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Archives for December 2018

Will I Run Out Of Money?

What if I run out of money?

“I read in the paper on the weekend that more and more retirees are actually running out of money. I am really worried that this will happen to me.”

There are many factors involved in answering the implied question. We know that:

  • Life expectancy for our population is rising every year – we are living longer.
  • Centrelink thresholds have changed and therefore excluded many retirees from receiving a benefit payment.
  • Interest rates are at all-time lows.

We know the stockmarket is volatile and we are only 10 years on from the Global Financial Crisis (GFC) that had a major impact on wealth. We are still nervous about putting our money into this environment because of the risk of losing it.

So instead of that, we are putting our money into the bank.  Did you know that the average term deposit rate since 2004 (all terms, all institutions: source RBA) is 3.45%?

Looking at an average Balanced portfolio of investments, the annual compounded return since inception in 2004 has been 6.62%.  This period includes the GFC-affected years.

This means that if you had invested $50,000 into a Balanced portfolio of investments, reinvested dividends and other earnings, and did not take anything out of it apart from portfolio management fees, you would now be sitting on about $126,000.

If you had taken the same amount and invested it in a Term Deposit at the same time, drawing nothing and not paying any management fees on it, you would now have just under $81,000.

Tell me which of those clients is going to run out of money first if they began drawing a payment from it?

We forget that one of the greatest risks we can take is that our money is simply not earning enough to allow it to support the lifestyle we desire. They have replaced what they see as investment risk with risk of another kind – the risk of running out of money.

There is no question in my mind that we should be properly investing our money in a portfolio that best suits our risk tolerance, rather than sitting it in a term deposit, if we wish to mitigate the risk of running out of money.

 

Please note that this article provides general advice and has not taken your personal or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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5 Steps To Budget For A Debt Free Christmas

Christmas is fast approaching. It will not be long until Santa is saddling up his reindeer and heading to town.

The festive season gives us all a chance to reflect on the year that was, spend valuable time with our loved ones and allow us to re-charge the batteries before doing it all again!  It is also a time that is associated with spending money and a lot of it!

Here are five quick and easy steps to help you put in place your Christmas budget and make this year a debt free Christmas.

1.   Make a list of everyone to whom you would like to give a gift to

This will provide you with focus.

2.   Figure out how much you can afford to spend

This calculation is relatively simple. How much money can you save between now and December 25th? How much of this are you willing to dedicate towards gifts? This figure must be an amount you save in cold hard cash and not the dreaded credit card.

If the number is low, that is okay. Remember, Christmas is not about financially crippling yourself just so you can feel good about giving someone an expensive gift.

3.   Prioritise

Refer back to your list you made in Step 1.

Now you are going to make it a shorter list. Life is about prioritisation.

Separate your list into three groups – paid gift, made gift and no gift.

Since you now know how much you can afford (Step 2), this will give you a better idea of how many people can be on the paid gift list. Knowing your time available, you can limit your made gift list. The others – no gift.

4.   Allocate accordingly and complete

Paid gift – next to each name on your paid gift list subscribes a monetary amount. Be sure that total does not exceed that number you came up with in Step 2. If you had planned to spend $100 on your partner, stick to it. Do not decide at the last minute that you would really like to get them that iPad they wanted, or those new diamond earrings. Stick to the plan!

Made gift – if you are arty and creative make something. Customized cards or Christmas tree decorations are simple yet effective ideas. If you are good in the kitchen, why not bake something? Christmas puddings, gingerbread and other treats are a good idea for close friends, neighbours and work colleagues.

No gift – sometimes the simple things in life mean the most to some. A personalised handwritten card, email or simply just picking up the phone and having a conversation with a family member or friend are great ways or sharing the festive spirit as well as being cost-effective.

5.   Make it work

Do not spend more than you budgeted. You have a plan now stick to it! Discipline is key. Remember you can have a giving spirit without having a negative bank balance.

Don’t forget the reason for the season.

The above is provided as general advice only. It does not take into your personal circumstances or financial goals. If you would like to discuss further the opportunities involved with budgeting and having a financial plan, call to book an appointment with one of our talented financial advisers today!

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