Getting to know your ‘money personality’

Getting to know your ‘money personality’

Getting to know your ‘money personality’

Ever wish you could get to the root of why your budgeting habits are less than ideal? Or perhaps you’re out to master your investment decision making process.

Finding out your money personality is a great start to developing the management, saving and investment strategies that are going to work best for you. Understanding your financial attitudes, habits and dispositions can help you protect and grow your wealth more effectively.
What are some of the theories?

Psychologists and other academics have studied financial behaviour for several decades. Our attitudes to money are largely thought to be learnt over time and will depend on your childhood and the environment you grew up in. If you look at your parents’ attitudes to money, are you emulating them in your choices or actively taking the opposite approach?

You can also take advantage of models that have been developed to identify different ‘money personalities’ or distinct attitudes and approaches to managing personal finances.

The Nine Money Personalities Model proposes that everyone identifies with one of nine types: entrepreneur, hunter, high roller, safety player, achiever, perfectionist, money master, producer, or optimist.

More simplistic models fall along the lines of: savers, spenders, risk averse, gamblers and those not really paying attention.

Risk profiling

Some models focus purely on a person’s behaviour as an investor. Specifically, they try to make sense of different levels of risk-taking.

The study of peoples’ engagement with risk is a big part of investment psychology. When it comes down to it, risk and reward is a very primal thing; our relationship with risk is a factor in most areas of our lives, from romantic relationships to recreational activities. In investment, tolerance and/or appetite for risk plays a big role in how you approach wealth creation.

Perhaps the best known risk profiling theory divides investors into two groups: active investors and passive investors. Passive investors tend to be risk averse and less comfortable with the ‘peaks and troughs’ that can characterise some investments. They are likely to choose ‘safe’ or conservative options. Active investors, as the title suggests, are more comfortable with risk. They like to feel in control of their investments, staying active in researching, analysing and decision making.

The Bailard, Biehl and Kaiser Five-way Model is a little more complex.iiIt looks at investor confidence and preferred approaches to sort people into five groups. There’s adventurers (confident risk-takers), celebrities (hooked on the latest ‘hot tips’), individualists (confident but careful and analytical), guardians (conservative and focused on protecting their wealth), and straight arrows (average investors with a balanced approach).

How to work out where you fit (and then what to do about it)

Working out your risk profile or money personality, using any reputable scale or model, is a great way to better understand your unconscious biases towards money. Whether you want to fine-tune your everyday money management, get rid of bad financial habits or achieve better investment results, it’s an important starting point. For example, say you’ve found your investment returns limited because you can’t bring yourself to consider anything beyond the most conservative portfolio.

On the other end of the scale, if you’re tired of the ups and downs that tend to come with a more aggressive portfolio, knowing how and why your personality makes you predisposed to risk-taking is a good way to help yourself avoid situations where you make impulsive or overzealous decisions.

If you’re interested in exploring how your approach to money is impacting your wealth creation strategy, make a time to have a chat with us.

Boosting your brain health

Boosting your brain health

Boosting your brain health

Paul Taylor shares these tips to boosting your brain health.

I see a lot of advertising in the media for brain-training programs and games such as Luminosity, but are these things the best way to optimise your brain? The short answer is an unequivocal no. Aside from the fact that you are sitting on your butt to do these programs (which in itself is bad for your brain), there are much better ways to optimise that mass of jelly in your head! Some ways to boost your brain are well established in the research, and some other techniques are just emerging. Following is a well-rounded plan for getting the best out of your noggin.

  1. Exercise

This boosts critical growth factors such as BDNF, FGF, VEGF and IGF-1, and also provides blood flow and oxygen, which are critical for brain health. For BOOSTING YOUR BRAIN HEALTH best results, a combination of short duration, high-intensity interval training combined with a baseline of lots of walking. Avoid excessive endurance training due to increased oxidative stress.

  1. Nutrition

A diet based on real food with low processed food (especially sugar and processed carbohydrates) is critical for brain function. In terms of individual nutrients, the most critical nutrient for the brain is the omega 3 fat DHA from fish (the conversion of plant-based omega 3s to DHA is very poor), which help neurons to grow and communicate. Vitamin B12 also plays lots of roles important to brain function and iron is important for oxygen transport; good quality meat (especially organ meats) will provide lots of this. Lastly, curcumin seems to be protective against Alzheimer’s disease.

  1. Sleep

Recent research has shown that sleep is critical for clearing toxins out of the brain, which is probably why chronically poor sleep is associated with greater incidences of Alzheimer’s, depression and other brain conditions. Aim for between seven and eight hours a night.

  1. Novelty

This is absolutely critical to drive neuroplasticity, which will make your brain healthy and robust. Learning a new language or a musical instrument is great, as is continual education and doing new things, meeting new people and seeing new places. A highly routined life is like death by a thousand cuts for the brain!

  1. Mindfulness meditation

Research has shown that this has a positive influence on gene expression and improves brain function. Recent research has shown that regular mindfulness practice can increase grey matter density in the brain!

  1. Stress management

While some stress is necessary for us to develop and grow, chronic stress creates an inflammatory cascade in the brain, so dealing effectively with stress is important for a healthy brain. Meditation, yoga, tai chi, exercise and other relaxation techniques are good ways to protect against too much stress.

Economic Update

Economic Update

Whilst the US election outcome surprised many, markets have embraced a Trump led growth agenda, with most leading indices rallying since the election outcome. Whilst Trump policies are broadly accommodative for business and should provide economic stimulus, a number of risks remain.

 

Firstly, Trump’s protectionist trade policy may provide short term benefits for the US economy, it is largely seen as a negative, and whilst there are likely to be only minor effects in Australia’s current trade with the US, there is a China/US trade war looming which could have adverse effect on wider global trade dynamics.

 

Another issue for our domestic economy is the increasingly uncompetitive Corporate tax rate.  With our rate broadly set at 30% and many competing Western economies significantly lower and the US targeting 15% under Trump, pressure is mounting on Canberra to make a more concerted effort for tax reform.  If the US gets anywhere near 15% and we remain at or close to 30%, our ability to draw and retain capital in this country will be significantly diminished.

 

There is also a legislative or process risk with the new US parliament.  Whilst Trump has a fairly clear agenda, and appears to have Republican numbers in both the House and the Senate, there remains some risk to him garnering support across the party.  I also hold some concerns regarding the pace of change.  Trump, a self confessed outsider, may not be used to the legislative and bureaucratic processes, and his desired pace of change may not be matched by reality.

 

The final concern relates to the management or containment of inflation should the US succeed in its aim to inject growth into its economy.  Whilst inflation between 2% and 3% is regarded as a ‘Goldilocks’ setting, where wages and asset prices rise at steady pace, thus creating wealth, if inflation gets out of hand there can be severe detrimental effects not the least – Central Banks spoiling the party by setting significantly higher interest rates.

 

As usual, we’ve concentrated on the risks in the above but on balance I think the policy agenda is broadly positive and with reasonable execution should lead to the world’s largest economy returning to above average growth, which in the past has been good for most economies around the globe.  Another predictable outcome will be the A$ depreciating against the US$, which will be a positive for our economy with most business benefiting from improved trade on currency terms (not so great if you are planning an overseas trip!).

 

We expect markets will kick along well around the Christmas break on lower volumes, but with a number of Government changes around the globe and continued unprecedented Monetary policy settings to be unwound, we expect 2017 will bring about one thing we have become used to – and that’s volatility.  So take a deep breath and embrace the opportunity.

Changes to the Age Pension coming January 2017

Changes to the Age Pension coming January 2017

Starting on the January 1 2017, those with assets above a certain level will have their pension either cut more drastically or eliminated altogether. Those with assets (not including the family home) above a certain level will also suffer cuts. Some industry commentators estimate that over 300,000 pensioners will have their pension reduced, while 100,000 will lose it altogether.i

What’s the big change?
First, let’s look at the change to the assets test. The good news is that the assets test free areas will actually increase, so some people with lower total wealth will become eligible for a full pension. The not-so-good news is that anyone with assets above the new upper limit will lose their part pension.

Current full pension asset limit New rule (1/1/17)
Single homeowners $209,000 $250,000 
Single non-homeowners $360,500 $375,000 
Couple homeowners $296,500 $375,000 
Couple non-homeowners $448,000 $575,000 
Current part pension asset limit New rule (1/1/17)
Single homeowners $791,000 $547,000 
Single non-homeowners $943,250 $747,000 
Couple homeowners $1,175,000 $823,000 
Couple non-homeowners $1,326,500 $1,023,000 

 

The taper rate will also change from $1.50 to $3.00 for every $1,000 of assets owned over the asset threshold – the full pension asset limit.ii This means that, if you’re set to be at the upper end of the range between the full pension limit and the part pension limit, your actual pension payment amount will be reduced.

In summary:

• More people with a low level of assets will be eligible for full pension
• Some people with just over the full pension asset limit will get slightly higher payments
• Some people with just under the new part pension asset limit will have their payments reduced
• People with more than the part pension asset limit (effectively created by the new taper rate) will lose their part pension
What can you do?
There are ways you may be able to reduce your assessable assets. One is to make improvements to your principal home. Funds spent on home improvement and renovations generally aren’t counted in your assets test. This is essentially because you’re converting it from an assessable asset (cash) to an exempt asset (your principal home).iii

So, if you’ve been considering redoing your kitchen or bathroom anyway, or perhaps getting a pool or even a garden makeover, now might be the time to do it.

Another option may be to give away some of your money or other assets, whether it’s to family and friends or to charity. It’s important to make sure that anything you give away fits within Centrelink’s gifting rules, which are the same for singles and couples combined – $10,000 in one financial year, or $30,000 per five financial years.

It’s also important to look at the changes from the point of view of your overall retirement budget. For example, age pensioners who lose their pension as a result of the changes will automatically get a Health Care Card and a commonwealth Seniors Health Card.iv These cards help save money via lower health care costs, prescription costs, and some other concessions.

We understand that these changes may be confusing. If you’re still unsure about how your entitlement or income will be affected, please contact us.

i) superguide.com.au/smsfs/300000-retired-australians-to-lose-some-or-all-age-pension-entitlements

ii) https://www.humanservices.gov.au/corporate/budget/budget-2015-16/budget-measures/disability-and-carers/social-security-assets-test-rebalance-assets-test-thresholds-and-taper-rate/

iii) https://www.humanservices.gov.au/customer/enablers/assets/

iv) https://www.humanservices.gov.au/corporate/budget/budget-2015-16/budget-measures/disability-and-carers/social-security-assets-test-rebalance-assets-test-thresholds-and-taper-rate/

 

New Year – New Start

New Year – New Start

How to make New Year’s resolutions that stick
How many of last year’s New Year’s resolutions did you keep? If you can’t even remember them all a year later, let alone whether you stuck to them, you’re not alone. One survey found that 58% of Aussies break their resolutions within the year. And 15% of those do so because they forgot what they promised they’d do in the first place.i

That doesn’t mean that you can’t set and achieve things you actually want. You just have to be smart about the way you do it.

Turn visions in to goals
When someone asks you to picture your ideal lifestyle, what you see in your head is actually a collection of dozens of different goals. It’s important to break it down and articulate those goals if you want your vision to become a reality.

This is easier than it sounds. Just say you want to ‘enjoy life more’. To make a start on this, you could write down a list of social activities and hobbies you love doing or would really like to try. Then turn each one in to a task that fits with your schedule and can be planned ahead of time, like ‘Make a date with a friend twice a week’ or ‘Book in for an evening class every month’. If your schedule is jam packed, set corresponding time management goals like ‘Leave work on time at least 3 out of 5 days’.

Tell people
Think of your friends and family as your cheerleaders and supporters in reaching your goals. If you tell them what you’re aiming for and why, they’ll be better able to help you. They might even be able to join you on your way. For example, if you decide you want to lose weight and get fitter, ask around for a gym buddy or someone to join you on walks. Or if you’re ready to make a change in your career, start putting the word out amongst your network that you’re open to new opportunities.

Give yourself (the right amount of) time
Yearly goals, especially ongoing ones, can be hard to keep track of. Try to work out a reasonable time frame for your goal. Some small things might be quicker, and feel less significant – but you can always build on your results. And some things just take time. For example, you’re unlikely to save up for a new car or lose 20 kilos in a month. But you might lose two kilos, or save X-percent of the amount you need. Consultant Todd Herman reckons the ideal time frame for the brain to plan around is 90 days, and that it’s better to do a series of goals ‘sprints’ rather than one long marathon.

Keep track of your progress
If you’re the kind of person who uses to-do lists – on paper, in an app, or in project management software – you’ll know how satisfying it is to tick something off. If you’re not in the habit of keeping lists, now is the time to start. Your list shouldn’t just be one point – your resolution with a check box next to it. Break it down in to smaller milestones. Say you’ve resolved to improve your diet – set yourself little achievements like ‘went a whole week without eating favourite junk food’. To make it fun, try a smart phone game like Habitica.ii

Don’t wait ‘til December 31st
It might be a New Year tradition, but you don’t have to wait for one particular time of year to set goals and resolve to change your life. With the right attitude and a bit of planning, you can start working your way towards a goal any time.

Speaking of, we’re here to help you set and achieve your money-related goals. Don’t wait for an annual appointment to chat; drop us a line any time, we’d love to hear from you!

i. finder.com.au, Be a geek and live in Tasmania: How to win at New Year’s resolutions

ii. Habitica

Insurance Update

Insurance Update

Personal insurance helps protect your income and assets in the event of illness, injury, permanent incapacity, traumatic illness or death. It’s a key ingredient in a robust financial strategy, particularly if you have financial dependents or you’re building assets from personal effort to help fund retirement or future goals. 

Why have personal insurance?  

While many people consider personal insurance to pay out a mortgage should they die, fewer consider the significant financial impact disability or a serious ongoing illness could cause to them and their family.

Disability, trauma or prolonged illness can reduce your ability to earn an income, and in most cases, this will lead to drawing on savings or home equity to cover medical and daily living expenses, and ultimately affect your family’s living standard.

By providing a lump sum benefit or regular income, personal insurance such as life, disability, income protection and trauma insurance, can help ensure your family is supported financially should the unexpected happen.

There is a wide range of personal insurance products available, and many different clauses and options within each, so consider them carefully to find the one that best suits your needs.

How we can help you?

Our Advisers can help you by:

  • Creating an insurance solution to maximise tax effectiveness and to meet your cashflow requirements
  • Recommending the most appropriate and affordable insurance solution from top rating insurance providers
  • Working with you to arrange suitable insurance cover allowing for any existing medical conditions or non conforming occupations
  • Arranging insurance to meet the needs of business owners and partners, and
  • Structuring ‘family’ insurance packages within your Superannuation (including SMSF) to protect each generation – from young adults starting work, to young families, through to retirees.
  • Assisting SMSF Trustees to consider the insurance needs of its members, as required as part of their Investment strategy.

Your personal insurance consultation 

During your insurance consultation, your Adviser will work with you to complete a Personal Insurance Needs Analysis to identify  an appropriate level of cover.  We consider any existing policies you have, including those forming part of your employment arrangements – such as defined benefit death or disability pensions.

Following your consultation, you will receive your recommendations in a Statement of Advice.  This document outlines the types and level of cover recommended and the premiums, including commissions, payable. An explanation of how these levels of cover have been calculated and the cashflow impact is also included.

We will then assist you in applying for and completing the Life Companies Underwriting & Assessment.

Contact us on 08 6380 1400 for an obligation free meeting.