Why 12 August matters + How to avoid a money divorce

Hi everyone,

Happy horse's birthday! In the Southern Hemisphere, 1 August is considered the birthday for all horses, regardless of their actual birth date. This is done to simplify age-based grouping for racing and other equestrian activities.

I’ve had a busy week speaking at retirement seminars in Brisbane and Ipswich, while also visiting another family as part of Kochie’s Budget Challenge - which you’ll see in an upcoming episode of Your Money & Your Life (airing each Friday at 1pm on Seven and available anytime on 7Plus).

The good news ... mark 12 August at 2.30pm on your calendar because that’s when the next interest rate cut will be announced by the Reserve Bank. That’s after the June quarter Consumer Price Index figures were released this week. More on that in a minute.

In this newsletter:

• Rate cut on the way on 12 August.

• A home loan rate with a “4” in front of it.

• Economic pulse check - and it’s not too bad.

• House prices continue to rise ... more than apartments.

• The premium you pay to live in the right school catchment.

• Getting your financial communication right in a relationship.

• Annoying health expenses - and how to avoid them.

Rate cut on the way on 12 August

Financial markets are unanimously expecting a 0.25 per interest rate cut at the next Reserve Bank board meeting ... and maybe another two cuts before the end of the year. The confidence in a cut comes after a beautiful set of inflation numbers were revealed this week.

When the RBA disappointed everyone a couple of weeks ago by not cutting, the RBA Governor, Michele Bullock, said she wanted to make sure the June quarter CPI results fell comfortably within the 2-3 per cent target range.

And they certainly did. However, the focus is more on core or underlying inflation, particularly the trimmed mean CPI, which is the RBA’s preferred measure. Headline inflation rose by 0.7 per cent in the June quarter and 2.1 per cent over the year, while the trimmed mean inflation increased by 0.6 per cent for the quarter and 2.7 per cent over the year. Both figures were lower than market expectations and are well within the RBA’s target range.

The trimmed mean figure was the lowest in three and a half years and the headline rate the lowest in four years, down from that peak of 7.8 per cent at the end of 2022.

A slowdown in rents, construction costs, health and travel were the main drivers of the result.

The main contributors to the quarterly headline CPI increase were clothing and footwear (up 2.6 per cent), health (up 1.5 per cent), housing (up 1.2 per cent), furnishings, household equipment and services (up 1.1 per cent), and food and non-alcoholic beverages (up 1.0 per cent).

Electricity prices jumped 8.1 per cent in the June quarter as some government rebates on power bills expired. Health costs rose 1.5 per cent in the second quarter, driven by rising medical and hospital services (up 2.3 per cent) following annual private health insurance premium increases on 1 April. Food and non-alcohol prices lifted 1 per cent in the quarter, driven by a 4.3 per cent jump in fruit and vegetable prices. According to the ABS, “Strawberries, blueberries, grapes, tomatoes and cucumbers saw price rises following reduced supply, which is typical at this time of year.”

Unleaded petrol prices averaged $1.77 per litre, down 3.4 per cent in the June quarter, as global crude oil prices declined. Petrol is down 10 per cent over the year.

A home loan with a “4” in the front

Following Wednesday’s CPI figure, financial institutions are starting to adjust their rates in anticipation of those possible rate cuts by the end of the year. One of the country's biggest lenders has released a new two-year fixed rate of 4.99 per cent in a vote of confidence for another RBA rate cut in August.

Macquarie Bank dropped its latest fixed rates on Monday - including a competitive two-year fixed rate of 4.99 per cent as well as three-year fixed rates of 5.09 per cent.

The offer with a four in front was the lowest advertised fixed rate that had come online in around 700 days. Some banks have pre-emptively reduced their fixed rates in anticipation of the August decision. Depending on their appetite to attract new customers, and where they think rates are headed, they may readjust them again.

But whilst fixed rates may be tempting, it's important to weigh up the pros and cons. If the cash rate continues to drop, you may miss out on more competitive rates that become available during your fixed rate period.

It's a competitive loan market so I expect that if the cash rate drops, most banks will pass on the discount in full. There's growing speculation we could see multiple rate cuts before the end of the year, so I don't think banks will hesitate to move on this one.

But of course, banks are not obliged to pass on rate cuts, so discounts are never guaranteed. And just because your rate might be reduced, it doesn't necessarily mean you're getting a good deal. It's crucial for homeowners to be vigilant, to make sure their rate remains competitive.

Comparison platform, Compare the Market has found there can be a 0.5 per cent difference between some advertised rates, so you can effectively create your own rate cut by shopping around. That could represent a saving of $210 on monthly repayments - or $2,520 over a year - for someone with an average $660,000 loan.

And that’s just looking at rates for new customers, which we know are often much more enticing than the rates available to older customers who have not refinanced in a number of years.

Also look out for cashback offers for refinancers, which can be worth thousands of dollars. When so many families are stretched to the max covering everyday essentials, we can’t afford to waste money on our mortgages. It only takes a few minutes to run a quick comparison and look for a better rate.

Economic pulse check ... overall, not too bad

The end of the quarter not only had the CPI figure but also a dump of other economic data. Here’s the snap shot:

• Consumers go on an end of financial year (EOFY) spending binge 

Retail sales for June were almost triple what economists were expecting at 1.2 per cent and a big leap from 0.5 per cent in May.

The Australian Bureau of Statistics accounted for the unusually strong monthly gain by pointing to large EOFY discounting events. Australian consumers love a sale and EOFY is no different to the trends set with Black Friday and Cyber Monday discounting frenzies. In June, spending was the strongest in household goods retailing (+2.3 per cent). The release of the Nintendo Switch 2 had an impact as well.

Gains were broad-based with department stores and retailing (both +1.9 per cent), clothing (+1.5 per cent) and food (+0.9 per cent) all recording strong outcomes. The only decline was in eating out, which fell by 0.4 per cent.

• Building approvals rise strongly - fingers crossed it helps the housing shortage

Remember monthly building approval figures can be very volatile, but in this housing shortage crisis I reckon we take every win we can.

Building approvals jumped by a surprising 11.9 per cent in June, well above economists' expectations of just 1.8 per cent, following a modest 2.2 per cent rise in May. The annual growth rate has now lifted to a solid 27.4 per cent.

On a rolling 12-month basis, approvals sit at 187,000 - the highest level since January 2023. Keep in mind, we need 250,000 new dwellings completed each year to keep the property market in balance. So the 12-month figure looks strong coming off a low base, but it is still well short of what we need.

Hopefully two more interest rate cuts, rising property prices, increased capacity in the construction sector and government policy support will keep adding building approvals to the much-needed pipeline. It takes about three years from getting a building approval to getting the property completed and people moving in.

Building approvals for apartments dominated the figures, with private multi-unit approvals jumping 33.1 per cent - the highest result since December 2022. Approvals for apartments of one to three storeys surged by 93.2 per cent, bringing annual growth to 214.3 per cent. In contrast, townhouse approvals continued to moderate, down 3.3 per cent for the month, though still 20.5 per cent higher over the year. On an annual basis, NSW has now overtaken SA, with approvals up a strong 37.3 per cent.

• Exports down as commodity prices stay low

Export prices fell 4.5 per cent in the June quarter, led lower by falls in iron ore (-9 per cent) and coal (-10.4 per cent) prices.

There was a slowdown in Chinese steel production as steel output in China fell in May and June.

Demand for thermal coal softened as supply increased in China and India, alongside higher renewable power generation in China. Uncertainty around tariff policies and demand for safe-haven assets pushed gold prices higher.

Strong US demand for Australian beef, due to low stock herd numbers, also led to a rise in beef prices. By contrast, wheat prices fell.

On the import side, prices fell by 0.8 per cent, driven mainly by an 11.5 per cent drop in petrol prices.

House prices continue to rise - and more than apartments

With another interest rate cut on the horizon, the latest Cotality Home Value Index rose 0.6 per cent in July. It marks six straight months of gains, with the positive inflection aligning with the first rate cut in February.

Every capital city recorded a rise in dwelling values through the month. This was led by Darwin with a solid 2.2 per cent rise, followed by Perth, up 0.9 per cent. At the softer end of the growth tables sat Hobart (+0.1 per cent), Melbourne (+0.4 per cent) and the ACT (+0.5 per cent).

The mid-sized capitals are also once again standing out, especially Perth. The state’s monthly pace of gains accelerated to be the fastest rate of growth since September last year.

Underpinning the rise in house values is the continuing low level of homes up for sale with national listings tracking 19 per cent below the previous five-year average for this time of the year.

The rate of growth in house values is once again outpacing gains across the unit sector. The past three months have seen national house values rise by 1.9 per cent, adding approximately $16,700 to the median value. In comparison, unit values are up a smaller 1.4 per cent or roughly $9,700 on the median value. The difference between the national median house and unit value is at a record high, with a 32.3 per cent difference between the two housing types, or approximately $223,000 in dollar terms.

The premium you pay to live in the right school catchment

Getting your kids living in the right school catchment area is a big priority for many Australian families. But it comes with a premium price tag.

Using a new custom boundary analysis, property research group Cotality compared property values inside popular public high school catchments with comparable homes in the same suburbs, just outside the zone.

The results confirm what many buyers already suspected: many popular school zones attract a hefty housing premium. The catch? While they might attract a premium, they don’t always deliver when it comes to capital growth longer term.

The largest price gap was seen in Sydney’s leafy North Shore, where homes in the combined catchments of Killara High School, Willoughby Girls High School and Lindfield Learning Village held a median value nearly $1.3 million (or 39.8 per cent) above homes nearby but outside the catchment.

Despite this, houses in the catchment recorded lower long-term growth of 126 per cent over the past 15 years, compared to 150 per cent in neighbouring markets.

In Melbourne, the premium for homes in the catchments of Princes Hill and University High School reached $357,000, though capital growth was again weaker than surrounding suburbs - 82.6 per cent, compared to 106.1 per cent over 15 years.

Of the nine school catchment clusters analysed across Sydney and Melbourne, seven had higher median house values compared to out-of-catchment homes. However, six of these also recorded lower capital growth over the past 15 years.

The report also highlights popular school catchment zones where property prices did not carry a premium compared to areas outside the zone within the same suburb - suggesting that good schools don’t always guarantee higher property prices.

Houses in the catchment of the Cherrybrook Technology High School were $155,000 lower than outside the catchment in the same suburbs, while houses in the Doncaster Secondary College catchment were $48,000 lower than those outside the catchment.

Paying a housing premium in a high-performing public school zone could represent a long-term saving when compared to private school fees.

According to Futurity Investment Group, the average cost of 13 years of private education in Australia was estimated at $349,000 in 2022, with significantly higher costs reported in Sydney and Melbourne. Some leading Sydney private schools charge upwards of $46,000 annually, placing the cost of secondary education alone at around $276,000 per child.

In six of the nine regions Cotality analysed, the house price premium within public school zones was at least $100,000. While that’s a significant upfront cost, it could end up saving families money when compared to paying for private schooling over many years.

Getting your financial communication right in a relationship

I was presenting at a retirement seminar at Alexandra Hills in Brisbane during the week and a couple came up for a chat afterwards. They wanted to talk to me about how they should ideally communicate with each other about money. They found it uncomfortable and daunting.

Financial matters don’t make for particularly romantic pillow talk, but being on the same page about money will certainly help your relationship last.

Almost 56,000 couples divorce in Australia every year, and money is one of the most commonly cited reasons for a split.

Just like love, money can conjure up strong emotions in people. It’s not only linked to security and trust, but also to negative feelings like resentment and jealousy.

But it doesn’t have to be that way. Here are my top 5 tips for a successful financial relationship.

Make time for regular talks

The majority of money problems can be traced back to a lack of communication between partners about their finances. That’s why in a serious relationship it’s a good idea to regularly set aside time to talk about money together.

Even 15 minutes a month can make a world of difference. I don’t mean paying bills and checking credit card statements but actually talking about the big financial issues … goals and dreams for your money, setting a plan to realise those dreams and monitor how you’re tracking.

Just a regular 15 minutes a month will not only ensure you’re both on the same page, it will also allow either partner to raise any issues that might be bubbling away under the surface.

Work as a team

As with most things in life, everyone's different when it comes to how they spend their money, which can be troublesome when you’re sharing finances.

For example, a spendthrift married to a penny pincher who takes out a joint credit card is a recipe for disaster, while the investment decisions of someone who relishes risk will keep their conservative partner awake at night.

Couples who manage their money successfully know that you have to work as a team to avoid potential problems.

A good option to help the camaraderie is to set savings goals that you both have to contribute towards, and build a budget together to ensure that you’re both spending consistently.

I’ve said it before, and I’ll say it again... couples that save together stay together.

Don’t keep secrets

My feeling is that if you’re together in love, you’re together in money, so Libby and I have always made a point of being open about finances in our relationship.

If you don’t trust your partner enough to be transparent, at some stage you have to question what you’re doing with them in the first place.

So, preferably before you do something serious like get married or buy a house together, sit down and have the talk.

Let them know about hidden bank accounts or inheritances, and make sure to be candid about any debts lurking in your closet.

Finally, don’t fall into the trap where one partner controls all the finances; make money matters a joint decision. Financial bullying, where one partner controls the finances at the exclusion of the other, is incredibly dangerous for the victim.

If your partner uses the old “don’t you trust me?” line, respond with, “don’t you care for me? Because what will happen if you suddenly get hit by a bus?”

If they still want to control the finances by themselves … get rid of them. I’m serious. If you have a partner who refuses to share financial information, your entire relationship is in trouble.

Open a joint account

Joint accounts are a handy way of fairly dividing household bills and also a great way to reinforce trust in a relationship.

If you do go down this path, it’s important to set some ground rules around what the joint account will be used for.

Then, if one person earns more and you’re worried about fairness, organise to contribute a set percentage of each salary into the joint account each month.

Having said that, we’ve always just had the one joint account. Our view is that just because you may earn more than your partner, it doesn’t give you the right to have a different spending pattern … It's a partnership of equals both emotionally and financially.

Get smart about couples finance

Once you’ve got the basics right, there are plenty of more advanced ways you can take advantage of being in a healthy financial relationship.

For example, saving money by taking out insurance as a couple, looking into consolidating your reward and credit card benefits to get results more quickly, and salary sacrificing options if one partner isn’t working or earns significantly less.

At the end of the day, this is just a guide, and what works best will be different for every couple.

Just make sure to keep those communication channels open, and hopefully you’ll be able to head off any issues before they boil over.

Annoying health expenses - and how to avoid them

Unexpected health expenses have been dubbed the biggest pet peeve, with Compare the Market research revealing that toothaches, injuries, and sudden illnesses at the top the list.

Nearly one in five Australians surveyed (16.4 per cent) said unplanned medical costs were their biggest health-related bugbear. This was followed by the cost of dental care (11.9 per cent) and short but expensive specialist appointments (10.0 per cent). It’s little wonder, given a full metallic crown can cost up to $1,650. A colonoscopy can leave private patients around $200 out of pocket, depending on their level of cover (excluding hospital fees), while a physiotherapy session can cost upwards of $110 in some areas.

Despite many of these expenses being fully or partially covered by private health insurance, nearly one in three Australians (31.7 per cent) said they don’t believe it’s worth having.

Many participants felt health insurance could be useful despite rising premiums (41.1 per cent). However, a high proportion of respondents had not changed their policy in more than three years (44.7 per cent).

Health insurance is worth considering, especially as we can’t predict when health issues will occur. And when they do … treatment and specialist fees can really cost. That said, I get that it can be a slightly bitter pill to swallow when we already have so many bills and expenses to deal with. Adding another into the mix can feel like a financial kick in the guts.

Without cover, seeking medical care can become a financial barrier for some. Australians are facing a range of cost-of-living pressures but finding a health insurance policy can help ease this with some policies covering part, or potentially all your out-of-pocket costs for certain medical treatments.

I know a record number of Australians currently have some form of private health cover but not everyone is getting the best value. Almost half of Australians haven’t switched their health insurer in three years or more. Those people could potentially be paying too much, especially if they are paying for cover they no longer need or use.

It’s a good idea to shop around for a better policy every year or so to make sure you’re getting more for your money.