Start planning for the new year

Many people take the beginning of the New Year as a cue to set some goals for the next 12 months. After you have had a break from work and celebrated Christmas your head should be nice and clear and ready to start planning. It’s a great time as we generally get a better perspective of our lives and what’s important to us. Set aside one hour and write down a one page plan (or list of goals). I like to divide the page into 4 sections and use the following headings: Personal (e.g. your fitness, weight, work/life balance, etc.), Family (e.g. holidays, ‘date night’ with partner, etc.), Financial (e.g. income, net worth, etc.) and Business/Career. Under each heading, set some goals relating to this heading. This should aid in balancing out financial and non-financial goals. More soon...
New Year Financial Planning Checklist

Abuse of market power

Apparently, the Australian Big 4 banks have been talking about raising rates outside of RBA movements again. Website www.keepbankshonest.com.au suggests that they have already raised rates by 1% above RBA. The Banks’ cite higher funding costs as a reason for future hikes. My opinion is that it’s absolutely despicable for them to consider doing this. It’s an abuse of their market power. They have to act responsible as they have the economy’s health and Australian’s livelihoods in their hands. The GFC has handed the Banks’ a massive amount of power (i.e. huge market share). They have an oligopoly over the banking market – something the smaller players just can’t crack into. If the Banks’ are allowed to increase interest rates independently, they will become more powerful and more profitable which will mean less competition. The Federal Government needs to wake up to itself and take action. Verbal warnings from the Federal Treasure are useless! This week, CBA owned BankWest withdraw its hallmark competitive product. Why? Probably because it was cannibalising CBA’s profit. No need to offer such a good deal in a market you dominate. Right?

Get ready to rumble

Australian Prudential Regulation Authority (or APRA) data suggest that the Big 4 Australian banks had 100% market share of new mortgages in July 2009. Their market share in September 2007 was just 65%! This is a huge change in a relatively short amount of time. Financial commentators suggest that the government needs to do something to assist funding the smaller banks. I agree. However, it will take years of government intervention and hard work by smaller lenders to claw back some of this market share. The problem is; once you give a bank something as valuable as market share, they will hang onto it for dear life! They’ll flight the smaller lenders tooth and nail and they’ll probably win. Therefore, government intervention is necessary but it’s not a solution – at least not in the short to medium term. Prepare yourself for less competition because it’s here to stay. I don’t think we’ve seen the full effects yet. One solution could be to find yourself a good debt advisor. They’ll know the lay of the land and can ensure you won’t be a victim of no competition.

Don’t believe the banks bullshit

I was at a Big 4 bank seminar today where they AGAIN complained about home loan profit margins being ‘tight’. This PR crap makes me so angry as it’s only half the story. Sure. The GFC has increased the cost of funding mortgages which is negative on profit – no argument. However, the GFC has also resulted in a hell of a lot of consolidations (mergers) and sent customers flooding back to the Big 4 banks on mass. Their market share is absolutely huge now (over 90%). They now have more customers that they can cross-sell products to = even more profit. But what happens when margins ease… they make zillions! Business nirvana is winning more clients at the same or higher profit margin. Stuff we all dream of. A very good outcome is winning heaps of new customers at slightly lower margins that you can sell more products to. I would take that any day of the week. Feeling sorry for the banks (or ‘buying’ their story) is like feeling sorry for someone that tells you they lost $1 million last week. If the person went on to tell you that they still had $500 million in the bank (i.e. you heard the full story), you wouldn’t be that sorry for them would you? A tighter home loan profit margin is only half the story. The fact of the matter is the GCF has been the best thing to happen to the Big 4 banks in years. Over the longer term they will prosper greatly. Tighter home loan margins in the medium term it’s a small price to pay for this huge upside and they know it!

It's never a good time to invest

Many people get caught up with when it’s a “good” or “bad” time to invest in property. Sometimes they get utterly confused, scared and bamboozled. They feel if they “wait a few more months to see what happens to prices” they might magically feel more confident – it never happens. Either prices fall and they then they need to wait until they hit to bottom or prices rise and now they think that they can’t invest at the ‘peak’ of the market. They’re crippled and they don’t do anything. Consequently, years go by and nothing happens. A much better approach is to invest when it’s a good time for “you”. Wait until you are confident with borrowing money and you feel you can afford the next investment. When the time comes, make the leap. Trust me. The “market” will not tap you on the shoulder one day and say “hey, it’s a perfect time to buy. Prices have bottomed out and in the next month they’ll start to rise. Buy now. Buy now”. It will NEVER happen so take control of your financial future and you determine when you do something. Who the hell cares about the ‘market’ when you’re investing for the long term in quality property. “Doing” is the most important part of investing. I’ve seen too many people let wealth pass them by through sitting on the sidelines – particularly in the last 18 months.

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ANZ is marketing a rate hike

I note that Mike Smith is quoted in the press today commenting that the banks might increase home loan rates before the RBA. Why? Maybe they are still annoyed that they will have to “follow the leader” and cut overdrawn fees like the other 3 banks. Just watch this space... the banks report their financial results soon and all eyes will be on their ‘cash profits’ from home loans to see if they are suffering or profiteering.