HiFX vs ASB on Exchange rates.
Filed under: Avalon's Money Thread, Banks, Exchannge Rate & Currency Transfers
So, having opened up our US$ account, we needed to put US$10,000 into it.
For the past week, I have been watching the exchange rate, and using HiFX’s online system to check how much in NZ$ it would cost me to buy US$10,000.
I decided this morning after an overnight rise to make the move.
HiFX were quoting
NZ$ 12,632.00
I phoned ASB Global Markets (this is the branch that operates the Foreign Currency Accounts) and got a rate of…
NZ$ 12,618.00
That’s a saving of $14.00. Small but I will take it. Also, over the past few days – its come down from a more expensive NZ$ 12,744. So by waiting I have actually saved $126.
What bugs me though is that HiFX should not be able to be beaten by the banks. Because of the amounts I was looking at there were no fees with HiFX, and yet they still have a rate significantly worse than the bank was offering.
There is something seriously screwed up at HiFX these days. I wish they would sort it out, but given the snotty attitude last time I tried to talk to them about it – I get the feeling the can’t be arsed.
Opening a US$ account at ASB
Filed under: Avalon's Money Thread, Banks, Exchannge Rate & Currency Transfers
We have decided to open up a US$ account here in New Zealand. While our original UK accounts are still active, and based in the UK, we really don’t need a UK£ account here. But the issue we have at the moment is that the shares we hold in IBM are in US$. And while the share price and the dividends we get are quite nice in US$ amounts, once we pay them into our NZ$ account, we really aren’t getting our moneys worth.
So by letting the money sit in a US$ account, we can wait till the rate improves and get a better deal.
For ease we have opened up the US$ account at ASB. Applying is fairly straightforward – the major hitch is that you need to put a certain amount into the account to open it (amount depends on the currency). In the case of US$ – you need $10,000. Not exactly pocket change.
Now we have managed to get that, basically because I have that money in out Tax Savings account. It’s money that really doesn’t belong to us – we will need to pay it to the tax man – but because we are self employed – we don’t have to pay it for ages. So we borrow the funds to get the account set up.
The nice thing is that you don’t have to KEEP US$10,000 in the account.
You just need to put it in there to activate the account. Then you can move it back out when you want to.
There are NO FEES to operate the account. There are some fairly hefty fees if you want to do certain things – like get a NZ$ bank draft from the account – but that is basically the same with any ASB account. And if you wanted to pay cash into the account – that would cost. But electronic transfers into the account, or paying US$ cheques in costs nothing.
Which is good.
What is not so good is that if you do pay a foreign currency cheque into ANY ASB account (whether your normal current account or a foreign currency account) ASB sit on it for 21 working days. That’s basically a month. (Usual guff about money laundering blah blah blah).
In your normal account, it just sits there, gets noted on your statement and is in the Account Balance, but doesn’t get added to the Available Balance until the 21 (working) days are up.
In a foreign Currency Account, it sits in a separate Term Deposit before being cleared and transferred to your Foreign Currency Cash account. If you transfer money from your normal NZ account into the US$ account – that is not held for 21 days and shows up as usual.
Also, its worth noting that from my parents experience, paying cheques into these accounts generates a forest worth of paperwork. So make sure you have a good filing system for it.
Finance Challenge not going so well.
“Could do better” I think
The 47 Rules of money
Filed under: Avalon's Money Thread, Banks, Cost of living, General Budgeting, Interest Rates, Credit Cards & Mortgages in NZ
This appeared in the Herald on New Years Eve, written by Diana Clement. I really like her articles about personal finance, and shes well worth a read. Unlike Mary Holm, she writes about general finance and makes an awful lot of sense, rather than just bleating on about how wonderful Kiwisaver is and how bad eveything that isn’t Kiwisaver is.
She has written her 47 rules of money, apparently in line with 47 years of life. I have to agree with just about all of them – and actually practice many of them. So here they are – with an occasional comment!
General:
1 Track your spending. You can’t budget if you don’t know what you’re spending.
- Probably the single most important thing you can do with your money.
2 Needs and wants are often confused. This is perhaps the biggest financial mistake that people make.
3 Talk money with those linked to you financially. Whether it’s parents, partners, children, employers, or business associates, get financial discussions out in the open.
4 People are too quick to judge others’ financial decisions, me included. But that needs to be balanced against my next rule, number 5.
5 People will justify their bad financial decisions to the end of the earth. “I did all the right research,” one finance company investor told me as my eyebrows went through my hairline.
6 Monkey see monkey do. Children learn about finances by watching their parents, not listening to hypocritical lectures.
7 You can earn a good salary and still be poor. Budget advice services sometimes see people with six-figure salaries who still can’t make ends meet.
- This is one of the biggest fallacies many people believe about money – people who earn more cannot be poor. It just doesn work like that.
8 People can and do lose all their money. A couple of times a generation a collapse such as Black Monday arrives with disastrous effects for thousands of people. Others fall for tricksters such as the off-the-plan apartment salespeople or Ponzi scheme promoters.
9 Entrepreneurship is good. Grounded but entrepreneurial people do well financially. They may not succeed in making their fortune first time around, but often do if they persevere.
10 You can be a capitalist and still have a social conscience. I admire philanthropists.
11 You don’t have to have a high-paying job to get wealthy. I once interviewed a successful property investor who worked by day on the shop floor at Noel Leeming and made his real money after 5pm.
12 Don’t blame your parents, your children, your partner or your education. Responsibility is good when it comes to finances.
13 Even beneficiaries can save. Some people live within their means no matter how little they earn. Saving money is a choice.
14 Some people want to be poor. They think they’re poor and that they’ll always be poor and sabotage their financial future.
15 Pay your taxes on time. The IRD has a big stick.
- And endless funds (paid for by you) to chase you with!
Spending:
16 I regret frittering money on coffees and unnecessary eating out. It would be better to direct that money towards savings.
- Um, Ok – can’t agree with that one clearly!
17 Spending money on experiences is good spending. I am eternally grateful that I sold all but one of my shares at age 22 (by coincidence in August 1987) and went backpacking through Latin America. It’s good spending if the experience enriches life.
18 Braking wastes fuel. This was one of those wonderful chestnuts that it takes a few seconds to get your head around. If you drive too fast and brake regularly, you’re using petrol on wasted momentum. Driving well can save 10 per cent of your fuel bill.
19 It’s moronic to incur fines. Like the maniac driver in a big red American-style pickup truck who overtook me on State Highway 2 on December 17, just to be pulled over and fined.
20 You can get rich one dollar at a time. Every dollar is precious. Think before you spend it.
Debt:
21 Save before you buy. A bit of a radical concept in 2011, but it can change people’s financial future.
22 Interest-free hire purchase deals are for suckers. You still pay an establishment fee and the majority of people fail to clear the debt on time and pay interest anyway.
23 Credit cards make you look rich. Anyone can live well for a few years, but the debt catches up.
- I would add to this that often when you see people splashing the cash around, and you feel sorry for yourself because you can’t do the same – you might want to spend some time wondering if that’s really their money – or a credit card they can’t afford to pay off. They may not be as rich as they look.
24 The only “good debt” is mortgage debt. Provided you don’t over-leverage yourself.
25 Interest payments on personal loans, credit cards and HP are “idiot tax”. Why throw money away unnecessarily?
26 Having a credit card debt need not be the norm. A credit card limit is a safety net, not personal money to spend.
Investments and financial products:
27 Beware of investments discussed at barbecues. When the whole world is piling into an investment such as property, gold, tech shares and so on, you’ve almost certainly missed the boat.
28 Buy property young, preferably in your 20s. Move heaven and earth to get the deposit. Rent is wasted money.
29 Any offer that comes over the telephone isn’t worth having. Just ask the people who were cold called by Blue Chip, timeshare schemes, or horse betting scams.
30 Having life insurance is a good idea. Paying that monthly premium feels like dead money (excuse the pun). The payout when you die can give your beneficiaries choices at a difficult time in life.
31 An entire class of investment can crash and burn. Who remembers: Equiticorp, Chase Corporation, Renouf Corp, Judge Corp and more that collapsed like a pack of cards after the 1987 crash? Then there were tech stocks, mortgage-backed securities and finance company debentures.
32 Shares can be “safer” in the long term than bank deposits. The argument, which I first read on the Motley Fool website, is that over 10 or 20 years good share investments will keep pace with inflation, while bank deposits will be eroded.
33 KiwiSaver is good. This is a red rag to many readers. Government-led retirement programmes get people saving for their future.
- Ok – one point out of 47 – at least it’s in balance!
34 Insurance policies are full of gotchas. For goodness sake READ EVERY WORD of your policy.
35 Property investment isn’t always as safe as bricks and mortar. It can turn to custard. Mortgagee sales happen all the time – especially with investment properties.
- A lesson many people are learning the hard way – you still need to watch your money, be sensible, and understand the basics. It is NOT easy money, it is NOT guaranteed, and it is NOT always a fast road to riches. (You will also meet a lot of arseholes willing to screw you over (Mr Agile Property management AKA Eric Voice) among some of the friends you will make.
36 Markets overshoot and undershoot. If a market’s fundamentals (such as the yield on investment property) are out of historic kilter the market is probably brewing a bubble.
37 The best time to buy is just after a crash. Buy fundamentally good investments when everyone else is bailing out of the market.
- I so wish I was flush with cash right now. One of the painful side effects of buying property at the hight of the market is not having cash to buy in the crash!
38 Beware of investing just to save tax. Is the investment actually any good or is someone desperate to sell it to you?
Financial advice and salespeople:
39 Take your advice from people who have been through several cycles. Johnny-come-latelies going through their first financial cycle underestimate the risks.
40 Your money is your responsibility. Yes, employ a financial adviser, mortgage broker, accountant and other professionals, but make sure you understand what they tell you and double-check that your money is adequately spread.
- Abso-fragging-loutely. NO ONE will care as much about your money as you do. Unless they are looking to take it off you.
41 Seminar presenters aren’t always financial experts. They probably make their money from seminars, not from the actual investment they’re preaching about.
42 Credit rating agencies don’t always get it right. Some companies deceive the agencies, others are part of an industry that may not be well understood by the ratings agencies.
43 Don’t believe the get-rich-quick conmen. You should aim to get richer slowly, but steadily.
44 Government subsidies are a magnet for spruikers. Sharks swarm around government money. Just look at the people selling insulation, heating, and ventilation or those who have been caught selling KiwiSaver door-to-door.
Others:
45 Passive cash-flow rules. Finding ways to make money that don’t need your hourly input makes sense.
46 Telling the truth infuriates some readers. Suggesting that people can change their financial ways brings in a flurry of outraged emails.
47 You can learn more about money. The easiest and cheapest way to improve your knowledge is to get a book out of the library.
- Or – ahem – buy mine!
And I’m adding one of my own:
48. Have a Sanity Allowance. Pocket money is not just for kids, and it will save you a whole heap of money and arguments. Along with tracking our money and actively managing the money – this would be the most useful thing I ever learned about dealing with finances.
Charging for Bonus Fly Buys
Filed under: Avalon's Money Thread, Cost of living, General Budgeting
Fly Buys – the ubiquitous “loyalty” scheme that gives you points for spending money, that you can then in theory swap for flights. You need to spend about $25 in New World to get 1 fly buy – which is worked out generally to be worth 15-20c, depending on what you buy. If you get the new Fly Buys cards you can actually get the points put directly through to Air New Zealand Airpoints.
You get $1 of airpoints for every 6.25 Flybuys. So you need to spend $156.25 at New World to get $1.
Checking how much it costs to buy the flights – on 25th April 2012 you can get a flight only (no check in bags) for 363 Fly Buys (which takes $9075 spend at New World).
Using Airpoints $ it cost $69, or the equivalent of 431 FlyBuys or $10,781.25 spend at new world.
Now I am actually on the scheme that converts directly to Airpoints Dollars – basically because I just cant be bothered with the faff and hassle of FlyBuys. The scheme is actually pretty complicated, and seems to con a whole load of people into paying more for stuff by sending them to retailers who will give them “bonuses”.
Well, last week we spent just short of $300 at New World Oriental Bay on wine. (For clients – not actually for us!)
When we got home, we noticed on the receipt an extra charge of 1c under the heading of NW Wine Bo.
Now no mention of any extra charge was ever made, and I was curious as to what it was. Besides – why is any company charging 1c for anything? I didn’t buy anything for 1c. So why am being charged for something I didn’t buy, don’t want, and didn’t get a choice about?
I emailed New World.
I was ignored.
I was now pissed.
So the next time I went to the store, I went to Customer Services and asked. It seems that among the bottles of wine we bought were 3 bottles from the New Zealand Wine Awards and NW were offering 10 bonus fly buys. Their “system” “can’t” just work out that I bought the three bottles and give me the fly buys, so they have to scan a bar code for it. And the “system” also “can’t” scan a bar code without a charge, so the “have to” charge 1c for the 10 bonus fly buys.
I asked for a refund.
New World also “can’t” refund to my credit card. And there is no longer any legal tender for 1c, or 5c. They ended up refunding me 20c.
Why bother asking for a refund of 1c?
Because they bet on you not doing it. There is no rhyme or reason for charging people for bonus flybuys. Other retailers manage it all ok, and New World having a crap system does not constitute a reason to charge you for something that is supposedly “free”.
However the main reason for doing it is that what New World is doing is blatantly dishonest and I feel they should not be allowed to get away with it.
And if they didn’t know full well they were scamming people – they would tell their customers up front that any bonus fly buys would be charged for. The amount is irrelevant. Just because they aren’t stealing $10 a time doesn’t mean they aren’t stealing – and they should stop. I would start by replacing whoever programs their till systems and finding someone who can get it to automatically give bonus fly buys. After All, if the “system” can work out that I have bought 2 bottles of Coke and automatically knock of $1, I fail to see why it can’t register buying 3 bottles of wine and adding on 10 fly buys.
The Mortgage Pig
Filed under: Avalon's Money Thread, General Budgeting, Interest Rates, Credit Cards & Mortgages in NZ, Property & General Investing
I was on the train today heading to the Wairarapa for the weekend, and I was mulling over our latest money saving exploits. And I was thinking about Fred’s comment and how we actually attempt to make sure that saving are just that – real savings – and that we don’t waste the money elsewhere.
Because of course Fred is quite right – it’s all very well not spending money on something – but if you then spend it on other stuff – you really haven’t saved anything at all.
That’s where the Mortgage Pig comes in. This was an idea I came across on the MoneySavingExpert forum – and seems to have been “invented” by Aliasojo.
I decided a while ago that I really wanted my mortgage paid off. It wasn’t very large to start with admittedly, but it wasn’t coming down as quickly as I would have liked.
As the mortgage was one of those background constants that just gets paid every month without thinking about it, I figured that if it was in front of us and on our minds more, we might make more of an effort to collect more money to chuck at it.
So……I got a mortgage pig.
It’s a large green pig which sits on my kitchen worktop in a very central position with a ‘speech bubble’ printed on A4 paper and stuck to the wall above it. The mortgage pig explains (in the speech bubble) who he is and why it’s a good idea to check whether you really need that bottle of wine or takeaway and if it might be better to give the cash to him instead. It also a bit to remind us why we wanted to pay off our mortgage and lists the things we want to do in the future.
Now we don’t use cash. And while we have used a physical piggy bank in the past – because we don’t use cash – it takes too long to save anything. So we have a “Virtual Mortgage Pig”. It’s not large, it’s not green and it doesn’t have a speech bubble explaining what it is. Instead, we have a category on Quicken called Mortgage Pig. When we make a saving, get a bit of extra income (such as share dividends, trade me sales), or we use our ASB points to buy stuff instead of money, we transfer the money to Mortgage Savings. Now that our personal mortgage has gone and been replaced by a business mortgage – the Mortgage Pig savings get paid to our Investment Savings Pot.
At the moment, not all our “savings” will make it to the Pig. That’s basically because the past year or so have been very hard for us financially, and to be perfectly frank – savings we make in one area are pretty much eaten up with price rises in another. Right now it feels like Standing Still financially is a battle of epic proportions – let alone trying to get ahead!
Should we have any money left at the end of the month – that too would be a Mortgage Pig saving – and get shoved into to the Investment Savings. These savings are what keep our rental business afloat. Given how much money we lost on because of our issues with Agile Property Services’ negligence and failures to manage our properties – that account is in pretty much a mess. But with some hard work, and some tough management – we are clawing back the losses he caused. It does help that the tenants we now have are paying rent like clockwork, and I am not having to pay it for them. Ill be blogging more about that later – but every time I start I just get too furious at the trouble the Property Manager caused me – and his refusal to get some balls and deal with me.
So yes – it doesn’t really matter how you do it – but you do need some way of locking in the savings. Like I said – ours is for mortgages – which is the best use of money you can make. If you haven’t got a mortgage – then it’s really up to you. I really like the idea of the Mortgage Pig. It’s a bit silly, it’s a bit fun, and you can basically run it however it suits you: from putting all spare change in – to literally deciding not to buy a takeaway and gettimg cash out to put in the pig instead. Remember there is no “one true path” and what works for me may not be good for you – but there is certainly no harm creating your own version of “The Mortgage Pig”.
Thanks Fred 
Where to save some money.
Filed under: Avalon's Money Thread, Cost of living, General Budgeting
2 things have happened in the last month which have actually changed the way I need to handle our money – after 6 years of doing the same thing:
- We have a small issue this month with a new contract which pays on a different day to normal – so our income projections and bank balances are skewed – which means we can’t pay ourselves at the end of the month as usual.
- I have actually swapped the last of our personal mortgage onto the business (which means the interest is now a business expense) so instead of making sure as much money as possible stays in our personal account to reduce interest – I now need to keep the money in the business accounts as long as possible.
I have to admit – its all taking a bit of thinking about and planning.
But ho hum – needs must when the devil calls round for tea!
Because of this, and the fact that I really do want to get some more emergency funds behind us, I have decided it’s time to refresh the budgets and look at some cost savings:
1/ Changing the power bills.
I’m a huge fan of saving money without cutting back on things – and items like electricity bills are a perfect example. I wont actually be using less electricity (though that helps obviously) I’m just intending to pay less for it.
Now, there’s a newish website out called What’s My Number. Its being advertised on TV with people looking a tad daft with post-its stuck to their foreheads – showing how much they could save by changing electricity suppliers. I tried that and got:
Well, that’s not a bad start. The thing is the fine print relies on you being on the cheapest plan for your supplier. And you can do a better calculation by clicking through to the parent website: Powerswitch. Now it helps to have a current bill, but according to that I discovered that a/ I am not actually on Meridian’s cheapest plan, and b/ Powershop could be cheaper, by about $109 a year.
So I have used the switching service provided, clicked and signed up for Powershop. Now they are slightly different from normal power retailers in that you can buy electricity up front, and buy cheaper electricity in the summer. I am kinda looking forward to seeing how that works in practice. I quite like the thought of being in control of electricity supply – rather then getting a bill at the end of the month – and from what I understand this could be a good plan for people like me who are happy to spend time actively managing money.
2/ Printer Cartridges.
Jeeze are these the world’s biggest extortion or what? For anyone utterly frustrated by the sheer gob-stopping magnitude of the cost of printer cartridges (and the printers refusal to let you actually empty the damn things) have a look at The Oatmeal: Why I believe printers were sent fom hell to make us miserable.
Now I have had to do a lot of printing lately – and have a number of (not) empty cartridges that lasted all of 5 minutes. I decided in the interest of environmental concern (and tightfistedness) to get them refilled at Cartridge World. Where I rapidly stormed out of in disgust at the whole $4 per cartridge saving on something that costs nearly $30 brand new. This to me is not a suitable discount for refilled cartridges.
So I looked at both Inkpost and NZ Consumables. Now we actually have 2 different printers (Just. Don’t. Ask) both of them are brothers but – you guessed it – use different cartridges. One uses LC57′s which retail at $27.99. Cartridge world want to charge $24.99 to refill them, NZ consu,bales charge $6.84 for a compatible generic. Kachingg!
(I am at this point totally ignoring the dire warning that printers now display about the terrible and deadly (and expensive) consequences of not using proper branded cartridges as being as pointless and absurd (not to say expensive) as Kiwi pharmacists trying to insist using unbranded Ibuprofen will fail to cure my headache. Utter bullcrap!)
Now NZ consumables don’t sell generics for our other cartridges, but I found in that case that InkPost came out cheaper by refilling my old ones or buying their own brand. The new own brands came in at $15.39 instead of a $22.69 for the branded version. Or if I sent in 3 colours I could get them all refilled for $38.39. Considerable cheaper than the snotty lady at Cartridge Wold insisted was a fair price.
So while I have spent a fair amount on new cartridges – it is WAY less than I would have spent in Warehouse Stationary – or at Cartridge World. I’m rather a happy bunny.
3/ Coffee.
Ok – don’t all faint – but I have actually drastically cut down what I spend on coffee.
Now this isn’t a conscious choice to spend less on coffee. I still have a budget for it, and we can actually still afford to cover that. Instead – I just refuse to pay the current cost of buying a coffee in a cafe. A few weeks ago I actually ended up paying $5 for a cup. Now given that I drink Americano’s (with cream – and usually decaf) there is no steaming of milk to do, and its actually pretty straightforward. But now places are usually charging 50c for decaf and I am now getting charged for the cream more often.
Even the cheaper places are at $4 or $4.50 – and I actually don’t think it’s worth that.
So I now tend to save having a coffee out for when I am with friends – rather than because I just want one – and I make my own and chill with a book.
This month – I have so far spent $27.70 on coffee, out of a budget of $100.
And I am kinda having fun doing all this!
Is it worth moving money back to the UK right now? Part 1
Filed under: Avalon's Money Thread, Banks, Economics, Exchannge Rate & Currency Transfers, General Budgeting
I am actually trying to work through this myself, so I thought I would write about it as I’m going along, and see what conclusions I come to. Just so you know, I actually don’t know the answer at this point.
First the reason for thinking about it: The exchange rate is historically low, running at about $1.90 to the UK£. So basically, all being equal, now is the perfect time to sell NZD and Buy UK£. In theory you would then sell the UK£ and buy back NZD when the rate gets to more like $3 to the £.
Let’s look at just $1000.
- Sell $1000 and buy £526 at current rates
- Then when the rate changes to (hopefully) $3.
- Sell £526 and buy $1578 NZD
- Profit: $578
- Which makes a return of a whopping 57% which is something you are not going to get very often.
So why wouldn’t you do that?
Well there’s a few things to take into account.
1/ Interest rates on savings.
In the UK you will basically get 0% interest on savings. So the £526 is unlikely to grow in the foreseeable future.
In NZ however, you can get 3.5 – 5% on savings.
So if we assume that you get the current savings rate at ASB, then the $1000 actually earns you $35.62 (compound interest) a year. Bear in mind that you pay tax on that.
Ok, so that means you need to be able to make at least 3.5% on the transfer back within a year to make it worth moving money to the UK.
I work out that the rate need to hit $1.967 to do that:
- 1035 / 526 = 1.967
Which means that in no way shape or form does the interest earned in NZ outweigh the gains you can make in the UK on the exchange rate, unless you believe that the $ will never go down in value much, and we are looking at a new “normal” of $2.00 to the UK£.
2/ “Time in the Market”.
Its often said that Time in the market is more important that Timing the Market with investing. Ie – don’t buy and sell quickly, buy and hold on for dear life.
So if you can earn $35 a year on your $1000, how many years can you keep the money in the UK and wait for the seemingly mythical $3 exchange rate and still beat the interest rate?
Waiting for $3 : £1 will net you $578 , so you can wait so that’s the equivalent of 16 years worth of interest at 3.5%.
Actually that’s not totally accurate – I worked out that because of compounding, it actually takes 13 years according to MoneyChimp
3/ Will you ever get $3 to the £ again?
Who knows. According to some experts the NZ$ will never go down in value to the same level it was. These are often the same people that say house prices will never go up by the amounts they did in the past. I actually think that’s as daft as saying at the height of the property boom that house prices never go down.
It’s cycles. Money works in cycles. It always has, and I personally don’t see why it would suddenly behave any differently.
But remember, each year, the exchange rate just has to go up a tine bit – the equivalent of an extra $35 ever year to beat the interest you would earn in NZ.
Part 2: What about comparing with a mortgage?
NOTE: This assumes you use a Currency Transfer outfit that has no fees. HiFX have recently dropped thier minimum tranfer to $1000 NZD and 500 UK$ to get fee free transfers.
NOTE 2: Ok – so looks like Hifx havent actually dropped there fees. For some reason I seem to have got a free transfer – but now when I try and do it again they would charge $12 or $9 for the above transfers – with the old limits of $10,000 or £5000 to get fee-free transfers. Bugger.
Avalon’s Guide is on Sale :)
I am down to my last few copies of Avalon’s Guide, and at this stage am not planning to do another reprint due to the costs involved. So to clear the shelves of the last remaining books – I have decided to drop the price – which also helps with the crummy exchange rate.
So now instead of getting a copy posted to the UK for $46.00, it will cost just $31.00.
Once those have all gone, you will still be able to buy Avalon’s Guide, but only as an E-Book, which is also dropping to $12.00.
You don’t save when you have debts to pay.
Filed under: Avalon's Money Thread, Economics, General Budgeting, Interest Rates, Credit Cards & Mortgages in NZ, Property & General Investing, Retirement, Pensions and Kiwisaver
It is a fundemental rule of personal finance and budgeting:
Do not save while you have debt to pay off.
So why is it that the supposedly “clever” people in the savings working group want to force people to save because we have too high a level of debt? It makes no sense, in fact its the most stupid and finacially dangerous idea you could come up with. The scary thing is – they have to know this – they really can’t be that thick – so why are they suggesting it?
First of all- why is it a bad idea?
Well, its all to do with interest rates. You get less interest for saving than you pay for borrowing. For example, ASB pay you 3.65% for any savings you have, and charge you a minimum of 6.25% for any borrowings you have. (Up to 19.25% if you have credit card debt with them). So WHY would you put any money in the savings account when it can work at least twice as hard for you paying off the debt?
And because you pay tax on any of the interest that you earn – you are even worse off. The simple fact, to earn enough interest to make it worth “saving” (or “investing” ) instead of paying off debt you need to be able to earn that 6.25% AFTER THE INCOME TAX HAS BEEN PAID. That means you need to earn about 8% interest in savings or investments.
Anyone know where you can get that?
(Actually – First Direct in the UK are currently offering 8% on thier regular savings account – but that aint gonna help most Kiwis, or expats unless you already have an account with them).
So – Forced Kiwisaver then?
Yep – thats the bee-all and end-all of everything. Open a Kiwisaver account and the economy will fix itself. You won’t be able to eat – but hey – who cares about that? We will stop using debt to buy things we can’t afford, and no one will have any money to plow into investment properties because it will all be in the stockmarket. NZ Business needs the investment – and as too many of us are not doing as we are told – we need to be forced to behave.
A classic quote in a second article today shows the attitude of these people really eloquently I think:
“KiwiSaver has considerable potential to further help people select appropriate investment assets,” the working group report said. “At the moment this potential is not being fully realised.”
Ie – “stop thinking you know better than us – we tell you Kiwisaver is the best investment – and if you won’t believe us – we will force you to. You are too stupid to select your own shares and we really are terribly hacked off that you want to buy property – because none of us get a cut of that!”
Of course, buying shares, unless you buy in an Initial Public Offering never actually puts money into a business – it just values the business. Which means that on paper the business is worth more and can borrow more. Um – isn’t that bad and greedy when Property Investors do it? It will of course put money into the pocket of the person you bought the shares from. Much like buying a property off someone who bought it as an investment puts money into the greedy gits pocket!
The first rule of smart finances:
Pay off your debt first.
It’s the best form of “saving” there is, purely because of the cost of borrowing and the effect of compound interest. If you want to try and beat the interest rate you are paying on debts, then you tend to have to save the money in risky investments, or property (and that as we all know is BAD!) And even then – it isn’t easy – and is dependent on a lot of outside forces. Investments can and do lose money – because money always goes in cycles. Theres are booms and busts – in a boom your investment goes up, in a bust it goes down.
But one easy way to get the best return on money is paying down debt. It’s risk free, makes the absolute most of every pound or dollar, and also reduces your personal risk. Can you get a better investment for your money than that?
Does this include mortgages?
Yes and no. In general when people talk about “debt” they mean non-mortgage debt. But clearly when you end up in the middle of a financial crisis like we are right now, mortgage debt is also a huge issue for people, so I personally think you can’t forget about it that easily. And when the boffins in these working grups are whining about our debt levels – they are also talking about mortgage debt. Most of our mortgages are business related, so they are tax deductable – effectively this brings the interest rate down by about 1/3. (which would be exactly the same if we have taken out the loan to buy shares with by the way). But it should never be forgotten that they are still debts, and they cost a lot of money to service. It is in the end money we owe. To be honest – if we didnt have the investment properties then financially we would be laughing all the way to the bank because our spending is way lower than earnings right now. All our spare money is going into paying down debt and keeping our properties.
If we are forced to pay Kiwisaver contributions as well – how the bloody hell am I supposed to pay the mortgages and reduce debt levels???
I may be good with money – but I am not that good!
I will be writing another blog about this, and what the Savings Working Group actually said in full, because from the skim read I have had – there are some really good ideas in there. Just some truly barmy ones as well, and an arrogant insistance that I MUST have a Kiwisaver account.
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