Bottrell Financial Planning Newsletter – May 2023
As the days get shorter and temperatures begin to fall, Federal Treasurer Jim Chalmers is working to complete his second Budget, due to be delivered on Tuesday 9 May.
All eyes will be on the Reserve Bank board next week as it meets prior to the Federal Budget to decide whether or not to increase the cash rate. The board decided last month to pause its relentless increase of rates designed to reduce inflation to 2-3%.
The good news is that there are signs inflation is slowing. The latest figures show the annual rate at 7%. The March quarter saw prices rise just 1 .4%, the lowest increase in two years, although consumers are still feeling the pressure of rising prices in a number of areas. The most significant contributors to inflation remain fuel and utility prices, medical and hospital expenses, tertiary education and domestic travel costs.
The welcome inflation easing and a rally on Wall Street buoyed local markets a little with the ASX200 ending the month slightly higher.
The unemployment rate remains at a near 50-year low of 3.5%. With consecutive months of strong growth in female employment (up 81,000 over the past two months), the female participation rate increased to a record high of 62.5%.
The Australian dollar held on at just over US66 cents against the US dollar.
Meanwhile iron ore prices have been tumbling as China’s property market falters and there are fears the falls could continue.
Why an emergency fund delivers peace of mind
When life tosses up an unexpected event – such as retrenchment, a medical emergency or even just a big bill to fix the car – it can be nerve-wracking worrying about how to deal with the crisis. And, if funds are short, that just adds to the stress.
But imagine that you have a secret cash stash – an emergency fund – that will cover the costs, giving you the mental space to deal with the problem.
In fact, an emergency fund is the basis for a strong financial strategy and provides a crucial safety net.
It makes sense regardless of your age or income because the unexpected can happen to anyone.
Without a cash reserve, you may have to rely on credit cards or loans, which can put further strain on your financial situation and your mental health.
An emergency fund gives you the peace of mind to be able to weather the storms that come your way without racking up unwanted debt and interest payments.
How much is enough?
Of course, it can be tough to save when inflation is eating away at your income. Rising interest rates, rents and the cost of groceries is putting a big strain on households.
The Australian Bureau of Statistics reports that household savings have been declining for more than a year as people contend with increased mortgage payments among the other rising costs.
Nonetheless, by putting aside even a small but regular payment into
a separate fund you will slowly accumulate enough to cover emergencies.
The size of your emergency fund depends on your own circumstances but an often quoted target is enough to cover between three and six months of living expenses.
It may differ if say, you are planning on starting a family and need funds in reserve to cover the difference between parental leave payments and a salary; you have children in school and want to be able to cover school fees for a year or more, no matter what happens; you need
to take time off work to care for a family member, or you need to make an unplanned trip.
On the other hand, if you have retired, it can be helpful to have a buffer against market volatility. If there is a downturn in the markets and your superannuation is not providing
your desired level of income, a year’s worth of living expenses in an emergency fund can make all the difference to your lifestyle.
The main thing to remember is that if you need to raid your emergency fund, start work on rebuilding it as quickly as possible.
Building your fund
Putting together a budget can help you to analyse how much you can afford to put away every week, fortnight or month. Then, consistently saving until you reach your goal is the key, no matter how small the amount.
It is best to keep your emergency fund separate from your everyday transaction account to reduce the chance of you using your saved funds for regular expenses. One option is to pay yourself first by setting up a direct debit, so your emergency fund grows automatically with no extra action needed from you, and to avoid the temptation to withdraw your savings.
The type of account you choose for your emergency fund is important. It should be readily available so, while shares and term deposits may offer higher returns, they are not quickly accessible when required. Shop around for a bank account that offers the highest interest to get the most out of your hard-earned income.
Building an emergency fund is an essential component of a strong financial plan, providing a safety
net should something unexpected arise. If you are unsure of the best way to set up an emergency fund, we encourage you to reach out to us. We can provide guidance on the best options for your unique financial situation and help you take steps towards building a strong financial foundation.
Avoiding the urgency trap
I have two kinds of problems, the urgent and the important. The urgent are not important, and the important are never urgent.”- Dwight D. Eisenhower
For most of us managing our time means dealing with the million and one little things demanding our attention, which often takes our focus away from the vitally important things that might not be so pressing right now.
Dwight Eisenhower, five-star general and 34th president of the United States of America, was a master of time management who managed to tick off quite a few items on his to-do list during his time as President. His achievements included ending the Korean War, keeping the peace during the Cold War with Russia, introducing the Interstate Highway System, creating NASA, and drafting a major piece of civil rights legislation.
During his career, he often had to make ruthless decisions about how he spent his time and developed a concept of categorising and prioritising tasks to aid in time management. This concept was expanded upon three decades later in the best-selling book, ‘The 7 Habits of Highly Effective People’ and termed “The Eisenhower Matrix”.
While it sounds quite an obvious thing to focus on the most important tasks, it can be something we struggle with as we tend to have an innate bias toward the urgent, at the expense of the important.
We are hard wired to focus on urgent tasks
Time management research reveals that when faced with tasks of mixed urgency, people tend to focus on time-sensitive tasks over tasks that are less urgent, even when the less urgent tasks offer greater rewards. This is known as the “Mere-Urgency Effect”, and it explains why our approach to task and time management often means we don’t get the important stuff done.
And the more you have on your plate the more pronounced this is. The same research found self-described ‘busy’ people were more likely to prioritise urgent tasks with lower rewards because they are more likely to be focused on the clock.
Eisenhower’s matrix has four quadrants and users are encouraged to decide which category their activities fall into and there are strategies for how best to deal with each one.
Urgent & important activities are tasks with clear deadlines and consequences if immediate action is not taken. Examples include finishing a client project or picking up a sick child from school. These should be prioritised.
Not urgent & important activities are those without a set deadline that bring you closer to your goals. As these are not urgent these are easy to put off so should be scheduled for a later date – but you must ensure you stick to that schedule. Examples include strategic planning or networking to develop your career.
Urgent & not important activities don’t have to be done by you and if possible, should be delegated to someone else. These are often smaller everyday tasks, such as setting up meetings or uploading blog posts.
Lastly, activities in the not urgent and not important category often serve as distractions to
the important stuff. Think binge watching a program or time spent scrolling through your social media. These can be avoided altogether or at least done in moderation.
Keep in mind that everyone has different priorities and only you can know which tasks are important for you, and which ones aren’t. And even if you don’t want to emulate Eisenhower and run all your activities through the lens of this matrix, maybe just instead of trying to cram as many tasks
as possible into your day, try prioritising those that matter to you and will improve your life or those that progress you toward achieving your goals and dreams.
Getting your bounce back
Life is pretty frantic, and it is common to feel like it’s a struggle to keep up the pace. In fact, feeling exhausted is so common that it has its own acronym, TATT, which stands for “tired all the time”.
While it’s somewhat comforting to know you’re not alone, it’s certainly not a nice feeling, so let’s look at some of the best ways to get some bounce back into your step.
Watch what you take on
One of the first and most obvious things is to look at your busy lifestyle and see if something has to give. Don’t be afraid to decline invitations if you are feeling overcommitted, in particular say no to the things that are a drain on you physically or emotionally. No one can be busy 100% of the time and it’s important to ensure you have a little downtime to just do sweet nothing – even if you need to schedule it into your calendar!
As you manage your time think about what is most important to you and prioritise things that make you happy and give you energy.
Catching some zzzz’s
Of course, the most powerful downtime, is getting a good night’s sleep. If you are not a great sleeper making some small tweaks to your evening routine can help. Anything you can do to wind down, be it having a hot bath or reading a book, is great for getting in the right zone for a restful night’s sleep.
Avoiding screen time for an hour or two before bed is beneficial as the blue light from laptops and phones is known to trick your brain into thinking it’s still daytime. This reduces hormones like melatonin, which help you relax and get deep sleep. And while caffeine may be your friend if you are feeling a little lacklustre, it’s not ideal to have caffeine after 3-4pm if you want to have a good night’s sleep.
Stress less to recharge your batteries
Winding down can be easier said than done, however – often we don’t even realise how stressed we are until it gets to a point where it creates a problem for us.
Being in a constantly anxious state is draining. Our body is sending messages to put us on high alert – the fight or flight response – which is fine for short periods of time, but when it’s constant our batteries get drained pretty quickly.
Simple practices like deep breathing and progressive muscle relaxation can be very effective in reducing stress and improving energy and don’t have to take a lot of time or effort.
The Right fuel for Sustained Energy
No amount of relaxation or rest is going to help, if we are not giving our bodies the best fuel for energy.
We can’t expect to perform at our peak if we are running on fumes, which is where a balanced diet and hydration are key. Sugar in particular, is a culprit in giving you a burst of energy and then a crash, so instead of reaching for that chocolate bar mid-afternoon, try a handful of nuts or a banana for an energy boost.
Another easy tweak is to make sure you are drinking enough water. Just putting a jug in easy reach on your desk can be enough to have you humming along through the day.
Get your body moving for an energy boost
The last thing you probably feel like doing if you feel exhausted is to pop on your running shoes or go out for a brisk walk, but getting your blood pumping and your heart beating fast is a great way to shake off the cobwebs and boost your energy. It’s important to listen to your body and pace yourself but expanding energy is a great way to create more energy!
Life is to be lived and making some tweaks to your lifestyle and routine might just help you get that boost you need to enjoy life to the fullest.
Note: It’s important to also consider that chronic tiredness can have a medical cause, so be sure and see your doctor if you have any concerns about your overall health.