Planning for your financial future.

Welcome to today’s webinar ‘Planning for your financial future’. Ever wondered why the good things in life seem to come easier for some than others? In most instances it’s not just luck, it’s because they have a plan for life. They know what they want and have actively worked to make it happen.

This may be from a career perspective or a personal perspective but generally needs to be supported by a financial plan as well. Today’s webinar looks at each stage of your financial journey and explores some of the key aspects that should be addressed along the way.

As I said, my name is Bronwyn Lawson and I have to say I do love my job here at the Davidson Institute. I spent many years as a lender for Westpac helping people buy their first car, their first home, manage their business cashflow and retirement comfortably.

Working with these many people from greatly varied lives gave me some real insights into financial management on both a business and personal perspective. What I love about what I do now, is that I get to share those insights with people like you. People who are actively looking to improve their own knowledge and become more financially confident and independent.

Now for those who haven’t joined us for a webinar before let me just fill you in on our house rules. With so many people joining us today we have placed you all into listen only mode to reduce background noise. However, this is a live webinar and I do encourage you to ask questions. The way I will get you to do that is by typing them into the question panel. The panel is part of the control panel, probably on the right-hand side of your screen if you’re on a computer or a question mark at the

the top or bottom of your screen if you’re on a mobile device.

Type your questions in there as you think of them, but I’ll leave them there and come back to answer them for you at the end of the formal part of the presentation. If you’d like to follow along there is a transcript you can download from the Handouts panel, and we’ll also send you an email later today with a link to a recording of this webinar.

If you lose audio at any stage throughout the webinar, please do stay on the line as we’ll be working away in the background to get back to you as soon as possible. The final piece of housekeeping is to let you know that the information in today’s presentation is general in nature and doesn’t in any way constitute advice on your personal situation. As always we recommend speaking to your banker, accountant or financial adviser for information that’s relevant to your personal circumstances.

Now before we get into a financial plan for life let me just share a few stats with you that reinforce my thinking that it's absolutely essential for women to become more financially savvy and independent. Firstly, times are a-changing with millennial women now leading the way in home buying and investments – a far cry from the days (only 30 years ago) when women required a male guarantor to borrow money.

And, these days women are our household CFO’s, managing 80-90% of household finances despite being less financially confident than men. However, we still have a long way to go. Currently, the average annual salary for women is $44,000 which means that on average women need to work 59 days more than men to earn the same amount.

And while the gap is closing, women are still retiring with 47% less super than men, and with a longer life expectancy, it needs to last them longer too. So to my way of thinking it’s imperative, as we work toward ‘Each for Equal’ this International Women's’ Day, that we take a more proactive interest in our finances sooner rather than later. But given you’re all here today I think I am preaching to the converted.

Our agenda today follows a financial lifecycle. Moving through Getting started, Establishing a foundation, Growing wealth, and then Using that wealth. So, let’s get started by fleshing out a typical financial lifecycle, with all its ups and downs.

In the early years as you are starting out on your financial journey you are increasing your income and assets with your first job, buying a car etc. During this time, it’s important to start developing good money habits. As your working life continues and you start to establish long term relationships and take on long term commitments, your wealth tends to fluctuate depending on career and life events that contribute to or use your cash flow.

While you are getting established and starting to create some long-term wealth, you need to have a focus on saving to ensure your commitments can be met. The next stage of your financial journey is where you are building and optimising your wealth as you are preparing yourselves for life after work … more specifically life after you stop earning an income!

And during this time there are lots of different events that are going to take place … like putting the children through school, perhaps buying an investment property, there may be changes to the family situation, and then as your children move out of home you may need to help them financially as well. But of course, throughout this time, for your own personal situation, it is about maximising your wealth as this is what is going to sustain you during your retirement.

Then, of course, comes the day when you finish work and life changes significantly. At this point if you want to do all those things that you have saved for and built up your wealth for … if you want to travel, or do community work or simply spend more time with the grandkids … you still need to manage your wealth and the income from it to ensure it lasts your lifetime.

So, let’s get into it with Getting Started. This is where you are starting to experience the freedom of your own money. Up until this point, someone else has generally been taking care of you and your money but this is where you start to take on that responsibility for yourself. It is at this stage that you start to develop money habits that may stay with you for the rest of your life … so let’s make sure they’re good habits.

As you move through this stage of your financial lifecycle the things you want from life are going to change. But no matter which stage we’re at you are going to have some personal goals … whether that’s a new car, a home, maybe your own business, or perhaps just some relaxing fun or travel … and your financial plan for life is about having your finances sorted to be able to do all those things as and when you want.

A great starting point to building good financial habits is to keep a spending diary. Record every single cent you spend for let’s say one month … whether it’s your daily coffee, the weekly rent, or even treating yourself to a night out … whatever it is write it all down (don’t cheat!) … and this will then give you a very clear picture of where you are spending your money.

You can then start to categorise your spending. If it helps, think of a pie chart to represent every $ of the money you earn. From your spending diary work out how much you spend on each wedge of the pie. The pie on the screen is reminiscent of many young adults just starting out with the majority of money being spent on enjoying life. Now there’s nothing wrong with that in the short term however if you have other goals you are looking to achieve then perhaps you need to re-think and plan

for how you want your pie to look.

When deciding how to divvy up your pie, the first things you need to consider are any commitments whether that’s loan repayments, phone plans or the like. Then you need to look at how much you need to allocate to ‘live’ … that is, essentials such as housing, transport, food, clothing, and health. Then there will be the expenses you choose to pay to support a certain lifestyle … sport, entertainment, designer clothes, and so on.

This will then indicate how much you have leftover to save up to achieve your dreams and goals, and how long it might take. If this amount isn’t enough, or it's going to take too long to save up, then you may need to adjust some of your other spending. By prioritising what’s most important, you’ll then be able to construct a manageable budget for yourself to help get the things you want out of life.

Having developed good money habits, the next stage of your financial journey is where you start to consolidate and establish your foundations. Your personal goals will continue to drive your financial decisions however the focus or priority of those goals may change over time.

During this stage of your financial lifecycle some of your goals, or the things you want, start to get larger and more expensive … like a new car, a house, or even children. So, this is where instead of saving up to buy the things you want you are also going to potentially need to borrow to be able to buy those things.

So, both saving and borrowing, are two different ways of achieving the same goal … getting the thing that you want. The key to determining whether to use your savings or get a loan lies in understanding when the thing you want is needed, and the difference in cost. It may take you some time to save enough money for bigger ticket items, but you may need to have them sooner. If you decide to borrow to make your purchase now, it will cost you more and potentially take longer to pay off.

So, let’s have a look at the example of buying a car. If you were to save up to purchase a car that cost $25,000 and you could save $470 per month, it would take you a little over 4 years to save up $25,000 … but in 4 years time is your $25,000 going to purchase the same type of car that it will now? The good news is, it will only have cost you roughly $23,800 of your own money (the other $1,200 is the interest that accrues on your savings over that time).

On the other hand, if you were to borrow to purchase the car now on an unsecured loan it would take you 7 years to pay off the loan at the same rate as you are saving, that is $470 a month. Including interest and fees, this would actually use about $39,580 of your money. And once you have paid that nearly $40,000 you have a 7-year-old car and potentially have to pay a higher price again to replace it.

So, now that you are spending some serious money on assets, and have some long-term commitments in place, it’s time to think about protecting your assets and your lifestyle. Insuring your assets is effectively placing the risk of loss or damage of those assets into someone else’s hands – the insurer. Take time to do the research to get a policy that is best going to suit you.

The next thing to think about protecting is your income … after all if you are not able to work for a period of time then not having an income is going to place some serious stress on your finances. Income insurance, sometimes known as Income Replacement or Salary Continuance, pays a percentage of your fortnightly or monthly income for a specified period of time should you be unable to work due to illness or injury.

The third thing to protect is your health … so you can continue to earn an income. Now this actually starts with a healthy lifestyle but also includes understanding what you are covered for under the government health scheme Medicare and then considering what other health related expenses might be worth covering through private health insurance.

And finally, you want to help protect your family’s future. If the main income earner unfortunately dies or becomes permanently disabled, how will the family pay off any borrowings, and continue to fund living expenses? This is where life insurance can help. Once you have established a strong foundation for yourself you then need to build on that and ‘Grow your wealth’.

Throughout the ‘Maximising Wealth’ phase of your life there are many things that are going to impact on your ability to do that because of course, life goes on. There are the children to put through school and university, there may be changes to your family situation, you may invest in a property … and while all this goes on, you only have a finite time to prepare yourself for life after work.

One of the key tools you’ll use to build wealth is investing. That is earning more money, whether it’s in the form of capital growth or cash flow, from the things you own. When it comes to investing there is nothing truer than the old adage “It’s time in the market, not timing the market that counts”. In investing, as in life, time is our most valuable asset. One of the best decisions you can make is to start sooner rather than later.

It doesn’t matter whether you invest in property, shares, or simply cash … time allows for 3 things to happen. Firstly, it allows for compounding. Compounding refers to adding the earnings from your investments back into the investment – for example, earning additional interest on the interest reinvested in a deposit. Time also allows us to make additions. Regular additions over time will build up the capital value of the investment, which will increase earnings on the investment too.

And time, gives us time to ride out volatility. Volatility is one of the risks of investing. On any given day investment returns can fluctuate and sometimes even be negative. By spending time in the market you give yourself the opportunity ride out volatility. One way to manage volatility is to have a diverse investment portfolio.

There are a number of different types of assets that you can invest in and they all have different levels of risk and return. By spreading your invested dollars across each asset type, we reduce our exposure to any volatility within any one asset class. The first investment type is cash. Cash investments are things like the money in a savings account.

Cash is a flexible investment. It is considered a low risk investment but generally doesn’t provide as high a return as some other investment types. The next type of investment is fixed interest. Fixed interest is where you lock your cash away for a fixed period of time in a term deposit or corporate and government bonds, for a fixed interest rate. In return for locking your money away for a fixed period of time, fixed interest investments will generally pay a higher return than cash.

The third investment type is property. It is considered medium to high risk. Partly because it can take longer to sell the property and get your cash back compared to other investments, but also because there is volatility in property prices and the rental yield is not guaranteed. For the increased risk property in Australia generally gives a better return than cash or fixed interest.

The fourth investment type is shares. Shares also have a medium to high level of risk. The share market is subject to the most volatility of the investment types. On any given day, the value of your share portfolio could have increased or decreased significantly. This is why it’s important to remember our earlier caution – “it’s time in the market not timing the market that counts”.

One of the most important investments we’ll have is our Superannuation or retirement savings. Super is a great place for long term investing as there are attractive tax advantages. To encourage people to invest in super (and save for their retirement) legislation allows you to salary sacrifice your contributions, up to a specific amount. This means that not only are you reducing your taxable income, but your concessional contributions are taxed at 15% instead of your marginal tax rate.

Remember though the super is aimed at saving for retirement, so you cannot access your money until you retire. If the goal you want to achieve is to have enough money in retirement to retire comfortably, then direct your investment money into your superannuation. If the goal you want to achieve is before your retirement age, then invest outside your superannuation fund. Most people use a combination of the two.

Super is a really important investment as for many of us it will be what we live off in retirement. So I do encourage you to take more interest in your super sooner rather than later. Having developed good money habits, laid sound foundations and built your wealth, the next phase of your life begins.

For some, retirement may happen at 55 but for others, it could be much later depending on things like your health, finances, work availability and enjoyment. Whatever age you decide to retire this is when you start using the wealth you have accumulated to provide you with an income. With retirement, comes increased time for yourself, allowing you to achieve new goals.

It may be the time for travel or spending time with the grandchildren or volunteering at the local charity or dedicating more time to your favourite hobby. The choice is yours. But what you can and can’t do in retirement will depend heavily on how successful you have been with your plan for life, your health and how long you will live for.

People are faced with choices such as: • Do I retire outright? Or if I am still able to work, and enjoy doing so, do I continue or perhaps reduce my hours? • Do I take out a lump sum from my retirement savings, or draw a regular pension? • How does the current economic environment impact my savings and how I access them? • What are the tax implications? So, take the time much earlier in your life to work out your finances for this stage of your life to give yourself every chance of having the

retirement you want.

So, to sum up our time together today …we started out by looking at our dreams and goals and what you want to achieve out of life … then starting a spending diary and budgeting for the things you want. We then established solid foundations by obtaining the assets you need to live, borrowing where necessary and protecting the things that matter most to you.

We then started to grow your wealth by investing your money and we finished by briefly looking at retirement and planning out how to spend the wealth you created throughout your working life. By having a financial plan for life, you put yourself in a much better position to achieve the things you want out of life.

In closing, let me thank you for joining us today for ‘Planning for your financial future’. We trust you found this information useful and relevant and I encourage you to check out the other webinars and resources on the Davidson Institute and Ruby Connection websites to help build your financial confidence. Thanks again and I wish you every success with your financial plan for life.