. We don t know who to see Trust is a big issue. Asking for a referral can definitely be a good start, but you need to ensure you do your own due diligence first. Finding out how a financial adviser works, how they are remunerated either commission or fee for service can change your perceptions. Fee for service means you pay for advice, not on the product or service that is recommended. 2. It s going to be expensive Some people think the process is going to be expensive, but really when you look at it rationally, not seeking advice is way more costly in lost earnings and lost savings. I worry about who to contact and what their motivations are. I wonder are they just there to sell me their investments? Ian, 49 Although it s impossible to measure the cost of not seeking professional financial advice, think about the costs of: Consequences how are different financial decisions interrelated? For example, a decision about whose name an asset should be purchased in will have profound capital gains tax implications when that asset is sold later. Mistakes can you afford to learn from your mistakes or would you prefer to rely on proven frameworks? The Unknown what s going to happen in the future makes it hard to plan when you don t know, but putting it in the too hard basket is not the answer. Time sometimes it s better to pay someone for their expertise: you stick to what you re good at. 8

9 I think to myself that s it s going to be expensive and that I should be able to do it myself. I also worry that we should be more organised before seeking help. Janine, We should be able to do it ourselves You may feel embarrassed thinking you should know more and should have a better handle on your finances. But think about when your car breaks down. You don t try to fix it (unless you are a mechanic), do you? If you have a medical condition, or your fridge breaks, are you embarrassed to seek help? In a similar vein, you may not want to admit to yourself or your partner that you are out of your depth. Or you may feel intimidated that you don t understand the financial jargon. Finding a financial planner who understands you and speaks to you in a way you understand speaks volumes. They do exist! 9

10 Case Study: Stephen and Kate Kate, 43, and Stephen, 44, are married with two children, ages 11 and nine. Stephen is a self-employed builder/carpenter doing predominately home renovations. He makes an annual average income of $85,000. Kate is a full-time marketing manager earning a salary of $130,000 per year. She works from home two days per week. Keeping them awake at night Several financial issues worry Stephen and Kate: school choice, not enough cash flow, not paying off credit card, not paying off house are just a few. They need both incomes to service their debts which includes their home loan and school fees. Although they have strong cash flow, they have little to show for it other than the equity in their home. Their credit card is regularly at limit and often they only meet the minimum monthly payment. What happens if Kate or Stephen die or get ill? Will there be enough? Will they ever be able to retire? 10

11 Octane Partners advice Octane Partners listened to Kate and Stephen s concerns and what they wanted to achieve. Octane helped Stephen and Kate by: No matter what we get paid, we never seem to have enough money. We certainly do have enough, but it s frustrating. I have come to learn that a good accountant, a good financial adviser and a good bookkeeper are your best assets. Janine, 43 1) Setting up cash flow monitoring to see where the leakage is. 2) Establishing both financial and personal goals and monitoring and encouraging Kate and Stephen to achieve them. This included a special family holiday, a new car, having a cash fund with a certain amount in it for comfort and allowed them to start to tick off some of their bucket list items sooner than anticipated. 3) Reviewing their mortgage to make sure they had the best deal in the market. This allowed Kate and Stephen to reduce their monthly expenditure due to a rate and fee reduction and to finance the credit cards onto much lower rates. 4) Implementing an insurance portfolio to make sure their income continues if either of them can t work and should the worst happen, there is enough for each other and the children. 5) Establishing an education funding facility to ensure some if not all of the kids high school education was funded. 6) Commencing a wealth accumulation strategy using debt recycling to start building assets outside the family home. 7) Setting up effective strategies through salary sacrifice and self-employed super contributions to assist with retirement funding 8) Implementing an estate plan to ensure their assets will be transferred to who they want when they want if something should happen to either one of them. 11

12 Tips for choosing an adviser Most people with families, a mortgage and the desire to build assets for now and the future can probably relate to many of the issues highlighted in this paper. But knowing what to do, where to go, and who to trust can be the most difficult step. Following is a checklist of what you should consider when choosing a financial adviser who may be able to guide you. Does the financial adviser co-ordinate a team of professionals including your accountant, bank, investment managers, and lawyers? Does the financial adviser have comprehensive experience and knowledge of your needs? Does the financial adviser understand issues such as share and asset structuring, managing income and debt, superannuation, succession planning, and estate planning in the context of your overall financial situation? Does the financial adviser offer a range of services including insurance options and mortgage broking to provide a complete picture? Does the financial adviser understand your long-term strategy, personal needs, and fundamental values? Do they tailor advice to suit your changing needs? 12

13 Conclusion This paper highlights many of the practical issues that busy people couples or individuals with children, face when working to build wealth and provide for their families. Financial advisers who understand these issues and have experience working with families like these will advise you best to ensure you reach your financial goals. Thank you to the many people who wish to remain anonymous for their time and valuable input in preparing this discussion paper. About the author Lachlan King is the principal wealth adviser and director of Octane Partners. He has been servicing clients financial planning needs since He works collaboratively with clients to help bring structure to their financial life. Lachlan then guides clients to build goals based plans and implement the strategies required to meet those goals. Octane Partners believes in being authentic and treating all clients as friends. These values stem directly from Lachlan s personal beliefs and practises. Lachlan is an Authorised Representative of Magnitude Group Pty Ltd ABN , AFSL His ASIC authorised representative number is Lachlan is also a credit representative of Australian Financial Group (AFG) ASIC credit representative number

14 About Octane Partners Since 2002, Octane Partners has been successfully helping families, business owners, and professionals meet and exceed their financial goals and objectives. Octane Partners transform clients financial futures with four easy steps. STEP 1 - LISTEN AND UNDERSTAND We listen to you as you explain your current financial position and what you wish to achieve for you, your family and your future. To maximise our understanding of your goals and ambitions we will ask questions and confirm our understanding to ensure we have clearly defined your goals and objectives. Our costs are clearly explained to you upfront before you proceed with any advice. STEP 2 - DEFINE AND INNOVATE Incorporating the information we have gathered from you, we uncover the gaps between where you are now and where you want to be. We explore potential opportunities and define strategies and solutions that will result in the best outcome for you and your family. We will present to you a financial plan (Statement of Advice) that is easy to understand and addresses all of your financial goals and objectives. STEP 3 IMPLEMENT AND SHAPE Once the strategy has been agreed upon, the necessary paperwork will be completed and the team at Octane Partners will proceed to implement your new financial plan and bring it to life. STEP 4 REVIEW AND REFRESH The most important part of the financial planning process is the continual monitoring and refreshing of your strategies and investments to make sure they remain on track. Our ongoing service program ensures that your financial plan keeps up-to-date with the ever-changing environment of financial markets, government legislation, health issues and your family circumstances. 14

15 References Advisor Innovation. (21 February 2017). Advised clients reduce discretionary spending. Anderson, N.L. (31 July 2015). One Simple Way To Stop Financial Procrastination. Forbes. one-simple-way-to-stop-financialprocrastination/#e2302a5afa2b Australian Bureau of Statistics, Spending patterns of couple families. 0Main+Features30July+2013 Australian Securities and Investments Commission Moneysmart. Financial advice costs. Kay, M.F. (26 November 2016). I Would Hire A Financial Advisor, But... Forbes. Shin, L. (7 August 2013). 10 Reasons Why Financial Plans Aren t Just For The 1%. Forbes. reasons-why-financial-plans-arent-just-for-the- 1/#7654ad09d7a3 15