The 7 ways to decide if your Financial Planner is right for you
First of all, congratulations on engaging a Financial Adviser. At present, you are one of a minority (less than 20% of Australians) who have actually engaged in a formal advice relationship. However, how do you know if you are receiving ‘the right’ type of advice for you and your family?! There are over 18,000 Financial Advisers in Australia, with at least half being self-employed. So it is fair to say that each Financial Adviser’s service offering differs a lot from business to business. Therefore, our goal today is to help you understand the 7 key ingredients you should be looking for in a highly productive financial advisory relationship.
The 7 key ingredients to a successful advice relationship are as follows:
- Clearly defined Goals and Objectives: This is the first item an expert Financial Planner will discuss with and help you define. In addition, it is these goals and objectives that he or she should be revisiting at each Review Appointment to ensure they are still relevant (some adjustment may be necessary from time to time) and ensure you are on track to meet them. Your goals and objectives should be defined on a short (1 year), medium (3 year) and long term (5 to 10 years) basis. It is also important to note that your goals and objectives shouldn’t just be limited to ‘financial’, they should also include philosophical or lifestyle goals, i.e. getting fit, following a passion, etc.
- Demonstrating Value (Always, in all ways): Whilst you might have seen value in the advice provided by your Financial Adviser initially, the expertise of a great Financial Adviser is continuing to provide and demonstrate value year after year. A great Financial Adviser will do this by ‘tracking’ your year-on-year progress toward you achieving your short, medium and long term goals.
- Cashflow Is King: Cashflow management is undoubtedly the most important component toward financial success. Research states that clients who are ‘on track’ with their cashflow management are 92% more likely to achieve their overall goals and objectives. The antithesis of a great cashflow management is having the correct structure in place, i.e. a structure that allows you to minimise interest, minimise the use of credit cards and provides your household with a 20% profit each year. An expert Financial Adviser will be able to advise on the optimal cashflow structure for you and continue to monitor (and adjust accordingly) it at each review appointment.
- An Ongoing Engagement Service: Whilst initial service and engagement are pivotal, more important (in my opinion) is the ongoing engagement service of an advice firm. By conducting ongoing review appointments and continuing to build on the initial client-to-adviser relationship, you are given the best possible chance to achieve your hopes and dreams.
- Active Advice Coaching: Coaching is a really important part of the advice relationship. People who want to create effective change in their life always need people there with whom they trust to provide support. An expert Financial Adviser should provide the comfort and support when needed, as well has the ability to have direct conversations when you are not making the changes you have committed to.
- A Trusted Relationship: Trust is a two-way street. It takes commitment from both the client and the Financial Adviser to work together in order to achieve your goals and objectives. An expert Financial Adviser will know the right questions to ask you in order to maximise their advice value to you.
- Advice Is The Key, Product Is Not Advice: Unfortunately a large majority of the financial planning industry is under the misconception that product and Funds Under Management (FUM) are the basis for advice. To the contrary, true financial advice is all about understand you as the client and then putting a plan in place that will allow you to achieve your hopes and dreams. The achievement of your goals should be tracked at regular intervals by conducting regular review appointments.
So ‘food for thought’ when it comes to deciding IF your current financial advisory relationship is right for you.
How to get your bank to pay for your next holiday!
Do you know what your current home loan interest rate is?! It’s OK, you are not alone. Our research shows that over 85% of people don’t know their current home loan interest rate.
If you are one of those 85% of people you will most likely be paying thousands of dollars in excess interest to your bank. Why you ask?! Well, the banks give a ‘honeymoon’ interest rate over the first 12 to 24 months of your loan. Then, your interest rate becomes more and more uncompetitive as the years go on. The banks rely upon people being too busy and/or people thinking that it is all too hard (phone calls, paperwork, etc.) to ensure that they are on a very competitive rate. We see this all the time and its simply not fair!
Another way to save on home loan interest repayments is to use an offset account. So what is an offset account?! An offset account is a transaction account that is linked to your mortgage. The positive balance of your account is offset daily against the money you owe on your home loan. This reduces the amount of interest you have to pay on your home loan. For example, if your loan is $400,000 and you have $100,000 in savings, using an offset account will mean you only pay interest on the outstanding home loan balance of $300,000 ($400,000 loan minus the $100,000 savings). This can cut years off your home loan term. And remember your savings don’t have to be that big. Keeping a balance of even $3,000 in the offset will make a difference in the long term.
Lastly, did you know that loan repayments are generally calculated on a monthly basis?! However, you often have the option of paying either fortnightly or monthly. Paying fortnightly is simply paying the equivalent of half of your monthly repayment every two weeks. Paying fortnightly allows you to squeeze in the equivalent of one extra monthly repayment per year. following example gives you an idea of how it works: Assuming your monthly repayments were $2,000, after a year you would have paid $24,000 (12 x $2,000). To pay fortnightly, you split your monthly payment in half, making a fortnightly payment of $1,000 ($2,000 divided by 2). As there are 26 fortnights in a year, you will pay $26,000 (26 x $1,000). This is $2,000 (equivalent to one monthly payment) more than if you were making repayments on a monthly basis. extra amount comes directly off your loan principal, and reduces the amount on which future interest will be calculated. As the interest is less, more of your repayment will be going towards paying the principal off your loan, which means that your mortgage gets paid off sooner.
So, how can you get your bank to pay for your next holiday?
- Understand what is your current interest rate?
- Look at the structure of your current home loan(s), are you using an ‘offset’ account to its maximum benefit?
- On what cycle are you currently making home loan repayments?
By simply actioning the 3 initiatives above, you could save yourself 000’s of dollars in interest. In addition, you will cut years off the life of your home loan. In our experience, if people review and implement the action items above, anyone should be able to pay off their principal residence home loan within 15 years. In doing so, they will cut at least 10 years off the standard term of a principal residence home loan.
The 7 Key Fundamentals of Investing
We are often asked “what is the secret to investing” and our response is always the same, investing is about following our key investment fundamentals principles to ensure your investing success. We have taken the opportunity of summarising our 7 Key Fundamentals of Investing below:
- Set a goal: Without a goal, you can’t achieve anything. Hence why it is vitality important that you set yourself an investment goal, ideally over at least 3 years so as you can maintain your motivation toward achieving your goal. Common goals that we are presented with by our clients are: saving for house deposit, paying off a mortgage, saving for a holiday and building up an income producing investment.
- Start Now: There is no better time to start investing than now, the sooner you start, the closer you will be toward achieving your goal. Excuses are easy to come by, but it is those people who choose not to make an excuse are the ones who will ultimately achieve their goal.
- Start Small: A common misconception is that you have to start with a lot in order to begin investing, this is simply not right. We have clients who start investing with a small sum of money, with the goal that they would like to build their investment over time.
- Be Consistent: Consistency is another key to investing. Investing on a consistent basis, i.e. on a weekly, fortnightly or monthly basis will maximise your ability to achieve your goal. Investing a little bit, more often will give you the best chance in order to achieve your goals.
- The value of compound interest: Compound interest is simply interest on interest. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus previously accumulated interest. Another way to look at it, your money is working harder for you.
- Review your progress: Reviewing your investment progress on a quarterly basis is a smart idea. The benefits of reviewing your investment on a regular basis are two-fold. One, you will be motivated by the progress of investment building over time and two, you will be far more engaged and financially educated by taking an active understanding of your investment over the journey toward your goal.
- Focus on the long term: No matter what happens within investment markets in the short term, you should always focus on the long term – in combination with your investment goals. Investing is partly about patient, which is in the end more often than not rewarded.
Lastly, I just wanted to leave you with a four quotes from the world’s most famous investor – Warren Buffett. Enjoy!
“Always invest for the long term”
“The Stock Market is designed to transfer money from the Active to the Patient.”
“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
“By periodically investing in an index fund, the know-nothing investors can actually outperform most investment professionals.”
Can you afford to keep working?
It might cost you a lot less than you think to ‘retire’!
Working is expensive when you think about it! We have a lot of expenses associated with working, such as clothing, travel (to and from work) and lunches & coffees. In addition, we also have the qualitative expense associated with working. Did you know full-time working Australians spend on average 25% of their lives between the ages of 18 and 67 (yes, the aged pension age is now 67) at work?! What financial reward would you ‘give up’ in order to get back 40 hours per week, across 48 weeks of your year?! It might simply be cheaper for you to retire (in the non-traditional sense), rather than continuing to work.
It is important to note that many people work for reasons other than monetary reward, such as wanting to help others, personal satisfaction, ego and being apart of something bigger – just to name a few. HOWEVER, if you did decide to ‘pack in your job’ one day – how much would you need to live on? Well, we have completed two ‘back of the envelope’ exercises for you to consider below:
- If you are currently on an $80,000 (plus superannuation) remuneration package at the moment, approximately $19,000 of that goes in tax (including the medicare levy). So, with the $61,000 you are left with, we estimate that you spend at least 25% of it on non-tax deductible work related expenses, i.e. clothing and travel. Leaving you with approximately $46,000 per annum to pay your mortgage or rent, food, utility bills, holidays and general entertainment. We think this will come as a shock to a lot of people.
- Let’s look at another example, this time for a married couple with total household income of $200,000 (plus superannuation), on a $120,000 to $80,000 package split. After tax (including the medicare levy), the household will have $146,000 per annum. After non-tax deductible work related expenses calculated at 25%, your household is left with approximately $110,000 per annum. So after each person works at least 40 hours per week, your household would be left with approximately $1,000 ‘take home’ pay per week, per partner. Is this commensurate with giving up almost 25% of your life, just for work?
In terms of what a ‘non-working’ family (for this exercise, two adults and two children) might actually need by way of income, it could be as little as 50% of your current income, when you factor in tax minimisation strategies, the need for only one car per household and no work related expenses. So, is there a viable alternative to working?! Well yes, we think there is if you are willing to compromise and ask yourself 5 important questions, which we have listed for you below:
- What are you actually working for?
- Does more money mean more happiness for you?
- Does more wealth mean more security for you?
- How much money do you and your family actually need to live on (if you weren’t working)?
- What would you do with your life if you chose not to work?
Based on answering the questions above, if money is now not as important to you as it once was, the question you should now be asking yourself is “What pool of investment assets do I have outside the family home that could/should be generating and income for me, and is that pool of assets enough to support my lifestyle now and in the future?” Based on the fact you may actually only need 50% of your household’s current remuneration package.
We encourage you to take the time to ask yourself “why do I spend 25% of your waking hours when you have the potential of only needing 50% of your total remuneration package?”. You might just surprise yourself with you answer.
Six reasons why you MUST have a Financial Coach
Why do the best sportspeople in the world, people like Michael Jordan, Rory McElroy and Serena Williams have a coach? To succeed. Many ‘everyday Aussies’ need to engage a financial Coach to help them be ‘financially better’ but with the hustle and bustle of everyday life – work, kids, elderly parents – how can they be expected to set short, medium and long term goals, let alone measure and assess them on a regular basis? And how can we be expected to have the expertise and/or knowhow in order to navigate a very complex subject.
Tribeca Financal has created six important reasons why you must engage a financial Coach:
- Setting Goals: “You can’t achieve anything unless you set a goal.” An expert Financial Coach will sit down with you to discuss your short, medium and long term goals. Set goals for your personal and financial life. After your goals have been set, your Financial Coach will help you set realistic timeframes in order to achieve them. Then, as you progress through the years you will have the satisfaction of achieving both your personal and financial goals.
- Saving you from yourself: We all have ‘that friend’ who is full of fantastic investment ideas, guaranteed to return 20%, 30% or even 40%. The worry is that some people actually take that person’s advice and make the same type of investment. People who have a trusted Financial Coach relationship not make this type of mistake. This is for two main reasons – one, the clients of a Financial Coach will have a dedicated financial plan in place, so they don’t need to make rash or ill-informed investment decisions. And two, the client of a trusted Adviser can run this type of investment past their Coach, who can point out flaws dissuade them from investing.
- Rational Thinking: Excitement is often a pre-curser to making irrational financial decisions. We have seen this time after time. Considering your long-term goals and objectives, along with rational financial strategy are the two key components toward achieving financial freedom.
- Access to expert advice: Any expert Financial will have a university degree often coupled with additional post-graduate study, most likely achieving industry recognised Certified Financial Planner (CFP), along with the 40 hours of professional development a CFP Financial Coach has to complete each financial year. This study along with active client experience is some of the key attributes to look for in a Financial Coach.
- An expert to ‘have your back’: Who wouldn’t want a skilled and trained financial expert to ‘have their back’? When investment markets are not performing rationally and your will is tested, this is the time you really need a Financial Coach. They will remind you of your goals, the plan you have put in place and where you are along that journey toward achieving your goals.
- Responsibility/Accountability: When you meet with a Financial Coach, invest the time devising your goals and objectives, along with putting a financial plan in place. You will feel a sense of responsibility to them and the process. This in-turn (along with their coaching) will give you a far greater chance of achieving the goals and objectives you have set for yourself.
So it stands to reason, if you want to get the most out of life you simply must engage a Financial Coach to help you along that journey.
Want to retire by age 55?!
Can you imagine what it would feel like if you could afford to ‘financially’ retire by age 55? Continuing to work by choice, only working 3 days a week or taking a job in a completely different field (something that really sparks your passion). Having this type of financial freedom, especially by age 55 would be life changing……….and it is possible.
It is important to note that this post highlights the ability of being able to financially retire by age 55. Being able to financially retire and actually retiring are two completely separate things. Choosing to work as opposed to having to work for money are two completely different mindsets. And we passionate about people being in a financial position where it is their choice to work – that truly is a ‘game changer’.
So, you are probably thinking to yourself ‘what is the key’ to be being able to afford to financial retire by age 55?! ‘The key’ is simply, Start Now! Now is the time to create some effective change in your life. So, where do I start I hear you ask? By following the steps below, you will be well on your way to a ‘working by choice’ lifestyle by age 55.
- Understand your current financial situation. Our research shows that over 90% of people over 30 don’t actually know what their expenses are or where they spend their money, nor do they have a good understanding of their net asset position (including superannuation). By putting together a very simple household budget, this will allow you to be ‘in charge’ of your money. As a rule, your household should create a profit of 20% per annum each year, based on your total household income.
- Complete a personal audit of your current lifestyle. We find that most people don’t have a great deal of balance in their lives, i.e. balancing the pressures of work and family, along with finding time to do things that simply put a smile on their face. By reviewing your calendar over the past 3 months, you will be able to understand where you are spending your time and then, what has to change in order for you to feel more ‘at cause’ in your life, as opposed to feeling ‘at effect’.
- Set yourself some short term (1 year), medium term (3 year) and long term (10 year) goals.
“Life is a journey, not a destination”. Keeping this in mind, it is really important to set short, medium and long term goals. They will help keep you on track, whilst also providing you with motivation along the way toward being able to financial retire by age 55.
- Decide what needs to change both personally, professionally and financially in your life in order for you to achieve your goals
So now you understand your financial situation, have completed a lifestyle audit and set short, medium and long term goals – what do you need to change? I have found by using an ‘ideal week’ calendar I can create real focus each week, and it helps ensure that I stay on track.
- Create some time in your life now to just be who you are ‘me time’.
This is probably the most important item on this ‘6 point’ action list. Finding time for yourself to enjoy the things that make you ‘you’ will give you the balance and heightened state of self-awareness in order to achieve anything you set your mind too.
- Schedule an ongoing assessment (monthly) to ensure you are ‘on track’ to meeting your personal, professional and financial goals
How can you know if you are on track to achieving your goals if you don’t have a regular and scheduled review of them?! You really must schedule a time each month to review your ‘performance’ over the past month. This is important for two reasons. One, if you are tracking towards your goals it will provide you with extra motivation knowing that you are achieving something. And two, if you aren’t on track you can change or tweak a few things that will then get you back on track.
The most important thing to remember when you are creating real effective change in your life is that it will take time, and you will naturally fall back into bad habits. However, if you maintain the discipline around reviewing your goals and what you are achieving on a monthly basis this will ensure that you stay on track and/or can adjust you plans accordingly so as you can get back on track.
We know for a fact that by actioning the 6 steps above, you will give yourself every chance of being able to afford to financially retire by age 55.