Our latest quarterly update covers Coronavirus updates, unemployment figures, property market changes, the climate change conference, energy costs and the ups and downs of the Aussie dollar.

Coronavirus

Victoria and New South Wales saw their economies roar back to life as they emerged from lockdown just in time for a new kid to arrive on the coronavirus block. Omicron spread around the world seemingly within days knocking Delta off the front pages. Appearing to cause less severe disease than previous strains, and with Australia achieving high rates of immunisation, state governments held off resorting to lockdowns in an attempt to minimise financial carnage on businesses and workers.

All this battling against the virus comes at an enormous cost. The mid-year budget update forecasts annual deficits of around $100 billion for the next few years, no surplus over the next ten years, and gross debt of $1.2 trillion by 2024-2025.

Jobs galore

The unemployment rate dipped to 4.6% in November as an additional 366,100 people joined the ranks of the employed. The under-employment rate fell 2% to 7.5%, and many employers reported difficulties in finding staff.

Homebuyer hopes

Homebuyers gained a little power over sellers towards the end of the year as a surge in listings saw auction clearance rates in Melbourne and Sydney drop to 66% and 73% respectively. If this extra supply is maintained it should help to cool what has been a very hot property market.

COP this

The Covid-delayed climate change conference COP26 was finally held in Glasgow, and Australia joined the large number of countries aiming to reach net zero carbon emissions by 2050. Good progress was made in some areas, such as reducing methane emissions, ending deforestation and, for some countries, phasing down coal. However, modelling predicts that if all current commitments are fulfilled we will still see temperatures rise by 2.4 degrees. This is well short of the Paris Agreement goal to limit warming to 2 degrees, and preferably 1.5 degrees. The Glasgow Climate pact calls on nations to “strengthen their pledges to reduce emissions by the end of 2022.”

Expensive energy

Major energy users suffered from a big spike in the costs of both coal and natural gas during the quarter. Prices corrected abruptly in November, but still remained much higher than at the start of the year. Oil prices were also higher, nudging US$85 per barrel during October and November. Aside from hitting consumers’ petrol and home energy bills, high energy prices also led to an increase in the cost of, and shortages of urea – a chemical that is critical to the production of fertilizer (and therefore food) and to keeping diesel trucks on the road.

Ups and downs

The volatility in the value of the Aussie dollar against major currencies continued for the quarter. It traded between 70 US cents and 75 US cents in line with its long-term trend. We gained more than 3.7% against the Euro and Yen, and held ground against the British Pound.

The local share market failed to excite, tracking sideways before putting on a small end of year spurt that saw the S&P ASX 200 close the quarter up 1.5%.

It was a different story for US stocks. The S&P500 closed out the year at a record high after lifting nearly 11% for the quarter. The Nasdaq was close behind with a 9% gain.

This latest quarterly update covers the latest surge of Covid-19, news on the hot property market, share market updates and discusses the upcoming UN Climate Change Conference.

COVID here to stay

The third quarter of the calendar year brought with it the third and by far the biggest wave in COVID-19 infections. Largely restricted to NSW and Victoria the outbreak was driven by the highly infectious Delta variant. Such was its speed of spread it forced a change in strategy from one of elimination to learning to live with the virus, supported by a massive vaccination campaign. By quarter’s end vaccination rates were closing in on key targets that will allow a slow and selective lifting of the severe lockdown conditions that have prevailed for months. This may lead to a slower economic recovery than occurred after previous waves.

Time to chill

You know Australia has a housing problem when the head of one of the big banks, in this case Matt Comyn at CBA, calls for action “sooner rather than later” to stop the property market overheating. This was on the back of CoreLogic data showing house prices in Melbourne and Sydney rose 15.6% and 26% respectively over the 12 months to August. The International Monetary Fund (IMF) also called on Australian regulators to cool the market. Don’t expect this to happen through the usual instrument of increased interest rates. Rather, look for reduced lending in specific sectors, such as investors, higher deposit requirements, or testing loan serviceability at higher interest rates.

Pop goes iron ore

Iron ore’s price bubble eventually popped as China instructed its steelmakers to cut back on production. The main reason given was to reduce emissions, and perhaps to help clear the skies in the run up to the winter Olympics. Over the quarter the ore price fell 45%, with major miners taking an equivalent hit. BHP, Rio and Fortescue saw their shares tumble 33%, 26% and 44% respectively.

Hot topic

In August the Intergovernmental Panel on Climate Change (IPCC) released its latest report. It warned that “unless there are immediate, rapid and large-scale reductions in greenhouse gas emissions, limiting warming to close to 1.5°C or even 2°C will be beyond reach”. The report paints a grim picture of what that warmer world will look like and returned climate change to the front pages of the world’s newspapers.

The numbers

Equity markets experienced a bit of a rollercoaster ride over the quarter. All the major indices posted record highs, but most ended up within 1% of where they started.
The Aussie dollar also had a volatile quarter, trading between 71 and 75.4 US cents and finishing at 72 cents. It was a similar story against the other major currencies.
In both cases the late-quarter sell-offs were blamed on expectations of higher US interest rates.

On the radar

Many of the world’s leaders will come together in Glasgow at the end of October for the 26th UN Climate Change Conference (COP26). If they heed the warning from the IPCC, and if they agree to take the necessary steps to limit warming to 2°C (and preferably 1.5°C), it will set the scene for a dramatic economic transformation, with huge opportunities for those who can sort the winners from the losers.

Of more immediate concern, Chinese property company China Evergrande appears to be on the brink of collapse. Heavily indebted to the tune of US$300 billion, if it is allowed to fail it is likely to have global ramifications, not the least for Australia. For one thing China’s construction boom has been a huge driver of demand for our iron ore.

When times are tough financially or unexpected bills pop up, having an emergency fund set aside can alleviate stress. Unfortunately, many people choose not to or struggle to find spare cash to put aside. This article explains the importance of an emergency fund and offers clever savings tips to get your fund growing.

It’s the most common story financial professionals hear. Unfortunately, too many people fail to set aside emergency savings to see them through life’s hiccups. So when the inevitable happens, and an unexpected bill arrives, they are put under pressure to find the funds to pay it.

In turn, this leads to maxed out credit cards or taking out expensive short term loans. And so begins the bitter downward cycle of falling behind on essential bills and other regular payments.

Statistics

The Household Financial Comfort Report, published by ME Bank, found 21 per cent of Australian households had less than $1,000 in cash savings.

Additionally, 24% of households reported that if they lost their income, they’d only be able to maintain their current lifestyle for one month, and 11% for just two weeks, which is the equivalent of living life on the financial edge.

How much should I have in my emergency fund?

Financial professionals recommend having emergency savings set aside for life’s unexpected bills, but how do you go about doing this, and just how much money should you set aside for rainy day expenses?

The best place to start is to work out just how much money you have now and what income you can expect to earn over the next twelve months. Against this, determine what your expenses are likely to be and hopefully, they are less than what you earn. If not, you need to cut back.

Then decide how much you need in an emergency fund. Just how much you set aside will depend on your circumstances. Most experts suggest you should have the equivalent of between three to six months of living expenses set aside.

Start building up your emergency fund

The best way to achieve this is to break it down into achievable goals. For example, try to set aside one month’s worth of living expenses or, say, $2,000. That means saving $330 a month or going without two takeaway coffees each day for the next six months.

Once you’ve achieved that, try to save a second amount of $2,000 until you reach your goal.

A clever way to fast track this is to think about holding a garage sale or selling those things you have sitting around that you no longer need or perhaps even take up a part-time job for a few hours each week and put these wages towards the creation of your emergency fund.

Where to keep your emergency fund

The next step is to decide where you should keep these funds. Ideally, you want them to be separate from your day-to-day finances but still within easy reach, should you need them.

If you have a home loan, establish a mortgage-linked offset account. In doing so, these funds will not attract interest, which would be taxed at your marginal tax rate, but instead will work to reduce the cost of your overall mortgage.

Another option is to establish a ‘micro’ savings account. The rules on these vary, but most are based on rounding up every purchase made on a debit card and setting these ‘cents’ aside in a free savings account.

Whichever strategy you adopt, remember having a small amount set aside as rainy-day money, no matter how small that amount might seem, is better than having no funds set aside at all.

At Hejaz Financial Services, we have investment accounts to help you grow your savings Islamically. Visit https://www.hejazfs.com.au/investments/ to learn more about our Islamic investment options or give us a call at 1300 043 529 to talk to our licensed financial adviser about what best suits your situation.

This article highlights the importance of seeking financial advice, the cost-effectiveness, and the essential role of a financial adviser in your life. It also discusses how the recent education and compliance requirement changes have affected the financial advice profession.

It is commonly assumed that seeking financial advice is for the wealthy, and it only helps the rich become richer, yet financial advice can prove useful to anyone who wishes to better their financial future.

Financial advice is like getting a health check-up for your financial situation. Your financial adviser is like your personal trainer, assisting you in achieving your best possible financial health.

Seeking professional financial advice provides you with a clear path to achieve your financial goals, and that is an investment worth making.

Why invest in financial advice?

Imagine a couple in their early 30s who started investing in the share market in 2019 to save for their children’s private school fees over the next 10 years. Their shares dropped by 35% during the March 2020 market crash caused by the COVID-19 global pandemic. They panic and sell their shares, incurring a loss. However, a good financial adviser would explain the risks, provide examples from their experience and probably would have advised them to hold the course because theirs was a 10-year long term plan. Within a year, the share markets recovered and are now higher than ever.

Financial advice isn’t only about investing your money in the share market. Want to save to buy your first home? Want to protect your children in case of your death? Want to enjoy a comfortable retirement? Don’t understand what to do with your super or how to invest in the share market? Think of a financial adviser as a one-stop shop for the majority of your financial issues in life.

Come to think of it, be it your parents telling you to save money from your first job or an Instagram ‘finfluencer’ explaining the benefits of compound interest while dancing to a trendy song, these are all informal pieces of financial advice you receive throughout your lifetime.

However, a professional adviser can legally provide holistic advice by reviewing your entire financial situation and your risk-taking capacity to recommend an appropriate investment portfolio. Also, an adviser’s investment recommendations are based on research which can give you comfort over your decisions rather than constantly worrying about the investment you made based on your work colleague’s stock ‘tip’.

Is financial advice cost effective?

The financial advice industry has undergone a monumental transformation following the Financial Services Royal Commission of 2017-2019. As a result, new education and compliance requirements have been legislated to further protect the client’s best interests.

This has led to a drop in the number of financial advisers Australia-wide – from approximately 28,000 in 2018 to just 19,000 in 2021.

The silver lining here is that while there are fewer advisers to choose from, the quality of advice is deemed to improve exponentially.

As per Russell Investments “Value of an Adviser” report, advisers added a value of approximately 5.2 percent to their client’s portfolios in the 2020 COVID-19 pandemic.

Still, the true value of financial advice is much more than comparing the fees you pay against the performance of your investments, or the tax saved on your income.

A financial adviser can be a sounding board for your financial ideas, a resource to answer the simplest or most complex of queries, provide research-backed recommendations, and guide you over the long term based on their experience.

Ready to make the investment?

Your day to day job may not allow you to focus on the financial aspect of your life. In contrast, your financial adviser’s primary daily responsibility is to help you handle your finances efficiently.

At Hejaz Financial Services, our financial advisers can help manage your Superannuation, Home Finance, and Investments all in an Islamic compliant manner. Your financial future begins today.

Visit https://www.hejazfs.com.au to learn more.

Quarterly economic update 2021 (April to June)

With unemployment rates decreasing, housing prices rising and the share market performing strongly, the last quarter has been very positive for the economy and investors alike. In this article, we summarise the key standouts from the April to June 2021 quarter.

Employment surprise

JobKeeper was a cornerstone of Australia’s response to the coronavirus pandemic. It provided millions of Australians with an ongoing income and kept thousands of businesses afloat, so when it came to an end in March expectations were that there would be a sharp spike in unemployment. One estimate was that 150,000 workers would lose their jobs.

Happily, that wasn’t what happened. From March to April the unemployment rate dropped from 5.7% to 5.5%, then fell to just 5.1% in May. That’s below the 5.2% that applied in January 2020 before the pandemic hit, and an amazing outcome given the damage that COVID-19 continues to inflict on a virus-weary world.

Housing continued to sizzle…

Aspiring homeowners and upsizers endured another quarter of woe as home prices continued to soar. Nationally, dwelling prices were up 6.1% for the quarter and 13.5% for the year, with houses outperforming units. Of course, on the other side of the equation are homeowners, many of whom are delighted by the significant boost to their wealth.

Continuing low interest rates remain the key driver, but other issues have played a part, including stamp duty discounts and households redirecting the cash they would otherwise have spent on overseas holidays. Lockdowns last year also affected the normal supply of property leading to pent-up demand. As subsidies are rolled back, supply and demand normalise and if population growth remains low, property price growth may well come back to ‘normal’ levels.

And despite the RBA not expecting to raise interest rates until at least 2024, some economists are pointing to the low unemployment figures to predict that interest rates may begin to rise by the end of 2022. There is also growing speculation that the RBA and APRA will lift lending standards (e.g. requiring lower loan to valuation ratios) in order to rein in galloping price growth.

… as did share markets

Global markets performed strongly over the quarter with many setting record highs. Locally the S&P/ASX200 rose 7.7%, beating the MSCI All-Country World Equity Index, which was up 6.9%. Tech shares were back in the lead with NASDAQ gaining 11.2%, while the S&P500 rose steadily to gain 8.6%.

The Aussie dollar fell slightly against the major currencies weakening late in the quarter following talk that the next move in US interest rates may be up.

Iron ore continued to astound, up 30% for the quarter to US$215.50 per tonne.

Also…

• Workers receiving the minimum wage will see a boost in their pay packets from July, with the minimum wage rising by 2.5% to $772.60 per week or $20.33 per hour.
• Most people will see the Superannuation Guarantee (SG) payment from their employer rise by 0.5% to 10% of normal wages. This is one step on the path to raising the SG to 12% by 2025.
• According to Credit Suisse, nearly one in ten Australians are now millionaires. Twenty years ago the figure was less than 1%. Of course a million dollars today doesn’t have the buying power it did 20 years ago, but only Switzerland has more millionaires per capita than we do.
• Massive infrastructure projects and home renovation booms have caused a global shortage of building materials. An indicator, perhaps, that some COVID-19 stimulus measures have been a tad overdone?

If you are interested in Islamic Superannuation, Islamic Investments or Islamic Home Finance, learn more about them here.

Making a personal budget

To get ahead financially, creating a budget is essential to control your spending and visualise where you are in relation to your financial goals.

1. Set your financial goals

• Setting your short-term, mid-term and long-term financial goals is an important step towards becoming financially secure. If you are not working toward anything specific, you are likely to spend more than you should.
• After setting your goals, you will be able to visualise your goals and track your progress to reaching your goal. Make sure to set S.M.A.R.T goals, goals that are specific, measurable, attainable, relevant and time based.

2. Determine your income and expenses

• With everything becoming digital, you will be able to access your income and expenses at the tip of your hands. Hence, it would not be too difficult to determine your income and expenses. Record all your income, how much money is coming in, when it is coming in and where the money is from. After that, add up all your expenses and separate them into fixed expenditure, unnecessary expenditure and unexpected expenses such as medical bills. Separating them into different categories will help you determine where you can cut down on and how much of those expenses are fixed and necessary.

3. Check for unnecessary expenses (prioritise spending needs vs wants)

• Now is the time to eliminate unnecessary spending. Once you have reviewed your spending, you will probably find unnecessary expenditure. Identifying all your unnecessary spending and adding it up will show how much money you could put towards saving. Of course, you do not want to feel like you are depriving yourself and a treat each week is fine. So, set aside a small portion of your money to enjoy yourself while still living within your means.

4. Set spending limit

• After knowing exactly how much your income compares to your expenses, you will be able to determine what are unnecessary expenses and where you can cut back. Knowing how much income is coming in and how much fixed expenditure you are incurring will help you set a spending limit. After setting your spending limit, make sure to stick to it. There are many free online budgeting tools available, such as the MoneySmart Budget Planner found here.
• There is also a multitude of smartphone apps that can help you record everything you spend. This can be an interesting exercise. At the end of every month, you can easily compare your total purchases and outlays to your budget. You might be amazed to see where your cash is actually going.

5. Review budget

• Make sure to review your budget regularly and record any change in your income and expenditure. Also, make sure to see where you are in relation to the financial goals you have set for the short to long-term and adjust your budget to achieve them.

At Hejaz Financial Services, we have investment accounts to help you grow your savings Islamically. Visit https://www.hejazfs.com.au/investments/ to learn more about our Islamic investment options or give us a call at 1300 043 529 to talk to our licensed financial adviser about what best suits your situation. Our financial advisers can help you understand your risk comfort level, and design an investment strategy that’s right for you.

We all want to give our children a head start in life. This article shows you three steps that will help you instil sound financial habits in your children by setting the foundations of good money management now and lead them towards financial success. All parents want their children to be better-off than they were – more secure and financially independent, but the big question remains: where do you start?  

This article shows three steps to your kids financial success, ushering them towards financial security.

Step 1: Create good habits 

Start early; learning to save is one of life’s great lessons. In an increasingly cash-less society, it can be difficult for children to understand the value of money and how to save.  

Help them by: 

• Providing a glass jar through which they can see their savings mounting up for very young children. 
• Teaching the difference between needs and wants. Lead by example with your own savings habits.  
• Involving them in the household budget; compare prices at the supermarket and demonstrate bill-paying. 

• Paying pocket money for age-appropriate chores and helping them to create a mini-budget, apportioning money to: 

• spending on anything they want. 
• donating to charity to instil a sense of community and empathy, 
• saving for a goal; helpful in teaching kids restraint and how to avoid impulse buys. 

Step 2: Inform 

Nothing is free; water in the tap, electricity and even the internet don’t just happen by magic. One of the best ways to teach kids about responsible money handling is to explain debt and the consequences for not meeting financial obligations, which segues neatly into a discussion about personal credit scores.  

People with better credit scores find seeking finance approval easier and often qualifies them for more advantageous lending deals. 

Helping kids understand the concept of a credit score can be a little daunting, so try these tips: 

• Brush up on your knowledge first. 
• Don’t focus on numbers, explain that it’s about financial behaviour over time. 

• Avoid complexity and keep the information age-relevant. 
• Use examples. Discuss mistakes you’ve made in the past and explain how you rectified them. Explaining to them the rationale behind some of your financial decisions will help instil good values in your child. 

Step 3: Educate  

By the age of 3, children can understand the concept of money. By age 4 your child should be able to understand the connection between money and things. You can help them by making shopping lists and bringing them to the store, this will help them make the connection between money and things at home. By age 6 you can teach them the connection between work and money, you can help them by paying pocket money for age-appropriate chores. 

With early financial education, children will be more comfortable talking and learning about finance. Searching online will reveal a range of websites, blogs and apps dedicated to engaging and educating kids about money and investments. These online resources can help in the process of educating your kids about the different types of accounts or investments available in the market to help grow their finances.  

Introduce your kids to good habits while they’re young, and you’ll be setting them up for success. 

This article provides five financial tips that all generational groups can benefit from. When it comes to money, some things stay relevant regardless of your generation. So here are five tips for getting, and keeping, control of your finances – for life! 

1. Living within your means seems obvious, but surprisingly, many people don’t. It’s why credit like store/bank cards and shop-now-pay-later facilities are so popular. Unmanageable debt has the power to keep you awake at night – and not in a good way. But you really can survive without the latest device or car.  

In short, don’t be a slave to possessions; why lock yourself into debt more durable than the item? 

2. Save. The world is full of opportunities: travel and socialising, etc., but don’t underestimate the security of a stash of cash. With a small, regular commitment, you can have a life and save too. 

Consider this example: An initial $500, plus $50 per week over five years, could accumulate almost $15,000! (Assuming no withdrawals and 2.5% profit over the period).  

Additionally, developing a savings habit will help create a good credit score for, say, a future home loan. 

3. Buy quality items like clothing or furniture. Pieces in good condition will generally last longer, and with care, can become classics you won’t need to replace. 

4. Learn to cook. Nothing beats a home-cooked meal for cost-savings. Find a recipe, make a list, shop and cook. Not sure what you’re doing? YouTube is your best friend. For $30, you could cook yourself and a friend a similar meal costing around $80 in a restaurant. (There’s the week’s $50 for your savings account!) 

5. Make a budget and stick to it. Record income, then expenses beginning with non-negotiable ones like rent, home payments, insurance, transport, groceries, etc.  

If you can’t account for some of your money, a budget will help you identify areas of overspending so you can reallocate funds to savings and discretionary expenses. 

The government’s MoneySmart website provides a budget planner to get you started, or create your own using a spreadsheet. 

There is our five financial tips, every generation believes there’s nothing to learn from the other, but the truth is we’re all learning, all the time.  

Visit https://www.hejazfs.com.au/ to see how our investment products can help you grow your finances and have your money work for you!