Tax Changes – boring but important.
Filed under: Cost of living, Economics, General Budgeting, Property Investing
In fact so boring and dull, I’ve been putting off writing about it for weeks. But I figured I really ought to get it done, because it could make quite a difference to whether emigrating here is affordable for you or not.
Kiwi’s generally think they have really high tax levels. Coming from the UK, I have always thought they are wonderfully cheap, and its one of the reasons I have always thought you could do financially well here.
So, I’ve already written about the taxes that should be going down – basically the top income tax rate. The finance minister has now “suggested” that the top tax rate will drop from 38% to 33%. That in itself will make a huge difference for many skilled migrants, even if it isn’t going down to the 30% that the Tax Working Group wanted. Company tax looks likely to go down from 33% to 30% – good if you are thinking of running a business, but won’t do anything to fix the fact that people supposedly use companies to hide income for tax purposes.
So the question remains – what’s going up?
Because make no mistake – these are not tax cuts. These are tax cuts equalled by tax increases. For every 1% drop in Income Tax, there has to be a 1% increase elsewhere. Whether people think its fair tends to depend entirely on whether they are paying or saving.
GST
The main increase is likely to be GST – up from 12.5% to 15%. Which basically means you get to keep more of what you earn, but pay more of it out when you spend. So depending on your spending habits, and ability to save money, you may in the end come out better off. At least this is a tax you have some control of. While your fixed expenses are – well – fixed, and they will go up – you can determine how much tax you pay on your non.-essentials by budgeting and shopping around.
Closing a Working For Families Loophole
There’s also talk of making sure that property investors can’t use their tax losses to lower their income and get access to Working For Families benefits. I’m personally a fan of that. Although we lower our income by claiming tax losses, as far as we are concerned we still earn $150,000 – we just plough a lot of it into our investments. So it actually wouldn’t occur to us that we were eligible for WFF (if we had kids).
Property Investor Taxes
Most of the tax hit that Property Investors were going to get look like they have gone. We are still going to take a hit somewhere – but not as much as the people in the Tax Working group (all of whom work in the Share Investment field) would have liked. Which means that a lot less people are about to be bankrupted. It looks like the main rise will be that you wont be able to claim depreciation on the building. It could make investing a property harder for lower earners, but we wont know for definite.
And so far – that’s about it.
Like most things – a report from a bunch of academics and vested interests comes out (at huge cost to taxpayers) which says a load of “academically sophisticated” ideas about reducing tax (I hope they took their own sandwiches to their meetings!). But when you boil it down to what might actually work – you aren’t really left with a whole lot.
We won’t know for definite until the budget in May, at which time everyone can work out whether they win or lose.
For us, while we are highly likely to lose a fair amount in any property tax changes – we also make a fair amount by our income tax going down. The GST will cost quite a bit on our fixed expenses – which is a pain because I’ve just reduced our fixed outgoings by a huge amount lately – and it will make me feel a bit deflated for a while.
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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 much to spend at Christmas?
You can tell its Christmas here, not by the snow, of which there is a distinct lack, or the cold, of which there is no lack. No – the sign that Christmas is only a few days away is the number of news reports about how much we are spending, (or not) and how fast we are spending it.
It seems that “average” kiwi is spending about $500 on Christmas this year. Of course – there’s absolutely no information on how they averaged it – but $500 doesn’t sound like a lot.
Worryingly – we are having a rather “frugal” Christmas this year – basically because we are saving up to get the area around our swimming pool extended, and we didn’t have quite enough to do it this year. And yet we have still spent just over $500 each, and that doesn’t include about $150 on extra Alcohol and food. And of course – the amount is low because we made the most of the awful exchange rate, and bought the books at Amazon.co.uk – which saved a few hundred dollars.
Mind you – we have spent considerably less than usual, and mostly of that’s down to the fact that we really don’t “Go Christmas Shopping” anymore. None of us are what you could call Shopaholics, and the mere thought of having to shop along with hoards of others just tends to turn us all a bit queasy.
The biggest thing though is our recent aversion to “stuff”. Having got rid of so much of it before emigrating – we all just have a hard time accumulating more of it. Instead, we use Christmas as an excuse to spoil each other with books – something that we don’t buy anywhere nears as many of during year now that live in a world without “3 for 2″ offers, and discount books.
So on the upside, I still have about $1000 left of my Christmas savings (I save $200 a month towards it) – which will mean I should be able to afford the concreting in time for next summer. In the meantime, I have a few days of cooking scrummy treats for the family, and not panicking about where to park.
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“Made to make your eyes water” Life Insurance Premiums.
Filed under: Avalon's Money Thread, Cost of living, Future Finances, General Budgeting
We are still on the hunt for decent life insurance, given that we had to pull the cover from ING, and would like to pull the cover from ASB as well.
If you are moving here from the UK – whatever else you do – make sure you have Life Insurance and Critical Illness Insurance in place before you leave and make sure you will be covered once you emigrate.
Because I can almost guarantee you will die of a heart attack one you see what you are expected to pay for it here. Its outrageous – a bloody rip off.
I explain this in more detail in the book, but basically – in the UK the premiums are set according to your age when you take it out.
Here they just go up and up and up. And up some more. And then just when you really need it – from about age 65 onwards – you would need to be a multimillionaire to afford the premiums.
We are currently looking for about 1.4m in cover. Now I know that sounds like a lot of money – and possible you might thing it’s a bit arrogant to think that Hubby would be worth this much (I am worth considerably less which is a bit depressing). But this is because we have rental properties, with mortgages on, and they need to be paid off if Hubby croaks).
If we get stepped premiums – which go up every year – then we pay about $1500 a year for the premiums ($125 a month). If you get level premiums (which stay level till age 65 and then “wallop” you with a hike you just would not believe) then we have to pay over $6000 a year ($500 a month). The stepped premium hits a truly bewildering $44,000 a year by the time you get to age 64.($3600 a month).
Compare this to my UK life insurance (which includes Critical Illness cover) costs £10 a month, and will do until the day I die. Even if I’m 127 years old.
We worked out that till age 65 – the difference in payments in level and stepped over that time makes nearly $60,000 more to get stepped premiums.
However our Insurance Broker sat me down and told me I should revisit my views on this – and look at the cost NOW. With our budget being squeezed to within an inch of its life because IBM is too tight to give even cost-of-living pay rises (but can pay $80,000,000 for a new data centre) we simply cannot afford $500 a month on premiums.
So the plan now is to take stepped premiums, and as we pay down mortgages – reduce the cover and thus try and offset the rise in premiums each year. Still – it annoys me that Kiwis so easily get ripped off.
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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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Argghhh – why all these “extra” charges???
My perennial favourite of course being the patently ridiculous “Automatic Payment Loading Fee” the bank charges me to do their job for them and set up a standing order – but just this week I have seen three almost as ridiculous examples of spurious rip offs.
First goes to Ticketec. Now they always add silly charges – mostly for posting your tickets to you. Extra if you live in the countryside of course. And they will charge you if you don’t want them to send it to you – you want to pick them up instead. But now they have gone one further and will charge you $5 if you want to print your ticket at home, on your own printer, using your own ink, and your own paper.
Second goes to Reading Cinema who again charges you $2 for the “privilege” of ordering your ticket over the internet and saving the staff 2 minutes work.
But taking the biscuit completely for a wacky and completely pointless charge goes to Aotea Pathology. I needed to go have a blood test on Saturday morning – which meant I had to get up at 7am (and on a Saturday dammit) and go into Welly because the local clinics don’t do tests on Saturday (sensible people).
So I go in, give my name, pay the bill and am asked to sit down and wait. It wasn’t until I came out of the labs that I happened to look at the bill. Alongside the two charges for the tests themselves is a third charge.
Encounter Fee – $12.57
WHAT?????
This it seems is the charge for the lady at reception to take my name and charge me the fee and ask me to sit down.
The mind boggles.
Bloody rip off merchants.
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I really love Amazon.
Right now the benefits of a crap exchange rate are working in the favour of people already living in New Zealand – so it’s worth making the most of it. Even at $3 to the UK£ its often more cost effective buying books from the UK than buying them in New Zealand, but with the rate at nearer $2 to the UK£ – we are laughing.
On an Amazon order of about £180 (the whole family really loves books), I’ve saved about $200 on Christmas pressies purely because of the exchange rate.
I guess that the thing with currency – when it’s bad for one person – it can be great for others.
But there’s also been an interesting development at Amazon.co.uk which can be even better for us. They are now charging in local currency – so if you live in New Zealand and have an NZ Credit card – you can be charged directly in NZ$. You will be told at the time of order, before you confirm, what the NZ$ cost is, and if you switch the currency conversion on, you will have the option of changing your mind before you confirm the order.
This means that you can avoid paying the banks their extra charges and fees they always like to screw us for. You wont get the Interbank rate – but then the banks never give you that anyway – and then they add all the extra fees on top of a crap rate.
I’d use the Amazon converter on principle just to take the fees away from the banks.
It’s worth noting that all the items in your order have to be in stock and ready to ship to be able to use this service. If anything is out of stock or on a delay – you cant use it and have to pay in UK£.
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Avalon’s Money Thread: Tree Hugging and the concept of money.
There is a theory that when you start to respect money and look after it, it kind of decides its likes your company and you get more of it. I now its sounds a bit odd but it really seems to work. Once I got the ball rolling and stopped overspending, the amount of money we had just kept going up. I know that may sound obvious but if it’s really that simple, why are so many people broke before payday?
It’s actually the compounding of interest that makes this work (and conversely makes debt spiral out of control so easily).
So you have $100. That earns $1 interest the first month. But if you don’t spend any of it, the next month you earn $1.01! You just got a pay rise! Your money is multiplying because you looked after it.
I’ve been reading a book lately that had something to say about this which kind of had the effect of walloping me round the head and made me look at it a very different way. I hope it helps.
Basically you can have security OR you can have freedom. Seldom do they go together. To see this in action you have only to look at what is happening in the States, the UK and Australia. The book was actually talking about financial security. You can have a good job and the security that comes with a steady paycheck, but it won’t often give you financial FREEDOM. For that you often need to step outside the box. It can mean changing a lot of preconceived ideas about money and that is scary
Mind you, so is emigrating. As soon as you actually decide to do this, you are stepping out of the box. You are daring to actually do something which most people only dream of. But most people live life in an “it’s alright for you” kind of daze, if only they had your money / family / background they could do the same. You are not doing that, you are going for it. If you can do that, why not make a change in your financial “box” as well.
Also, for many of us we really need to change the way we think about money. It’s not an evil thing and having it wont turn you from a nice loving, giving person, into a greedy megalomaniac who would sell their own family for a fast buck. Conversely, being poor as church mice, won’t necessarily make you a decent human being either.
Either you are a good person on your own merits or you are not.
Your bank balance doesn’t alter that.
But the tree hugging principle says that if you think only evil greedy people have money, you won’t be able to keep it, because it’s going to make you feel bad. If this applies to you, then please just think about it. Most of the people I’ve met on this journey some of whom are seriously good at this all started in the same boat as we did, flat broke and depressed about it. The only thing that made a difference is that they felt they were worth the effort and did something about it. Their wealth has not made them different people – it’s just made them wealthier people. They have been incredibly generous with their time and in sharing their knowledge.
Avalon’s Money Thread is a series of posts which were originally written in 2007 for an Immigration Forum. They came about by answering questions that forum members asked, about how to cope with the often difficult financial situation they face in New Zealand. They formed the basis of what was eventually to become the book Avalon’s Guide: after another year or so of drinking way too much coffee and finding out way more about taxes, money and investing that any sane person should.
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Avalon’s Money Thread: Am I a Big Spender?
Filed under: Avalon's Money Thread, Cost of living, General Budgeting
So in reality, do you just take out a certain amount of cash and try to make do with it? I try to do that, but almost always something unexpected comes up, such as filling a gas tank or topping up my bus card… Something that you can’t really delay. So can you tell me how do you control yourself?
Firstly you CAN work on a cash only budget and this works well for over spenders. But that is really talking about people who literally spend spend spend. A cash only budget is where you take out a set amount of money each week and that’s IT, is said to help by making people AWARE that they are spending their money. When you use Credit cards, you never see the real money so for many people it helps when they have to count out $20 bills to buy that $400 coat! This can be really helpful in getting over any “consumerism” habits you may have. Moving to New Zealand of itself won’t necessarily turn you into a non-consumer. Learning to spend less money isnt something you get by osmosis from Kiwis – who overspend as much as anyone else.
When you look at what you are spending the money on, ask yourself:
“Do I NEED this or do I WANT this”?
If you WANT it, it needs to wait till you have the spare money or it comes out of sanity allowance. If it’s a NEED, then budget for it. Then when looking at items you are going to buy, look at the PRICE but also look at the VALUE. Ask yourself:
- “Is this thing WORTH what they are asking for it?”
- “Can I buy it cheaper elsewhere” and
- “Would I rather spend that money on something else”.
You would not believe how much money I HAVEN’T spent by asking those questions. Except on coffee which in any universe is worth any amount of money charged as far as I’m concerned especially when a friend and a natter is involved.
How do I control myself???
Well, when we were in debt I woke up and realised just how much the banks were making out of me. And how ill I was getting because I was so worried about how I we were going to pay the bills. Now I don’t remember the last time I couldn’t sleep because I was worried about how to pay a bill. THAT is what keeps me going, and stops me buying stuff I really don’t need, gets the library books back on time and makes me do crazy things like “budget days”. After a while I even got to enjoy it!
Just had another thought about this. I got my Moneysaving expert email today and it’s talking about debt. I know I’ve just mentioned credit cards on here but I just need to say that if you are struggling to cope with money, DONT get a credit card. I use one ONLY because it saves me money to do so, I get cashback rewards and it costs me nothing to do so. I ALWAYS pay off the full balance every month, so I pay NO INTEREST. (This makes my Mortgage cheaper because I have a revolving credit mortgage)
If you cannot do that, using a credit card can be VERY bad for your finances. Interest charges are too high and if you can’t pay the full balance, your debt spirals out of control way too easily.
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Avalon’s Money Thread: How do I start budgeting?
Filed under: Avalon's Money Thread, Banks, Cost of living, General Budgeting
If you need to do this (or want to) then pretty much the first step is to look at what you already do. There are lots of ways of doing this. I always keep accounts anyway and this is by far the best method. I use Quicken, but there’s also MS Money, you could use Excel Spreadsheets, or even old-fashioned paper and pen ( if you still remember how to use them). If you don’t keep accounts now, then consider it because if you are in a tight money spot, it’s worth its weight in dollars. But in any case in order to know what you are spending, you need to list all your outgoings for the last year, or as far back as you can go.
Sit down, grab a cup of coffee and some Tim Tams, probably a calculator and a sharp pencil too, and get to it. You can get the information you need from bank statements, any receipts you have, your past 12 months bills, and pay slips (because you also need to check how much you have coming in). If you keep accounts, all the info is there (or print it off if you use Quicken)
There is actually a good spreadsheet you can put it all in at moneysaving expert:
If you don’t want to use that, list everything under as many headings as you need: things like Mortgage /Rent, Food, Petrol, Cinema, clothes, whatever headings you need. One important thing to be aware of – you need to be ruthlessly honest about how you categorise your spending. If you only have six headings – its not enough. We currently have 60 heading that we use in our budget.
The next step would probably be to “analyse” all the stuff you write down and then look at where and why you spent that money. It’s probably time for a top up on the coffee and some more Tim Tams (I think trying to budget is hard enough without worrying about calories as well). Look for things that are costing you money that don’t need to. Easy ones to start with off the top of my head are: Bank fees (have a friend who was paying $15 a month to take $20 out each time from another bank’s ATM rather than walk an extra 5 minutes to the banks’ own ATM), papers and magazines (I know they are fun but you read ‘em in 10 minutes and that’s it), library fines (again costing a fortune in some cases as opposed to getting books back on time). Doing this can be a bit depressing – the Tim Tams should help with that- but you may just spot a few things.
Look at your bills, and see if you can cut them. Are you on the cheapest electricity supply? Can you get your phone bill cheaper? (I’m just changing to Ihug, which should save me nearly $100 a month!) Are you on the best mobile plan (and if you both have mobiles, are the both Vodaphone or both Telecom because it’s expensive to call from one to the other)? If you are in the UK, use moneysaving expert to check for cheaper suppliers.
Now you have the bones of a budget. Use the headings you have from the first bit of this exercise and look at how much you are overspending. That is, are you spending more than you earn? If you have managed to work out cheaper suppliers for most of your big bills, then what’s left covers your other spending. If you need to cut spending more, then decide on what is important to you and what you can fairly easily not have without as much pain and suffering. I could probably manage going out to eat less, but if someone took my coffee budget away there would be hell to pay. By this point, you should now be getting an actual “budget” or spending plan (in the way that saying a diet is an “eating plan” is supposed to make it easier to eat a lettuce leaf and a carrot instead of chocolate cake). This is the goal to stick to, what you should aim to be spending on average on all your requirements. Changing habits is not easy but apparently it actually only takes 28 days for something to become a habit. .
And for bills: work out your average monthly bills and put that much aside into a savings account each month, so you always have money to cover them (or do this fortnightly if that’s when you get paid as you may do in New Zealand). Make sure there are no fees for your savings account. When a bill comes in, pay it, and move the money from your savings account to your cheque account to cover it.
Next I have to say that I really think the sanity allowance is a must. This is a “Bellism” which gives both of you an allowance each payday. Small but something you can spend on whatever you like, without justifying it to the other person. You want to spend it all on chocolate that’s fine . You each have to have the same amount, one of you cannot get more than the other and until you find your feet, this is where all your treats come from. We can budget for meals out and things like that, but if you can’t, use the sanity allowance for coffees, or cinema. It really up to you to decide what has to come out of that allowance and what you can afford to “Budget” for.
And something about budgets: don’t always think of it terms of “what I can’t afford because I don’t have the budget for it”. Use a budget TO BE ABLE to afford what you want. If you want to be able to go out for a meal once a month then think about what you can do to wangle the money from somewhere. For example: if you are paying bank fees, just think what that could pay for if you worked out how to stop it!
Don’t see the need for a budget as a bad thing because it really isn’t.
I found the first week was the worst, when you start to look at exactly how much money you spend and what on. It’s incredibly daunting at first but please believe me once you start, you may even find it utterly liberating. Its one thing to buy yourself a jumper and then panic because you don’t really know where the money is coming from to pay the credit card bill, but imagine what its like going out to buy a jumper because you KNOW you have the money set aside for it. You may not buy as many jumpers, but the ones you do buy; you are not going to be in a cold sweat over!
Reading through that makes it sound like I think it’s easy but I do know its not. But it’s possible. We have “Budget days” probably every 4 months where we sit down and look at ways to improve what we do (but then I’m a bit daft in the head when it comes to this ) the last day we shaved about $150 off our spending plan
Avalon’s Money Thread is a series of posts which were originally written in 2007 for an Immigration Forum. They came about by answering questions that forum members asked, about how to cope with the often difficult financial situation they face in New Zealand. They formed the basis of what was eventually to become the book Avalon’s Guide: after another year or so of drinking way too much coffee and finding out way more about taxes, money and investing that any sane person should.
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