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.
Occupy Humour
While the original basis of the “occupy” movement has a very powerful and (I think) necessary message (anyone wanting to see it in stark clarity – I suggest watching a film called To Big To Fail – currently showing on the free SoHo channel in NZ) – it has spawned a huge amount of humour.
I got this from Motley Fool via Twitter. It’s not a new cartoon – but as they say you can always rely on Calvin and Hobbes as much as you can Dilbert for condensing complex issues that us mere mortals can understand. This clearly explains one of the main issues I see behind the original movement.
Then theres the calls to Occupy Sesame St
And OccupyMordor
And Occupy The Death Star
And on a slightly more serious note – because I really don’t believe that blaming all this mess on a few people when the rest of us have indulged in many years of rampant overspending and gleefully taken every bit of credit we can get our hands on to enjoy lifestyles we couldn’t hope to afford:
Are you the 99%, 53%, 1% or who cares what %?
Filed under: Banks, Cost of living, Economics, General Budgeting, Interest Rates, Credit Cards & Mortgages in NZ
The “Occupy Wall St” protest has hit New Zealand this weekend – “occupying” Auckland, Wellington, Christchurch and Dunedin. I have tried to get my head around this – and I have to say I am failing miserably. When I started seeing “We are the 99%” posts coming up on my Facebook feed – I took a look at that and understood what they were saying.
We are the 99 percent. We are getting kicked out of our homes. We are forced to choose between groceries and rent. We are denied quality medical care. We are suffering from environmental pollution. We are working long hours for little pay and no rights, if we’re working at all. We are getting nothing while the other 1 percent is getting everything. We are the 99 percent.
I get anger that banks and financial institutions had screwed up, lost an awful lot of money, got bail outs, and yet still managed to find many millions of dollars to pay huge bonuses to the people who screwed it all up, while people lost homes and jobs.
Well who wouldn’t be pissed at that? I find it astonishing that governments are bailing private companies out, but there’s not a penny for us if we hit the skids. No one bailed us out when IBM got rid of hubby. We had to manage that ourselves – as does everyone. We have friends who have lost everything – no one bailed them out.
But I am also somewhat confused about why the blame is only being shoved on the corporates – and not those of us (ie just about all of us) who have spent the past decade or 2 spending vast sums of money we don’t have (ie debt) on cars, various iGadgets,clothes, shoes, posh food, holidays and houses. We have to take some responsibility here. Blaming the big bad corporation doesn’t change the fact that as a whole the western world gorged itself on debt and consumerism. No one forced us to buy iPhones. (I wonder how many people occupying Wall St still have smartphones, and are updating Facebook with their adventures via the very items the corporations sold us, and we willingly bought with money that the banks invented for us to spend, increasing the debt balloon that they now say is the source of all ill in the world).
But what has got me really confused was this has morphed into a strange anti-government, anti-money,anti-whatever-we-can-think-of-to-be-peeved-about-as-long-as-we-can-blame-the-anyone-who-is-richer-than-us sort of movement. Everyone is supposed to have a voice – no one is considered to be worth more than anyone else. This to me is an alien concept – in $ terms of course people are worth different amount – please never let a brain surgeon work on me if you only pay them the same as the cleaner. In human terms – I will always value kindness and decency in someone more than I will value someone being an arse.
I saw this video of the “assembly” in Atlanta – I gotta say – if that’s the alternative to the current political system we have – no thanks.
I am way too independent to sit there and parrot back what I am told to say – what are we? 5? Repeat after me “You are all individuals”…
So – are you the 99%? Probably not.
Global Rich List puts your income into world wide terms. And you may be surprised at how little income it actually takes to get you into the top 1% of earners in the world. Global Rich List doesn’t work for NZ$, but just £25,000 a year or $49,000 USD gets you there. At current exchange rates that works out at $49,500 or $61,500 NZD.
The New Zealand minimum wage is $27,040 a year which (using the UK£ to work it out – £13,600) puts you in the top 10.5% richest people in the world. And yet on that how many people still have mobile phones and internet access?
The median wage in New Zealand is $49,000. That means that 50% of wage earners in New Zealand are actually among the top 1% of earners in the world.
Those of us who pay for those of you who whine about all of that… or that… or whatever.
Ok – so this made me laugh. Can’t see this lot repeating back what they are told 3 words at a time and looking gormless.
So I won’t be occupying Wellington. To be honest I am too damn busy dealing with our current financial situation, budgeting our money, saving where and I can and spending what I have spare on stuff produced by people who also earn money. Some of them earn less than me, some of them earn more than me. Some of them are worth that much, some of them aren’t. I make that decision myself, and decide for myself where I will spend money, how much to spend, and whether to take on debt. If I take on debt – I take full responsibility for that decision, and for any mistakes I may make.
And I have absolutely no idea which % I am.
I am not a number – I am a free man .
How not to budget.
This popped up on Facebook today. I have no idea where it came from, but if I find out I will add a link.
And we wonder why US credit was downgraded
The numbers leading S&P to downgrade U.S. Credit:
• U.S. Tax revenue:_______________________$2,170,000,000,000
• Federal budget:________________________ $3,820,000,000,000
• New debt:_____________________________$1,650,000,000,000
• National debt:__________________________$14,271,000,000,000
• Recent budget cut:______________________$38,500,000,000
Let’s remove 8 zeros and pretend this is a household budget:
• Annual family income:___________________ $21,700
• Money the family spent:__________________$38,200
• New debt on the credit card:______________$16,500
• Outstanding balance on the credit card______$142,710
• Total budget cuts:_______________________$385
You can kinda see where the problem is.
New Zealand Interest Rate changes
Filed under: Banks, Economics, Interest Rates, Credit Cards & Mortgages in NZ
The reserve bank has held our base interest rate – and now it seems most of the “experts” how claimed the rate would be rising by the end of this year have changed their minds and now claim it will be march next year.
Apparently they will have to go but then some say they shouldn’t. Some say they should stay the same.
Helpful.
Interesting, I checked the ASB home loan interest rates – and they have gone down recently:
As at 01:33:46 a.m., Thursday 4 August 2011
- Housing Variable 5.75 % p.a.
- Housing Fixed (6 Month) 5.85 % p.a.
- Housing Fixed (12 Month) 6.15 % p.a.
- Housing Fixed (18 Month) 6.40 % p.a.
- Housing Fixed (24 Month) 6.65 % p.a.
- Housing Fixed (36 Month) 6.95 % p.a.
- Housing Fixed (48 Month) 7.35 % p.a.
- Housing Fixed (60 Month) 7.75 % p.a.
- ORBIT Home Loan 5.75 % p.a.
As at 12:25:54 p.m., Thursday 15 September 2011
- Housing Variable 5.75 % p.a.
- Housing Fixed (6 Month) 5.85 % p.a.
- Housing Fixed (12 Month) 5.90 % p.a.
- Housing Fixed (18 Month) 6.10 % p.a.
- Housing Fixed (24 Month) 6.30 % p.a.
- Housing Fixed (36 Month) 6.70 % p.a.
- Housing Fixed (48 Month) 7.05 % p.a.
- Housing Fixed (60 Month) 7.40 % p.a.
- ORBIT Home Loan 5.75 % p.a.
I’m still not fixing from my flexible rates.
Hiding the homeless from the tourists.
New Zealand actually has very few beggars on the streets. In fact, one of the things that quite shocked me when visiting Australia was the number of homeless people sleeping on the streets, with bags of their worldly good around them. It’s really not something you will see in Wellington, whereas is say Sydney – you will see a fair number, and I guess I had got used to life in NZ enough that it shocked me.
You will however see beggars. In Wellington, they are normally seen along Lambton Quay, but you wont see them every day, and you will see a lot more buskers than beggars. They are there however. I can’t speak for other towns and cities in NZ, but I am certainly left with the impression that while poverty is a very big problem for our country, begging is actually quite rare here.
So I am actually quite disturbed by a report in the paper that Palmerston North is look at extra powers for the police to “move on” beggars in the CBD of the town.
So that the place looks good for the tourists arriving for the Rugby World Cup.
A report by community development officer Jimmy Ballantyne said the council had fielded calls from angry business owners who were demanding that begging be eliminated in the CBD.
“Aggressive attitudes aside, the business owners feel that the presence of this many beggars is a very poor look for Palmerston North, especially with the Rugby World Cup on the horizon.”
Now to me – that is two totally separate issues. If beggars are being aggressive, that’s against the law, and the police already have powers to deal with that. If they are not using them, then questions need to be asked about why they aren’t. But could we PLEASE stop pretending that NZ has no social issues, that we are all pretty and sparkly and perfect, just because hordes of tourists are about to come and watch some rugby. The lengths being taken, and the money being spent to pretend that NZ is better than it is is quite horrifying.
NZ is pretty damn wonderful as it is. But it is not a first world country in many respects. We do have social problems, we do have crap infrastructure, we do have lousy banking systems. I think it’s great that we are finally getting Chip and Pin credit cards – I just wish we were getting them because they are a good idea, not because it will mean that tourists can’t spend their money if we don’t have them. I think it’s great that Wellington City streets are being tidied up – but couldn’t we be doing it for the people who live there, rather than the people visiting for a few days (who may be too sozzled to notice anyway!)?
I just think this “tidying up” of a sign of real problems is a step too far. It’s a rugby competition. They are people. We may not like them, we may ignore them,we may look down on them, but to pretend that they don’t exist so that they won’t put off people from spending money here is just a bit – um – nauseating.
Why exactly should interest rates have to go up?
I just do not get this. There was a piece on the news last night about the large and rapid increase in the cost of living over the past year. This means inflation goes up (which just tracks how much prices have risen). Which means that interest rates should go up. Because that will apparently curb our spending and bring the rate of inflation down.
Except that the costs that are going up are food, power and petrol, as well as the luxuries. (A flat white will often now cost $4.50 whereas you used to be able to get one for $3.50 or even $3 even a year ago.)
Petrol went up by 20 per cent, food by 7 per cent and electricity by 7.8 per cent as the consumer price index rose 5.3 per cent in the year to June 30, the biggest rise since 1990.
The figure includes last year’s rise in GST but, even without it, inflation would still have been 3.3 per cent, above the Reserve Bank’s 1 per cent to 3 per cent target.
Now economists believe there is a 70 per cent chance of a rise in mortgage rates before December to try to curb inflation.
So why would you increase interest rates, putting up the cost of the mortgage, in order to give people even less money to put petrol in the car to get to work and earn the money they need to pay for the mortgage?
Why would you give them less money to put food on the table?
Why would you give them less money to heat their homes?
Because news reports are also saying that money is not being spent in retail stores. In fact an article in the Dom Post this morning actually bemoans that even the Kirkaldie and Staines winter sale is a bit of a damp squib – as opposed to the usual “queuing round the block” grand event.
And of course all of this goes hand in hand with little or no pay rises for the majority of people.
I can only hope that someone at the Reserve Bank of NZ can tell the somewhat obvious difference between inflation caused by people racking up credit to buy stuff they don’t need, and inflation caused by the basics rocketing up in price. It seems a bit obvious to me, but then I am not an economist.
Paying off debt – still too hard for most people :(
Filed under: Banks, General Budgeting, Interest Rates, Credit Cards & Mortgages in NZ
According to a piece on the herald today, Kiwi consumer debt (that doesn’t include mortgages on property) still stands at a whopping $11.96 billion. That’s $11,960,000,000. Now the Stats NZ population clock stands at over 4.4 million, but census information says there are 895,000 people here under the age of 15. Which leaves an “adult(ish) population of 3.5million give or take. Which means on average every one over the age of 15 would be carrying a debt of $3417 each, all at high interest rates. This is debt on credit cards, store card and hire purchase.
That’s actually quite a lot really.
And according to the article, the most that people are thinking of doing to sort this out is not get further into debt. But there are very few people thinking of paying it down.
Now for the moment, we also have some consumer debt on a credit card – expenses from setting hubby up as a contractor. As you know, we swapped this to a “low” interest credit card, saving us about $250 a month in interest, and that is being paid off rapidly, and will be gone by the end of September. To be honest, I felt really unconformable having the debt there, and it just didn’t seem to be getting lower. So we took steps and have budgeted $2000 a month to pay the card off. Now most people will not have the income to do that, especially here in New Zealand. But the bottom line is – debt has to be paid off somehow.
It doesn’t have to be $2000 a month, but it does have to be more than the minimum payment, and having consumer debt means if nothing else – you have to stop buying things you cannot afford.
Its a pain – but its true.
Apparently the interest we are collectively paying on our credit cards (at an average of 18%) is $650 million in a year.Now shared amongst the same 3.5 million of us sharing the debt, that works out at a reasonable sounding $185 a year each. But when you consider that you pay that for the privilege of having the debt, and you actually don’t have anything to show for it – its a bit of a waste of money isn’t it?
Believe me – that $2000 debt repayment could be much better spent on us having some fun. Though actually because I’m completely sad – once the credit card is paid off, its going to be used to pay down some of our business mortgages. We may however be able to use 1 month of it to fund the purchase of a new laptop. In the meantime, I gain a huge amount of pleasure from denying the banks a fair chunk of interest each month.
Like what Avalon has to say?
Click Here to buy Avalon's Guide or Click Here to buy the E-Book
No Money? Why not buy a few top range BMWs?
It’s the end of the second year of a recession, and last week the Finance Minister Bill English said that we could actually face a “double-dip” recession. (That means its going to get worse before it gets better). And yet, because the VIP fleet that Government uses is 3 years old – we have to buy a whole new fleet. That’s 34 BMWs at $200k each. That’s $6.8million spent on replacing a bunch of 3 year old cars.
When apparently there is no money to be spent on front line services. You will be left to die if you have the bad luck to have certain types of cancer because we wont pay decent wages for oncologists – but who cares – government ministers will have a flash car to be driven around in while you die.
The Green Party has called the ordering of the cars a disgrace.
Which is way too mild – they should call it revolting and abusive.
The cars are for transporting ministers, their guests, the leader of the Opposition and occasionally judges.
We have 121 MPs. Why do we need 34 cars in the first place? And why do they need to be replaced after 3 years? I bought a 10 year old car and I’ve kept it so far for 5 years. We have had to buy a second car, but we cannot afford to replace the first one for a new model. I mean we could if – like the government – we were prepared to live with a debt that grows each week. But we are bullied, insulted and forced to cut back and save. But the people in charge get to spend spend spend.
It really is sick isn’t it.
[The green party leader] understood the cars were ordered to arrive in time for the Rugby World Cup. “People can’t even afford to go to the games.”
I am personally sick to death of money we don’t have being spent so that NZ looks like it has money when the RWC fans descend on the place. NZ is not a rich country, and beggering oursleves to try and trick tourists into thinking we are flash is just not on. They will be going home – we have to live with the pile of debt and we will be forced to save money we don’t have to get the government out of the crap.
Not impressive.
Like what Avalon has to say?
Click Here to buy Avalon's Guide or Click Here to buy the E-Book
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.
Like what Avalon has to say?
Click Here to buy Avalon's Guide or Click Here to buy the E-Book
Avalon’s Guide On Facebook
-
