The real cost of raising a child in Australia

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Raising a child is one of the biggest costs a family will face, and it helps to be financially prepared for it. Here we look at the cost of raising a child in Australia.

While it’s common knowledge that children bring indescribable joy to their families, they also come at a large financial cost. The most recent NATSEM report1 found that the cost of raising a child has risen twice as fast as incomes over the last 8 years. Meanwhile the median age of people moving out of home is currently at 20.9 years which is as late as its ever been.

If these trends continue, the importance of having a sensible budget and savings plan in place to ensure the best for yourself and your kids is critical.

Here’s what you can expect to fork out along the road ahead…
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Our top 5 financial tips

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We dropped by Sydney FC HQ last week to talk to the players about managing their personal finances and discuss some of the money traps young people fall into.

Sydney FC has a relatively young squad so many of the team are in the early stages of their playing careers. Being smart when it comes to managing their personal finances will enable the players to build a solid foundation for their careers after football.

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Here are the 5 general tips we shared with the players. We think they are equally relevant to other Australians wanting to get ahead.
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Rent or Buy? We do the sums

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“Rent money is dead money” or so the saying goes. It’s a popular myth perpetuated by plenty of people in the real estate industry. But when we did the sums, the reality was quite different. Here we look at buying vs renting and which one has really worked out better over the long term in Australia.

The Reserve Bank of Australia (RBA) recently had similar findings to us: that since 1955, there hasn’t been much difference between renting or buying. Despite the constant news of property booms and million dollar sales in suburbs not known for being expensive, owners and renters over the last 60 years ended up in roughly the same place. That of course relied on renters being equally disciplined about saving, and investing those savings outside of cash deposits.

Like any financial decision, there are costs and benefits associated with buying and renting. We discuss some of the important pros and cons to consider when deciding whether to rent or buy, and work out which is likely to give the best results.
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15 money tips for planning a wedding

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The cost of weddings in Australia continues to rise, with couples paying an average of $36,200 for their big day.

According to market research by IBISWorld, over half of the cost of a wedding goes to entertaining guests at the reception, with food, alcohol and venue costs averaging $18,683 per wedding.

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Source: ASIC, IBISWorld April 2012

Most couples have had to make financial sacrifices in order to afford such a large sum of money, including putting their social life on-hold [20%], delaying plans of buying a home [25%] or remaining unmarried [6%].

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Source: ASIC MoneySmart survey, December 2013

Top money tips

To help couples prepare for their wedding, we reached out to our network of friends and Stockspot clients to ask them for their money tips based on their experience.
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5 Tips from Warren Buffett in 2015

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Warren Buffett is described as the most successful investor of the 20th century and one of the world’s wealthiest and most influential people. Each year since 1965 he has published his annual letter to shareholders, a document considered by many fund managers to be investment gospel.

For the past five decades, these letters have become scripture not only for value investors, but also for anyone interested in learning how to become a better businessperson, manager, or a more effective leader.

Each year thousands of Buffett admirers, aspirers and affectionates then flock to Nebraska to hear what the “Oracle of Omaha” has to say in person. This year in his annual letter to shareholders and lead-up to the event he has shared some diet tips, travel tricks and investment advice for the year ahead.

Here are our 5 favourite Warren Buffett tips in 2015;
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Preparing for childcare costs: why starting early matters

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Childcare costs have become an increasing financial burden on Australian families with fees rising 150% in the past decade.

According to National Centre for Social and Economic Modelling, almost one in 4 Aussie kids attend childcare today at an average cost of $75 per day, with some families paying up to $170 per day. This is up from an average of just $30 per day in 2003.

The charges have risen so significantly that parents who choose to return to full-time work can now expect to lose up to 60% of their gross income, once private childcare fees, loss of benefits and higher income tax rates are accounted for.

A recent estimate from the Australian Bureau of Statistics (ABS) predicted that the expense of childcare was now keeping as many as 70,000 women out of work. That means that proportionally, Australia has less working mothers than the UK, US, Canada or New Zealand.
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Making sure your money stays ahead of inflation

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Inflation is an important factor to consider when it comes to managing your finances. High or rising inflation can make saving up more difficult as it can erode the real value of the savings you are growing.

For example, if you earn 3.75% interest from your bank and the inflation rate is 3%, the real rate of return on your money is only 0.75%. That’s before factoring in taxes you might need to pay on the interest earned – which means that after-tax you’re likely to have even less.

The Reserve Bank of Australia (RBA) cash rate has been falling over the past few years, with the official interest rate dipping below the inflation rate (CPI) for most of 2014.

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Source: Reserve Bank of Australia

This means that you could potentially be going backwards by leaving the majority of your savings in cash and term deposits, as the price of goods and services are rising faster than the prevailing interest rates. Therefore it’s a good time to be exploring other options to make sure you stay ahead.
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3 tips for investing in your 20s

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The wealth of younger Australians isn’t keeping up with the rising cost of living.

That’s according to The Grattan Institute which released a report1 this month that showed that those in younger age groups have increased their wealth much slower than those who are older. As a result, the proportion of total wealth owned by those under 44 years old went backwards over the last 10 years.

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The housing boom is also making it harder for young people to work towards owning their own home and accumulate wealth, with home ownership rates falling the most in the younger age brackets. According to the Australian Bureau of Statistics, first home buyers now account for just 8.1% of all national housing sales, which is the lowest proportion on record and well below the long-term average of 15.4%.2

Despite housing affordability being at all-time lows, there are other investment opportunities to outside of direct property which can be accessed by younger Australians. In fact, being in your 20’s is actually the perfect time to start thinking about shares and bonds. With a reasonable time horizon, diversified shares and bonds have historically offered excellent investment returns compared to leaving savings in the bank.

Here are some tips to consider when looking into investing to grow your wealth when you’re young.
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Where are your super fees going?

Super fees consumed $158 billion of Australian savings over the past decade – over a quarter of all returns.

That’s according to the government think-tank who this week released a study supporting our findings on managed fund fees.

Their report showed that super fees in Australia are more than double what they should be. In 2013 the Australian super industry charged $18.6 billion in fees which means that the average Australian paid $1,300 each, up 51% since 2004. Compared to similar sized pension schemes around the world, Australian fees are extortionate.
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