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How To: Overcome Australian Finance Hurdles

By: Nicole Pedersen-McKinnon

Australia has just chalked up the longest period of economic growth of any country in the world, overtaking the Netherlands. But, for that 26 years of uninterrupted prosperity, many people don’t feel particularly flush.

In recent, raw memory was also the world-wide credit crack up. This seems to have kept us more than a little grounded – and ground down – even though we were the only developed nation to avoid plunging into recession.

Indeed, six in 10 Australians think about money daily and that same number believe many people strive for financial success even if it means sacrificing their physical or mental condition, says a recent Suncorp National Money Survey. 

It’s scary stuff. So what are the three biggest financial hurdles we face today? And, more importantly, how do we protect and build our wealth without jeopardising our health? 

Hurdle 1: The revolving door of government

I don’t think you can underestimate the impact of uncertainty. We’ve had five Prime Ministers in 10 years – Kevin Rudd twice. Vitally, though, they’ve messed with our personal safety nets, like Medicare (our health), welfare (our last resort) and super (our comfort about the long term).  

But they’ve also largely been hamstrung by hostile Senates, leaving us with the unnerving sense that no one is steering the very big Australian ship on which we reside.

How to overcome it

Tricky! But hopefully we will see the stabilisation of polies and more importantly policies, so we can all get on with the business of figuring out our best money moves.

Hurdle 2: Low wages growth

Those successive Federal Governments have chased that elusive budget surplus, and we’re now told wages growth of 3.75 per cent a year is going to help them (and us). But it’s been nothing like that in the last few years.

Wages inflation is at the moment even failing to keep pace with prices inflation: private sector wages grew just 1.8 per cent in the year to March (the lowest level since records began in 1997) versus growth in the Consumer Price Index of 2.1 per cent. Utilities bills in particular are putting pressure on singles, couples and families alike.

Then there’s been the confronting end of the mining boom. This has actually unwound quite beautifully in an economic sense, if not for the thousands of families affected by job losses and mine closures. Exports like agriculture, education and manufacturing (helped by a loads lower Aussie dollar) have risen nicely to replace mining. Within Australia, there’s an uptick in infrastructure projects to supply jobs too.  

It’s also worth noting that while our employment numbers look solid (the rate has just slightly fallen to 5.7 per cent), they mask the move towards an increasingly part-time and casualised workforce. There are now about 130,000 more people working part-time than there were a year ago – you may know from first-hand experience.

How to clear it

 Ask for a pay rise today – see if a clear, calm and compelling case will see your boss give you the promised 3.75 per cent, check out 'How to give yourself the best chance of a pay rise'. But then project into the future... What will likely happen to demand for your skill set as technology rapidly evolves? How could you keep current – and keep that currency flowing? Thinking long term, when there is more automation in many fields, might it be time to retrain altogether?

Hurdle 3: High property prices (if you haven’t already managed to get a foot on that challenging ladder).

There’s a lot involved in this one… not least the fact that society still seems to think you should be working towards owning your own home. This when media headlines scream about dreadful housing affordability (and other generations scream at Millennials about eating too much smashed avocado).

The unfortunate truth is it IS more difficult to buy a home. The Organisation for Economic Co-operation and Development says property prices have increased 250 per cent in real terms since the 1990s, much of that in the past few years. And Sydney recently again placed second (behind Hong Kong) in a global study by Demographia of the least affordable cities in the world. Melbourne also makes the dubious top 10.

If you’ve managed the remarkable achievement of buying your own home, your challenge is to clear your mortgage as soon as possible – while rates are at record lows. If you need added motivation, the interest on a 5 per cent, $600,000 loan that it takes the full 30 years to repay is almost as much as the property itself. But by accelerating repayments, you could save a big chunk of that instead.

How to clear it

For aspiring owners, save, save, save… but also aim small. Previous generations didn’t start with a big house in a funky locale, they started with a tiny one and commuted to where they needed/wanted to be. There are other strategies to cut your commitment too – like opting for a quality apartment, buying with family or decentralising your life by living away from where you work, the miners’ fly in-fly out. See You don’t have to get a foot on the property ladder – even a toe works.

For existing owners, repay repay repay. When you’re done, your monthly loan repayment – more than $3000 a month – will be yours to do with what you will. Imagine…

Information is intended to be of a general nature only and any advice has been prepared without taking into account any person's particular objectives, financial situation or needs. You should make your own enquiries, consider whether advice is appropriate for you and read the relevant Product Disclosure Statement or Product Information Document before making any decisions about whether to acquire a product