What’s the effect of the global financial mess?
Having some spare time in the house with the slightly crappy weather, I’ve been watching some of the TED talks that have been sat on the iPod waiting patiently for me.
One in particular was from John Gerzema, talking about the ‘post crisis consumer‘. Beyond some of the academic/economic waffle, and the ‘America is the world perspective’ it did contain some interesting observations.
First off is the (US) savings rate over the last 70 odd years from 1935 to 2005 (sorry the graphics are a little fuzzy), giving us confirmation that it’s in the last few years that average households have negative savings – i.e. no savings and money oweing on credit, while since the 1950’s it’s been in the 5-10% band
The blip in the early 1940’s is of course the war. But only because there was nothing to buy, rather than a patriotic drive to save money into war bonds as there was in the UK. It is interesting though, even when there were almost no consumer goods to buy, savings rates only averaged 20-25%.
Anyhow, while these numbers are now four years old it begs the question – ‘What are people doing now?’. Well the (startling) observation is that people are paying off debt. Because they don’t want to be beholden to the banks as much anymore. Which is good news. And more people are using debit cards to access money in their bank accounts, rather than using credit cards and borrowing the money. Again good news.
Of course, neither the banks or the credit card companies are happy with this – since they don’t get to bleed us all dry with interest rates and charges. But still, they’re not hurting yet and it’s early days in the whole economic recovery thing.
More interesting was the information about how people are dealing with the stress. While it doesn’t say what the sample population was here (Wall St executives still in jobs, as opposed to homeless families in some Detroit ghetto), and the percentages are more than 100%, so people are obviously doing a number of things, it does make interesting reading;
5% of people are dealing with the stress by buying more stuff. This is taken as a good sign, as we’re getting more savvy about what we buy, and we aint’ buying any old crap the marketing people want us to buy.
Still, draw your own conclusions. Good news for Nintendo, where people are playing video games and exercising (Wii), possibly with their family. Really good news for ISP’s and TV broadcasters.
How shall we pay it back? By having a plan!
Filed under: Cost of living, Economics, For the numpties amongst us, Future Finances, General Budgeting, Hubby's Views
I was working on an event about CFO’s the other month, and needed some humour to illustrate advice you don’t want from current or former Financial Chiefs. With much joy, I found this;
And the following interview conducted by the BBC, of a UK Govt minister talking about how the UK Govt. is going to pay back the 606Bn UKP debt it’s due to rack up in the next couple of years. As I can’t find the link anymore you’re have to forgive the slight paraphrasing. The interview really did go something like this;
BBC Interviewer -- How will you pay it back?
MP -- by having a plan!
BBC -- and what’s the plan?
MP -- The plan is to pay it back!
BBC- Yes, and what is the plan?
MP -- The plan involves passing legislation saying that we’re going to do this, it’ll have targets!
BBC -- Yes, and we have targets for everything including NHS waiting lists, University education etc. and none of them have been met.
MP -- No they haven’t, and that’s because of the 18 years of Conservative Govt ruining the economy, but this is different.
BBC -- How?
MP -- Because we’re the Govt, we say we’re going to do it and we have a plan.
BBC -- Yes, with respect minister, having a piece of legislation doesn’t tell any of us how you are going to find 606Bn pounds over the next four years (assuming you win the election), to pay back this debt. How can you possibly pay back this much money without making savage cuts to public spending?
MP -- Well, it’s quite simple -- we have a plan. To pass legislation. Which will have targets. And we wont need to cut any public spending, because public spending is what will drive the economic growth to bring us out of recession.
BBC -- So lets be clear, you’re not going to cut spending, you’re not going to raise taxes significantly, where is the money going to come from?
MP -- As I said, it’s really quite simple, we’re going to have a plan.
BBC -- And the plan.. -- oh forget it.
The financial crisis explained
Filed under: Banks, For the numpties amongst us, Hubby's Views
As explained by a ‘banker’ -- thanks to The Now Show (18/12 again);
“In laymans terms it works like this; if you get yourself into financial difficulty, say you fail to manage your own finances properly and are incompetent enough to get yourself into enormous debt, with absolutely no hope of paying it back -- the bank takes your money.
If on the other hand your bank fails to manage it’s finances properly, is incompetent enough to get itself into enormous debt with absolutely no hope of paying it back -- the bank takes your money.
It’s really very simple”
Which also reminds me of The Two John’s, explaining the financial crisis {watch with some irony for the Google ad’s for GE Money, Kiwibank etc.. -- hmm, someone didn’t think about what to exclude from the key words};
Sales? What Sales???
Filed under: Cost of living, Economics, General Budgeting
It said on the news yesterday (so it must be true) that shops were offering pre-christmas discounts to get us all spending money in a recession. And today – we had to pop briefly into the Westfield Queensgate shopping center in Lower Hutt, to have a look at cameras. You see ours packed up, and I’m bored of using Hubby’s iPhone as a camera with its complete lack of zoom and flash.
So we figured we would make the most of the “bargains”.
Well for a start – if theres still a recession on in New Zealand (and if there’s an ounce of fact in the whole “Kiwi’s are not consumerist” ) – you couldn’t tell today from the masses of bags that people were carrying and the sheer number of people in the centre. We looked quite out of place with no logo-emblazened shopping bags full of presents.
And if Dick Smiths has a sale on – it sure as hell wasn’t on cameras. At least – if they were discounting with the few “Hot Deals” we saw – they werent telling you what the normal retail price was. Not that I trust stores to tell the truth on this issue – Briscoes being teh worst crooks for blatantly marking up the retail price to show a “Sale Price”.
So we took some notes on the cameras we liked – and have to now go check on the internet to find the best price. I do hate not being able to trust stores about thier pricing. Oddly enough – the Canon website doesnt list any recommended retail prices – which is less than helpful. A quick scan of the Noel Leeming website site shows once of the cameras at $100 less (on a $350 camera). I guess the bargains are out there is you have the energy to look.
It’s at this point that I remain forever grateful that my entire family is obsessed with reading, and we can generally sit back – ignore the shops and the rush, and order online.
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Avalon’s Money Thread: Working out our net worth.
Filed under: Avalon's Money Thread, Banks, Economics, General Budgeting, Investing in general, Mortgages in New Zealand, Property Investing
We’ve done the budget, we’ve made some decisions, our personal Fixed Rate mortgage comes up for renewal in January, and we have decided to rejig the way we pay our mortgages.
All that was left to do was to track what our Net Worth was – which given the economy was a highly daunting task to be honest.
Your Net Worth is basically the value of what you own (assets) minus the value of you owe (debts). Unlike a Budget, which tells you what you are going to do over a month or year – your Net Worth tells you how much you have right now. Today.
It’s not difficult (especially if you have your accounts in order and your paperwork filed)– just a bit depressing at the moment. Because I like spreadsheets, and I’m lazy, I just copy the same spreadsheet from last year and fill in the numbers – its quite straightforward. In fact the only difficult bit to be honest is grabbing the bits of paper that contain the info you need.
On one side I have a list of all the assets: property, banks accounts, savings accounts, shares, pensions, car, and household goods (Insurance value is the best way to determine that).
On the other side are the mortgages, credit cards and any loans.
Take one from the other, and what is left is how much you are worth today.
In our case – about $250,000 less that we were 2 years ago.
I kid you not.
So why am I not crying into my coffee right now?
Well, Net Worth is a really good indicator of how you are doing financially. But it has to be taken in context. Most of that “wealth” is paper money. It doesn’t really exist. I don’t have $250,000 less dollar coins than I had – it’s just that my properties have gone down in value. In time – the value will go up again, and so will my “wealth”.
It becomes an issue if you want to borrow money and maximise how much money the banks will lend you – as they want to know the value of your assets. When I spoke to the valuer to get ours revalued – he said that he’s never been busier with banks insisting on clients getting up to date values on all their properties. While this can be annoying – I have to say I think I’m actually with the banks on this one.
I spoke to ANZ the other day about the possibility of refinancing a rental (the funds to be used to reduce personal mortgage – so no extra lending overall). They won’t lend more than 70% of the value of a rental, and my mortgage was for 75% already. The thing is, while doing this is defiantly for the banks good – it also prevents us as buyers from over extending. I think we personally got lucky that the recession hit so fast just after we bought our 3 rentals and couldn’t buy any more. It prevented us going mad, getting caught up in a storm and going belly-up which has happened to an awful lot of people.
We have “protected” as much as we can of our net worth by paying down as much debt as we can as fast as we can. So while our assets are worth much less, so are our debts. There is actually a lot you can learn from a recession, and if you can get through this and come out the other side – then just think what you will be like when the economic climate improves.
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Are Kiwis really obsessed with Property?
Err – no.
But it makes a good headline doesn’t it?
There have been two articles that talk about this recently – both contradict each other – no surprise there – articles usually do that.
In today’s article, it seems that a group of concerned people have addressed a group of concerned politicians (uh oh) and told them that we are about to “lose our sovereignty to Australia” if we don’t stop buying houses. Seriously. And some of these people get paid a lot of money to write such tripe. I mean – how can buying houses possible mean we are about to get taken over by the Aussies – and why the hell would they want to take us over anyway?
Now basically – all this is to do with looking at why the Banks won’t pass on the drops in the official interest rate. I thought it was just because they wanted to screw us for more money – but the boffins think its all the fault of the Property Buyers. So watch out – you might not want to buy your own home and a Bach when you move here – you will be blamed for us becoming an Australian Territory.
Of course – the people they are really blaming is people like me – dastardly, evil, greedy Property Investors – who apparently according to said boffins are “using the credit card to pay the mortgage”. Like hell I am mate! Our mortgages are paid for out of our hard earned salary and a bit of rent. Speak for yourself – don’t speak for me!
So – exactly how many Kiwis own investment properties? Why is there such a rush to insist that the recession is all our fault? That the New Zealand economy is collapsing because every Kiwi owns a gazillion houses and we need to invest in shares (New Zealand shares of course) instead?
7%
That’s right – a whopping 7% of kiwis own rental property, and most of those (about 90%) own just one or two rentals. Leaving about 0.7% (ish) of the Kiwi Population that are “professional investors”.
Scarily – that includes us with our huge portfolio of 3 (yes three) rentals. When we settle on the two off-plan rentals we have purchased – you will have to hang us from the gallows. I had a rather “wow” moment while chatting about insurances with my broker when he said that we had “Lots of rentals”. I don’t think I’ve even got started yet. We are piffling compared to a lot of people I know.
The other article that I thought was actually really good puts this in perspective was looking at words of wisdom from Andrew King and Lisa Dudson, both well respected people in the property world over here.
They talk about the basics of property investing – that funnily enough you do have to do some work, and you do need to look after your tenants and not house them in a flea pit. (While looking at properties to buy – I have seen things that would have the owners in jail if animals had to live in them – but humans get charged rent for the privilege).
Lisa Dudson says “Patience aside, making a profit in property takes sound planning, strategy, wise counsel and firm financial foundations.”
I know I’m only just really starting out with property investing – but that’s pretty much how we do it. We get people to help us, we have a plan, we know what we are looking for and what we want to achieve, and we still keep control of our spending. I can honestly say that it ain’t me that’s overspending on credit! (Well apart from the recent splurge on the 46″ Sony TV and Sound System – but I had saved up for that so even though it went on the card – the bill got paid immediately). My coffee habit is also affordable – so that is not going to cause the immediate take over of New Zealand by the Australians either I’ll have you know!
Whether or not you join the Kiwi Non- Obsession when you get here and invest in property – make it your choice and don’t be bullied by what other people think is right for you, and don’t be bullied into not doing it becuase there are so many people at it and you will be responsible for the end of civilisation as we know it. Get lots of advice and get help – an remember that buying houses in New Zealand is not at straightforward as many people would like you to think, and you need to understand the tax laws.
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What can Farmville tell you about the way money works?
I admit it – I’m a sucker for Facebook games. In my defence – I do limit myself to playing one or two at any one time. I started out with Real Estate Tycoon, but it got boring as you got to point where you could only really buy and sell two properties.
I then discovered Mafia Wars when we were fighting with INZ over my parent’s sponsorship. It was highly “relaxing” doing mob style hits and jobs and amassing a large stash of weaponry at the time – I can tell you.
Both games involve making an awful lot of money – my bank balance in Mafia Wars stands at a healthy $277,000,000,000.
But it is with my latest game Farmville that I ended up with a bit of a shock and the realisation that art imitates life in these games sometimes.
In all these games – as well as your normal playing – you have achievements that you try and attain. In mafia wars its things like “Killing 1000 people in Cuba” but in Farmville it’s obviously a bit more sedate: harvesting 20 trees, befriending 10 other farmers – that sort of thing. And you get ribbons for gaining an achievement – four ribbons or levels for each one.
The thing is there are ribbons for both spending money and earning money.
To get the Blue Ribbon (the highest level) for earning money on your farm – you need to earn $1,000,000. But to get the same blue ribbon, or level of achievement for spending money in the market? You gave to spend $1,500,000!
The game makes you spend more than you earn to get the ribbon.
And while that may be the way the world wants you to do things, and give you a pat on the back for spending us out of a recession – its not a healthy way to do things. I’m sticking to spending less than we earn thank you very much!
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Maybe the Mayor should have kept quiet.
Well, of course, by now you know we were not the winners from Masterton of the record $36,000,000 lottery win the other week. In fact, given that we don’t actually buy lottery tickets it would have been a bit odd if we had. A number of people did for some reason wonder though.
Well, as soon as it was announced that the family who won were from Masterton. Hand shot out begging for a share. Apparently the shop that sold the ticket has been inundated with letters for the family from people who want some of the money.
The worst by far however was the Mayor of Masterton who made it quite clear that he felt the family should stump up some funds for the council so they could provide some much needed infrastructure. WHAT????
That’s what you bill us rates for mate!
It seems this all started with a prank radio show calling the mayor and pretending to be the winners. On the basis of this call, the mayor then went on TV and spoke about the family wanting to help out with community projects. He now feels hard done by and wants this Tui Ad which pokes fun at him taken down:
While I get that he didn’t realise he was the butt of a joke, it was still highly unreasonable of him to go on TV and discuss the fact that Masterton Council would take part of a lottery win, and talk about what the money could be used for. The family were broke prior to the win, and like many people were struggling to pay their bills. Did the council reduce the rates bills to help out? Did they diddly. In fact we are still getting rate rises in the Wairarapa, just as people are all over new Zealand, so the last people who should have their hands out are the councils. They do little to help us all out in difficult times – they just try and grab yet more of our money.
The Tui Billboards are known for the sarcasm and biting humour, with politicians being particular fair game. They are usually hysterically funny, and it’s a great part of living in New Zealand that you look forward to seeing a new one spring up with a witty comment.
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Should New Zealand have an emergency fund for Migrants?
Filed under: Cost of living, Getting to New Zealand, NZIS & Immigration issues
One of the two families in the news lately over losing jobs and having to go home, had now left New Zealand. Having paid $11,000 to a licensed “Immigration Advisor” (and I use the term loosely) – it seems they too had little money to get home, and had nowhere to stay. Hmm, I hope the Immigration Advisors Authority has read about this and looks into whether this advisor followed the code of conduct.
Everyone but the father has now been repatriated back to Germany – it sounds like the local List MP helped them out. (If Only our list MP had been so useful – he couldn’t have given a toss!)
There are also calls (unsurprisingly from opposition MP’s who need a political stick), to set up a fund to help Migrants in need. I can’t help but think this is just wrong on so many counts. For a start I am offended that an opposition MP who oversaw a catalogue of problems within NZIS and did sod all about it, now claims to have Migrants best interests at heart. The hypocrisy is nauseating.
The impact of the recession on temporary and permanent migrants occurred in a way not anticipated by us or them when they came here,” [Jim Anderton] said. “They came here on advice, so we can’t then blame them when things go wrong.”
The problem with this – while nice – is that what happens to the migrants that just don’t settle here and go home? Do they get their flights back paid for them as well? You see it’s not just the recession that forces people to go home. Given that net migration figures are always ridiculously low (there are however no figures on how many of the ones that leave are migrants as opposed to Kiwis) – if the New Zealand government helped out every migrant who –for whatever reason – had to leave it would simply be unaffordable.
And to be honest – I really do think we need to accept that there are no guarantees that it will work out for us here. We need to be prepared for the fact that we may need to leave, and it should be up to us to have the emergency fund to get ourselves home. Even if you have a Permanent Residency Visa, can you afford to stay here without a job? We had been here over 4 years and were citizens, when it was looking highly dubious that Hubby would get to keep his job. Added to that – it was looking very likely that the Family Residence Team in London would do everything in its power to ensure that my family did not join us. There were many days when we had to look at what we do if we had to go back. The cost to us would have been phenomenal. We did however have emergency funds to deal with loss of income, and we could have got flights home. Dealing with our properties however would have been horrendous.
There is simply no way of knowing till you move here and live here how you will settle, and there is always the risk that your job may not work out. You need to have funds to live on or get home and you need to have a plan. I also wonder how many people moving from the UK to New Zealand would be happy if the UK government did the same for it’s migrant population. I doubt it would be many.
Please ensure you fully understand the costs involved in emigrating to New Zealand, and if you sell a house in the UK – keep some of the money back to cover situations like this. It can happen to any of us, and it does not happen simply because we are in a recession – that just makes it more likely and more newsworthy.
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Getting out of Credit Card Hell
Filed under: Future Finances, General Budgeting, Investing in general, The Book, interest rates
I am now a firm believer in that you should never had a balance on your credit card that you cant pay off every month. But if you are the position of having a balance you need to find a way of getting rid of it as soon as possible. Credit card debts, especially now – are the sort thing you do not want to have in your financical life.
I was sent a link from one of my Twitter Followers to Mint.com with an amazing diagram showing you one of the ways you can do this. You start at the bottom of the Picture and work your way up to freedom.
This is slightly different to the method listed in Avalon’s Guide – but hey – there is more than one way to turn your life around – and it is up to you to check out which suits you best.
Click on the Picture to go to Mint.com and see the full version:
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