October 2020 - Credit Connection

There are few careers and lifestyles out there that are without their stressful phases… therefore, it’s vital to understand the importance of time management. Having a managed, stress-free schedule can make a huge difference for your personal finances. A lot of similarities can be drawn between managing money and time. For example – always wondering where it went!

Improving Time Management Benefits Your Finances!

Effective time management is an essential skill for any successful human being. Successfully managing one of these aspects gives us the ability to transfer our resources into the other. On a daily basis, we face a multitude of time pressures. Time management is about taking control of your available time – before it takes control of you!

Streamline Your Priorities!

Many people fall into the trap of completing tasks as they pop up… or focusing on doing the simple tasks first because they’re easier. Unfortunately, this can lead to time-sensitive or urgent tasks being overlooked; creating far more work pressure than required. The most effective method for overcoming this? Determine your priorities. It’s simpler than you think; especially if you follow our advice and create a daily to-do list.

Being able to prioritise stretches everything further. By prioritising tasks, you intend to accomplish your tasks in order of their hierarchical importance. Prioritising and completing tasks that matter more also creates a better sense of personal success. Having a clear focus on your time and money goals will make it easier to stay on track. A focus on goals will also help you with the prioritisation of what matters most.

Time Management is as Easy as A, B, C!

For a very simple way to prioritise your tasks, try thinking about each of them on 3 levels of priority: A being the most urgent, B being relatively time-bound and C as being something you can postpone tomorrow without any negative effect.

The Difference Between Priorities and Goals

Think of goals as being part of the ‘bigger picture’; tangible milestones that you’re trying to achieve (e.g. saving for a house deposit). Priorities are the things that you’ll need to say yes or no to in order to reach that goal.

For example, in order to pay off your mortgage faster, your priorities need to be making your money work harder for you.

Develop a Routine

Having a routine will cut down the amount of time spent on decision making each day. Albert Einstein owned several variations of the same grey suit, which he wore every day. He reasoned he could use the extra brainpower and time for more beneficial purposes, instead of deciding what to wear.

We recommend creating a simple to-do list that you can follow each morning and afternoon.

Example Routine/To-Do List

Morning

Turn on the computer and make a coffee
Check email and respond to urgent ones
Review to-do list – adding non-urgent emails
Review lesson plans for the day

Afternoon

Send emails as needed
Tidy any mess from the day
Write a to-do list for tomorrow
Prepare materials for the next day’s work

Don’t Freak Out!

If you don’t meet all your time management goals straight away, don’t expend energy on stress. Building resilience is all about making ongoing progress in time management. As long as you’ve done your best, there is simply no point in adding stress to your to-do list for tomorrow.

No matter how hard you work to manage your time, there are still only 24 hours in a day to get it all done. Spend a while observing your day to day work as objectively possible to identify areas where improvements can be made if you feel you need to.

As more Australians fall behind the rapid pace of the property market, the question on the lips of many Australians is whether they will ever pay off their debts. The number of mature age Australians who still have mortgage debt in retirement is consistently increasing – and on average, each older Australian with a mortgage debt owes much more relative to their income than 25 years ago.

How many Australians will soon be unable to retire comfortably amidst an international retirement savings crisis, compounded by COVID-19 and further economic uncertainty?

A study by the leading professor of economics at Curtin University found that “more Australians are finding it difficult to pay off their mortgage before retirement.”

Nearly 50% of Australian homeowners aged between 55 & 64 are still paying off their home loans.

People now have to work into their late 70’s, just so they can pay their debts off. In addition to this, there is an increasing number of older Australians who facing the reality that they will not pay off their mortgages before retirement. More than half of the Australian retirees are finding it increasingly harder to pay off their mortgages, and are being forced to rely on the senior’s pension.

The average mortgage debt among older Australians has risen by 600% since the late 1980’s.

With more retirees being unable to service monthly mortgage repayments, a larger number of them are forced to rent; getting stuck in poverty, with no way out. A shocking study by the AHURI found that the surge in mortgage debt among older Australians has outstripped growth in asset prices and incomes… meaning that it is becoming more and more difficult to pay off mortgages among all types of incomes.

Debt-free home ownership used to be a pillar of the Australian retirement strategy. It still can be, with the right support and planning.

Throughout your lifetime, you will always be saving up for something… whether it’s a bag, car or a house, these wants and needs all start as a goal.

Make a Plan for Your Money – Set Goals!

Making a plan and setting goals is the single most important step to achieving improved financial health. “If you fail to plan, you plan to fail” isn’t a saying for nothing.

Be SMART About It!

To give yourself the best chance of sticking to your financial goals, they must be S.M.A.R.T – specific, measurable, achievable, realistic and time-bound. Once you have your SMART goal in mind, you can create a plan for how you’ll achieve it.

For example, if you want to pay off your $5000 credit card debt by the end of the year, work out how much you are able to allocate to your goal each day/week or month. By breaking your goals into smaller, more manageable pieces, you will find the difficulty factor you have given to them decreases rapidly!

Specific: I will pay off my credit card balance of $5000 before the end of 2021

Measurable: The current balance is $5000; I will make monthly payments of $420 until it is paid off.

Achievable: I have 12 months of 2021 to pay the total, I know that I make X amount per week and I can use any extra from my tax return in July to cover any extra interest or make another payment.

Realistic: I’d love to pay it all off tomorrow, but that isn’t realistic. Based on my budget and discussions with my local financial adviser I am capable of paying $550 per month but have left a buffer for extra savings or unexpected expenses.

Time-bound: I will have it paid off by December 31, 2021.

Achieving Your Goals

Setting tangible and realistic goals; as well as following them up and tracking your progress, are fundamental practices to achieving desired success in anything.

Financial goals can be broken up into 3 sub-categories – short-term, mid-term and long-term. Figuring out which sub-category your financial goal falls under is the first step to setting up your goal. The next step is to determine how much money you need for it. Then, create a budget to regulate a percentage of your income to go towards a saving account for the financial goal. Now, you might have more than 1 goal, so you must prioritise each of your financial goals.

It is easy to enjoy spending money… it is used as a luxury and obscures any foresight of the future. This is why financial goals are so important. Setting financial goals will help you figure out what you are trying to achieve. You will better be able to define your own success!

Entrepreneurship at Home

The Queensland Government has long understood the importance of entrepreneurs and has a strong track record in investing in the startup community for the long term benefit of the economy, business and technical advancement.

Did you know that Queensland was the first state to appoint a Chief Entrepreneur?

The word ‘entrepreneurship’ has a long history, resulting in a diverse range of definitions. Howard Stevenson, the professor of the Harvard Business School, crafted a definition that incorporated all of them;

“Entrepreneurship is the pursuit of opportunity beyond the resources you currently control.”

Howard simply explains that entrepreneurship is not all just about making a fortune. Instead, entrepreneurship is a mindset that everyone can possess. Being innovative, focused, adaptable, determined and willing to see opportunities on the horizon is what an entrepreneur does.

Becoming An Entrepreneur

The road to entrepreneurship is often treacherous; filled with unexpected detours, roadblocks and dead ends. That’s also why Brisbane is investing in building the skills of future entrepreneurs, with The University of Queensland appointing their own Chief Student Entrepreneur.

Throughout the entirety of the journey, the true story of the entrepreneur reflects itself in what they have learnt along the way; how they grew through their experiences. When trying to describe an entrepreneur, there is no perfect example. Entrepreneurial thinking can manifest itself in so many different ways.

The University of Nebraska came up with 6 diverse yet great examples of entrepreneurial traits:

Think ahead
Work across disciplines
Develop transferrable skills
Constantly meet new people
Have mentors
Be in charge of your own destiny

“One can best prepare themselves for the economic future by investing in your own education. If you study hard and learn at a young age, you will be in the best circumstances to secure your future.” – Warren Buffett

The world of money can be confusing. If you’ve ever wished you learned more about money in school… you would be among the ranks of thousands of Queenslanders, wishing they had more financial confidence.

Building that confidence comes from gaining a deeper understanding of financial services and products such as mortgages, personal loans, credit cards and Buy-Now-Pay Later services.

Financial education is becoming increasingly necessary in our daily lives; and not just for investors. Anyone who wants to get ahead, save for retirement and get the most out of life now needs a solid grasp of finances.

Education From a Young Age is Essential

According to the OECD (Organisation for Economic Co-operation and Development), financial education should start at school for people to be well-educated on personal finance as soon as possible.

Warren Buffett, widely considered to be the top investor in history, has famously declared that the biggest mistake parents make when it comes to teaching their kids about money is to “wait until their kids are in their teens before starting to talk about managing money when they could be starting when their kids are in preschool.”

Young people are engaging with money and financial services from a far earlier age, and are the prime targets of corporate advertising and marketing. The purchasing power of young consumers is well-recognised, and young Australians are increasingly targeted by different forms of marketing practices and commercial pressures in order to push them to purchase more and more frequently.

This year, ASIC is establishing a national expert group on youth financial wellbeing to help identify the most relevant and significant issues impacting young people’s financial lives.

This comes after the Organisation for Economic Co-operation and Development (OECD) released the second research study conducted by their Programme for International Student Assessment (PISA), looking at the financial literacy levels of 15-year-old students from around the world.

While 15% of the participating Australian students had financial literacy levels above the average of the other participating countries, 20%, according to PISA, do not even reach the baseline proficiency.

Since PISA’s 2012 study, there has been a 9% increase in those failing to reach basic proficiency.

For most people, the biggest problem they face in embracing financial education is the gap between what they think they know, and what they really know.

A recent study by the Financial Basics Foundation surveying 1,100 Australian high school students also found major misunderstandings about managing credit card debt.

Students were asked how long it would take to pay off a $2,000 debt on a credit card with an 18% p/a interest rate, paying only the minimum repayments. Over half the students said it would take less than three years to pay off the debt – it would actually take more than 15.

How Finance Education Could Change Lives

Poor financial decisions can have a drastic and long-lasting impact on individuals, families and dependents. There are many steps and solutions to becoming more financially aware and improving your own financial wellbeing.

The first step to achieving any of this is to understand personal finances and basic economics. For instance, knowing how to set a budget, where your money comes in from (and when), what your expenses are, and where/how much can you cut on your expenses.

Home loans, mortgage brokers, interest rates, big banks, Royal Commissions; five major talking points for economists, journalists and everyday Australians over the last few years.

The Reserve Bank of Australia has now dropped the cash rate to its lowest level in history; 0.25%. Many first home buyers and property investors alike have questions over the state of everything.

Just like you wouldn’t sell your house without seeking advice from a number of professionals, you should always seek professional help before selecting a mortgage or home loan.

What if there was a way to minimise the stress of applying for a home loan, while improving your chances of approval, at the same time?

Quality mortgage brokers have many years of experience negotiating home loans for a range of clients – from the simplest to the most complex. These loan advisors know of many ways to help you fast-forward through your loan process, including seeking out and negotiating the most suitable loan rates, appropriate structures, the right leverage and flexible terms to fit your personal situation.

Mortgage Brokers Can Help You!

Unfortunately for home buyers, there is a long-standing stigma surrounding all mortgage brokers – that they are money hungry snakes, no better than a shady used car salesman.

However, thousands of our happy clients currently smashing their home loan goals will tell you that the tag is false and unjustified.

Financial Advice is Designed to Help You:

Develop a range of strategies to help achieve your financial goals
Identify your short, medium and long term financial goals
Implement systems to help you manage your money better
Maximise your superannuation
Minimise your tax liabilities
Ensure you are adequately insured
Develop a suitable investment plan for your life stage
Plan for your retirement

How do you choose the right mortgage broker or financial planner for your own circumstances?

It can be easier said than done. Luckily, there are a number of tools you can use to compare advisers in Brisbane and beyond… as well as a number of steps you can take to ensure you are making the right choice.

First of all, you need to identify your financial advice needs. This will give you the scope you need to make sure you are choosing a financial solutions provider that is qualified to give advice in that field.

Once you have chosen a financial adviser, the next step is to ensure you are able to provide them with accurate information pertaining to all aspects related to your financial situation. Be prepared with your financial goals, financial statements, all assets and liabilities along with any other finance-related information. Be open and honest about your current situation, as failing to do so could result in incomplete or incorrect advice for what you require.

Make sure you feel comfortable with the adviser. You do not want to feel pressured into making any decisions.

Follow the above advice, do as much research as you can and be as open and honest as you can be. You should be able to find a reputable financial adviser, fit for your needs.

The Benefits of a Broker

The pros of using a mortgage broker are plentiful. They will collect your income evidence and the other documents you need to provide as part of your application and take care of the whole process from application to settlement… as well as everything in between.

Mortgage brokers tend to be very strong negotiators, which is where they can really help you. They can get you stronger positions and lower interest rates than what your bank is offering. Brokers also keep in contact with credit officers to provide further evidence they may need to assess your application. They keep in contact with your solicitor, valuers, your builder and even real estate agents, to ensure a smooth application process. They are your number one contact during the whole procedure – keeping you updated throughout the entire process!

A 2016 report from one of Australia’s major banks found that the most common reason people approached a bank instead of going to a mortgage broker was due to the fact that they already had accounts with them. So, convenience is the most common reason why people go to a bank directly, but it doesn’t necessarily ensure that you’ll get a smooth loan application process or the best deal/interest rate.

Banks are large companies, and communication between departments is a big problem. There can be delays with your property valuation. The credit assessor can misinterpret your payslips because they don’t understand your income. The bank may question prior loans that you’ve applied for. Your file can be handed over to someone else without clear communication. They sometimes even lose entire mortgage applications. These are just some of the examples of what can go wrong if you go to a bank.

Mortgage brokers can be perceived as scary and untrustworthy people, as a result of the poor practices of a minority. However, if you seek out the help of a quality mortgage broker, you’ll find the importance of one really quickly.

At Credit connection, we have highly credited brokers who are 100% devoted to getting the best deals for their clients!

“Money without financial intelligence is money soon gone” Robert. Kiyosaki

People tend to focus on their short-term problems. It’s easy to get stuck on pause with so much happening in the world, but moving forward with a set financial strategy and taking control of your finances now, will have you thanking yourself later.

How many stories have you heard of lottery winners earning millions, but then losing it all in 5 years… or professional athletes who were making millions, who then ended up working at a car wash. All because they didn’t budget their money and plan for their long-term positions.

Budgeting is a simple process, in which a plan is created as to what you spend your money on. However, this simple process seems to get twisted in most people’s minds when more money comes into play. This is where ‘lifestyle creep’ falls into play.

‘Lifestyle creep’ occurs when an individual’s standard of living improves as their discretionary income rises, and former luxuries become new necessities. Just got a pay rise? Cool, buy the new shoes or gadgets. Your year-end bonus arrives, that’s a new car. Get promoted, that’s a bigger house.

Goal 1 – Talk to a Financial Adviser

Life is already complicated; don’t let financial stress and varying financial resources/priorities add to the complication. 28% of Australians surveyed said it affects their health, 23% relationships at home, 22% productivity at work, and for 12% of Australians, it affected their ability to attend work.^[1]

According to CoreData Principal Economic Researcher, Andrew Inwood:

“Good advice does of course make you wealthier at retirement, but it also adds value all the way through your life in the choices you can afford to make about schooling, insurance, holidays, housing and personal interests”.

Despite this… Anne Fuchs, Head of Advice and Retail Distribution for Sunsuper, says nearly nine million Australians have unmet financial advice needs.

Engaging a Brisbane local as a financial adviser, with expert knowledge in Property Investment, Property Management, Superannuation, Accounting and lending, will not only improve your financial health but can also help you improve your physical and mental health.

Core Data surveyed 1000 Australians as part of the research project finding that 80% felt more confident making financial decisions as a result of receiving financial advice.

The same percentage believe that advice has brought them more peace of mind; with 75% stating that financial advice is worth more than it costs.

Goal 2 – Smash Your Debt

Getting out of debt is an important step to taking control of your financial interests.

By focusing attention on reducing debt, you can reduce the amount of your salary that is used on the accrued interest. Being debt-free is also a very liberating concept; having more freedom to do the things that you want to do, and allocate your finances in more productive ways. Becoming totally debt-free may be a while down the road for some people, but making sacrifices today to make it possible is worth the effort. Make it SMART:

Setting yourself a debt repayment schedule or automatic payments will help you keep your goals measurable and attainable
Go through any old or unused items and see if there is anything you could sell
Reduce spending on non-compulsory items
Get a temporary second job
Utilise sites like Fiverr or Airtasker to supplement your income to make extra repayments

Goal 3 – Boost Your Savings

Saving is a critical component of financial success. You should be aiming to save at least ten per cent of your income each month. You’ll be surprised how quickly that money grows. Snowball effect, eat your heart out!

Establishing healthy and routine saving habits now will prepare you for retirement in more ways than one. If you find it hard to save, your financial adviser can help you evaluate your current spending habits and identify areas that could be cut back.

Saving is easier when you’re aiming for something specific. Think about your goals and integrate them with your savings. The goal of saving is to make it a habit, make it SMART:

Commit to ‘no spend’ days – focus on free local activities
Stop eating out or less frequently
Reduce your grocery bill – plan your meals in advance and REDUCE WASTE
Contact your utility providers and seek a better deal or look at competitors

Don’t let financial stress put a dampener on your progress. It’s never too late to plan ahead and set yourself some financial goals that will keep you in good stead.

How do humans approach complex, sometimes stressful and emotional financial decisions?

Traditional financial theories are well constructed to make many calculated financial decisions. However, they have been unable to explain the seemingly irrational human disruptions in stock markets, stock market bubbles, market overreactions or under reactions and momentum and reversals against what would be considered objective evidence.

Behavioural Economics – A New Financial Frontier?

That’s exactly what behavioural economics – the study of psychology as it relates to the economic decision-making of individuals and institutions – seeks to answer.

We know that humans are emotional beings. These emotions are capable of influencing the decisions we make in our financial lives – often in unexpected ways.

Behavioural economics draws on insights from the fields of psychology and economics to explore why people make irrational decisions, and why behaviour does not follow predictions of ‘rational’ economic models. As humans are emotional and easily distracted beings, they make decisions that are not necessarily in their self-interest… which also shows a lack of self-control.

Professor Richard Thaler, the Nobel Memorial prize winner in Economic Sciences from the University of Chicago, inspired the creation of the term called ‘nudge units.’ This is the notion that there are many opportunities to ‘nudge’ people’s behaviour by making subtle changes to the context in which they make decisions.

Where Have We Seen ‘Nudging’ In Action?

An example of behavioural economics is an old policy McDonald’s runs, where customers are asked if they would like to super-size their order. As it turns out, they do, more often than not.

The Australia Institute – a public policy think tank – has examined how Australians approach financial decisions. Their research found that one of the major causes of financial stress was overconfidence. The study shows again and again that when asked to rate their relative ability in relation to financial decision-making, far more people believe they are above average, both in knowledge and behaviour.

However, the study also shows that only 6% of people with mortgages entirely stick to a budget.

Have you ever made a budget, stuck to it for a few weeks, only to run off course?
Behavioural finance may soon be able to get to the heart of just why that happens.

Money is one of those essential things that humans must manage throughout our entire lives. Many Australians today are anxious about money – stressing over their current financial situations.

From the moment we enter adulthood, we step into a world where every twist and turn – from graduation to retirement – will be directly impacted by our financial knowledge and money management skills.

Events like:

Career decisions
Buying your first home
Investing in property
Getting married
Having children

Finances and financial knowledge play a massive role in each of these life events. It’s not just the big events finance has a say in, though; it’s also a part of our day-to-day lives.

Where we eat
What we buy
Where we travel

These events conceal dozens of financial decisions that dictate many facets of our lives.

According to data released by Digital Finance Analytics, close to 75% of home loan borrowers in the northern Brisbane suburbs of Carseldine, Geebung and Zillmere are experiencing mortgage stress. This is well above the national average of 40% who lack sufficient funds to pay their bills, up from an already high 33% in February before the COVID-19 pandemic was declared.

Yet, still – managing money, mortgages and personal finances isn’t taught broadly in school. Why is that?

I can think of a few reasons… but the one that stands out the most is this – personal finance is very personal. Personal finance is also an extensive topic; covering the management of financial decisions made by a person or family-based upon their budgeting, banking, insurance, mortgage/s, investments, retirement and estate planning scenarios.

That’s a lot for teachers to add to their already huge plate of curriculum subjects. Finance – encompassing the oversight, creation and study of money, banking, credit, investments, assets and liabilities that make up our financial systems – is a subject that takes years of study and devotion to understand and master.

Since individuals, businesses and government corporations all need funding to operate, the finance fields can be broken up into 3 sub-categories; personal finance, corporate finance and public finance.

Financial planning involves analysing a financial position to formulate strategies for future needs within financial constraints. Personal finances are specific to a context. For example, individuals must save for retirement, which requires saving or investing enough money during their working lives to fund their long-term plans.

What are your long term plans and financial goals?

For thousands of Australians, making day to day purchases on their credit cards and managing credit card debt is a common theme.

In fact, Australians made over 227 million credit card transactions in July 2020 alone.

Australians have a history of racking up large amounts of personal credit card debt; with credit card debt being a large contributor to Australia having some of the highest personal debt levels in the world.

But we’re also turning debt reduction into an art form in the 2020s.

Since COVID hit in March, Australians have wiped almost $4.2 billion off their credit cards.

There are people who love credit cards, and people who hate them. However, people who sit on the credit card fence do have a few points.

Credit Cards Can Be Debt-Traps!

There are more than a handful of debt strategy pro’s with credit cards, if using them correctly; people can make their payments on time, and keep their balance low.

By doing so, many Aussies are using credit cards to build a good credit score that can be used to qualify for a mortgage or personal loan.

Many credit cards also come with 0% interest on purchases, interest-free periods and balance transfers for an introductory period of at least 6 months. This gives you the convenient ability to pay off your balance over time, without incurring any extra costs. The use of credit cards also gives the ability to earn rewards that can be used for cash, gift cards, miles or other merchandise. You can use the rewards on the go, or save up for bigger redemptions.

There is great power in being aware of how to use credit cards efficiently. For a number of Australians, however, a few bad mistakes have resulted in a downward debt spiral that only contributes to the bottom line of the banks.

The Illusion of Credit

Credit cards open up additional purchasing power and give the owner the illusion that they have more money than they actually do.

This opens up the temptation to spend more than you can afford. Credit cards also bring the potential of debt into play. You can keep the debt from growing by paying off your balance each month… but if you only pay the minimum and keep making purchases, your debt will grow. This will also reduce your future income, each time a portion of your future income goes toward repaying your credit card balance.

While credit cards have some negative aspects, these can be easily minimised as long as you’re smart with the cards you choose, and the ways you use them.

There are a lot more pros and cons to credit cards that we didn’t mention here. If you are looking to get a credit card, make sure you do some research and find out what you are getting into, as well as what you’re getting out of it.