Lessons from my mate Ruben and why the RBA didn’t raise rates today

Posted by Gavin Chau

I’ve been told, ‘You’re not a normal person,’ more times in the three and a half years I’ve been at Blue Wealth than I have been in the rest of my life combined. I’m still not sure if it’s an insult or a compliment. Last Sunday, I got a little bit of an insight into how most ordinary, decent Aussies with good jobs think about finances and their future.

Ruben* is a fishing mate of mine. We’ve known each other for over 20 years, but most of our chats are about fishing. Things like what is the best weather event for throwing shallow diving minnows at big jewfish or which bait spot the slimy mackerel have been at most recently. Ruben taught me much about catching kingfish from a boat, but we’ve never really spoken about investing or money. In the fishing world, that’s irrelevant beyond what boat it can buy you and if it can get you out there before the tide change is over. Fishing is a great leveler. The only possible way to get respect is if you can find the fish.

Recently, I had the chance to help him out with a property-related question. As I went through his finances and asked him what he wanted to achieve, it suddenly dawned on me that if the bills are being paid, most Aussies probably don’t think about their finances too often. This includes highly intelligent people who work in good jobs and have a bunch of other talents. Ruben had started building a house in 2022 when the interest rates were much lower, and as it is nearing completion now (at the top of the interest rate cycle), he was concerned that he might not be able to afford it. Thankfully, there was a simple solution that allowed him to hang onto the asset, which should pay off very well for him over the course of this cycle.

When I think about it, maybe it’s unsurprising since we’re never taught financial literacy at school or in most courses or degrees outside of accounting and finance. Even basic things like budgets aren’t talked about, so I assume things like deductions outlined in Division 43 of the ITAA 1997 would be off the table as well. The real shame is that beginning to think about retirement when you’re in the second half of your working life, in your late 40s to 50s, is often too late.

I’m unsure if people have been lulled into a false sense of security provided by superannuation contributions. A typical Gen Xer in a good, normal job thinking about retiring in 10-20 years would likely end up with about $1 million in super and a house that’s been paid off if they’re lucky. This leaves about $50,000 in passive income if you manage to get a 5% yield or dividend from superannuation. By the time you retire in 20 years, that $50,000 in passive income will have the equivalent purchasing power of $28,000 today – barely over the aged pension.

But wait, it gets worse! If your yield, measured in AUD terms, isn’t increasing by at least 2.5% yearly, your purchasing power continuously shrinks. This means you start your retirement with a very modest cash flow and end up with even less.

The good news is there is a solution, and most people are only one decision away from completely changing their lives. If you haven’t already started, it’s a great time to get educated in property and personal finance. Blue Wealth hosts many free webinars, which are a great way to introduce yourself to this world.

What else is happening?

The RBA is on its second day of meetings to talk about what they’re going to do with interest rates. Their announcement at 2:30 pm indicated they considered raising rates or some such thing and decided to hold. Of course.

The reality is inflation has been on a steady downtrend and falling faster than they had initially expected. Retail volumes per capita have been down for seven quarters – in line with a deep retail recession and the weakest they’ve been in 24 years other than during COVID. The forward indicators of job growth are pointing sharply down, mortgage arrears are starting to creep up, and I see a lot of $250,000 – $300,000 boats purchased in 2022-23 being offered up for sale.

Last year, Australians experienced a 6% decline in household disposable incomes – the largest decline in the world. Australian consumers are hurt, and household finances are incredibly weak.