Impact Investing, Socially Responsible & ESG Investing. Where to Begin!

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

Ethical investing seems like a great idea. Who wouldn’t want to help the planet, or the people on it as well as make great long-term financial returns?

I have been skeptical about the ability of these funds to match general market financial performance. After some time developing a financial plan, and choosing investments, ethical investing was put in the “too hard basket”.

In this article, I finally take a deep dive into ethical investing.

Types of Ethical Investing Strategies

What is Impact Investing?

Impact investors invest in companies with the intention of making the planet a better place. Investments are selected for their positive social and environmental impact, alongside a financial return.

Impact investing sits as a hybrid, somewhere between charitable giving and investing for profit.

What Sort of Investments are Included in Impact Investing?

The decision on which companies make a positive impact on the world is prone to subjectivity. These decisions come down to the opinion of a panel of fund managers.

Funds invest in companies they feel are making a positive impact on social and environmental issues. They can also provide low-interest loans to non-profit organizations.

Renewable energy, affordable housing, equitable healthcare and education, sustainable agriculture, conservation, and microfinance are some of the areas impact investing may invest.

What is ESG Investing?

ESG investing aims to invest in companies with positive environmental, social, and governance practices by using positive and negative screens.

ESG investors feel businesses with positive behaviours in these areas are more likely to profit over the long term. The primary aim is financial profit, with social benefit a side benefit.

It seems logical that companies that have abandoned fossil fuels in favour of greener alternatives are likely to have a brighter future.

What is Socially Responsible Investing?

Socially responsible investing selects investments based on a set of ethical standards. Those investments that don’t pass the filter are eliminated from the fund. Some examples of unethical behaviours that can be excluded are companies that are affiliated with terrorism, alcohol & tobacco and gambling.

How does Impact Investing, SR or ESG Investing Differ from Philanthropy?

Companies raise money to expand by listing on the stock market with an “Initial public offering”.

After that, their shares are traded between investors (and institutions) on a secondary market. The company does not directly benefit from those secondary market trades, just as Toyota doesn’t when one of its cars is sold secondhand.

So by investing in some sort of ethical, socially responsible or positively impactful company, you are not actually supporting that business. But you are (at least trying) avoiding profiting from unethical, socially irresponsible or negatively impactful businesses.

ESG, SRI or impact investing may fit better with your moral compass. But it is not usually the same as charitable giving. Impact investing is the closest to philanthropy, as this can include micro-loans to socially disadvantaged persons who can use those loans to better their lives.

RIAA Visual Explanation of Spectrum from Traditional Investing through ethical and impact investing to Philanthropy

Some funds cross boundaries and use a mixture of approaches. The Responsible Investing Association of Australia only certifies investment products as “responsible investments” if they:

“Have implemented an investment style and process that systematically takes into account environmental, social, governance or ethical considerations, and this investment process reliability has been verified by an external party. The product or service meets the strict operational and disclosure practices of Certification Program requirements.”

Responsible Investments Association of Australasia

Investing Fees

As you might expect, investing ethically usually involves a small fee premium. The selection of investments is, by definition, more active than a simple index ETF. But the fee premium is far smaller than I had expected.

Vanguard Australian Shares Index ETF charges just 0.10% management fee. Vanguards ethically conscious Australian shares ETF charges 0.16%.

Vanguard ethically conscious International shares ETF charges 0.18% but Vanguard Australian Shares Index ETF also charges 0.18%.

Is Impact Investing, Socially Responsible & ESG Investing Profitable?

Research into the results of ethical investing is often limited in its applicability by:

  • Timeframe researched (we really want 30-year results, but not many researchers are that patient is getting a paper published!)
  • Variable definitions of “ethical investing”. What counts? What doesn’t? The definition has likely changed over the years
  • Conflict of interest – obviously studies by funds pushing ethical investors (or vice versa) have potential to be biased
  • Selective publishing (would a research group release their data if they found a poor result?) and access to data (research showing a fund’s positive result is generally available free on their website).

Results

Many studies over the years have largely found ethical investing to produce comparable, sometimes better returns than traditional investing. The longest duration of study I could find was over 20 years. Ippolito compared socially responsible and traditional mutual funds between 1965 and 1984 and found net risk-adjusted returns to be comparable.

A further study of 103 mutual funds between 1990 and 2001 also found no difference in risk-adjusted returns for ethical and traditional mutual funds.

Tippet, in contrast, found Australian ethical funds on average underperformed the market by 1.5% between 1991 and 1998. A further 89 ethical Australian funds were compared with the market return between 1986 and 2005, demonstrating a 0.88% underperformance for ethical funds over this period.

2000-2010 slight (statistically insignificant) advantage in British ethical funds over the market return. Socially responsible mutual funds were also found to outperform the S&P 500 between 2001 and 2012.

More recently, the Responsible Investment Association of Australasia reported responsible investments outperforming consistently over the past 10 years (ending 2021),

from RIAA Responsible Investment Benchmark Report 2021

It certainly seems promising that responsible investments can outperform the market some of the time, and match it a lot of the time.

Returns, similar to other active investments, seem to vary significantly over different time frames, swinging above and below the market returns over time.

Studies that broke down the “mean return” tended to state significant variation between the best and worst-performing fund at the time, likely due to a huge variation in investment selection strategies.

from RIAA Responsible Investment Super Report 2021

” Responsible Investment AUM increased by $298 billion to $1,281 billion in 2020, while the AUM managed by the remainder of the market decreased by $234 billion to $1,918 billion.”

Responsible-Investment-Benchmark-Report-Australia-2021.pdf (responsibleinvestment.org)

Younger investors are demanding ethical investing options, and superannuation funds are providing these options increasingly.

There is over $3 trillion in Australia’s superannuation accounts. Given mandatory superannuation contributions, young people are far more represented in superannuation than investing outside super.


Super funds want members, and their members are increasingly wanting ethical options. The significant inflow of funds through superannuation into ethical investments may well be pushing up these prices, contributing to the good recent returns of ethical funds.
Super funds are also in a powerful position of being able to encourage positive ethical and environmental outcomes in companies that want institutional investors.

The Case for Ethical Investing

If you are frustrated by your inability to make the world a better place (on a large scale), ethical investing may appeal to you.

The idea of investing for profit whilst making a positive impact is attractive. With the increasing flow of super funds into responsible investment choices, you may believe the underlying responsible investments are likely to continue increasing in value over the next few years.

When considering the viability of the companies you invest in long-term, those already with sustainable and ethical practices may perform better financially as a result.

Challenges of Impact investing

Involves Active Management and Reduced Diversification

Ethical funds can be heavily skewed towards tech stocks due to their low environmental burden. Entire sectors (eg resources) can be excluded by some ethical funds, whilst others include every sector and select the best ethical option available. A lack of diversification can lead to more volatility and active management is known to underperform index investing over the long term.

False Dichotomy

Like people, very few businesses are all good or all bad. Hitler and Mother Teresa were extreme outliers. But most of us have a complex (and fluctuating) amount of good and bad personality traits.

Companies are the same. Tesla is one of the most front-of-mind ethical stocks for most people. Electric vehicles can make a huge difference to our carbon footprint. But lithium mining (required for Tesla battery manufacture) has been associated with child labour, severe air, and water pollution. 

This means each company requires a careful weighing up of positive and negative factors, the weighting of which is highly subjective. Would you want to be on a panel deciding which investments to include in an ethical fund?

What makes it even harder, is that some factors are easier to measure than others. Social and governance factors seem a lot harder to define, prove and measure.

How do you weigh the impact of avoiding child labour vs avoiding environmental devastation?

Green Washing & Spin

Greenwashing is when a business spends more effort portraying itself as “green” than trying to make a positive environmental impact. It is commonly used as a marketing gimmick to encourage you to buy something you don’t need because it’s “environmentally friendly.”

Businesses may be motivated to push up their own share price if key people own still own significant equity. Encouraging ethical super funds to invest may also be where greenwashing comes in. If the company is able to find specific criteria on which they will be judged, they may manipulate this.

Ethical Investing is less Powerful than Ethical Consumerism

Businesses are highly motivated by our purchasing power. Minimizing purchases, researching companies, and only purchasing from those you consider fit your personal values is likely more impactful than investing with an ESG filter.

Going car and meat-free are some of the most impactful environmental choices an individual can make.

There is also likely plenty of whitewashing going on. You may have noticed that your employers’ behaviour doesn’t always reflect its documented values and mission statement. Choosing to invest in a company because they make a written commitment to increasing the number of women in leadership positions is optimistic.

Mixed purposes

Quite often trying to “kill 2 birds with 1 stone” results in missing both. And you shouldn’t be trying to stone birds to death anyway, that’s hardly ethical ;).

Perhaps investing and doing good together may result in a suboptimal result in both. Is there a better way you can make a positive impact on the world? Perhaps through the donation of time and/or money or using your position of power to correct some wrongs you witnessed during your ascent to the top.

Investor pressure in “bad companies” can Create Positive Outcomes

Particularly when large and powerful, as are super funds, investor pressure can have a lot of influence.

Choosing Values and Aligning a Fund with Them

If you have strong opinions, and firmly held values you now need to find a fund that matches them.

Many others will be unsure of certain issues. Many ethical funds, for example, exclude Alcohol-related businesses. Alcoholism is a terrible disease that causes enormous social harm.

But I would still visit a vineyard and enjoy an afternoon of wine tasting. It feels pretty hypocritical to ban alcohol from my investments whilst directly supporting the businesses with my consumer dollar.

I am not a gambler. Casinos, pokey machines, and horse races all have their addicts too. But I don’t feel so strongly that all casinos, sports betting or pokey machines should be outlawed.

Just like alcohol, there are plenty of people who enjoy an occasional gamble relatively harmlessly. I just think there should be more protections for those that have the potential to become addicted.

How to Invest Ethically

If you have read all the above, and want to invest ethically, the first step is to choose whether you want to invest primarily for social good (impact investing) or profit (ethical, socially responsible, or ESG investing).

Wannabe Impact investors, check out the GIIN.

Start at the RIAA if you are interested in ethical, socially responsible, or ESG investing. They have a really useful tool, that first prompts you to choose your priority values and then provides a selection of funds that match the best. From there you can check how each fund checks its investments, its long-term performance (as long as possible), fees, and liquidity. Read this article for more information on choosing ETFs.

If you wish to switch your superannuation to an ethical option, RIAA is the best place to start

Conclusion

Many will choose to keep investing and doing good separate to keep things simple.

Ethical investing has many shades of grey, nuances, and traps naive investors. But it also has a reasonable body of evidence that it can at least match market returns, and sometimes exceed them. The Responsible Investors Association of Australia has a great tool to narrow down ethical investments that more closely match your values.

Are you an ethical investor? Please share any tips you have learned or helpful tools for budding impact or socially responsible investors below.

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

10 False Economy Mistakes you Will Regret

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

False Economy:

“An attempt to save money which actually leads to greater expense.”

Collins English Dictionary.

Have you ever purchased a cheaper option, only to have to replace it and realise you should have paid more upfront for a better quality product?

These types of examples are probably what most of just think when “false economy” is mentioned. But there are many more ways in which false economies can trip you up in your financial life.

When living paycheck to paycheck, consumers inefficiently waste money as they can’t afford to pay upfront for long term value.

But even those on good incomes easily fall into the trap and pay more over the long term by trying to save money. Most of us think too short term to capture the maximum utility from our lifetime income.

This article aims to help you start thinking more long-term, spending your money in the most efficient way over your life so you can use it to squeeze out more fun overall.

1. False Economy in Purchase of Goods

We have probably all made these kinds of mistakes. When cash is tight, it’s tempting to buy the cheaper option in the hope of holding on to your cash. Of course, cost doesn’t always equate to value.

A simple example is the purchase of a new t-shirt, as a basic wardrobe staple. You could pay $1,050 for a Christian Dior shirt, $60 for a shirt from the Gap or $12 at Target.

The $12 target t-shirt is likely thinner, has poorer quality material and stitching than the Gap or Christian Dior shirt.

Many may find the Gap (or similar) option provides better value for money, as they can wear the shirt for years without it wearing out.

If you are buying a shirt for a child, or are likely to stain your t-shirt with sunscreen or just being clumsy, the cheap Target option may be the ideal option (environmental, ethical and personal style would also weigh into the debate of course).

It seems unlikely the Christian Dior shirt offers 20 x the longevity of the middle range shirt. Perhaps if you were trying to attract a superficial but wealthy life partner? Although that doesn’t sound like a story with a happy ending!

I know I have been tempted into false economies when reluctant to spend my hard-earned cash on something as boring as a household appliance. Buying the cheapest washing machine may lessen the pain at the time. But if it needs to be replaced in 3 years, uses up excessive power and water, or cannot be easily repaired you may regret it.

When buying goods, spend some time considering:

  • How you will use them (how often, how well looked after)
  • How long do you plan to use them
  • Reviews from family, friends, and online of your purchase options
  • Cost differential vs value

2. Paying for Services vs DIY

It is tempting to try and DIY everything to try and save money. A lot of the time, this can be effective. You may learn new skills and even have fun.

But sometimes you end up saving less money than you would have earned working that number of hours. Worse, if you end up with a disastrous result it could cost you a lot more to fix it up.

Consider carefully which services you need a professional to get the job done properly. Weigh up how much time it would take you to perform the job yourself vs working some extra hours to pay a professional.

Be honest with yourself though! I suspect it’s not uncommon for high-income earners to work an extra 2 hours will cover a weekly cleaner plus change. But they don’t do the extra paid work, or anything else productive so the cost just eats into their potential savings.

When considering whether to DIY or pay a professional:

  • What will the result with DIY vs profession
  • Cost of professional service vs Cost of your time
  • Will you use the extra time to earn the extra?
  • Can you afford the extra money to be spent out of your income

3. False Economy in Paying/Saving Interest

Paying the minimum payment on a credit card balance makes the repayment seem “affordable”. Credit card companies (much like investors) love to receive compounding interest every month.

Many credit cards have a 2% minimum payment, and a 15%+ interest rate. Paying the minimum repayment will create great wealth for the credit card company, but spiral the consumer into increasingly oppressive debt it’s hard to escape from.

Avoiding all debt to avoid paying interest can also be a false economy though.

Debt can be good, bad or tolerable.

Credit cards and other high-interest debt are almost never productive. Investment debt is considered good, or productive debt.

Investing borrowed money to earn returns greater than the interest paid is a common (but optional) way to accelerate wealth building.

Homeowner debt is considered tolerable, but when maintained instead of paid down to allow investment of funds instead, is as productive as investment debt (though you may want to consider debt recycling to improve tax efficiency).

Paying down your home mortgage can be considered a false economy due to the potential investment returns lost.

But this has to be weighed up against the significant emotional gains of having a debt-free home. With recent 70%+ increases in income protection insurance, paying off your home loan may provide better value by allowing you to reduce insurance requirements.

4. Deferring Critical Spending

When considering a potential expense, consider whether it is essential. Often the inevitable spending are the boring costs none of us wish to pay for.

Home maintenance is a classic example. Regular maintenance is likely to prevent larger and more costly repairs in the future.

Looking after your health is another. Preventative health checks can avoid a whole world of pain, emotionally and financially. Not being able to work in a few years time is likely far more costly than just dealing with a health issue when it is reasonably small and manageable.

5. False Economy with Your Time

Anyone who has been following the personal finance crowd for a while will understand that personal finance is not really about money at all.

“Finance enthusiasts” get their money sorted in order to gain control over their life, particularly their time.

Terrible things happen to great people all the time. And it’s far too easy to assume we have all the time in the world.

Avoiding productive and meaningful activities because you don’t “have time” and waste too much of it scrolling or watching Netflix is a false economy. Make the time first for the most important things to you. Try and fit the rest around this. What are your big rocks to get in the jar first?

6. Skipping the Emergency Fund

Some sites (particularly for doctors) advocate skipping the emergency fund.

I think each individual has different emergency requirements. But most of us could imagine a one to two thousand dollar expense that could come up. Those with families, homes, and investment properties could have unexpected expenses running into the tens of thousands easily.

You may need a backup fund in case of unemployment. Do you have a permanent contract and are an essential worker? Are you a single or double-income household?

If you save equivalent to the largest emergency expense you can imagine each month, perhaps you can use a credit card (kept only for emergencies) to cover the expense until payday? I am pretty risk-averse, but we are all different. I can see for those without a mortgage, earning ~1% interest for emergency fund savings is unappealing.

Make sure you think about all scenarios in detail before deciding to give up on the emergency fund. I wouldn’t be without it.

If you have a mortgage offset account, you can keep an emergency fund in there and save interest (tax-free). There is still an opportunity cost of keeping your cash in an offset over investing, but it is not as severe.

Those with a mortgage offset will at least be able to save interest equivalent to long-term inflation.

7. Saving Money on Critical Insurance

I know, another horribly boring way to spend money! People are tempted by the two extremes – either paying for every insurance going due to loss aversion or tempted to skip critical insurance.

When considering insurance, I am a big follower of Scott Pape’s advice to only insure for catastrophic events. If you can afford to self insure, do so.

If you drop your phone, it is really annoying having to pay to replace it. But it won’t cause a major problem in your financial future. If your house burns down, or you crash into someone’s Mercedes, these unexpected expenses could make a big impact on your financial life.

Getting insurance right unfortunately requires us to think about potential events no one wants to acknowledge as a possibility.

What if you or your partner are killed, permanently disabled and unable to work? Or a child gets a significant, potentially life-threatening condition?

Hopefully, this time will be wasted as these events will never happen. But if they do, the fact you prepared “just in case” will provide some relief and a lot less stress on top of what is already an extremely stressful and unpleasant experience.

8. Not Investing in your Relationships

Perhaps you have drunk the personal finance cool-aid, and are completely on board with delaying gratification for the greater financial good.

There still needs to be some balance along the journey.

If you sacrifice everything, work every hour available, hit a super high savings rate but have no time to spend with the ones you love, you are very likely to regret it.

Relationships are what make life enjoyable, far more so than incredible luxuries and experiences. Have you ever been sightseeing on your own? It just isn’t the same without someone to share it with.

Neglecting your family and friends can lead to more distant relationships that can be hard to heal. Not treating your spouse as you should can lead to the potentially most expensive life event of all, divorce. Neglecting your kids will lead to a lifetime of regret that no amount of money will compensate for.

Cherish those important to you. Make it a priority, and build habits that strengthen the bonds that are important to you. For those that tend to forget, and time slips by, create regular reminders (I use todoist*) for yourself to check in with the important people in your life.

9. Neglecting Saving for Retirement

Retirement is not a very appealing prospect in your 20s and 30s, particularly if you are embarking on an exciting career.

But saving for the long term will provide so many benefits and options available only to those who are financially secure with savings.

You are also probably broke and think you can’t afford it. But it really only takes a tiny amount when you are young to make a big difference over the long term. In your 20s pick the low-hanging fruit. Take advantage of low-income and spouse contribution tax offsets when you can. Consider starting a micro-investment account and start investing tiny amounts whilst learning about the stock market. Salary sacrifice to gain any employer bonus super contributions. If you know where you’re going in life, make a plan. If this is overwhelming, start saving and build up to a savings rate of 20%.

When you can afford a little more, try to increase your salary sacrifice or deductible super contributions to reduce your tax burden. Build up to maximizing your concessional contributions as your income improves. When that pay increase comes, think about making or adjusting your plan, and investing outside superannuation if appropriate.

Waiting until your 50s to start ramping up super contributions is inefficient, particularly if you then need to make non-concessional contributions (having paid your full tax). Spreading super contributions throughout your life is the most efficient use of your money due to tax concessions and compound interest. That leaves you with more money over your lifetime for the fun stuff!

10. Blowing your Pay on Tax

Tax is our biggest (by far) expense, costing around 30% of gross income. Over a 20 year career as a staff specialist, I expect to pay at least $2.6 million in tax.

You will pay a lot of tax over your lifetime, depending on your career and working longevity, more or less than the figure above.

Doctors often make foolish decisions, led by the desire to pay less tax. Making investments for tax savings is a terrible idea. Spending money for the tax deduction also doesn’t make any sense. At least 55% of the cost is coming out of your own pocket rather than the ATOs.

So decisions should generally not be made based on potential tax savings, but once a decision to invest or spend on a tax-deductible expense, an effort should be made to ensure tax is minimized. This means, making sure you have a system for collecting details of tax-deductible expenses so you don’t forget any at tax time. With investments, consider the tax implications before committing, as a change in the structure in which you invest may make a significant difference (trust, super, company, individual, education investment bonds).

The one investment I think you should consider tax first is superannuation. If you are paying 32% tax, you will receive a 17% immediate return by salary sacrificing extra into superannuation.

By taking advantage of spousal super contributions while they have a low income you will receive up to 18% immediate return.

The government’s co-contribution scheme will provide a 100% immediate return on $1000 voluntarily contributed to superannuation earning less than $41,112. That is a risk-free return. Unbeatable!

All these benefits have income thresholds, and super balance limits set, which means you will become ineligible as your income and super balance increase. Take advantage of huge risk-free returns while you can!

False Economy Conclusion

Avoiding false economy spending is all about thinking long-term. Few of us can see our entire life’s trajectory, so often we are forced to work on likelihood.

Spend some time weighing up how to deploy your funds effectively over your lifetime, and get the most bang for your buck.


Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

10 Wasteful Expenses that are Robbing You Blind

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

Are you trying to find ways to cut back on spending without missing out on life?

The financial independence community tell us that cutting spending in the three biggest categories (usually housing, vehicles and groceries) will make the most dramatic difference to your ability to save.

This is really useful advice to consider for those starting out, as buying less home and car than you can afford can provide a lot of freedom in life. But these may be non-negotiable or already optimised for your household.

There is usually still plenty of wiggle room to reduce spending in other categories, particularly if you are a high-income earner.

What are Your Top Three Expenses

Some high-income earners may find their three top spending categories are not as expected. Our highest spend before COVID-19 was on holidays (and no regrets!)

According to 2016 ABS data, high net worth households spend on average:

Of course, it is even more useful to track your own spending and work out which categories your own splurges lie.

But I think these statistics are also very useful.

Low, middle and high income earning households on average spent the most on:

  1. Housing
  2. Food and non-alcoholic beverages (Transport for high income earners)
  3. Transport (food and non-alcoholic beverages for high income earners)
  4. Recreation
  5. Miscellaneous goods and services (Medical care & health expenses for low income households).

Recreation, transport and miscellaneous goods and services seem to cost more of our income, the higher income and wealth a household has.

Now, much of that is (hopefully) conscious. Once a household has accumulated a reasonable net worth (within the top quintile according to the ABS), they may well decide to loosen the purse strings and upgrade the car, as well as spend more on recreation and non-essential goods and services.

Remember being wealthy (having a high net worth) is very different from having a high income though. A high income will not necessarily result in wealth unless the high-income earner invests a proportional amount of that income.

If you’re only just starting your investing journey and would not yet consider yourself high net worth (or on track to your goals), recreational and miscellaneous goods and services are expenses worth examining closely.

Let’s look in detail at the wasteful expenses that could be blowing your chances of developing wealth over the next few years.

1. Paying More Tax than you Need

By far our biggest expense is tax, a category often forgotten when looking at spending. Of course, you cannot avoid tax. But you want to make sure you are optimising it and making your income as tax efficient as possible.

This category is often forgotten, as unless you are self-employed, you rarely have to make a physical payment to the ATO. You don’t miss the tax as you never see it. But you could be losing thousands of dollars you could better spend elsewhere.

Saving on tax involves a little bit of education and organisation, but zero lifestyle sacrifice. Read all your options to save tax and get them sorted asap.

2. Not thinking about Grocery Expenses

It’s way too easy to consider grocery costs as non-negotiable. Realistically, many of us spend far more than is necessary. Cutting down on these expenses can create immediate savings, but involves a change in thinking and habits. Options include:

  • Shopping once a week/fortnight only (+ fresh produce top ups)
  • Attempting to purchase as much unpackaged foods as possible (good for you, the environment and your budget)
  • Meal planningg
  • Buying and cooking in bulk and freezing meals for easy dinners
  • Buying packaged food with lowest price per unit ($/kg etc) – reduces cost and packaging
  • Challenging yourself to eliminate food waste by using up all leftovers
  • Using a cheaper supermarket if available in your area
  • Collecting points and using them productively if using Coles/Woolies
  • Setting a budget for your weekly shop and keeping under it (limits non-essential spending)

3. Stop Paying Double / Triple for Convenience

It’s easy to fall into the trap of paying a lot for convenience food.

Paying $3.50 for a bottle of water doesn’t seem like a big deal. Until you consider if you were a bit more organised you would have brought your own for free, without the negative environmental impact of a disposable plastic bottle (and water, if the advertising is to be believed, transported from a faraway mountain stream!)

$3.50 is not going to move the needle on any of your goals. But decisions like this made over and over again do add up to a significant impact.

Instead of considering the actual cost, consider the multiple you are paying over what you would pay if you were organised. According to the University of Queensland, the cost of tap water is approximately 0.3c per litre. So you are paying 100 times the cost if you forget to take your refillable water bottle.

Eating out costs a lot more than preparing your own food, and is almost always a lot less healthy. Save eating out for special occasions, a carefully chosen restaurant with a great atmosphere and amazing food. Otherwise, build a repertoire of mostly healthy snacks you can prepare easily and take with you.

4. Prioritise Discretionary Expenses

The easiest way to prioritise “recreational” spending is to separate money available for discretionary spending and limit it.

With a regular, but limited supply of “fun money” over time, anyone learns to optimise it. You far more quickly learn what spending didn’t provide great value, and stop repeating the process.

This is a great strategy for couples, particularly with one spender and one saver. You will both need to come to an agreement on the amount of discretionary spending that should be allowed. I suggest individual limits, so the saver is encouraged to treat themselves a little, and the spender feels they can indulge themselves without invoking judgement from the saver.

5. A Luxury Vehicle before You’ve Earned It

Young men, particularly, seem to feel a lot of pressure to prove themselves via the vehicle they drive. Purchasing too much car too early in your financial life can really damage your chances of ever actually being wealthy enough to afford a flash car, financial security etc.

“Buy the cheapest car your ego can afford”.

For those of us without a lot of ego or interest in vehicles, you probably want one that won’t break down on you!

If a flash car is something you aspire to, make it a long term goal and reward. Get your dream car, after you have got your finances on track. Then you will be able to enjoy it without financial stress or regrets.

6. Stop Impulse Purchases

Does that “Miscellaneous products and services” ring any bells?

Is anyone else struggling with the fact you don’t even need to go find the credit card to make an online purchase anymore?

Advertising is getting smarter all the time. Adverts are woven into social platforms and individualised based on google searches, comments, clicks or even spoken about within earshot of our mobile phones. I’m sometimes convinced google can actually read my mind.

I am now the proud owner of a “lotus mat,” promising to take away all my aches and pains and have me practising yoga until I a centurian. I know. I’m a doctor. I know better. But it sounded so good! A magic fix for irritating musculoskeletal problems that is costing me hundreds of dollars in physio and daily exercises forever.

Spoiler alert: It doesn’t seem to be a magic fix. My purchase will probably end up stuffed into a cupboard only to be rediscovered in a few years.

Yes, I don’t really need to save a lot more money. I’m already on track to our goals. But I also don’t need a load of rubbish in my house overflowing out of my already overstocked storage.

Nowadays I keep a wish list in a notes app on my phone. When I am tempted to buy something (often as a result of a Facebook ad) I add it to the list. Given a month to think about it, I realise I don’t want most of these items, and I am more aware of the costs of my potential purchases with a month worth listed on my phone. The things I really want that will fit into my fun spending budget I can then purchase.

7. Mobile Phones & Internet

I hope you are not still buying mobile phones “on contract”. You know the phone companies are ripping you off. Buy phones outright and choose the contract separately.

Consider buying not the latest model of phone to save a few hundred dollars, but the recurrent costs of the contract are probably more significant.
To save even more you could go for an annual plan such as that offered by Kogan.

Similarly, shop around for internet providers, There is a lot of competition now and they often use the same network as the big providers.

8. Stop Wasting Power

Power costs have been escalating for years. Taking the steps to save power daily can seem like a hassle, but like most other things, can easily build into habits that become second nature.

Use appliances (like your washing machine, dishwasher, pool pump) at the cheapest time of day, using timers if necessary. Get your home insulated to reduce heating and cooling costs. Set air conditioners to 25C and heaters to 20C and isolate rooms to use them in, with closed doors and windows. Turn appliances off standby as part of your routine (you can get remote controls to make this easier).

Buy energy-efficient appliances, and shop around for the best deal on power. Having purchased a home you plan to stay in for many years, consider solar panels.

9. Alcohol

Alcohol is a huge and often destructive part of Australian culture. It is easy to spend a lot of money on booze.

Alcohol helps many of us relax, but at what cost?

It often results in poor sleep, reduced productivity, mood depression and poor long term health.

If you drink, alcohol should be part of your “fun money” budget. Consider cutting down if you think it is providing more downside than up, and find new relaxation rituals.

10. Outsourcing

Outsourcing can go either way. At some point in your life, it will make sense to roll up your sleeves watch a youtube video and get on with it yourselves. As your income increases and you become more aware of your own strengths and weaknesses, it may be worth outsourcing certain jobs.
When considering whether to DIY or outsource weight up

  • Cost of outsourcing vs post tax income of you working extra hours (if available) instead of doing the job yourself
  • Quality of result likely outsourcing vs DIY
  • Whether you will enjoy the challenge of DIY
  • Whether you will actually work the hours to pay for outsourcing

Even if you can Afford it, Can’t you think of Better Ways to Spend it?

It’s easy to start slacking off with all the above when you have enough to pay the bills without worrying.

It’s how many high-income earners get into bad habits and forget to save for bigger goals.

Even once you are on target for all your big financial goals, I still think it is worth considering all these wasteful expenses.

Even if you can afford to waste money, is there really no better way you can think of to spend it instead?

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

How Much Should you Spend on Holidays?

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

Are you starting to dream of travelling again?

Leaving home over the past 2 years has been a risky endeavour, with local and border lockdowns occurring frequently and at short notice.

After booking and rescheduling at extra cost again and again I have avoided booking flights anywhere recently. But with state border lockdowns coming to an end soon, and international borders open, my feet are getting itchy.

After 2 years of minimal travel, (I haven’t even been interstate, despite several attempts to) I want to go EVERYWHERE this year. It’s hard to narrow down, but visiting overseas (and Australian) family will be a priority.

Prioritising Now vs Later

This is the debate I am (and I think we should all be) constantly having.

I’m guessing anyone reading this blog is interested in optimising their finances. If you are a high-income earner, even a short period of time focusing on sorting out your finances results in outsized benefits.

There are a few perfect freaks who started investing in their teens and religiously saved a percentage of their income since birth. If you are not one of those, getting to a great financial situation is still going to take some work and effort initially.

Most of us are guilty of unconscious spending, and high earners are likely the worst offenders. It’s easier to pick up bad habits, and not bother thinking about spending.

The initial phase of finding ways to cut spending usually feels pretty painful, but it soon gets easier. Once you find the right balance, when you have cut out low-value spending, and automated your investments, it becomes as easy as your original unconscious spending lifestyle. At this stage, your financial freedom increases, allowing options that weren’t available to you. If circumstances change you are less and less “stuck” as your investments grow.

It took us 5 years of gradually increasing our savings rate to reach coast FI (for retirement age 60). At the end of this, we are ahead of schedule to meet all our goals with our current savings rate. Our savings and investments are automated and don’t really require a lot of thought anymore.

It is easy at this point to continue being finance obsessed, saving every dollar and “Unconsciously saving” as the habit of saving everything can become as entrenched as unconscious spending.

Reflecting on life, and what you want out of it is vital. Too many people let the years pass by without really thinking about any of this. No one has a guarantee of how long we have to enjoy life. There has to be a balance between now and later.

If travel and holidays are a priority, you may want to allocate more spending to this, or work out how to get more for less.

What is the Average Spend on Holidays for Australians

The average Australian spends $4,750 on an overseas trip, around 7.6% of the average yearly income.

Concerningly, around 1/3 spend more than they intended.

How Much Do Holidays Cost

Australia is the 12th most expensive country to fly internationally from.

I have certainly noticed a return flight from the UK to Australia tends to be cheaper than the same trip leaving Australia.

Some data collated by Budget Direct suggest it’s not necessarily cheaper to travel domestically.

The average cost per night of an Australian domestic holiday is $193 per person, for a trip overseas the average cost of a night ranged between $162.25 and $233.33. Average holiday cost statistics 2020 | Travel Research & Statistics — Budget Direct™

What are your Priorities?

The key to all of these articles is that you should spend your cash on what truly brings you great value and enjoyment. If you find travel stressful and would rather be at home, you would have to be crazy to pay these prices to travel voluntarily.

But I enjoy a change of scene regularly and love to see new places to explore.

If travel is something you prioritise, budget for it. Work out how you can get the trips you desire inside your budget.

For some people, travelling is about experiencing Michelin 5* restaurants and staying in the fanciest hotels. I feel like I don’t have the upbringing to feel comfortable in these places! I’d rather carry my own bag to the room than fret about what (and how) to tip a bellboy. I cringe at the thought of taking small children to these fancy establishments.

For me, travel is about experiencing as much as you can. My priorities are seeing the sights, the kids having loads of fun and being able to relax. I like to stay somewhere comfortable, but can still enjoy roughing it for shorter breaks when the dollars are better spent elsewhere.

Work out what your priorities are when you holiday.

Holiday Goals

Time to write a bucket list. If you’re anything like me, the list of trips will be large and varied! If you start with everything, you can start to work out the best order for your trips.

Timing (Read Die with Zero)

When you are young, fit and healthy it is time to enjoy the most energetic activities. Splash your cash on the activity (bungy jump?) you won’t want to do when you’re older and save splurging on the fancy hotel until you’re older (and fussier).

If you are planning to start a family in the next few years, which trips would be best before travel gets a bit more complicated?

Young families are very varied in their willingness to travel. Some avoid it as the stress of transporting kids away from their familiar environment means parents can’t enjoy the trip anyway. Others are intrepid explorers even with small kids, strapping them into backpacks for extended travel. You kids could have medical conditions that may alter your ability to travel, but otherwise, I suspect do just adapt to what the parents expose them to.

We are somewhere in the middle. I do tend to plan travel around the kids’ needs. If they are happy and entertained, I can actually relax.

You may want to time your trips around the kids’ ages. Their ability to partake in kids clubs and sports lessons may also alter the ideal timing for your trip.

Lastly, small kids are very easy to impress. Don’t use all your money with the “Wow” holidays until they are ready to appreciate them.

Under 5’s love nothing more than to camp, cook marshmallows on a campfire and collect twigs and rocks. My under 10’s still love camping but also really enjoy playing with other kids at cheap family resorts with pool slides. I imagine it’s going to take a bit more effort to get teens to declare a family holiday as the “best trip ever”.

Setting a Budget

We should all set an annual budget for holidays. However, it is perfectly reasonable to spend more in one year, as long as you cut back the year before to make up for it. A big overseas holiday to a bucketlist destination is almost always out of budget. But perhaps you could manage it if you stick to camping the year before whilst saving up?

The average spend quoted above really doesn’t mean much. The amount you should budget annually depends on your income, goals, priorities as well as how far along the financial journey you are.

If you are just starting out investing, and aren’t yet on track to your goals it’s wise to reign in the travel budget. Once you are on track (or ahead) towards your big goals, it may be time to prioritise travel more in your budget.

Sticking to Budget

Remember to budget for:

  • Flights if appropriate
  • Travel insurance
  • Car rental or public transport / taxis
  • Accommodation
  • Meals
  • Drinks
  • Special ticketed activities
  • Catching up with friends
  • Any new clothes / luggage / equipment you will need to purchase for the trip
  • 10% Overspend fund

It is very likely you will come across great experiences on your travels that you haven’t budgeted for. Do yourself a huge favour and allow 10% or so for these unpredicted expenses. You will want to make the most of your time on holiday, and do all the things.

It can be sad when holidays come to an end, you don’t want to come home to a credit card debt to be paid off as well.

Squeezing Everything Inside the Budget

I’ll bet your ideal trip won’t fit inside your budget! Time to make it fit. Work out what are your priority “Must do” expenses and cut back on the lower priority items.

Consider:

  • Using credit card/supermarket points to pay partially or fully for flights or accommodation
  • Staying in cheaper accommodation (camping, youth hostels, airBnB…)
  • Renting self catering accomodation so you can prepare most meals at home. Given eating out generally costs multiples of cooking for yourself, this is likely to be a great saving (and ideal for families with picky kids)
  • Using public transport instead of renting a car
  • Reducing car rental expenses by using credit card insurance instead of being ripped off at the airport
  • Bringing your own kids car seats to avoid the daily charge which seriously adds up!
  • BYO alcohol or abstaining
  • Reducing the number of ticketed events, and looking for natural and free attractions
  • Borrowing or buying second hand clothes/luggage/equipment

You may want to earn some find some extra money to cover the gaps

  • Working an overtime shift for holiday money doesn’t seem so bad!
  • Selling items from your home you no longer use

Planning Cost Effective Travel

An Epic Road Trip

Planning an epic road trip from home can result in a fun, fantastic, and reasonably cheap holiday. Australia is an incredible destination, and could take an entire lifetime to fully explore. We took 5 months to explore with our little family in 2016, and have barely scratched the surface.

Where have you still not been within an 8-12 hour drive of home? Perhaps this year is the time to get exploring! By avoiding flights (particularly once you have kids > 2 years old) you will save hundreds, or thousands of dollars.

The bonus of adventuring for the first time is the flexibility. You can adapt the journey depending on how it’s going. Worst case scenario, you can easily pack up and come home.

Travel to More Cost Effective Countries

Travel to certain countries is obviously a lot cheaper than others. Once you have paid for flights, a long holiday in Thailand or Bali can be very cost effective. Given the flights are usually the biggest expense with these trips, it is worth going to your destination once rather than have more than one holiday to the same area. You will need long enough to do everything you wish whilst you are there.

Tack on Holidays to Family Visits

For those of you like me, with family overseas, consider booking flights with an extended stopover for a second holiday en route to your family. It means you get a pure holiday on top of the family trip, and save significantly on flights in comparison with booking a completely different trip.

Similarly, with family in Australia far enough away you need to fly, try and extend the trip and taking a side trip whilst you are there. Visiting family is awesome, but it can easily use all your paid time off as a full time employee.

Being able to take long enough off work for extended trips to make the most of your holiday dollars usually relies on being financially healthy with a flexible employer. Some employers (including public health) allow time off at half pay which massively increases your holiday flexibility. Being self employed can provide the most, or least flexibility depending on the business you run. I don’t see many farmers taking holidays!

Working Holidays

Are you a highly skilled worked in demand? Doctors and nurses are in short supply in so many rural and regional towns, often in fantastic locations.

Locum agencies will usually pay to fly you to the location, and will often provide family friendly accommodation if requested.

You may be able to negotiate days off between shifts, or to delay employer paid flights home for a few days. That way you can tack on a mini holiday to the (largely employer paid) work trip.

This is a great solution to those in the early days of getting serious saving and investing, and with little cash to spare. You often get to see a part of the country you would never have known about prior, and do some sight seeing without spending much. Meanwhile, you boost your savings with the extra earnings and help out a much in need workplace.

Don’t Miss out on Holidays Because you are Saving

No matter what stage of getting your financial life sorted you are at, I don’t think it’s a great idea to miss out on holidays all together.

Work out your goals, priorities, financial stage and get imaginative. Work out the best way to get maximum holiday fun for your budget.

Comment below, do you have any other tips to squeeze more awesome experiences from a tight holiday budget?

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

End of Year Checklist: Review Finances and Celebrate Achievements

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

End of Calendar Year and End of Financial Year are Perfect Time to Review Finances

The end of the years are the perfect times to review progress towards your goals for 2021 and set new plans for the next. Use this checklist to make sure you are on top of your financial goals and take a moment to appreciate achievements from the past year.

Record your Net Worth

Monitoring your net worth can confirm you are moving in the right direction. It is motivating to see progress set out in a spreadsheet or graph, particularly over a few years. I have mine recorded since 2009.

In order to update your net worth, you will need to spend time logging into each of your accounts, including superannuation and possibly estimating the value of properties.

Net Worth = Total Assets – Total Liabilities

The easiest way to monitor this is to record it in an excel document, save it to the cloud.

Review Finances: Income

How much income did you take home this year? If your income has increased, did you direct this extra cash intentionally towards savings, investments or effective spending?

It’s just too easy for this money to disappear without any appreciable increase in life enjoyment. To make sure I use these small incremental increases in income, I correspondingly increase my direct debit towards ETF investments.

Review Finances: Expenditures

Time to review your outgoings for the year 2021. You can use an expense tracking app or just download your bank account data and manually categorize it into an excel document. What are your top expenditure categories? Is your spending aligned with your values? Is there still any wasted spending you can identify?

How do you want to adjust spending for 2022?

Review Finances: Tax

I find I don’t find out exactly where I stand until I have received my tax returns, division 293, and excess concessional contributions bills (Apply to income > $250,000 or concessional contributions > $27,500). If you didn’t get a chance to review everything at end of the financial year, now is the time.

Salary Sacrifice & Salary Packaging

How much tax did you pay this year? Do you need to stop procrastinating and set up salary packaging and salary sacrifice.

Varying Tax Witholding

If you are a great money manager, an employee, and own property investments, consider varying your tax withholding. If you are expecting a significant tax return, instead of waiting to receive it at the end of the tax year, you can request your employer withholds less pay each month. You could increase payments into your mortgage offset or into an automated investment.

Review Finances: Charitable Donations

Do you have an intentional giving plan, or are you just randomly donating when the requests come? Are you confident you are donating effectively? Are you happy with the amount or would you like to increase your annual donations next year?

This is such a personal area, but I love the way Effective Altruism explains how and why they think certain charities deploy your dollars with maximum positive impact. Aussie Firebug just interviewed the chairperson and board member of Effective Altruism Australia. You can find the podcast episode here.

Get Mortgage Ready or Review Your Mortgage

It’s sensible to check your credit score every year regardless. But it is especially important if you are planning to purchase a home within the next year. Your score impacts your ability to borrow at all, the limit you are allowed to borrow and the interest rate charged. You want banks to see you as a sure thing.

If you are lucky enough (!) to already have a mortgage, check this annually to make sure you are paying a competitive rate and are utilising an offset if appropriate.

Review Super

You should at least log in to your account and check that your super payments have been received. If you haven’t done this in the last 5 years, review whether you are happy with your super fund.

Again, if you haven’t reviewed your investment allocations in the past 5 years it’s time to check in. Is your asset allocation aggressive enough to hit your goals, whilst conservative enough for your volatility tolerance and age?

Maximize Concessional Contributions

Many younger people are hesitant to put extra into super, due to the risk of changes. This is a valid concern, but I don’t think the risk warrants throwing money away.

It would be mad not to meet the criteria to seize any employer super bonus contributions. You may wish to consider salary sacrificing to top super contributions to the full concessional limit (currently $27,500).

You can now catch up on concessional contributions for up to 5 years. If you are expecting to receive a large salary boost within the next 5 years, you may wait until then to maximize concessional contributions.

Review Savings & Investments Outside Super

Reviewing asset allocations every 5 years is appropriate, as performance is inevitably variable over time. A rubbish year in 2021 may be followed by a meteoric year of returns in 2022.

You may need to rebalance your portfolio. If the end of the calendar year is when you have planned to do this, take time to make sure it is done in the most tax-effective way. Selling investments inside super may be a more tax-effective way to rebalance your total investments.

Check Professional Development Funds

If you need to use or lose a professional development allowance each year, twice a year reviews are a practical way to make sure you are on track. Don’t let it go to waste!

Review Insurance

We should all probably review our personal insurance needs every year.

Income protection has become incredibly expensive this year, with routine ~75% increases for those of us with a “level” agreed value policy. The newer policies, with far less favourable terms, are not cheap either.

Review your insurance needs. Think through worst-case scenarios. If each household income earner died, was permanently unable to work or unable to work and needed ongoing care.

Each year considers if you can reduce your insurance, or increase your total permanent disability insurance to provide more affordable cover in case of disaster.

Review Goals for 2021

Did you set financial goals for 2021? Are they written down somewhere? In the chaos of the year, it is easy to forget about your goals. Find them and review them. How much did you achieve? Are the goals still relevant or did circumstances or aspirations change since last year?

What financial goals would you like to set for 2022? They should be based around your broader life goals, rather than arbitrary dollar amounts.

Are you Funding Your Carpe Dium Goal?

Don’t delay gratification forever! What is that “One day” you always plan to do, but never get around to? Write it down. Set a date and work out a plan to make it achievable! If not now, then when?

Life and Finances End of Year Review

Start the new year with a firm plan, based on your goals for living your best life. Spend a little bit of time reviewing your finances. Important financial decisions need regular scrutiny and adjustments to accommodate your changing situation and goals.

Hoping for a fabulous 2022.

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

How to be a Black Belt Awesome Money Manager

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.

Being financially successful begins with learning to manage your money effectively. Trying to invest before you can effectively manage income and outgoings to save regularly is like trying to run before you can walk.

An awesome money manager squeezes every drop of value from each dollar. This allows him to annihilate debts, fund dream (stretch) goals and purchase his most precious resource, time.

We weren’t born with these skills, and very few were taught them as kids. Most of us learned along the way, often through screwing up.

Have you racked up a load of consumer debt on those MUST HAVE items (that you now can’t quite remember)? Have learned these lessons the painful way, or plan to skip this life lesson by reading about my screw-ups instead?

Like most things in life, there are levels of success. How far are you towards black belt money manager status?

White Belt Money Manager

– Know Your Income & Paying Bills

How much cash do you take home per year? Are you paying all your bills without incurring late fees?

Your Mygov account can tell you how much you have earned this year so far. You will also be able to see how much you earned last financial year, along with the tax paid. You should know the yearly amount and monthly net income.

Managing your money well enough to pay off debts and bills reliably is the first step in financial adulting. If you are not managing, drastic immediate change is needed to avoid a nasty outcome. Ask a family or friend to help you (not with a handout), borrow a copy of Barefoot or contact Financial Counselling Australia.

Yellow Belt Money Managers

– Know Your Net Worth and Which Direction it’s Heading

List all assets and liabilities. Calculate your net worth.

Total assets – liabilities = Net Worth

For Example:

AssetsLiabilities
House worth $700,000Mortgage outstanding $500,000
Superannuation $100,000 
Term Deposit $5,000Credit Card Balance $3,000
  
Total assets = $805,000Total liabilities= $503,000
Net Worth = $302,000

A new graduate is likely to have a negative net worth. But if all that debt is productive (a student loan leading to a good career, a mortgage of a good quality property), good financial habits will result in a positive net worth soon.

If the net worth is positive, but the liabilities are depreciating assets (cars, maxed-out credit card), the situation may well get worse without a change in financial habits.

The initial net worth is not that important, but the components, and trends over a few years are. Monitoring your net worth each year can tell you if you are heading in the right direction, and provide some positive reinforcement.

Note that improvements in net worth will initially be pretty small. If you are practicing good habits as a money manager, this will increase dramatically over the years so hang in there!

Orange Belt Money Manager

– Understand How Much you are Spending

No judgment. This is probably going to be painful. Many people avoid facing up to their spending for years.

Most of us spend more than we realize or intend to.

It is important to face the music. There may be forgotten subscriptions and other expenses which provide you no value, that you can cancel without any effect on your lifestyle!

Spend some time looking through your last 3-12 months of bank account statements. Using an excel document or expense tracker, note the different spending categories and your spending in each.

Pocketbook is free and a great app for tracking outgoings. It can automatically track your expenses into an appropriate spending category, making it easier to see where you spend, and waste resources. But if you make a lot of ATM cash withdrawals, the type of expense will obviously not be recorded. You will probably need to manually recategorize outgoings to ensure the data is accurate.

There are also some security issues with expense trackers, that can be overcome by manually uploading your banking data instead of sharing log-in details.

Manually entering expenses into an excel document for a 3 month period is the most practical for those with only a single account. Those with multiple accounts and credit cards may choose downloading data from each account and upload into Pocketbook or a similar program.

Green Belt Money Managers

– Have a Short Term Emergency Fund Saved Up

Financial green belts are in the great position of netting letting their bank account run dry. Having enough cash to get you out of strife in a short-term emergency is a major milestone. The car breaking down is now an annoyance, rather than a crisis.

– Have a Plan for Longer-Term Emergencies

At this stage, you also have a plan in case a longer-term emergency occurred. If you were out of work for 3 months how would you survive?

This can include insurance, cash savings, a list of expenses you could cancel (but don’t currently want to), and even a flyby points balance that will cover a few weeks’ food.

There are few expenses more painful than an insurance policy. You pay these premiums hoping they will be a complete waste of money!

Insure against catastrophe. Life insurance, income protection, and house & contents insurance are critical for those with dependents, and many without. Check what insurance you have and whether this is adequate every few years (or with marriage, childbirth).

Reduce costs by increasing excess/waiting period, and hold onto any agreed value insurance product until you don’t need it anymore.

Make sure you notice when you can finally self insure. Once you can cover the cost of the catastrophe you are insuring for (even at a pinch), it is probably time to cancel the insurance.

Blue Belt Money Manager

– Have an Organised Banking System

You should never pay a late or overdrawn fee. You need to spend some time thinking about a system that will work for you. Here are some options.

Automate all your upcoming bills, credit card payments, and everything you can. Setting up direct debits to pay bills is a bit of a pain, but will save time every month for years to come. It will also eliminate the risk of an overdue fee, or black mark on your credit record.

Set up a direct debit with your credit card to pay the full balance every month automatically. If money is too tight to do this without worrying about becoming overdrawn, cut up the credit card, and close the account.

– You are Regularly Saving Money by Spending Less than you Earn

Blue belt financial managers have managed to create a gap between their income and expenses. This gap allows regular savings to occur. This is a huge step, one that many struggle to achieve.

At this stage, you save up for significant Purchases that decline in value over time (TVs, cars, other consumer goods). Delaying gratification, by saving up can build anticipation and allow us to enjoy the product or experience even more!

Blue belts can resist or delay impulse purchases. Most of us have way too much stuff. A delay (from 48 hours to 30 days) between the urge to purchase and actually punching your card details will help you buy things you really want.

Blue belts also plan ahead for irregular, semi-predictable spending such as replacing old appliances and paying for car service and tyres.

They are also committed to shopping around for the best deal for purchases, squeezing more value from each dollar. Blue belts bother to get quotes for insurance renewals and avoid the lazy tax whenever they can.

Blue belts don’t let any small increase in income, tax cut, or reduction in spending go to waste. That money is diverted to savings automatically. Even tiny increments really add up when you do this every time a little regular cash is freed up.

Find out more about how to save more money.

Purple Belt Money Manager

– Minimize Tax (Legally!)

As you earn more, you will pay a higher proportion of your gross income in tax. I now pay more in tax than all our other annual costs combined! Even a small saving in tax can be enough to fund a regular investment.

If you pay 30% or more in tax, salary sacrifice, and package. Utilize spousal super contributions and super splitting if you are part of a couple with unequal incomes.

Get organized for tax time to ensure you claim all deductions.

Think about the tax implications of investments. You shouldn’t make your investment decisions based on tax, but if there are two similar options but one provides a tax advantage, this should be your favourite.

Brown Belt Money Manager

– Have Financial Goals & a Written Financial Plan

Brown belts are really thinking long-term. Instead of saving up just to spend, these are dreaming up goals and then working out how to achieve them.

What do you want to achieve in the two years, 10 years, and during your lifetime?

You need life goals before you can set financial goals around these.

There always seem to be more goals than the cash available! Prioritize which are the most important, and make these financial goals. The others can be added back if your financial situation changes. And it often seems to, once you become an elite money manager.

Then make a written financial plan. Start with the long-term goals and work backward. Review it every 5 years, or with major life changes.

Some will need professional, personal financial advice. Take care to choose the financial advice provider carefully. We don’t all have to plan without help, but you have to invest enough time and energy to understand your plan.

Red Belt Money Manager

Buy Assets > Liabilities

You choose what to do with the money coming in. Most people spend their cash on liabilities – cars, boats, iPhones, and laptops that lose value from the moment of purchase.

How much money have you directed towards building assets? These increase in value over time, eventually replacing your paycheck with passive income.

To be a good money manager you want to start directing income to build assets.

Invest regularly and automatically to improve your ability to stick with the game plan.

Black Belt Money Managers

Black belt money managers have achieved all the above. They regularly save and invest towards written goals in accordance with their written financial plan. Plans are in place in case of catastrophic life events, and an adequate emergency find. They either avoid debt or only utilize productive investment debt and pay credit cards off in full every month, reaping the benefits of free insurance and frequent flyer miles.

Black belts are thinking ahead by monitoring their credit record in case of future borrowing needs. They will get the best rate and maximum loan as banks know black belts are ultra creditworthy.

Black belts purposely surround themselves with positive influences and role models, either in real life or virtually. It’s not uncommon to be surrounded by people encouraging you to blow your cash. People want you to validate their own (often unwise) decisions. It can be isolating to be the only one trying to make smart financial decisions.

These ultra money managers listen to podcasts, read books, and subscribe to finance blogs to continue to grow knowledge and find more ways to improve. Finding support through a similarly minded friend, or an online group can help black belts stick to the plan over the years.

Black belts are careful to circle back and make sure they have a good balance between spending and saving for themselves, their spouse, and their kids. They know what really matters, and that money is just the way to achieve these goals.

Black belt money managers move away from an All or nothing mindset to continual growth. They understand everyone makes slip-ups, and occasional overspending is the not the end of the world.

Ultra money managers are usually keen to pass as many of these skills to their children. By the time these kids leave the home they have a far better understanding of finance and money management than we did, and hopefully, go on to design and live their ideal life.

Conclusion

Money management is an essential skill, with many levels to achieve. Where are you on the colour belt scale?

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

What is Depreciation?

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

Depreciation has slightly different meanings in personal finance, accounting and taxation. Regardless of the context, depreciation refers to the decreasing value of a good over time. It applies to cars, to home appliances and even to clothing.

Personal Finance Depreciation.

Depreciation in personal finance refers to the amount of money you lose through the decline in value of a personal asset. Assets purchased for personal reasons (not investment or business) attract no tax advantages.

The rate at which each good depreciates varies. Some items depreciate more quickly than others. The commonest example of a depreciating personal asset is your car.

In fact, cars are known to lose so much wealth through depreciation, they are often referred to liabilities. If they come with a car repayment plan, even more so.

We have all heard how a new vehicle is worthless as soon as you have driven it out of the showroom. Cars literally destroy wealth if a consumer buys too much, too new and too early.

A $30,000 car that depreciates to 70% of it’s original value over 5 years will have cost you $30,000 x70% = $21,500 over the five years.

That’s on top of fuel, insurance and registration.

Losing $21,500 every 5 years just to car depreciation is not going to help you get ahead.

There is no silver lining to depreciation in personal finance. Depreciation cannot be deducted if the item is for personal use. It is simply a fact of life that your car will be worthless and less each year until it is virtually worthless.

A key strategy to build financial security and wealth is to spend the minimum possible on vehicles until you have acquired assets that will achieve your goals in the desired timeframe.

Property Depreciation

We are more used to hearing that houses go up in value over time. But the building itself, just like cars, depreciates.

A brand new house is worth less if you try and sell it a year on than when you purchased it. Nothing has that shiny new feel to it anymore. The expected lifespan of the roof, air conditioning units, carpets and boiler has been eaten into. All these things will eventually need replacing at a cost.

What often saves your home from falling in value is the appreciation of the land it sits on. This doesn’t depreciate. There are no deteriorating parts of the land (unless you’re on a cliff!) Nothing needs replacing. Over time, as populations expand in an area that is attractive to a large number of people, the price for the land increases.

The other factor that saves your home from falling in value is any renovations and replacements you put in. Depreciation of the home is still occurring, but you are paying to replace things as they go along, helping to maintain value.

Small Goods Depreciation

Most consumer purchases you make depreciate in value significantly after purchase. If you look into selling your Nick Scali lounge second hand, even after a short period of ownership, it is unlikely you will get much of the original value back.

Some items should theoretically depreciate but don’t. Highly desirable collectables can increase in value over the years as they become more scarce. Watches, cards and pokemon cards come to mind.

To be a successful collectables investor, you need to pick collectables that will increase in scarcity and popularity over time. You are best at keeping it in its original packaging and not using it (or barely). Collectables in mint condition tend to be worth a lot more than those that have been used (and loved).

If you have an area in which you are an expert, then it is possible to succeed with collectables.

Appreciating vs Depreciating Purchases as a Predictor of Long term Wealth

There is nothing wrong with buying a depreciating asset you love. That sports car, fancy watch or brand new home are not out of bounds.

But your timing of these purchases will make or break your financial life. Given your finances dictate the options you have to choose from when life throws a curveball.

Money can allow part-time work, unpaid absences, the ability to help family members in crisis and retirement when you want or need to.

Or your finances can require you to keep working completely dependant on a monthly paycheck to pay the bills. No matter what else is going on.

The earlier in life you can money sorted, the earlier you can afford to largely ignore it.

Big financial decisions, such as the home you purchase and the cars you drive will define your future financial life.

How to Minimise the Effect of Depreciation on your Finances

Let’s start with the most powerful strategy. Home buying can create wealth, or prevent you from building any.

Is the house you will buy on appreciating land, in which case your home is an investment as well as a place to live? Be as objective in this decision as you can. What are the long term capital growth stats for the area?

If you do not buy land that is appreciating at an above-average rate, minimizing your spend on a home is a wise financial decision.

Ideally, spend more on the appreciating land than the depreciating house on it.

With cars (ignoring the rare collectable) you can avoid the sharpest dip in value from depreciation by buying a car 3-5 years old. Keep your cars as long as they are reliable.

I suspect what you may make in appreciating value or a collectible car you will likely put back into repairs and maintenance. Collectible cars seem more of a passion project than a profit-making exercise. And you definitely need to know your stuff!

Again, you shouldn’t necessarily sacrifice having that “dream car”. Especially if this is something you value. But your finances will be more supportive in the future if you can delay the purchase until you have accumulated appreciating assets.

With collectables, my impression is that many people use the idea that something is “collectable” as an excuse to buy a luxury item they can’t really afford but very much want.

Be honest with yourself, if the purchase is for your use, make sure you can afford it and accept it will depreciate with use.

Investment, Work Related and Business Depreciation.

These are all less damaging than personal finance depreciation. In fact, these depreciating purposes are likely to be necessary to earn money. They are a cost of doing business. And the good news is, they often come with a tax advantage, unlike with personal finance depreciation.

Tax Depreciation

The most important concept to understand is that depreciation in your tax return is not just a tax benefit. It is partially compensating you for the loss of value that is occurring in real life.

If you purchase an asset in order to make money, you are entitled to claim the depreciation as a tax deduction. You are still losing value through real-life depreciation, but the ability to claim this on tax lessens the blow significantly.

Tax and real-life depreciation aren’t always equal.

If, for example, you had purchased a new vehicle in early 2020 for your business. Your accountant will use a method of calculating depreciation on this vehicle, and claim this depreciation against your income, lowering your tax burden. But with the vehicle shortage brought about by COVID-19, you may actually be able to sell the vehicle for more than you brought it for!

Property Tax Depreciation

The purpose of depreciation is to estimate the difference between what something is worth and how much it’s being sold for.

When purchasing an investment property, the cost of construction or renovating a property can usually be deducted over 25-40 years at 2.5-4%.

This encourages many to purchase new properties, in order to maximise the deductions. But new houses will depreciate quickly in the first few years because buying new means paying the builders margin. Remember to invest for a return first, with any tax advantages kept to an incidental bonus.

Get A Quantity Surveyor Report

When you purchase an investment property, it is important to contact a quantity surveyor and arrange a report. You need to know the costs of capital works to pass on to your accountant in order for them to claim depreciation. This costs a few hundred dollars (I paid ~$600 in Brisbane).

In an older building that hasn’t had significant renovations, there may not be enough depreciation to compensate for the cost of the report.

Capital costs of a building you purchase with a plan to demolish may be able to claim, discuss with a quantity surveyor before calling the bulldozer in!

Home Renovations

If there is any chance you may use your current home as a rental in the future, it is important to keep records of any improvements you have made. It’s hard to predict the future, and circumstances can change quickly. Keep your records just in case.

In the event of renting the home out, talk to your accountant to find out if you can claim any of the costs you have sunk into the home.

Claiming Depreciation for Employee Work Tools

For those of us that are employees, there are limited things you can claim as a tax deduction. Equipment and books that are purchased for work for less than $300 can be claimed as an immediate deduction.

Most of you will have noticed, this is not the case with your laptop. If the item costs more than $300, it is depreciated over the accepted “effective life”. In the case of your laptop, this is two years. There are a few different methods you can use to claim this.

If you use the laptop for personal as well as work purposes, you can only claim a proportionate percentage of the cost.

Work related courses, seminars and conferences, in contrast, including travel and accommodation, can be claimed as an immediate deduction.

Working from Home Depreciation

With the rise in working from home over the past two years, you can claim office equipment, electricity and cleaning costs. You can work these out individually or use the shortcut method. Keep your bills and receipts as well as a record of your hours worked from home.

Small Business Depreciation

Depreciation of business assets is treated as a business expense that spreads the cost of a fixed asset over its useful life. Depreciation is used to account for the decline in value of an asset, and it is considered an expense. This means that depreciation expense can be deducted from revenue when calculating taxable income.

A straight line depreciation method is easy to calculate because it represents the actual loss of value. But there are also accelerated methods to reduce the accounting burden for small businesses.

Conclusion

Depreciation is the term used in Australia for the deduction of the cost of certain assets over their useful life. Depreciation is applied to assets that are used for business, investment or employment purposes, but can also be applied to assets used for personal reasons.

Personal assets that depreciate can cause a lot of damage to your finances. Luckily, there are some steps you can take to avoid depreciation. Buying used items or investing your earnings instead of spending as well as delaying personal spending on luxury items until you have accumulated appreciating assets will help.

Employment, investment and business depreciating assets are usually a cost of doing business, necessary to make money and attract a tax benefit.

What do YOU think? Have any other thoughts about the effects of depreciation on our lives? Let us know in the comments below!

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

ING Bank: A Comprehensive Review

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

ING Bank, formerly known as ING Direct, was founded in the Netherlands.

In 2014, ING had total assets of €966 billion (US$1.3 trillion), making it one of the world’s largest financial services companies.

ING Bank’s History

It is a Dutch bank and insurance company whose history dates back to 1881. It has branches in more than 50 countries and serves more than 16 million customers. ING Direct, a bank without branches, was started in multiple countries in 1997.

ING has successfully managed to stay relevant. Nowadays, ING is a member of the largest financial services group in the world, with over 450 million clients worldwide.

ING Direct Australia Features, benefits and offers

ING Direct was Australia’s first and leading provider of no-frills, online savings and transactional accounts.

It held the number one position in the highly competitive Australian ‘direct banking’ marketplace – a position it has held since its inception – for eight consecutive years, between 2005 and 2012.

The company successfully positioned itself as a direct bank (no branches) offering value-added products such as high-interest rates on savings accounts and low-interest fees on credit cards. ING also promoted itself as a place to consolidate all your financial products, including home loans and credit cards.

ING Direct Australia Bank and Savings Accounts

It can be hard to find a bank account without monthly fees and great service.

ING Direct offers competitive interest rates on their savings accounts, plus home loans, personal loans, credit cards and insurance. You can apply for an account online in minutes.

Orange Everyday Account

This account is what brought ING Direct into the limelight. The Barefoot investor recommended their card to avoid ATM fees in his popular finance book.

Most Australians were paying $2.50 in fees if they had to use an ATM that didn’t belong to their own bank. Many were paying monthly fees on bank accounts.

Scott Pape raved about the Orange everyday account with linked savings maximizer.

How Has the Orange Everyday Account Changed?

There is still a lot to be positive about with this account. ATM fees are rebated if eligibility criteria are met, now only up to 5 ATM (domestic or international) rebates per month. These criteria each month include:

  • $1000 deposited from an external source to any personal ING account in your name
  • At least 5 ING card purchase

So if you can get your wages paid directly into the account and use the card regularly whilst withdrawing cash rarely, this account may suit you.

ING direct do charge an international transaction fee of 2.5% but this is also refunded if you meet the above criteria.

The interest rate is variable but at the time of writing 1.35%, which is competitive.

If you set up a direct debit to pay selected utility bills, the bank will provide 1% cashback into your account. Terms and conditions apply but they will cash back up to $100 per year. Every little helps.

Opening The Account

The account is easily opened in a 100% online process. With another bank, I have had to physically present to the bank to verify ID (in 2020!). There is no such nonsense with ING. The card arrived in the post with reasonable timing.

Using the Orange Everyday Account

My own experience with ING has been fantastic, with any ATM fee charge refunded automatically.

With an interest rate of only 1.35% and a home loan with an offset, it doesn’t make a lot of sense to keep a lot of cash in this account. But it does come in very handy for segregating our “Fun money“.

Enough of my wage to meet eligibility criteria is deposited directly in my everyday account. The excess is direct debited to our offset account the next day.

My card gets EFTPOS swiped five times a month easily so my ATM fees and any international transaction fees are always refunded.

Savings Maximiser

These can be opened at the same time as the everyday account and linked. There are no account fees. At the time of writing, they are offering 1.35% interest.

To receive this interest, savers need to:

  • Deposit $1000 into an ING account in their name each month from an external provider
  • Use card for EFTPOS payment 5 x monthly or more
  • Add to savings each month

If you fail to meet these criteria, you only receive 0.5% interest.

ING Direct also offers a savings Maximiser offering just 0.65% per annum for savings over $100,000. A 2-year term deposit is available for a piddly 0.25%

ING Government Bonds

The ING direct website is currently warning about this scam. The scammers are using the ING name and logo to sell government fixed interest bonds. Watch out and check out the website for more details.

ING Mobile App

I have the mobile app downloaded on my phone. It is all you would expect, fast and convenient. I can transfer money to friends using PayID and check my balance before buying coffees for the team. You can instantly transfer cash from your savings account to your everyday account, and vice versa, when required.

ING Round Up Feature

ING offers a round-up feature, where you can automatically set the account to sweep small change into your savings account. It’s similar to a micro-investment account except the money is just deposited into savings. Could be useful for those wanting to force themselves to learn to save. I have never activated this feature.

No Branches

Apparently, my parents just went through the hassle of moving banks because their old one closed the local branch. In contrast, I can’t imagine many things I’d like to do less than spend time in a bank branch!

Everything being online suits me fine. When was setting up accounts, I ended up a bit confused about the account linking. The website prominently displays a phone number under the “Help and support” segment. The customer service when I called was excellent.

Recently, for the first time in a couple of decades, I have received a couple of cheques. With ING, these can be posted into the bank with the bank account and client number written on the back. In Sydney, there is an “ING lounge” where you can deposit cheques (but not cash).

Payment Methods

Bpay

Tap and pay

Osko – Almost instant transfer of funds in real time. No waiting for funds to clear

Pay ID – Receive money through your mobile phone number or email address

Google Pay & Apple Pay – Pay with your phone

Coming soon – QR code payments

ING Direct bank security

ING is an authorised deposit-taking institution covered under the Financial Claims Scheme (the FCS). This means that if ING bank were to fail, up to $250,000 per account holder is guaranteed by the government.

The bank uses SSL encryption (secure sockets layer) to keep your information confidential.

A green address bar is displayed with compatible web browsers on the ING online banking website to confirm it is a genuine website.

You log in using a customer number and a 4 digit access code, inserted into a virtual keypad designed to prevent hackers from working out your access code.

ING uses two-factor authentication for higher-risk transactions, for which you will have to enter a one time password texted to your mobile phone.

The online banking website also displays security tips to warn you about recent scams, and how to prevent identity theft.

The Barefoot investor had to go into bat for a couple whose account was defrauded recently. It took Scott Pape making a fuss for the bank to refund the defrauded amount. This is not great, and would probably make me think twice about putting thousands of dollars in an account with ING.

Children’s ING Accounts

ING has a youth banking account for 15-17-year-olds offering 1.35% interest at the time of writing.

There are no account keeping fees, 5 free ATM withdrawals per month and international transaction fees are rebated. There is a withdrawal fee of 50c for withdrawing $200 or more via EFTPOS.

Other Offerings

ING offers two credit cards. An Orange One low rate card charges 11.99% and an Orange one rewards platinum card charges 16.99% but with cash back rewards and free travel insurance.

ING offers personal loans from 7.99%. None of my readers will be interested in that!

They offer home loans with competitive interest rates, insurance and Superannuation

Conclusion & Recommendation

If you are looking for a fee-free account and will use your card regularly each month a linked ING personal account and savings maximiser may be right for you. Please share your experiences with ING below.

For more finance tips and reviews, subscribe to the Aussie doc

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

Frequent Flyer Australia – Is it Worth The Hassle?

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

Anybody else getting a little overexcited?

On the way to work recently, I was listening to the radio (old skool) when my eyes welled up. The radio had announced the lifting of the international travel ban (well sort of). And I can suddenly see the light at the end of the tunnel.

COVID-19 is not over, in fact for me as a doc in a regional town, it has not even begun. But like many immigrants, the worry that I may never see my parents again has been weighing heavily on my mind. The ability to travel again (sometime in the next few months) has renewed hope.

If you are looking forward to the option of travel as much as me, perhaps you are wondering about Frequent flyer Australia schemes?

What are Frequent Flyer Points

Retailers offer Frequent flyer points to incentivize customers to purchase more, develop brand loyalty and share their data.

There are so many companies offering frequent flyer points, it can become very confusing.

The airlines Qantas and Virgin, as well as the supermarkets’ Coles and Woolies, are the major players with the biggest benefits.

How to Start Collecting Frequent Flyer Points

Frequent flyer schemes can seem excessively complex, and it’s hard to know where to start.

It’s actually simple to get started. If you are flying even occasionally and shopping for food you may as well collect these points. The cost is built into the price of the products you are purchasing!

In around 30 minutes you can sign up for the two major airlines, Qantas and Virgin Australia as well as the two main supermarkets, Coles and Woolworths.

You can sign up for a free Qantas membership and Velocity here.

If you ever shop at Coles, Kmart, Target, Coles express, First choice Liquor market or Liquorland sign up for flybuys here. If you ever shop at Woolworths, Big W, BWS, Caltex sign up for a free Woolworths Everyday Rewards card.

Given all of these can be joined for free, signing up is a no brainer. You can even store the virtual “cards” on your phone. Even if you don’t collect a substantial number of points, you can still collect the odd $10 off your grocery shop.

How do you Earn Points

If you just swipe your card at every shop and pay no more attention, you will collect a few points.

With a tiny bit more effort, you can significantly improve your points collection game. Families, in particular, tend to spend a lot on groceries.

Utilise Offers & Bonuses on Grocery Shops

This has the potential to multiply points earned on grocery shopping. Download the flybuys or Everyday rewards app to your phone, check the app and activate offers before a shop. Don’t be tempted to buy items because of bonus points, or spend more than you would normally.

But you can alter the timing of Longlife purchases because the app is offering a particularly generous bonus if you spend a certain amount.

Get a Grocery Rewards Card for Each Adult and Don’t Link

Those with two adults in the household can apply for a fly buys account each.

The supermarkets will offer you bonus points to incentivize you to spend slightly more than you regularly do.

Having two accounts will mess this up. You can alternate accounts depending on who is shopping or even purposely use the account with the best offers.

Collecting Flybuys

Flybuys offers members offers every week, ranging from a bonus 50 points to buy a particular item, to tens of thousands of points for spending a certain amount in a week.

I ignore the “buy this item for a piddly bonus” offers. You can activate them if it’s an item you were going to purchase anyway but it’s not going to move the needle much.

The offers you don’t want to miss out on are the bonus 10,000 points + for a big shop. If you are doing a big shop anyway, you want to activate these before you go. This just involves checking the flybuys app just before a shop, and activating any relevant offers.

Flybuys points can be converted to cash to discount your grocery shopping, redeemed as “flybuys dollars” for travel or convert to Velocity points. There are a variety of flybuys rewards, but these don’t offer nearly as much value.

Flybuys don’t expire if you earn or redeem points in a 12 month period.

Collecting Everyday Rewards Points

Everyday rewards points can be used to discount groceries or transfered to Qantas for flight redemptions.

You can download the Everyday rewards app to your phone, and recieve boosters. It is worth checking the app prior to your shop. Again, boosters are variable in value offered.

Everyday rewards don’t expire as long as you earn or redeem points within 18 months.

Frequent Flyer Australia: Earning Points through Flying

Just make the effort to enter your frequent flyer numbers when booking flights. Combine efforts using “Family pooling.” Virgin allow families to transfer all points and status credits earned to a single family member. This is a huge bonus for families who don’t fly that often. Family pooling makes it far easier to gain status, and it benefits the whole family when you fly together.

Unfortunately, Qantas don’t offer family pooling.

The ideal points collector would be one that is flying regularly on work funded flights. Locum agencies, I find are happy to add your frequent flyer numbers to flights they book. You can even add your frequent flyer number at check in.

The further you fly, the more points you earn. If you fly overseas regularly, it is worth looking at the airlines that fly your route. Make sure you make use of the those points.

Frequent Flyer Australia & Credit cards

It easier to earn frequent flyer points through credit cards and shopping rewards than flights. Many credit cards offer lucrative sign-up bonuses (up to 150,000 velocity points currently).

Virgin and Qantas advertise credit card offers on their websites.

Obviously, this could be a dangerous game. Scott Pape (The barefoot investor) thinks airline points are a dangerous waste of time.

You don’t need a credit card to use frequent flyer points. If you are not completely on top of your finances, religiously paying off your card in full each month automatically, skip this section and focus on the other methods of points collections.

Those with plenty of surplus cash each month and good financial habits may want to consider using credit cards. Paying off the credit card in full is a non-negotiable requirement. Ironically, credit cards and loans are only a useful tool for those that don’t actually need to borrow money.

Earning Points through Credit Cards

There are two ways to earn points using credit cards. Through sign up bonuses and by points earned on transactions.

Sign up bonuses are often generous and tempting. Travel hackers who make a semi-career out of optimising points will sign up to credit cards for the bonus, meet the minimum spend and close the card. Cards lock you out of the sign up bonus (often for 18 months). These hackers work their way around the different credit card companies to utilise many sign up bonuses within a 18 month – 2 year cycle. Then start again.

This is a lot of hassle. There is a lot of small print. If you don’t follow all the terms and conditions you miss out on the bonus. Some of the credit cards put you through a lot of hassle to approve your card (for others, it seems automatic!). And it can definitely damage your credit score, although not necessarily if you are careful. It is probably the most lucrative way to earn points for those that don’t spend a lot of money on a regular basis.

The alternative is to sign up for a credit card that offers good long-term points rewards for spending. Ideally you want a sign-up bonus, but the focus is on the reward per dollar spent. If you are a high income, high spending household or business owner this may be more lucrative than serial credit card hopping (and a lot less hassle).

Does Travel hacking damage your credit?

It is not a good idea to sign up for a credit card if you are planning to apply for a mortgage in the next year. If you are considering opening a credit card, check your credit score and monitor if you are using credit cards to earn frequent flying points.

My credit score did dip after a credit card application. Over time this recovered and exceeded the original score. Monitoring your credit score gives you an idea of when you are pushing your luck with credit cards!

Frequent Flyer Australia Status

Status credits reward frequent flyers over those collecting points in other ways. Most airlines offer a tiered membership status. The higher up the membership status, the more perks available and points earned per flight.

Gold status gets you lounge access, bonus airline points each time you fly and priority boarding.

I think the appeal to most is the ability to get into the airport lounge. By making the lounge seem exclusive, those that are excluded feel they are missing out. Yes, there is free coffee, wine and snacks. But it is not worth paying extra to get these small benefits.

Both Qantas and Virgin make gold members feel important by allowing them to skip the queue with priority boarding. But realistically, does anyone really need to be on the plane for an extra 10 minutes?

The most practical benefit I have found with gold Velocity membership is priority baggage. Your bags coming out first due to the priority baggage label means you can exit the airport faster (yay!) and sometimes beat the queue to the taxi rank.

Here are the links for Qantas status benefits and Velocity. You need a lot more points to gain status with Qantas so will need to be a regular flyer. With velocity, not as many points are needed and you can family pool status points. This is within reach with a status offer, and a couple of family flights.

Both periodically offer discounted status where you can earn the membership tier with fewer flights. This may be worthwhile if you will be able to maintain your status afterwards.

The airlines offer status to improve brand loyalty. The danger is you find yourself booking more expensive flights to maintain status and enjoy the perks of status with your chosen airline.

Virgin vs Qantas

Most will need to focus on one airline or the other (although certainly collect both). Your ideal frequent flyer membership will depend on

  • Intended use of points (overseas flights with a partner airline, domestic family trips)
  • Usual flight routes and which airline flies these
  • Grocery shopping habits (ideally want aligned with your chosen airline)
  • Flying frequency (Qantas frequent flyers need to be regular flyers)
  • Whether you have a family (Virgin offer family pooling of points and status).

Partner Airlines

Both Qantas and Virgin partner with other airlines. This means you may earn points on these airlines, and redeem points for flights with these airlines. If there is a regular long haul airline you prefer to fly with, it is worth checking whether they partner with Virgin or Qantas. Long haul flights earn the most points and offer the most value for redeeming points (if you can earn enough).

Hassle Factor

Collecting frequent flyer points can become a full-time hobby if you want to get really involved!

But those who are looking to minimise hassle can also get good value with a small-time contribution.
For the low hassle version, sign up for Coles, Woolworths, Velocity and Qantas. Put the shopping apps on your phone and activate boosts and offers just prior to a shop.

When you are ready, sign up for the Point hacks introductory email course to learn about how to use your points.

Frequent Flyer Australia Devaluations

This is the biggest problem with frequent flyer points. Over time, the companies have been devaluing the points. This is likely to continue. That means you probably don’t want to be collecting points without using them for years at a time.

It’s important to set realistic targets, which may be an overseas flight redemption for a single or couple but is likely to have to be domestic for a family of four.

How to Use Points

The best points value is generally redeemed against international business flights, purchased with points. Business domestic flights also offer good value, but unless you are very tall seem of little benefit over economy to me. Economy international and domestic flights offer reasonable value, particularly over peak periods (school holidays) where the cash value of the flight increases.

Travel hacking for families

It is often hard for families to redeem seats together. For international flights that is a lot of points! Virgin Australia is a family-friendly option with family pooling of points and status. They allow pausing of your status whilst on maternity leave. Gold members are guaranteed four reward seats together to any domestic destination as long as you book six months in advance. Check out Velocity family benefits.

Reward seat availability

Not all seats can be booked with points. Airlines offer a limited number of reward seats only. This can make redeeming points challenging.

Flights will need to be booked well in advance (Almost a year for internationals) in order to have a chance of a reward seat being available. It is best to be flexible with which day you will fly to increase the chance of reward seat availability.

Preparing for Travel Again

Are you looking forward to domestic and international borders opening properly? Perhaps it’s time to get preparing now. Check those passports – many will be out of date. It’s probably best to beat the rush and update before everyone is preparing for their overseas flight.

Take the easy steps to collect points, and consider signing up for Point Hacks email course.

How many frequent flyer points do you have already? If you’re like most people, you probably don’t know the answer to that question. You may have points on credit cards, airline memberships and grocery shopping rewards than can be transferred and combined. Check your balances out!


My Experience with Frequent Flyer Australia Strategies

Over the past 5 years, I have been increasing my savings rate and focusing on building investment assets. But I still didn’t want to miss out on travel!

I had heard about frequent flyer points, but they seemed too good to be true.

Perhaps for the person being flown around by their employer, or a business owner charging hundreds of thousands of dollars to a credit card each year. I had also read the system wasn’t as generous in Australia as in the US.

Would collecting frequent flyer points be worthwhile for an Aussie cheapskate like me?

Hearing a couple of my colleagues had scored almost free flights to the US with points pushed me over the edge to check it out.

Learning the Game

At first, I didn’t know where to start. The answer, as usual, was google. I discovered Point hacks who offer a free email introductory course to talk you through the basics.

I decided Velocity points were the goal, to be converted to Krisflyer (Singapore air) and redeemed to pay for a trip to Europe. Our local supermarket is Coles, and their flybuys points can be transferred to Velocity.

I signed up for Qantas points and Woolworths Everyday rewards but have pretty much ignored them.

I signed up for a few credit cards over 18 months for the signup bonuses. Leading up to investment property purchases, I avoided credit card applications. I used Credit Savvy to monitor my credit score and took a long break after a credit application caused my score to drop by 50 points. It rebounded within 6 months.

I checked my bonus offers on flybuys before each shop, and found particularly leading up to Christmas some great offers.

Gaining Status

A status offer came up for Virgin. A few trips for locum work easily made me eligible. With family pooling and a few flights for work and fun, I maintained my status.

Redeeming Points on International Flights

18 months into collecting points, I redeemed them all with Singapore air for two return economy flights to Europe. We are a family of four, and it was clear I couldn’t collect points for all 4 of us fast enough. So it halved the price of our flights. Alternatively, I could have used the points for 1 return business flight to Europe. Unfortunately, I didn’t feel I could pull that off and keep the rest of my family in economy!

Now seems a pretty good time to optimise points balances in anticipation of travel becoming a lot easier. Have you tried travel hacking? Post about your frequent flyer Australia experience

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

Personal finance is Self Care

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

How do you look after your own mental health? When you feel under pressure, do you play music, exercise or book yourself in for a massage? All these are valid forms of self care, and important.

Financial self care can have far longer lasting benefits to mental and physical health. How are you going with personal finance?

What is Financial self care?

There is a tendency in society to dismiss interest in money as greedy, self-interested or even sinful. Medical professionals usually enter the profession with altruistic ideals. They like to pretend money doesn’t matter. But money is just a fact of life. How we manage our personal finances can make a huge difference to quality of life now and later.

Financial self care includes forming a budget, tackling debt, paying for insurance to cover disasters and forming long-term financial goals, saving and investing to achieve them.

Just because money isn’t your number one priority doesn’t mean you should completely ignore it.

Unfortunately this money self sabotage all too common among doctors. A strong income can often give professionals a false sense of security. Unexpected losses of income, such as during COVID-19, a prolonged period of illness, unemployment or a desire to change to a new career or specialty can threaten that security pretty quickly.

High Income Households Experience Financial Stress

An ABS report reassures us that although wealthier households can find themselves in a stressful financial situation, this is usually due to discretionary, rather than essential spending.

These households have more resources to fall back on an can, after all, just sell that overleveraged home.

High earners are less likely to miss meals and suffer other extreme consequences of accumulated debt. They may also have family they can ask for help.

Having to sell your home because you can’t afford the mortgage doesn’t sound like a walk in the park though, does it? It sounds like the cause of many sleepless nights.

Financial Health Can be Hidden

The effects of poor financial management can only become exposed years into the problem. Living beyond our means is easier now than ever. Credit is easily available, often just more expensive the less you can afford it.

Higher earners who spend more than they earn may avoid experiencing financial stress until they want to retire. Their large income will cover a lot of monthly payments, but they fail to get their finances under control or save for the future, beyond government mandated super contributions.

A common misunderstanding is that with a high income, it will all work out effortlessly. High educational achievements do not correlate with high financial literacy. If a household is paying bills on time and the bank account isn’t overdrawn, it’s easy to assume all is well.

But are you saving money, making and meeting financial goals and actively planning retirement savings? Have you sought enough financial education to feel confident in these skills?

It doesn’t matter if you earn $50,000 or $500,000. If both workers save and invest nothing outside mandatory superannuation, their retirement account and income will be in a similar relative position after a 40 year career.

A Comparison of Two Hard Workers

Lets look at a theoretical case study.

John earns just $50,000 annually for his 40 year career.

Jack earns an impressive $500,000 annually for his 40 year career.

I have assumed they both have had 10% super contributions throughout their career (assuming neither are self employed). These hypothetical contributions earned 7% per year real return. We are working with a dream super account that doesn’t charge any fees!

 Super Balance after 40 years of work assuming 7% real return minus tax Retirement

 Super Balance after 40 years of work assuming 7% real return minus taxRetirement Income as if Tax FreeRetirement Income as percentage of Working income
John $50,000 income$719,805$28,79266.5%
Jack $500,000 income$4,542,645  $181,70560%

John has a reasonable $719.805 whilst Jack has accumulated over $4 million dollars!

John receives 66.5% of his post tax working annual income as a tax free retirement income stream after 40 years of work, aged 60+.

Jack is far wealthier with $181,705 annual retirement income. However, this represents only 59% of his post tax working income. On top of this, Jack will need to pay tax on this income as his super balance exceeds the $1.7 million super cap.

Although Jack is richer, he still has to cut his living expenses more drastically than John. There will be a lot of discretionary spending in that, although Jack may fail to recognise it. Jack will presumably have completed some postgraduate training, so will be older than John by the time he has worked 40 years, and is able to retire on approaching 2/3 of his working income.

Advantages of Financial Self Care

As soon as you can create a gap between your income and your spending, advantages occur.

Avoiding Financial Stress

Poor money management has long been quoted as a leading cause of marital conflict and divorce.

Not having enough money often leads to delayed health care. This is less likely to be so extreme in higher income households, but could still result in delays to diagnosis and treatment.

With prolonged financial pressure, particularly if associated with divorce or loss of the family home, depression and anxiety as well as substance abuse are more likely.

Stress is often expressed subconsciously through physical symptoms. Headaches and abdominal pains are common complaints.

Anxiety about money also affects your work. It is associated with higher absenteeism, lower work engagement and productivity.

Savings Compound

Once you can pay expenses in the most cost effective manner, everything gets a little bit cheaper. For example, your car insurance may be cheaper paid annually. There are discounts for paying school fees upfront and you can bulk buy pantry goods when on sale. These all may seem like small savings, but little advantages like this compound over years to become significant advantages.

Ability to Deal with Unexpected Events with Minimum Stress

All the thing we talked about earlier, unemployment and long-term illness cause enough problems. Not having to worry about money would be a welcome relief.

A good sized emergency fund also allows us to fulfil obligations or desires to help care for, and be with (particularly distant) loved ones in crisis.

Income flexibility

A central theme in personal finance is saving some of your earnings from every pay.

If you are saving 20%, you know you could drop your income by 20% and all your expenses are still covered.

This provides quite a lot of options, including dropping hours, changing jobs and starting a new career.

As that 20% grows and compounds over time and starts producing income of its own, your options and flexibility also grow.

Set & Achieve Long term Financial Goals

We have probably all stuck our heads in the sand about an issue we’d rather not tackle. Usually, we feel a lot better once we just get it sorted. Personal finance is a common topic to ignore and hope for the best. With that slightly worried feeling lurking that we should be doing better.

Having even a basic financial plan (budgeting to save and invest 20% and expand the plan later) will give you confidence. A little bit of finance knowledge building will empower you to make your own decision, or keep an eye on the advisor looking after your money.

Taking some time to dream up some bigger aspirations is a worthy goal. It is easy to get bogged down in the daily grind of daily life, and drift along mindlessly.

By taking the time to form dreams and goals, you will achieve far more of the important stuff in life.

The money is just a means to an end to achieve these aspirations.

Helping the Next Generation

I am of the belief that the best way to help your kids financially is by building their financial literacy. Money handouts tend to do the opposite. You will need to invest (time) in some financial education yourself in order to help out your kids.

Debt & Loans

Debt can be good, bad or tolerable. You (and your kids) need to know the difference. Good debt can accelerate wealth and even build intergenerational prosperity. Bad debt uses compound interest in reverse to destroy your finances.

Having great money skills, managing debt well and maintaining a great credit score will qualify you for better rates on home loans.

Avoiding Scams

Not tackling your finances whilst feeling a little worried about neglecting this area of your life can leave you vulnerable to scams.

Doctors in particular, can be quite naïve. They are also known to have high incomes so are perfect targets for potentially fraudulent transactions.

Unfortunately, there have been facebook groups where doctors have recruited colleagues into scams they thought were great investments.

Don’t follow someone else blindly. Read (or listen to) several sources and tread carefully.

If you you want to use a financial advisor you need to be able to afford to pay them (and avoid commission). You also need to choose carefully.

Personal Finance Success is Easier as a High Earner

You absolutely can’t get away with doing nothing, and relying on your high income to provide financial security. You need to build assets over time.

But high earners are not facing the same difficulties the average Australian household earning $85K is. Saving and investing is a lot easier on a high income.

A small percentage of your income will compound significantly over a long time period.

Building Financial Literacy

How to Manage Your Personal Finance as a Form of Self Care

  1. The first thing you need to do is track your spending
  2. Set some short, medium and long-term life and money goals
  3. Next, set a budget to allow savings to be captured (20%?)
  4. Create an emergency fund of at least $2000
  5. Make sure you have adequate insurance coverage (health, life, income protection)
  6. Pay off all credit card debt as soon as possible
  7. Start investing in a sensible, low risk strategy
  8. Consciously note when having savings and investments improved your overall wellbeing.

With student loan debt likely to increasing over time, financial literacy only becomes more important. Try and forms some new habits of financial self care.

It won’t feel like self care initially, but over the long term it’s the most caring action you can do for youself and your family.

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.