Financial advice is just too expensive

Really? So that Hermes Birkin bag at a bargain basement price of $7,000 was a worthy investment? You think it’s a symbol of wealth when in reality it’s more likely a symbol of financial mismanagement.

With a straight face you tell me that you can’t afford a financial planner – or that you don’t trust them. After all, the reputation of the financial planning industry is in tatters.

There may be good reason for the distrust some of us have in financial planners, but that doesn’t mean that we can dismiss the importance of managing our financial affairs and relegating it into the “too hard” basket.

Let’s look at the options you have when it comes to financial responsibility and who manages your money.

Do nothing

By far the easiest option, deciding to do nothing takes the pressure off completely. For a while anyway. You may have a bank account, credit card that’s under control, rent that is never late and a superannuation nest egg that is growing a little too slowly, and you decide that’s enough.

And you may be right. For now. But there may come a day where you look at that little nest egg and are thumped by the realisation that it won’t tide you through 30 years of a comfortable retirement.

Then, after possibly attending to your love affairs for many years, you can be at liberty to decide when you are ready to attend to your financial affairs.

Outsource

We think nothing of outsourcing our housework because we don’t like to do it, or even outsourcing childcare because you need to go to work, so if you just can’t bear to look your finances in the eye, why not outsource it?

A bank manager can be a good start, but this is where a good financial adviser can come into their own. Not one who dishes out cookie-cutter plans with the name of another client inserted where yours should be, but one who takes the time to understand where you are at, what’s important to you and takes steps to improve your situation. A good one will also explain what they are recommending in a way that you understand.

Get educated

Some people find waiting for a bus to take you somewhere to be tedious, especially when you can drive yourself there. Similarly, handing over the reins of your financial plans to a financial adviser is just something you don’t want to do. And that’s okay. We don’t all need to take the bus.

Just like driving yourself to your destination requires knowledge of road rules and a licence to drive, the same diligence is not required when managing your own money. Perhaps this is how some of us get caught in “get rich quick” scheme that double as “how quickly can you lose it” schemes.

Taking this route means you need to get educated. And that means taking an interest in your money. You don’t need to enrol in finance at your local university to take the self-drive option, but you do need to learn some basics.

If this seems tedious and boring to you, decide to turn it into a hobby. Start with one thing, such as finding a suitable high-interest bank account for your savings, or consolidating your superannuation to avoid paying two lots of fees. And read up on the views of experts.

You may find that your interest will snowball from there – in more ways than one.

Are you prepared to invest in yourself?

You’ve toyed with the idea of getting yourself a financial planner in the past but have been reluctant to fork out thousands of dollars without knowing what you’re getting yourself into. After all, you wouldn’t buy a car without a test drive.

So you decide to try the DIY option first, and take a quick look around the website of your superannuation provider to see if you can figure out what to do with that little nest egg growing in your everyday bank account and earning interest of less than one per cent.

Then you scan the websites of some other wealth managers, and you think: “Why do I even need a financial planner? I can do this myself.”

So you read on, and it’s not too long before you feel bamboozled by all the jargon. There’s talk of bond markets and share markets – and you realise this is nothing like walking down the aisles of your local supermarket where you can quickly sample a grape before committing to a bunch. It looks like you need to know a lot about investing before you even start, and there’s no try-before-you-buy option.

The first big problem you encounter is that these so-called experts in the industry ask the reader “What sort of investor are you”, or they demand that you identify your investor profile. And you think “How would I know? That’s why I’m here”. You wonder if this is their way of excusing themselves from losing your money in future because, hey, you made the choice to put your money in that tanking fund based on your investor profile.

But, regardless, you keep plugging away. The investor profile styles brandied about could be variations of cautious, risk-averse, conservative, active, defensive, passive, balanced, optimistic or even aggressive. Some of these “experts” even try to help you work out which bucket you fall into. Then there’s that 500-word disclaimer at the end that makes you lose all confidence.

It all looks so hard that you opt for the highest interest rate on offer for a high-yielding bank account. Do you see what you’ve done? You’ve gone from trying to find out what suits you as an investor straight to choosing a solution. It’s like deciding you need a new car and selecting the first red one you see because that’s your favourite colour. Never mind that it’s a two-seater and you have a family of four, or that it’s manual and you’ve only ever driven an automatic.

So you decide that your investor profile is best summed up as “confused” and stick to choosing a bank account. Which may not be such a bad solution, but it still leaves you wondering if there is something better you could do with your money. The short answer is that yes, you probably can.

But how much better? Take a look at this chart for how various investment types would have performed to the end of December 2012 if you’d been lucky enough to have a spare $100,000 sitting around about 10 years ago.

If you’d invested in cash you would now have close to $170,000. Not bad, you’re thinking. The chances are that the value of your home would be have performed similarly (for every $100,000 in value). Even the worst performing investment in this chart, Australian property trusts, would have netted you close to $130,000 over the same time.

Interestingly, with all the talk in the media the past few years about Australian shares tanking – and they did after the US sub-prime crisis hit in 2008 – they are again forging ahead after a dismal couple of years and, generally, were the best-performing investment over this same 10-year period.

Of course, you’ve probably heard that past performance is not an indicator or future performance and blah blah blah. But there’s truth in this, which makes it a bit of a gamble trying to predict what will happen in the next 10 years.

Let’s be clear, I’m not trying to tell you where to invest your money, just that it’s worth learning a little more about each of these investment types before taking the plunge. The reality is that you’re probably already invested in most of these investments through your superannuation anyway.

Look at it this way: when you’re on the lookout for a new car you may not realise you want remote keyless entry or even a shoe compartment until you know it’s out there. In the same way, it doesn’t really help to answer questions about your investor profile while you are in the dark about the options available to you.

Once you understand a little more about how investments work and how they perform in different economic climates, you’ll be in a better position to define the sort of investor you really are. Until then, you may be wise to simply stay in that high-yielding cash account.  Or take the plunge and outsource your investment decisions to a financial planner.

But why not try investing in your own financial education first? You may find that you can choose your own investments and still sleep soundly at night.

The new normal: Principles of life get a makeover

It was only 20 years ago that 44% of Australians retired before age 50. That’s right, nearly half of all Australians weren’t even 50 when they retired, and only a meagre 12% worked beyond age 60.

It was the done thing to leave school, get a job and stay in it for the next 30 years or so. True, people also generally lived shorter lives.

Today, huge improvements in health care and living standards means that people are living longer and are much healthier for most of their working lives. As a result, our generation spends more years working than any other in history.

With improved educational standards becoming the norm, let’s say an average Australian enters this phase of life at about age 20. The official retirement age today is 65 years. In another 10 years time, this age will be 67, and who know how much higher this age will be by the time most of today’s young Australians get there. This means there will be a good 45-plus years that an average Australian will spend in their working life before they can even start to consider receiving an age pension or accessing their superannuation.

That’s a lot of sinks to plumb, cars to sell, accounts to balance, children to teach and customers to serve, depending on your specialty.

In fact, it’s fair to say that younger Australians today are expected to work almost twice as long as previous generations. Couple this with job instability, low wages and meaningless work, and it’s no wonder an increasing number of people are disheartened by their work prospects and in some cases even suffering psychologically.

So what’s the solution? The government’s coiffures will be squeezed further by the increasing demands on the age pension – the baby boomers are about to head into retirement and are living longer – so don’t expect any good news from there. The price of tertiary education is also expected to increase, and let’s not even get started on price of houses these days.

Increasingly, you are going to need to depend on you. This means you’ll need to pay for your own education, earn a living and save for your own retirement. Hence, you’ll need to work longer. It can be overwhelming to realise that you could be stuck in that boring job until age 67 as you watch the ever-younger up-and-comers through your bifocals surpass you in status and possibly income. And it’s no wonder the movement to living frugally has taken off the way it has over the past few years as this new reality sinks in.

We live in an age where past career templates no longer apply. Nearly all of us know someone whose job has been made obsolete by technology or, increasingly, cheaper labour in an emerging economy.

While it may be tempting to just roll over and sleep some more, or tune into the latest TV reality show shot on the beach that is so unreal you wonder how it can even be called a reality show, you may be better off trying to understand the new normal so you have a better idea of what to do about it.

Here are three life principles more applicable to our time.

1. One career for life is old school

You may be lucky enough to know what you want to do from a young age and be happy doing that for life. For most of us though, boredom kicks in at some point and stays with us if we don’t take heed of its message. Any why wouldn’t you get bored spending over 40 years in the same career? Even the thought of it can be too much for some.

We are brought up to choose “one” career, not “a few” careers. I propose that we change our mindset to see that it is perfectly acceptable to change careers after a few good years – or even have a couple of different things on the go at the same time.

Interestingly, many of our youngsters these days have trouble choosing one thing only, so they don’t choose anything. See the problem? They can’t bear the thought of being pigeonholed so they opt out of choosing.

Variety is the spice of life, and who’d like to eat the same dinner every night for 40 years? The same should go for your career, so take the pressure off yourself and your kids to choose just one career.

Just start somewhere and know that it’s okay if it leads somewhere entirely different. It’s also okay to prefer more than one thing at a time. You can love the bar job because you get to mix with different people and at the same time you can restore old bikes because you love tinkering with engines. Hell, you may even find a way in future to show off the Harley in your new bar.

2. Study wisely

Parents and teachers have taught us that education is the cornerstone of a civilised and productive society. While this holds true to a point, maybe we need to update this assumption for today’s different circumstances.

For example, let’s look at what’s happening with lawyers in the United States today. For years, parents told their kids to study hard, get a good education and be a lawyer so they could earn a good income and get respect within society. So the kids did this. By the time they grew up, there was so much demand for further education in law that new law schools opened up. Now, there is a glut in young lawyers who can’t find paid work – and many more going through the system. They each owe about $US150,000 in tuition and end up working in department stories. Read it for yourself.

The biggest irony is that these young lawyers are considering suing their law schools because they are “fraudulently marketing the profession as a secure source of employment”. Truly!  Worse, in a few years entry-level law jobs may also go to low-paying graduates from emerging economies who look to America for a better life (after an expensive bridging course).

I’ll bet some of those students wished they could go back in time and become a trader’s apprentice instead – they’d be running their own show by now without the overhang of a huge debt they may never be able to pay off.

Studying hard shouldn’t be underrated, but it doesn’t always pay off. The costs of tertiary education are increasing in Australia and jobs in some industries are diminishing. We need to rethink the practicalities of what we choose to study.

3. Passion = interest + time + application

A mantra of our time is to “find your passion”. This may be true for a few, but for most this is a destructive chorus. No wonder there are more people on psychiatric drugs than ever before.

How many of us really leap into this life with a screaming passion to achieve something that will earn us millions and leave us bursting with more energy with each passing day? Sometimes we are just lucky to survive a day filled with irate customers, whining children and barely enough money to pay our bills.

Sure, discovering your unique interests is a worthy pursuit, and I’d even venture to say it’s essential to a healthy psychological existence, but just don’t expect “finding your passion” to be the magic cure-all. Too many of us remain stuck because we mistakenly believe we haven’t yet discovered some latent passion that once released will open the golden door to all the love, happiness and money in the world.

So find your interests, spend time on them, and apply yourself. At worst, your interests will cost you some money, but at best your spirits will lift and you may develop a latent talent that could earn you millions. This is the path to igniting your passions.

It’s never too late

It’s easy to make excuses such as “I’m too old to change” or “I can’t afford it”, or even “The time is not right”.

I’m not suggesting you completely throw in the towel to your existing life, but you need to know that you are never too old. There’s a reasonable possibility that you’ll still be here beyond age 80, so starting afresh at 40 is not so bad.

So why not put these new life principles to work now?

I’ve decided to budget but feel so stuck

Okay, so you’ve fretted over your finances for long enough, and you can’t bear the thought of being in the same situation with your finances this time next year.

Or, heaven forbid, an even worse position – even though if you are completely honest with yourself you see that this is a very likely scenario.

So you take the bold step of adding a tentative three-hour appointment with yourself in your handy iPhone calendar on an evening when you can’t afford to join your mates at the local pub, and are suddenly filled with trepidation as you hit the save button over how this may change your life.

Will you go from shouting your friends a beer on Friday night to sitting at home alone watching Better Homes and Gardens and taking notes on how to make a better souffle? Can you ever again have your favourite gourmet wood-fired pizza followed by raspberry gelato after seeing the latest thriller starring Bruce Willis at the movies? Hell, will this mean that the only movies you’ll even see in future will be the ones on free-to-air TV on all those Saturday nights when you’ll be as free as a bird with a ball and chain tied to its left leg?

But you take a deep breath as you hit the save button on your appointment and start to count down the days to your own Armageddon.

The day finally arrives when you decide to tackle your demons. And, just as you imagine a demon would, a heavy weariness descends over you in a dark cloud. It would be so much easier to accept that last-minute invitation to see the band only in town for this one weekend and be done with it.

But you choose to stay and face the music at home, alone. With the Birds of Tokyo belting out their latest hit in the background, of course. And you pat yourself on the back for getting off to a great start as you unscrew the bottle of cleanskin Semillon from New Zealand that you bought on special yesterday in anticipation of budget cutbacks.

You take a seat as you admire the latest super-fast laptop with a terabyte of storage in front of you – your last major purchase, you told yourself – and feel that demon clench you around your gut and threaten to annihilate you if you don’t stop this ridiculous attempt to take control of your money. After all, nobody else does it, right?

You hit back by pressing that teeny button to turn on your computer. As it boots up, it teases you by sounding like it’s about to take off to Hawaii in first class to sip Margaritas on a sandy white beach.

Then it hits you like a demon with an oversized baton. You don’t know where to start. As you stare at the blank screen you don’t even know which programs to open, which bills to look at first – or even where to find some of them.

You think of hitting back again by slamming the computer shut and simultaneously giving that demon a sucker punch without realising that, in fact, the demon would be the one coming out on top. You could then grab your wallet, keys and new iPhone in record speed, toss off those shackles and fly out the door.

If this is where you find yourself, stay put. Think of it like training for a five-kilometre run. You don’t put on your tattered old sneakers and expect it to be a walk in the park in record time. You need the right gear and a good understanding of your starting position. Do you have a dodgy ankle you need to watch or an existing heart condition you need to manage?

Then, even though you put in consistent effort over time you see only marginal results with each training session. Until one day you look back and realise that you have completed the course without feeling like you need to lie down for the next hour.

Running can make you healthier, just like budgeting can make you wealthier. Here’s three things you can do now to start your budgeting off in a new wealthier direction.

1. Take stock

Stop and collect your thoughts. In fact, while you’re at it, collect all your bank and credit card statements, bills, information on other outstanding debts, and even your investments and superannuation statements.

You need to know what your financial position is now before you can really do anything positive about it. This becomes the stake in the ground from which to measure your progress. Try to avoid beating yourself up over past mistakes that got you to where to you are now.

Each of these items needs to be dissected to give you a clearer view of where you are at.

2. Select your arsenal

You wouldn’t go jogging in your Prada’s, and you can’t budget properly on the back of an envelope. Just like any job worth doing, you need the right tools.

What are some of the tools at your disposal?

• Pen, notebook and calculator: Trusty old school methods can be just as effective today.
• Spreadsheet software: You may already have Microsoft Excel or iWork Numbers as part of your computer set-up, but there are also free online spreadsheets you can use.
• A budgeting app from the iTunes store: There are now many to choose from, and you can read the reviews from existing users to see which is right for you.

Take your time and investigate your options. Then, if using a tool that is new to you, take the time to learn how to use it. After all, you wouldn’t charge into battle brandishing a gun you not know how to fire it.

3. Diarise a regular date with yourself

To keep a healthy and happy relationship going, we are advised to schedule regular date nights with our partner. To keep your finances healthy, you similarly need to book in a regular catch up.

Do this now before your calendar gets filled with other really important dates. Make a recurring calendar entry – whether weekly, fortnightly or monthly and treat it like boot camp. You may not look forward to it and may not even really enjoy it while you are there, but you are always glad you did it afterwards.

Now, my friends, the real work of budgeting can begin.