saving – Financially Wise

Winter is coming!

Not just in Westeros for Game of Thrones fans. There is undoubtedly a chill in the air now and winter is officially upon us. But as the days grow shorter and the air gets cooler there are some things you do that can push up costs.

Winter is often a time that that sees expenses escalate.

There are some increased costs during winter that you can’t do a lot about. For example, it gets darker earlier so we turn on our lights earlier, which uses more power. We tend to wear more and heavier clothes during winter, so our washing load increases using more washing powder, water and electricity. We put heaters on in the mornings and evenings on those cold days. We tend to linger in the warm shower and use more hot water.

But if you are careful, you can minimise the impact and costs of some of other things. There are some simple measures you can take which reduce the impact of some of your winter expenses. You just need to watch out for certain things and take appropriate action.

These are just a few things that might help to keep down costs over winter:

Lights: Unless it’s particularly cold or overcast, keep your blinds and curtains undrawn for as long as possible to take advantage of as much natural light as you can. Change to energy efficient bulbs. Also, it may sound obvious, but turn off lights in rooms you are not using.

Keep in the warmth: If you are able, have your north facing windows open during sunny days so some of the daytime heat can come inside. As soon as it starts to get dark, close your windows, or if you like to let in fresh air, leave them slightly open. Once dark, draw curtains or close blinds to keep in the heat.

Stop the cold coming in: Go around your house to see if you can find cold spots or from where cold air is coming in. Use draft stoppers at the bottom of doors. Heavy curtains on windows can also help keep the cold at bay. Stopping the cold from coming into your house in the first place can cut down on heating costs.
Layer up: Put on another jumper, put on warm socks and slippers, put on a scarf and beanie if you need to. Consider adding more clothes before you switch on a heater.

Use woollen underlays: Replace your electric blanket with a woollen underlay. It will provide an extra layer of warmth in the bed during winter and in summer, just turn it upside down with the smooth side up.
Floor rugs: Thick rugs can be nice and warm underfoot, and will also help to provide a layer of insulation on the floor. These can be put away during the summer months if required.

Close doors: Close doors to colder rooms such as laundries, bathrooms and garages to stop the colder air from these rooms moving into warmer living areas. Tiled areas generally tend to be colder.
Use smaller heaters: Use smaller localised heaters rather than whole room heaters, as these take longer to heat up and use more power while doing so.
Baths and showers: If you live with other people in the same place, try and have your baths or showers close together so the water going through the pipes doesn’t have time to cool and then need to reheat when the next person has a bath or shower and the room is still warm with retained heat.
Go gas: Gas heaters are more cost effective than electric ones if you have access to gas.
Adjust your refrigerator thermostat: If your refrigerator has an adjustable thermostat you can adjust the temperature to allow for the cooler room temperatures. This might be a good time to check the seals as well.
Insulation: This is a larger initial expense and applies mostly to home owners, but adding insulation at least into your roof can knock a few degrees off during both winter and summer by keeping it warmer in winter and cooler in summer. Insulation in the walls will also help a great deal, but can usually only be done during construction, so consider putting this in if you are building a new home or undertaking structural renovations.
Double glazing windows: Similarly, windows that are double glazed can be very effective at keeping in warmth in winter and coolness in summer, but like installing insulation, this can be costly. Again, something to consider when renovating or do a few windows at a time, particularly south facing ones, until they’re all done.
Buy food in season: Winter is a perfect time for comfort foods such as hearty soups, stews and casseroles, as it’s the season for all those filling vegetables such as potatoes, carrots, parsnips, onions and similar root vegetables and tubers. These vegetables also roast very well for some hot roast dinners. Make enough for more than one meal and freeze the rest for future meals or bring some to work for lunch.

Your health is your wealth: Citrus fruit are in abundance during winter and are full of the vitamins and minerals you need to help keep those colds and flus at bay. Consider investing in a juicer or one of those magic bullet blenders for healthy start citrus fruit smoothies and juices. Add berries for an even bigger antioxidant boost. Prevention is better than cure, so try to avoid those doctor’s bills and medications by not getting sick in the first place. Supplements like vitamin C, Echinacea, garlic tablets and olive leaf extract can also act as a preventative for many viral infections such as colds and flus.

Although costs tend to go up over winter there are still ways to cope comfortably with the colder weather without spending a fortune.

You can still have a snug and warm but cost effective and energy efficient house. Just taking sensible measures can cut costs during our colder months.

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A Different Type of Easter Egg

So, Easter has come and gone. You’ve enjoyed your four day long weekend, done the obligatory egg hunts with the children, overindulged in chocolate and you’ve just finished your last Easter egg. Now, it might be time to consider a different type of egg. Your superannuation or retirement nest egg.

Most people don’t think about their superannuation retirement nest eggs until retirement is almost imminent.

Many people, particularly young people, are busy living their lives and think that their retirement is such a long way off in the future, so they don’t pay any attention to their superannuation or think they’ll focus on it when they’re closer to retirement.

Because it’s “invisible money”, money that you don’t really see regularly and can’t easily get your hands on, it’s often not on our radar.

But the sooner you start thinking about your retirement and your superannuation or other payout, the more time you have to be able to grow it. You have many options earlier on, but they become more limited as time passes and it’s often too late if you’re retiring in a couple of years.

With many people finding they will not have sufficient funds in their superannuation upon retirement, you might like to think about the lifestyle you would like to have in retirement and ask yourself a few questions.

Do you want better than just the basic lifestyle that some experts say will be the norm for many retirees?

Do you think you might not have enough in your superannuation to last you throughout your retirement?

What is your magic number? That is, how much would you like to receive annually in order to have a comfortable retirement?

How do you envisage your lifestyle? Do you want to travel, around Australia or overseas, or are you happy just to live in your beachside or country cottage? Do you want to live in the city, a regional area or even overseas?

You might not be ready to retire when you reach your retirement age. You could continue working if you wanted to, particularly if you don’t have a lot in your superannuation. Perhaps you could supplement your income by working at something you really love or at something you’ve always wanted to do.

Alternatively, you could volunteer at charity shops or become an official greeter at airports or be a tour guide in your city.

Some things to consider for your retirement:

Your number: Calculate your magic number as per above, or know what lump sum you require to provide you with the income you need. Come up with some ideas on how you are going to attain this figure.

Take an interest: If you have an employer paid superannuation fund, go through your statement every time you get one. How is your fund performing? Could you change to another better performing one, either within the fund or with another provider? How much are your annual fees? Is your insurance adequate?
Boost your superannuation contributions: As soon as you start working, or as soon as you can, salary-sacrifice another one percent of your before-tax salary into your superannuation. Consider increasing this percentage regularly. Now is a good time to look at lump sum payments, before the end of financial year.
Alternative and passive income: Start looking at how you can create alternative streams of income in addition to your job, preferably passive, that can continue after you retire.
Continuously evaluate your fund: There are a number of sites that can compare your fund with other funds so you can monitor performance.

Statistically, an overwhelming number of people will not have sufficient funds in their super fund when they retire, facing the risk of running out funds before running out of retirement.

Considering our extended life expectancies, we will require more money when we retire rather than less. The earlier you can address this, the better.

You don’t want to be in the situation where you’re planning to retire in five years and realise you won’t have sufficient funds in your superannuation account.

New Year, New Money Habits

As January makes its way into February, it must catch some people by surprise at how quickly the year is passing. How many people set themselves New Year’s resolutions at the start of the year? How many people are sticking to their resolutions and how many have already broken theirs? How many made resolutions to get their finances under control, but are still struggling?

Getting finances in order is one of the most common New Year’s resolutions.

People routinely start the year intending to save more money, pay down debt or to start investing or a combination of these.

But unless they can define what it is they want and have a solid plan in place, it can be easy to let old habits take over and then they’re back to square one and nothing is achieved.

It’s time to give this some thought and put practices and habits in place so you end the year better off financially than how you started it.

Firstly, be clear and know what the end goal is and what the outcome is that you want to achieve.

If you are saving, what is it you are saving for, a house, a car, a holiday or just to have some spare emergency cash?

If you want to pay off your debts, what are they, how many are there, how much extra can you contribute towards paying them off and can you avoid adding more debts?

If you want to start investing, for what is it going to be? If for retirement, how long have you got until then, and are you a risk taker or risk averse? How much can you put aside regularly to invest? Are you prepared for the risk?

When your goals are more defined, your path and the definite actions you need to take also become clearer.

Here are some tips on getting finances in order:

Saving: Set up a separate not easily accessed account and regularly transfer either a percentage of all income or a fixed amount into it.
Reduce or pay off debts: Write a list of all your debts. Work out how much extra can be put towards your debts. Choose the one you intend to pay off first and put the extra amount towards this debt until it’s been repaid. Do the same with the next debt.
Start investing: Are you a risk taker or risk averse? If you don’t like the volatility of the stock market and don’t want the responsibility of being a landlord, or you don’t have a lot to invest you might want to start with a property or equity trust into which you make regular contributions.
Have a plan: What amount do you need to save? What are your total debt repayments? How much will you need to retire? How can you make adjustments without compromising your lifestyle too much? If you answer these at least you will have a figure you know you need to work toward. Break this figure down to annual, quarterly, monthly and then weekly amounts.

Meeting your financial goals should not be a difficult or time consuming task. If you keep it simple you’re more likely to attain it.

You will also be more likely to be successful if what you want to achieve is congruent or resonates with you. If you’re working towards something that you really want, then there’s more incentive for you to continue along the new path you have chosen for this year.

Persist with it, as it’s worth it when you have saved the amount you need for your special purchase, you no longer have any debts to worry about, your financial future now looks more secure or you have achieved your financial goal. That’s a great feeling and one New Year’s resolution you kept and achieved.

But the best news is that this doesn’t have to be a New Year’s resolution, you can start it at any time you like, whenever it suits you.

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The New Normal

On Tuesday 2^nd February 2016, the RBA once again left official interest rates on hold. This brought forth the usual chorus on how the economy is stalling or not growing sufficiently and further cuts are required to get it moving and the government and the RBA need to “do something”. The RBA has made it clear that they will take rates lower if they think it necessary.

Hmmm, what’s Einstein’s definition of insanity? Doing the same thing over and over and expecting a different result. Right, so the last dozen plus interest rates haven’t worked at stimulating the economy, so gee, let’s punish the savers a bit more, reward the speculators and gamblers a bit more and CUT INTEREST RATES AGAIN! Maybe it will work THIS time.

Because it’s worked SO well in other countries. Look at Japan, Europe, Switzerland and Sweden with their NIRPs (negative interest rate policies). Look at the rest of the world with their ZIRPs (zero interest rate policies). Their economies are absolutely BOOMING. Oh wait, they’re not…

Even the recent US official interest rate rise of one quarter of one percent by the Federal Reserve Bank is unlikely to be followed by any others in the near future, and could possibly even be wound back. US debt levels, both private and public, are at record levels and because interest rates have been held too low for too long and the market is most likely unable to sustain any further rises.

And let’s not forget the law of diminishing returns, where each subsequent rate cut has a shorter effectiveness duration and smaller impact than the previous one. Let’s also not forget that the current official interest rate is lower than the emergency rate set during the GFC! So does that mean that the economy is now worse than it was during the GFC?

The reasons that the housing Ponzi scheme continues in Australia is partly because of artificially low interest rates (which in a low inflation environment means that real capital gains over the long term are unlikely to eventuate, but that’s another story), partly because our local and state governments are happy to keep the bubble going for as long as possible, but also because savers are getting so hammered by diminishing returns on their savings that they desperately need to find something else that will give them a return or yield that they are no longer getting in cash.

Unfortunately with no currency in the world any longer backed by gold, global economies can only grow if debt is increasing. So central (planners) bankers are keeping interest rates artificially low in order to encourage people to spend, spend, spend ever more, preferably getting into more and more debt in order to do so.

But because real wages are not rising or are stagnating, people aren’t increasing their spending.

It’s one of the reasons China is in so much trouble. China makes “things” that the rest of the world consumes. People aren’t buying so much of these “things” any more. It’s why, for example, the Baltic Dry Shipping Index is down at record lows. China invested huge amounts of (borrowed) money ramping up capacity on their factories. This incidentally greatly benefitted Australia during the GFC with our mining and commodity price boom and went a long way to helping us avoid the downturn that the rest of the world experienced. These factories are now actually operating at much lower capacity or sitting idle because there’s no demand. Look at forward orders for companies like Caterpillar which also tells the same story.

If people aren’t increasing their spending, then it doesn’t matter how low interest rates get. The economy isn’t going to budge. If people aren’t buying, companies have no need to increase capacity or make capital investments. So governments ramp up spending to make up the shortfall, going deeper and deeper into debt. Look at total debt increasing real time on this website www.australiandebtclock.com.au. Many countries have similar debt clocks, such as US – www.usdebtclock.org, UK – www.nationaldebtclock.co.uk and Europe – www.eudebtclock.org to name but a few.

This will all come to a crashing halt in Australia when our public debt is so high (currently low by international standards, but growing faster than any developed country), that Australia loses it’s AAA credit rating and the foreign countries that that currently lend us the money to make up the shortfall in the current account deficit are no longer willing to lend to us.

Our banks also source a significant amount of their loan capital from overseas. Our (slightly) higher interest rates are still attractive to those lending to us, but this will change quickly if our interest rates drop to match the race to the bottom with the rest of the world.

Real interest rates will then rise regardless of what the official RBA rate is. We are going into debt to fund today’s consumption with tomorrow’s income. Income that is not in any way guaranteed.

Ageing demographics of most developed countries are a major factor in the decline of consumption. Baby Boomers are starting to retire. They are spending and investing less and as they retire they are selling assets and taking money out of the market so they can live. Just look at Japan to see how this will end up. They are ahead of many developed countries by 20 years demographically. They are entering their third lost “decade” and have had little to no capital growth since their property and stock markets hit their heights in the mid-1980s, despite the best efforts of their government and central bank.

There are also more and more people wanting and needing welfare, and unwilling to give up any of “their” entitlements (conveniently forgetting that in order for them to receive something, somebody else had to pay it), or actually pay or contribute towards any of it.

That’s another reason government debt is increasing. They cannot or are unwilling to roll back massive commitments in welfare, including their own. We are living well beyond our means as a country, and nobody is prepared to either make or take the hard decisions. We can either make the hard decisions ourselves and live with the consequences, or they will be made for us and we’ll still have to live with the consequences. This will not end well.

This slower growth is how it is likely to be from now on. Welcome to the new normal, Australia!

Here’s another article saying interest rates can rise regardless of the RBA

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