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.
New Zealand interest rates coming down.
Filed under: Cost of living, Economics, Interest Rates, Credit Cards & Mortgages in NZ
Last week the Reserve bank held the base rate steady – and this week, some of the main banks have cut thier mortgage rates. It means that Fixed Rates are coming down towards the floating rates – though the long term fixed rates are still way too high for me! Im using ASB rates for ease – but Westpac and Kiwibank have also dropped the rates.
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.
As at 09:47:18 a.m., Wednesday 2 November 2011
- Housing Variable 5.75 % p.a.
- Housing Fixed (6 Month) 5.75 % p.a.
- Housing Fixed (12 Month) 5.80 % p.a.
- Housing Fixed (18 Month) 5.80 % p.a.
- Housing Fixed (24 Month) 6.00 % p.a.
- Housing Fixed (36 Month) 6.30 % p.a.
- Housing Fixed (48 Month) 6.70 % p.a.
- Housing Fixed (60 Month) 7.10 % p.a.
- ORBIT Home Loan 5.75 % p.a.
For New Zealand – these are REALLY low rates – but still way higher than you may be used to.
Today’s good news – interest rates aren’t going up!
Filed under: Banks, Cost of living, Interest Rates, Credit Cards & Mortgages in NZ
The reserve bank have done what all the economists said they would do and held the base rate. Well at least they said that this month – last year they swore blind it would be different and rates would be climbing by now. Wouldn’t it be lovely to have a job where you could be wrong so often?
By the evening, Kiwibank had dropped its rates – which means there’s a fair chance that the other banks will follow and our mortgages will drop a little.
Kiwibank have actually brought their 6 month and 1 year rates in line with the floating rates.
I await ASB’s rate drops eagerly.
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.
What my credit card says about me.
For some bizarre reason this morning, hubby had a flick through the credit card bill that arrived yesterday, and noticed that there seemed to be a marked preference for spending in a certain type of shop.
So for you amusement – here are the types of items you can see on our credit card statement.
Supermarket – 15 Items
Business stuff – 2 Items
Medicines & Health care – 2 Items
DIY – 2 Items
Health Insurance – 1 item
Clothes – 1 Item
Cinema – 1 Item
Utilities – 2 Items
Books & DVD’s – 7 Items
Online Gaming – 4 Items
Cafes and Restuarants – 21 Items
Ooops. I’m off for a coffee to drown my sorrows!
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.
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.
Banks are stepping up to help Christchurch
Filed under: Banks, Interest Rates, Credit Cards & Mortgages in NZ, Life in New Zealand
As soon as the government announced it’s package to help people in Christchurch, ANZ was on the TV with an advert outlining it’s 1,000,000,000 package to help affected people in the red zone.
We’ve created a $1,000,000,000 kick-start fund to provide lending to home owners living in the Government’s designated residential red zone.
A heavily discounted variable rate – currently 3.70% p.a. – will be available to eligible residents for the first year of lending – no matter where you relocate in New Zealand.
What does the fund provide?Eligible residents will get a 2.04% discount off ANZ’s variable home loan rate for the first year of lending up to a value of $500,000.
Who is eligible?Any home owner living in an area of Christchurch which has been designated as part of the Government’s designated residential red zone. What do you need to do to qualify?
- You must be eligible for and take up the Government scheme
- and deposit the net proceeds of the Government payout into an ANZ call account within two months of receiving it
- At the point of taking up the lending, you’ll need to direct credit your salary directly into an ANZ transaction account
- The loan must be drawn down by 31 December 2012.
Kiwibank have a similar package to ANZ:
If you accept the offer from the Government and wish to purchase or build a property elsewhere, we’re offering:
a 2% p.a. discount on our variable rate for a year from drawdown – this means that the rate will be 3.65% p.a.
no application fee for new home purchases
no fixed rate break costs or early repayment fee if you already have a Kiwibank home loan.You’ll need to:
contribute the Government’s net payout towards the property purchase price, and
have your salary direct credited to a Kiwibank account.The maximum loan amount is $500,000, and the loan needs to be drawn down before 31 December, 2012.
ASB have also updated there aid package, but to be honest it really is pretty weak compared to ANZ.
Westpac and BNZ haven’t released an up to date package for people in the red zone – which is a pretty poor show really. So ANZ and Kiwibank are the winners here for taking some decisive steps – good on them.
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.
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Would you apply for a mortgage for someone else…
Filed under: Banks, Economics, General Budgeting, Interest Rates, Credit Cards & Mortgages in NZ, Property & General Investing
and then complain when you realise that you were scammed and the mortgage broker lied to you when they told you it was to help a British couple out whose money was locked up in the UK???
Much as I would like to help people make the move to New Zealand – the answer for me is
NO WAY IN HELL! 
Because call me nuts – but isn’t it fraud to apply for a mortgage or loan under you own name, when you know its actually for someone else, especially when you are doing so on the promise of being paid money by these people when the loan draws down, and then a monthly fee from them?
This is what has happened to a couple on the Kapiti Coast. They got scammed by Kerry Brundle, a mortgage broker. And they have finally woken up and gone to the police – along with many other victims who for some utterly inexplicable reason took out loans to give this woman money. The mortgage payments were supposed to be met by Brundle, or some other fictitious character and then the people scammed were also supposed to receive a payment when the loan was drawn down, and then ongoing payments each month. To say “Thank you”.
Mark Mason can testify to how persuasive Ms Buddle could be. He took out a $42,000 mortgage on his house in Paraparaumu in 2008 so he could lend her money to renovate her home. He has since had to sell his house to avoid a mortgagee sale.
“She said it would be good for both of us. I trusted her, she was a friend. I thought this has got to be easy – get $1000 upfront then $100 a month – for signing a piece of paper.”
Were they all barking nuts???
Why oh why oh why would you mortgage your house, risk yours and your families financial future to give money to someone else? Charity is one thing – stupidity is quite another. If you have the money and want to help people – that’s great: laudable and entirely your choice. But when you are prepared to sign loan documents under your own name knowing full well that you are lying about the loan being for you in exchange for money, I’m afraid any sympathy I have goes out the window. To me – this is what greed is – you do something which highly unethical, because someone is going to pay you money to do it.
That doesn’t diminish how much of a snake Kerry Brundle is – living like a millionaire on the money she scammed out of people. There are an awful lot of people out there pretending they have a lot of money when they don’t, so she will not be the last person to get caught for trying to live off other people’s money I’m sure.
Why do people do this?
We were prepared to take a certain amount of risk when taking out mortgages to buy our investment properties. But always – we ran the numbers, listened to advice, and remembered that if we screwed up or things got difficult – we were risking not just our home and future – but that of my Parents and brother as well. I sure as hell would never risk that to borrow money for someone else! If I give money – for any reason – it is money I can afford to give – and I give it because I want to – not because someone will pay me to do so.
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