Archive for the ‘Monday Money’ Category

Wordless Wednesday – Christmas With Love

This is the jigsaw puzzle our 4 year old daughter made for her cousin.

Play Wordless Wednesday at 5 Minutes for Mom and Wordless Wednesday.
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MONDAY MONEY – Something Special

Having fallen foul of the flu this week I have been pondering what I would write. Whilst the head is still a little foggy I thought it best to look at something that I managed to do with my daughter in a couple of days as a gift for her cousin.

It is not an expensive thing to do, making a gift for someone, it is something very special, with time and love spent in making it. The commercialised side of Christmas has really taken hold. I would say for most people it is a case of what is the latest gadget that I can get, what piece of technology is there out there that I don’t have. The one that leaps to mind for me is the IPhone. My son has told me that I don’t need an IPhone as I only need a basic mobile, I would never use all the other bits and pieces attached. He’s probably right!

Anyway, I move off the subject. I drew my daughter a picture onto a piece of wood, coloured it in and then cut it into a puzzle for her. Yes you need to know how to do this sort of thing, but there are many gifts to be made. Without prompting she wanted to know if she could make one too, for her cousin we are going to visit at Christmas. She is 4 and I looked at her and said of course, thinking that I would end up doing all the work. How wrong was I, she helped search the internet for pictures of a tractor (her cousin is into tractors), then I drew it onto her board, and she coloured it in. Not the idea I had. Her cousin is going to get a brightly coloured tractor puzzle that she spent 2 days making. How much more special can you get (photo here).

So on a somewhat shortish note, think about the latest gadget you’re thinking of getting. How much love and thought is there in this? I love my gadgets and toys that I have, and yes it is great to have an excuse like Christmas to go and ‘upgrade’ again. At the same time though, isn’t it nice to have that little something special, the thing that says I really thought about you at this special time of the year.

MONDAY MONEY – GETTING INTO THE MARKET

There needs to be a starting point. It doesn’t matter what market that is being considered to get into, it needs a starting point. There are many different markets that one can consider entering, the main ones being shares and housing. Within housing there is investment and for living in. Some people believe that a house for living in is an investment whilst others may not put it in the same category. I personally think that the house you buy to live in is a good place to start your investing, if done correctly.

So what do I mean by correctly? As with anything we do, there should be plenty of research into what it is you are going to do. As an important question, can we afford what we are about to do? The answer is usually yes, it may stretch us a little, but yes we can afford to do this. I am talking firstly about purchasing a house, usually the most important purchase we make. We plan out our income, look at what we can afford, and then buy the house that is going to use the maximum we can borrow.

Perhaps we should look at this another way. We want a 4 bedroom, 2 bathroom, 2 car house in a nice neighbourhood. Quiet street away from the traffic and hassles. The house we want is at the top end of the market, we can afford it, say over 25 years, going to raise the family here, perhaps even retire whilst we are still living in it. The value of the house will have gone up in the time we are living here, good investment. No question. For the area the house price is say about $600,000.00. Sounds lovely.

Now let’s look at the same thing differently. By finding a house in perhaps a little less desirable location, say a main road, or a little further out of town, or even a less popular neighbourhood, you can buy the same 4 bedroom, 2 bathroom house for a lot less. Getting into the market at the lower price will mean that you can pay the house off in much less time. This may not be as idyllic as the first scenario, but it will mean that you are clear of debt much faster, as well as being in the market.

Another factor to consider is getting into the market at the lower amount, paying off as much of the house as you can quickly, before starting the family etc, and then looking at upgrading at a later stage. Most houses appreciate in value so there is little risk of losing once you are in the market. Houses in the area appreciate at the same rate, so being in the market is better than not at all, moving does cost, but nowhere near what the cost of the more expensive house is going to cost over time.

We tend to buy the end product, rather than looking at ways of getting to it in a more affordable manner. We bought a house on a main road, bus route with a bus stop outside the front door, for some people this would be the last place they would buy a house. There were a couple of factors that helped us when we got it, the location being one of them, the other was that it had been on the market for a while and not sold. We were able to put in a very low offer and luckily made the purchase. For us it was great, lower than we could afford which meant we had room to move with our finances which has lead to us being able to pay it off sooner. Now we have several options available, there is equity in the property that we can borrow against, we can sell it and buy in another location or keep it and rent it out.

I’ve talked about a house to live in, the same goes for an investment property. The range of properties is immense, we don’t have to have the top end of the market to make money. There is a note of caution here though, there are risks at all levels of the rental market, but there can be more at the lower ends, so research is more important along with good insurance. Getting something a little cheaper and being able to get a good return may be better than spending more for the same or a little better return.

I am not keen on shares, I know many people who prefer shares to houses. I have several parcels of shares, I don’t do much with them, they sit there and do their thing, I get annual reports, which I don’t understand most of the time along with a statement and payment for the year. The tax man probably is more interested in this than I am, I pay the tax so make him happy and I get a little extra cash. Along with the house, it required research before I entered into the share market. Having done this, I thought I was well positioned to make the purchase. I now have shares that I can sell if needed or keep, hopefully not losing anything on them along the way.

The purpose of this weeks Monday Money is really about getting into the market, at a level you can afford. I would like to hope that in the changing times we face ahead of us that people can still get into the market. It concerns me that we are still getting in at a level of affordability which is way higher than perhaps it should be. Are we risking too much to get in? Have we researched what we can really afford? Should we look in an area or at something that is going to ‘stretch’ us less, and therefore put us in a stranger financial situation sooner?

MONDAY MONEY – INVESTMENTS Paying off Debt and Investing for the Future.

My strongest recommendation is to pay off the debt you have, and then plan further investments for the future. Many of us have debt, usually 2 or 3 loans, ranging from short term to long term. With all the loans there are fees and interest that we are paying. It is worth doing a few calculations to see how much you are paying back on all the loans. Once you have done this you will realise how much money you have for future investments.

Starting with the loan (credit card included) with the highest interest rate, how much is the monthly repayment on this account. If it is a credit card then there needs to be a plan not to make any more purchases using the card, the aim is a zero balance and then to get rid of it altogether. Pay the minimum on all other loans and put everything into getting rid of the highest interest.  Once this is achieved, using the monthly payments from the loan you have just paid out, add these to the next highest interest rate loan and pay it out. Adding the 2 amounts together will reduce the loan in next to no time and save you a huge amount in fees and charges. Keep doing this until you have no more loans left.

This sounds so simple, so why is it that we don’t do it? A big reason is discipline! We are not good organisers and really do not handle our finances as well as we would like to. There is always something more important than getting ourselves out of the financial mess we are in from week to week.

I think a fairly new product on the banking scene is the Offset Account. I know more and more people are finding this and starting to use it. I certainly did and it made a difference to my situation. Basically it is an account you have your savings or pay go into. Any interest on the funds is used against a nominated loan account. It is worth talking to your bank about how it all works. They should be able to explain it clearly. The interest that I saved on my loan I added to the repayments and I was able to reduce the loan faster, and in turn save more money.

There is a fine line between investing for the future and paying off debt. I strongly believe that we should be investing for our futures, and those people who make money from having us put money into their funds would agree with me. But I would say that we need to be a little cautious in this area, as we try and sort out what is sound advice and what is perhaps helping keep others employed.

It is all the harder when interest rates are low, there is a real chance to build some savings as I don’t have to pay as much in interest each month. Another way to look at this would be to say, here is a great opportunity to reduce the loan faster and reduce my debt! How many people have looked at this and kept paying the larger amounts into the loan, or have they gone ‘whew’ less strain on the budget and used the money elsewhere. I would hazard a guess to say lots of people have done the latter! I know what I have done in the past, lessen the strain on the budget is usually the path people take.

So how do I plan to make some real changes in my financial situation? My starting point was to look at all my expenses, then my income. From there I developed a budget. 3 simple steps. Making sure that my income was greater than my expenses each fortnight, including payments for loans. Once I had this information I was able to establish what amount I had per fortnight over and above my expenses, and what I could reasonably add to one of the loans I had. With this in place I made sure that I stuck with paying out the first loan. Next as I said before, adding the first payment to the second loan and paying it out. Not long before debt is being reduced very rapidly.

Once you have paid off the loan/s or repaid the money to someone else, you can start to seriously look at your future savings. Over the life of a 30 year home loan, you will have paid back in interest about the same amount as you borrowed. So it stands to reason that if you can repay the money sooner then you will pay less, and therefore start to save sooner.

I really do hope this is understandable as I have had a deal of difficulty putting it together. The main point is to not be paying interest on loans to banks as you try to save for the future, look at paying off your debt and then build a positive investment.

Monday Money – CREDIT CARDS – What a misnomer!

I like my credit card, it gives me a sense of power, control and a feeling of financial wealth. When I first got a credit card I had a limit of only $2,000, something small and manageable. It was relatively easy to keep in check, paid off at the end of each month and a really convenient way to pay for things. As time progressed the priorities for the budget changed and the paying off the credit card changed, and before long the card was at its limit. Sound familiar. Minimum payments became the acceptable norm for the month, sometimes a little extra went towards the bill. It wasn’t a debt, it was only the credit card.

Through the post came the first increase, an offer from the bank to increase the limit, take the pressure off, and couldn’t I use the extra money. The limit was now $5,000. More power, hey, look at what I can now use to buy things, bigger and better. Stroke the ego somewhat. Great way to pay the various bills on time, and leave the cash for other expenses. It was terrific, but in the long run a huge trap. The card remained out of control soon reaching the limit again, now the problem was even greater. Still the same income, but now the bill has increased, no wait, it is not a bill at all, just the credit card, make the minimum payment and things are sweet. Next bill in, the payment from last month only just covered the interest and charges.

As I said, I like, no, loved my credit card. I eventually let the limit increase to over $20,000. So much power with that amount of money. I refinanced the housing loan a couple of times to pay out the card, the aim was to get rid of it because I couldn’t control it. When completing the paper work the bank encouraged me to keep the card, and I let them. I worked with the best of intentions to keep the card zeroed each month, for the most part kept it that way, then the odd big item on the card, not so easy to get back to zero, slowly but surely it crept back to its limit, back in the same situation.

The name ‘credit card’ needs to be changed! It is not credit at all, and if we change the way we view and use this money then I know that people’s financial situations would be completely different. It is not your money that you are using; it is over and above what you have as an income. This money needs to be returned to its rightful owner, and it comes with additional costs, the money you use is probably going to cost you double what it would if you paid for the item up front with your cash. So the big ticket item that you want, need right now, on the credit card. Intention to pay it off in less than 6 months, at say 20% interest, the catch is that you don’t and the charges keep adding to the original cost.

To replace the credit card with something else is not easy. Firstly you will have to pay off the card, then what is there in its place. I suggest that you pay the card down, attack the debt, have a planned approach to reducing the amount. I liked to see on my statement at the end of each month an increase in the balance available and a decrease in the amount owing. Online banking is great for this as there is immediate gratification as you pay it off. Print out your statement and celebrate your success. Take control of the card altogether and start to reduce the limit available, this doesn’t have to be huge amounts, small is good, as the balance goes down, look at increasing the reductions on the limit as you take charge over the card, not the card over you.

As I thought about the credit card, I realised that to replace the card I would need to have the same amount in savings as I had as a limit. This is a really daunting thought. Think about it, if your card has a limit of $5,000, and then to replace it you have to have $5,000 of your own on in saving account. That is a swing of $10,000 if you are to be in control; perhaps this is why we don’t do anything as the cost of setting this up is beyond what most of us see as even the remotest of possibilities.

Have a look at your credit card statements for the last 12 months, go through and total up the amount of interest that you have paid? Think about the items you purchased and make sure these are items of need, not wants! The money you borrow needs to be for very special, emergency situation, and then a strategy put in place to pay it off as soon as possible. Keep a track of what it is costing you for each item, it will change the way you use the card.

I used this process to reduce the limit that I had on my credit card. I didn’t totally get rid of the card, I have a much smaller limit and basically use the card for emergency purposes only, and the balance is paid at the end of the month if I use the card, costs me nothing otherwise. I now have a Visa Debit card, the convenience of a Visa card, but using the funds that I have in savings. It really means that I have to have the money saved for the purchase, rather than just wanting something.

In the long run, the money you save by not having to pay additional interest and charges will help you gain control of your financial health.

Monday Money – WHAT AM I WORTH AND HOW DID I GET HERE

This is a little personal history about where I am coming from when I am writing about the financial achievements which have occurred during my life. Hopefully this will give some insight into where I am coming from and that there is some real experience that I am basing my comments and information on. There are many experts in the field that are worth listening to, Paul Clitherow and Robert Kiyosaki are two authors that I would recommend reading and listening to the suggestions they make, following their advice is an even better choice.

I left school as soon as I could, not one for the classroom from a very early stage. I am left handed, so what you might say, but a year 2 teacher decided that I should use my right hand and broke several rulers across the back of my knuckles. Not character building or anything like that, just put me off school for a very long time. My first job lasted for a couple of years, full time employment, working for a children’s organisation on the grand sum of $85 a week after tax, heaps of money to a young man who didn’t have many over heads still living at home. I had some savings, not much and to my shock, was fired along with a couple of others, down turn in funding and we cost too much, replaced by a couple of 17 year olds.

My savings depleted I decided to look for a job, that very morning a call from my mother asking me to help her out and cover a job due to a bus accident. Not a big issue as I didn’t have anything else to do, and I knew it would be paid or at least I was able to stay at home and not feel guilty about not working. Without dragging out the love book and all the soppy stuff, I moved out of home at the age of 19, and for the first time had the experience of having to fend for myself. No one taught me how to manage the situation; hey I thought it would be a piece of cake. Wrong! After a few weeks I was in a total financial crisis, more money going out than coming in. The results of which I moved into a shared house with 3 others, and boy did that make a difference. Things started to change, financially as well as long term as one of the house mates later became my wife, we lived together for 4 years, gradually not replacing flat mates until we were on our own.

If this isn’t interesting, then skip a paragraph or two and pick it up later. I am sure that it will or won’t make more sense later; it is parts of what has helped shape the decisions that I make today, ones that I hope you can look at and perhaps think about how these might change things for you. I bought my first house after having a lease on a rental come to an end and looking at what we paid in rent and what we could afford to pay on a mortgage, 2 incomes and no children sounded good at the time.

Oh how quickly things change, and I am sure that some of you will be reading this and gasping, saying that is what happened to us! In my case, it was the most fortunate things that could have happened we moved into the house in May, found out that we were expecting our first child in February, got married in September, and experienced the eighties increases in interest rates, up to 17.5% in 1987. I learnt a lot about managing the financial running of the house.

We struggled from pay to pay for a number of years, the credit card became maxed out very early on and meeting the minimum monthly payments was usually all that I could manage. The insurance on the car didn’t get paid more and more often, more good fortune than management that we didn’t have an accident because that would have really stretched things further. As I have said before, there was a limit to making ends meet, and having a 2nd or 3rd and even a 4th job became the only way to keep things going. I could ramble on about the next umpteen years but that would be rather dreary, but suffice to say things slowly improved, especially when the interest rates went down. We didn’t change our lifestyles; rather I was able to cut back on the hours that I worked.

So jumping further forward, I divorced a number of years ago, with 1 child to support, as well as leaving most of the contents of the house and a significant part of the savings. We had a year before sold the family home so only had cash and possessions to sort. The credit card debt and loan on the car became mine, some $50,000 all up. There are no winners from this; both parties are going to come away with their own perceptions of who got what and what it was all worth. At the end of the day, I believe that I was left with what was reasonable.

I had a new lady in my life and we settled in together. It took me a couple of years to sort things financially. We took a punt on buying an investment property, something we talked about and researched for a few months before going ahead with. We looked at areas of growth, costs of housing in the area and what the rental returns could be. Fully armed with all the information we thought we needed we looked at 2 bedroom units, we set our price at under $100,000, armed with a newspaper and street directory, drove around looking. We had our finances organised, knew from our discussions what we wanted to buy and set about doing exactly that. Within a short period we had bought 4 units staying within our budget and the rules we had laid down.

We purchased our house over the Internet, using the photos online and asking the agent to take and email others to us. We found several houses and set about researching each of these, the purpose for the house was to get into the market, not as a life long commitment to the place. We found a place and put an offer in what we were prepared to pay, if the vendor was unhappy with this then we would move on, I made this very clear to the agent. So when he phoned back saying the vendor wanted $5,000 more than we offered, we thanked him for his time and hung up. A day later the offer we had put in was accepted. Sounds hard nosed, it was but we wanted into the market at the lowest price we could get and were prepared to work to get what we wanted.

So where has this put me now. We sold 3 of the units as they had increased in value by about 200% in four years, paid off the house, and have now bought another 2 properties. Our property portfolio is worth about $900,000 with less than $150,000 in loans. The $24,000 limit on the credit card is gone! We have no other debts.

This isn’t bragging, I want to show you what can be achieved. It does require work to get things in the right place, yes there has been an element of luck in what we have done. This sort of thing can be done anywhere with the courage to get in and have a go, not just hope that things will work. And yes there are risks involved, hopefully managed so they are minimal.

Monday Money – Important Date A Coming!

An important date is coming, it is much closer than you think. How much planning and preparation have you done for the day, and the aftermath that follows? Yes I am referring to Christmas. It is not that far away and I like most people usually leave things to the last minute, have no plans for what I am doing and what I need for the day.

It is not just about gifts for family and friends. There is so much more to Christmas that most of us don’t think about, it is a day with a few extra people around for a meal, we all over eat and drink and suffer the consequences for the next few days. Unfortunately our wallets, and more importantly our credit card suffers for several months after whilst we struggle to bring the balance back under control. We don’t think about it to much because it is only once a year.

For those of us who are paid fortnightly, there are 6 pays to go before the big day, the last one is due the day before Christmas, if your employer is nice you might get that a couple of days before to ease the burden slightly. This appears to be sufficient time before Christmas, no need to panic just yet, plenty of time. But hang on a second, isn’t the credit card close to full, what bills are due, the council rates must have arrived by now, the end of year work parties, all are going to add pressure to the already tight budget.

OK, so I like the dramatic! There is light at the beginning of the tunnel, not the end, we switched that off to help with the Greenhouse and to help with the budget. Start your planning and buying now, don’t put it off and say it can wait. It won’t! Start with working out what you are doing on Christmas Day and Boxing Day, you will have some idea. You don’t need to finalise all the arrangements but you can gradually get things underway for the day.

Pay day on Thursday, the weekly or fortnightly shopping, add a few items you are going to use at Christmas. Write a list of all the things you are going to need, include drinks, then start buying these and put them aside when you get home. Make sure that you let everyone know these items are not for use. Make sure that you check use by dates on items to make sure they will still be ok by Christmas.

Lay-bys are a good idea for the larger item that you want for Christmas. Most larger stores have this available. An expensive item spread over 5 or 6 pays is much easier to pay for than the same item being paid for in one hit. The small cost of the lay-by is worth it if you don’t have to hammer the credit card again.

Before the Christmas cheer arrives, look closely at your finances. I hope that we can all have a Merry Christmas and a more financially Happy New Year. There are a number of ways we can plan for events. Start as soon as possible to plan how you are going to pay the money you ‘borrowed’ on credit to pay for this year’s celebration. Develop a plan of attack and then enjoy your well earned break. May the beginning of the new year be a prosperous one.