What’s the best way with money?

I had an interesting conversation with someone the other night.  When I say interesting, I mean to say, I had a conversation that got my back up.  And I started to wonder why.   At the heart of it was: what is the best way to ‘manage’ your money?

source: ozgworks.com
source: ozgworks.com

I know the answer is most simple form is ‘whatever is right for you’ – and that is exactly what I feel I’ve done.  But these are some of the questions that come to mind.

Mortgage:

Why did I fix? Because the rate was significantly less than the variable rate.  Because that way I could budget for a fixed period of time (2 years fixed).  Because I couldn’t ‘pay more’ than $5k per annum – which was manageable.

Surely you could see the market would drop and rates would fall? Really, can anyone 100% predict the future – and this doesn’t contradict my other responses above

Shares:

Do I have any? Yes, but ‘not enough’ would probably be the assessment.

My question is: How many’ should I have?  What % of my ‘money’ (between the equity in my mortgage and cash savings and shares?)

Savings:

Why do I have a savings account when it’s effectively ‘negative’? (as you pay tax, and you earn less than inflation.  In an offset to a loan, I could be ‘earning’ better money.) Cause cash buys tickets to far off destinations, and that spontaneity and ‘security’ of the cash makes me happy.  Selling shares takes some time, admittedly not heaps, but still there’s a ‘cost’ for the transaction.  My current loan doesn’t allow redraw or have an offset facility.

Taxes:

Why do you overpay your taxes, wouldn’t you rather the money? No, I prefer lump sums to small amounts every week.  AND I hate having bills, so by overpaying I ensure I’m covering any unexpected taxes I might have missed.

source: theundercoverrecruiter.com
source: theundercoverrecruiter.com

Things people (in real life) don’t ask

How much do you have in your ’emergency’ fund? For when I lose my job, but still have things to pay for.  Cause NO ONE I know in the real world seems to have considered this, or have actually worked out how much 3 or 6 months of expenses would be.  I’m not there yet, but the ‘savings’ is aiming to get there.

How much do you pay to your retirement fund (above the 9% national standard required by employers)? In reality, my employer contributes closer to 12%.  And I put in another $50 per week.  One day I’ll be baby making, and not earning.  Start earn and start small and compound interest in my friend.

What money related questions do you wish you were never asked?  What questions do you think people should be asking?

Women and retirement savings

I recently read an interesting article in the Sydney Morning Herald, about women and superannuation – our state mandated retirement policy. The law states that employers must contribute 9% of their employee’s salary into a superannuation fund, which cannot be touched until retirement. (Simply speaking of course – there are loopholes in every part of that previous sentence, but I’m trying to keep it simple!). With July 2013 clicking over, Australian’s will now get 9.25%, increasing slowly to 12% in 2019.

It’s a great system – but it’s not working in reality. And it’s not working the most for women. Naturally, women take time out of the workforce to have children, and this impacts their retirement balance. Women also live longer, which means they need even more than a man would.  The article outlines the details of the shortcomings most women will face, based on their research.  There is the capacity for individuals to add to their superannuation, up to a point (it’s got some preferential taxation laws, so it was being used by the super rich to save bucket loads of cash). In my first year of working in my career, I overheard older people talking about their super balances, and how much they should co-contribute to have enough in retirement. Of my own volition, I took this eavesdropping to heart, and decided that I wouldn’t miss $50 per week, and I’d add that (pre tax) to my super account.

What I find incredibly interesting in this issue is the discussions I have with people my age: almost everyone is against or ambivalent that someone their age would be doing this! Their feelings are either

  • I need the money more for other things (lifestyle, saving for a house, paying off a mortgage)
  • You never know what might happen to the balance (as it’s in the stock-market)
  • Retirement is so far away – if I have a huge property/shares portfolio, I’ll be fine

Evidently, I don’t buy into any of these arguments.

Reading the article that I linked, heartens me.  It heartens me most when I look at the graphic. (You can be disheartened, so you can be heartened right? Spell check disagrees?!)

source: smh.com.au
source: smh.com.au

I don’t like to be brash, or the tall poppy (something Australian’s avoid). But that decision in 2010 has meant I am ahead of where a 45-49 year old women is!  I’ll admit it’s not all my doing, my employer has been contributing above 9% for as long as I’ve worked here (4.5 years), and has risen to 15% today!  When I asked a colleague who started when I did, therefore had the same salary, his balance was $19k less than mine. Both of us have our entire balance in the high growth option.

It’s nice to feel safe to take some time off to have children! And I can heed the advice, which is ‘a man is not a plan’ (but a man sure is nice…)

I’m glad to see other bloggers at my age and stage are talking about retirement savings… even if my real life friends aren’t!

How do you feel about retirement savings?  Is it too risky to let a fund manage a huge amount of your money on the stock market?  Do you think you can do a better job?  Would you co-contribute?