This week we’ve launched the official site for my new book Replace your Salary by Investing with a HEAP of tools and resources that can help make your money success easier, and I’d love your feedback.
On the page I’ve included the top three tools you can use to level up your money, all with explainers on how to get the most out of them – and I’d love to hear your thoughts. You can check out the page here and reply to let me know what you think.
In money news this week, the US Federal Reserve has raised their official interest rate by 25 basis points this week. This new rate hike is lower than the previous rise, indicating that the states are starting to slow down on their inflation curbing mission. However, it is still the eighth rise since March last year, increasing pressure on households and borrowers.
Smart Money upside #103
Here we unpack the numbers from a recent client we helped, what they were doing with their money when they came to see us, what they chose to do as a result of going through the financial planning process, and the financial impact and upside we helped them achieve. To chat about how to get these sorts of results, you can book an intro chat with us here.
Couple, late 40’s; household income ~ $240k; total assets ~ $1.9m; saving ~ $2k annually.
Lack of clarity and direction.
What they wanted from us / the advice process
To become more financially organised, have a clear retirement plan in place and have provisions for their children’s future.
What success looks like for them
Potentially purchasing an investment property, knowing super is on track, and having confidence in their finances and financial plan leading into retirement.
What money strategy they were following before we went through the planning process
Using all their money to pay down their mortgage.
What money strategy they chose to pursue from our planning work
Refinance their debt, create a savings surplus through better budgeting, balancing their cash flow better to both pays down debt and maximise contributions to super before retirement.
Key benefits of going through the process
Receiving clarity on financial direction, having better confidence, and ultimately receiving a better financial outcome.
Value of advice after all advice fees year one: $2k
Year 20 upside after advice fees: $1.5m
If this story resonates you can book an intro call with us here.
Video of the week
The highest income industries and occupations have been revealed in new data released from the Australian Bureau of Statistics. In this week’s video, we unpack which industries are at the top. Check out the full video here.
Client story of the week
There are a lot of pathways to buying your dream home, and the one you choose has a massive impact on your capacity to invest and get ahead with your money. This story from a recent client and how we helped them plan out a rock-solid pathway to their dream family home AND still invest at a rate that allowed them to grow their assets at a rate that delivered money independence in the timeframe they wanted. Check out the full video here.
Learn the tips, hacks, and strategies to help you level up your money game. Pods released last week:
- #289 Money News in human words; Dream home planning, worst ETFs, share rally & FHB hacks
Free online money education to help you invest smarter and create a life not limited by money:
- Buy property smarter in 2023 – February 22, 2023, 12pm
- Build a second income investing in 2023 – March 8, 12pm
- Invest with property equity in 2023 – March 22, 2023, 12pm
Blog of the week: The investing mistake that can cost you $350k
If you don’t manage risk when you invest, you can make costly mistakes that can slow down your financial progress and cause a lot of frustration and stress.
Some risks are clear and easy to understand and manage, like the risk of you losing your job or interest rates increasing. But others are hidden below the surface and are easy to miss if you don’t know what to look out for.
I was working with a client a few years back that came to me in an ok financial position, but after I got to know them and their background better I found out they’d made a major mistake that cost them hundreds of thousands of dollars.
This was a couple who through their late 20’s and early 30’s saved hard to buy their first home, and ultimately bought a lovely terrace home in Sydney’s Inner West. The property wasn’t cheap, but it wasn’t extravagant, and they loved it.
When they were planning the purchase they did all of the things you’re told to do, and thought they were all set up for success. But they missed one big thing that came back to bite them a few years later.
When they purchased the property, they took the time to make sure it fit with their budget, and they even included a bit of a buffer for increases in mortgage interest rates. At the time they figured this was important to ensure the purchase would work well for them.
Post the purchase things were going well, they loved the place, they lived a good lifestyle, and the property started increasing in value. Then they got married and started planning a family. This is when they realised they were headed for financial trouble.
Family planning and your investing
When they started looking at the financial impact of maternity and paternity leave, returning to work initially in a part-time capacity, and including daycare costs, their budget just wasn’t adding up.
They couldn’t do all the things they wanted around starting a family and living the lifestyle they wanted and afford the mortgage repayments on their home – something had to give. I call this ‘lifestyle risk’, where the lifestyle you want to live becomes inconsistent with your investments. It’s a risk so many people don’t think about when they’re investing, but it can lead to serious frustration and ultimately poor financial outcomes.
Our couple tried changing a few things with their budget but realised the sacrifices were more than they were prepared to make, and ultimately decided they needed to sell their property.
They sold the property around three years after they purchased it, and made around $300k after all their expenses. Good money no doubt, but their potential was so much more…
Getting back on track
I helped them plan and then execute on purchasing another property to get back onto the property ladder around four years after they sold their first home. But in that four-year period, the property market in Sydney increased significantly and they ended up getting a lot less for the same money they’d sold their place for.
We calculated the property sale, delay, and then the repurchase of the property putting them $350k behind where they otherwise would have been. Once this couple got back into the property market they were again on a good financial path, but they definitely would have preferred to be there with an extra $350k behind them…
This is an example of a situation where you can make an investment that makes you a bunch of money but ends up being the wrong move for you.
If they’d just spent a little less on the property, or purchased the property as an investment and rented the place they wanted to live in, they would have been able to hold the property for the long term and benefited so much more from the purchase, both financially and personally.
If you ask yourself whether something is a good investment in absolute terms, but not whether it’s the right investment for you, it can be a disaster.
How to avoid lifestyle risk
There’s only really one way to avoid the chance of lifestyle risk throwing a spanner into your investing plans, and it’s actually a simple one – but that doesn’t mean it’s easy.
To avoid lifestyle risk, you need to get clear on what your money looks like today. What money you have coming in (income), the spending that’s important to you, and what savings, investments, and debts you currently have in place. This will give you a baseline financial picture to build from.
But looking only at today can lead to trouble, as we saw in the example above. You need to look beyond today alone, to see how things will change over the years to come. Particularly if you’re expecting changes to your income or expenses, planning a family with time out of the workforce, working part-time, schooling and childcare costs, etc.
These changes can have a big impact on how much money you have to work with when it comes to your investing, funding mortgage repayments, or what your financial safety cushion looks like.
Looking at your money today and also into the future gives you the true baseline that you can then use to look at the impact of different money moves and investments. This way, if you’re planning a property purchase, you can make sure it fits not just with your position today, but also that it will still fit as your position changes over time.
There’s a bit of work involved in doing this, and if you’re not great with numbers or spreadsheets you may need to get some professional help. But, as you can see from the scenario above, getting your strategy right will have an impact likely measured in the hundreds of thousands of dollars – the juice is worth the squeeze here.
There’s a big difference between making money moves that are right for you today, and one that will fit with what you want from your money over the long term. If you don’t plan smartly when you invest, you can end up being forced to unwind things in the future, which can be a costly exercise.
But if you’re smart about how you plan your investments, and how you manage your risk (including lifestyle risk), you go a long way to setting up your investments (and yourself) for success. Before you invest, take the time to look ahead – this will help you choose investments that will create the upside you want both today and for the years to come.
To your success,
PS: Pivot Wealth exists to help people invest smarter to create a life not limited by money. If you want help to make your next steps easier, you can book a 10-minute, no BS chat with us here.
Founder and Adviser
The information in this note is not personal advice, a guaranteed pathway to that elusive beach bod, or the lost script of Edna St. Vincent Millay’s Pulitzer Prize-winning Conversation at Midnight. This is just a bulk communication pushed out into the internet, and it doesn’t even have your name on it. Your personal situation, needs & objectives, and financial situation have not been considered in putting this together – nor have we considered your dietary preferences, the way you like your hair cut, or your favourite travel destination – but we have spent a lot of time thinking about the future of urban society, whether there is other intelligent life in the solar system, and the pervasion of soy and linseed bread in Australian metropolitan hubs. You should consider the appropriateness of any general advice in relation to your own objectives, financial situation and needs and seek advice before taking any action. You should also consider using a variety of eau de toilette fragrances to keep your partner interested and colleagues on side, not using plastic straws, and minimising your screen time. Where information relates to a financial product, you should read and understand the relevant product disclosure statement. Where information relates to your own potential for awesomeness, you should consider backing yourself totally and completely. Past performance is definitely not an indicator of future performance when it comes to investments and financial products, as well as the likelihood of your children sitting still and quiet for an hour being satisfied playing with a used piece of wrapping paper. Financial services guide.