Money Smart

We are reaching the end of another year again. Some are still worrying about the next month, how to get through the most expensive holiday season of the year in their budget. Some are looking back at the year gone by thinking of what they could have done differently, some are rejoicing for a good year but I don’t think many people are actually thinking or planning for the coming year. That’s 365 days of change and opportunities that’s going to go as fast as this year has and you would be at this same point next year with being no better. Here are some tips on where and how to start:

1. Set some time and place

I am a single person but still have family and friend commitments as well as full time work, property managers and an investment portfolio which requires some time daily. I will take my hat off to people with big families though.

Living in a flatting situation, sometimes I need to get away to concentrate so I keep a writing pad and pen in my car all the time and allocate at least an hour or two a week where I put my phone on silent and drive to a place of quiet and write. I will try to picture where I want to be, where I am today, steps I need to take to get there and the time it would take to get there.

2. Basics

One does not have to wait for New Year to start your resolutions, today you have decided to be your new year so start from today. Start from the basics making a budget using your shopping receipts or card statements to see how much you are spending and where. Have a separate piece of paper ready to write your resolutions on as you are going along. Maybe you are paying too much rent so you can write in your resolutions, Find a 3 bedroom house for rent max 20 mins from work for $500/week by 28^th February, 2017.

3. Holiday season

Next you may want to tackle the white elephant in your calendar, the Christmas/new year holiday season. If you start now, there is a month’s time to organise everything. It’s a time for family so send invites (free online ones) to RSVP who would be coming and decide on a budget accordingly. Instead of buying toys or the latest gadgets which will fade, give practical gifts which will be a long and positive experience. For instance, I usually look into antique and second hand shops and this year I found a brass bangle and an old jewellery box both rusted when I bought them for $10. I soaked them in baking soda and vinegar overnight and it almost looked new with some nice designs on them. I have in the past bought shares/bonds and given them as gifts and for some of my friends it has started them on the financial path. Also start buying groceries now instead of waiting for the last minute maybe ask your guests to bring appetizers or drinks to share around.

Furthermore, make a plan for next year on the basis of this year’s expenditure say $50/week savings per week allocate on your budget under Christmas savings. That will total $2600 for next year’s Christmas.

4. Planning the year

In my past blogs, I have advised on how to plan a fortnightly budget and a fortnightly meal planner. Now let’s look at the bigger picture, where do you want to be in 10years time, Dream a little. Say your dream is to replace the income of $1000/weekly you are earning at present with passive income from rentals. Do your research find properties with good yield %. Say if you buy properties which after expenses paid and on interest only mortgages earn $200/weekly, so you will need to buy 5 properties in 10 years to reach that income once the mortgage is paid in full. That means you need to buy 1 property every 2 years to reach your goal. If that property costs $150,000 on 40% deposit you need to save $60,000/2 years or $30,000 per year or $577 weekly to reach that goal. Play with the numbers to decide on your goals, the above are just examples. If your savings are not up to par, increase the time frame or find ways to increase your income.

Plan your year in the same way for holidays, buying a car or any other big purchases or paying off any personal debt.

5. Learning a new skill

Learning a new skill or studying further could help save money or get a pay rise. For instance, learning how to do regular maintenance on your car will save on garage costs.

Sample 2017 resolutions

1. June end: Pay off $10,000 personal loan by paying $1000/fortnight.
2. December end: Save $1000/fortnight for total $13,000.

 

Writing down resolutions or goals for the coming year can be very powerful, especially if it’s put somewhere where you will see it every day. It reminds and keeps you on track. So get out pen and paper and start writing and planning.

After our rents or mortgages, groceries are usually our biggest spend on our weekly budgets. Somehow we always end up spending more than we budgeted for, right. I usually spend $100 max fortnightly and most of the times its actually less. Here are some tips:

1. Make a Meal Planner

Take a piece of paper or better a whiteboard from a $2 shop and make the following table:

Monday Breakfast Porridge   Lunch Chicken stirfry and rice   Dinner Chicken curry on rice   Snacks Yogurt Mixed nuts Protein drink

In stock oats       chicken breast     Chicken legs Curry powder

Shopping Milk       Mixed veges Rice

Now go in your pantry and see what ingredients you already have, fill in the stock section and then using those ingredients try to make a weekly or fortnightly meal plan. If there are any ingredients missing than put them in the shopping section. Try to use all the tinned and dried ingredients before buying any new ones for instance one week could be Indian week and you can use up all your curry powder, than next week could be Chinese week which means buying soy sauce, etc.

2. Buy in bulk

I love my meat but they are expensive so I buy in bulk whenever I could. Pak n save, Countdown, New World and Mad Butcher is usually where I do my shopping so whenever they have specials on meat I buy in bulk and freeze it. Also keep an eye out for mid-week specials when the meat is supposed to expire in a few days and price is slashed to get rid of. Rice, flour, dried and tinned beans, milk powder, cleaning products and sugar are just a few things that could also be bought in bulk and stored safely when on special.

3. Home/budget brands

I have found no difference in cooking or taste with Home brands or budget brand products. They are usually cheaper because extra money has not been spent on advertising and packaging.

4. Substitution

Can also substitute ingredients for instance when I sometimes make a lamb curry I put less lamb and more chickpeas in it. Its fills me up for less meat used but I still get all my nutrients.

5. Frozen/Tinned

Instead of buying fresh vegetables, buy frozen. They stay for longer, are already cut up, have been frozen when they were at their best so more nutrients possibly and does work out cheaper. For instance if today I went shopping at Countdown, McCain Stirfry supreme 1Kg will cost me $4 and will last me around 3-4days so for a fortnight I will buy 3 packets costing me $12. Now if we buy the same fresh ingredients at Countdown:

Beans 500g/$5, carrots 2k/$5, broccoli 4 for $6, cauliflower 3 for $9, baby corn tinned $8 for 4, pineapple 2 for $7, capsicum 6 for $15 which will equal to $55 but most of these products are on special and in season and I did get some leftovers. I did frozen for one fortnight and fresh the following fortnight so try yourself and see how it goes.

Tinned beans and lentils are great in price $1 a tin and less when on specials. They are already tender and cuts cooking time by half but still has all the nutrients. Chopped tinned tomatoes are especially great, just pour in the soups and curries.

6. Save the excess money

Every fortnight when I get my pay, I takeout $100 cash on my day off. First I sit down and make a planner as above, than I look online for specials or on the mailers, usually takes me about 30 mins max. If meat is on special, I plan on buying the small items first and buy meat for maybe 1-2months depending on cash available. Any cash leftover, I put in a tin marked groceries. So if I say last fortnight bought meat lamb 4kg at $10/kg and chicken 2kg chicken legs at $5/kg and breast 2kg at $10/kg and the rest on tinned goods and frozen vegetables which should last me a month at least. This fortnight I will buy 5kg rice $8, Flour 5kg $6, washing powder $12 for 5kg (the warehouse lasts me for nearly 6 months), Tinned stuff and some cosmetics which should last me a few months. That means I will be able to save most of my grocery budget in my 3^rd fortnight onwards as most of the basics have been bought for months except meat and vegetables.

This way one day when Easter or Christmas rolls up, you will look in the grocery money box and find all those extra dollars have amounted to enough to buy the extra groceries for a holiday dinner with family and friends.

 I have managed to slash my grocery to an average of $60 fortnightly over the last 3 months and have around $250 sitting in my grocery tin which I will use for a small dinner party for my coming birthday and of course Christmas. Maybe have enough for a few presents even. So take the challenge and tell me how much you have slashed your budget over the coming months.

A special thanks to Heather, Mel and Hope for their youthful insight.

Firstly, thanks for all your messages and questions.  Today I would like to answer questions from a much younger audience. I must say I was pleasantly surprised to find a question from a 19 year old as well as a lot of questions from adults in their early 20s. It was great to find young people are worried about their financial health so early on in their lives. Most of them had similar questions though and it got me thinking what financial decisions I would made differently at that same age.

1. Get a job

In my opinion, having a part time job as early as possible in life is good because you basically have no living costs to worry about as you are still living at home and every little bit helps. I started on my grandfather’s farm working a few hours after school and sometimes on weekends and holidays to earn a few extra dollars. Later progressed to working data entries as a teenager in an office and earning $1/hr. So working for a family business, babysitting, cleaning, etc. are good start up jobs. Maybe putting out flyers in your area highlighting jobs you are comfortable doing and hourly rate charge.

2. Setting up an account

I never had a bank account until I entered university and I wish I had. I literally hid money in my sock draw so it was always in reach for me to spend on things I saw my friends had like branded clothes, shoes, etc. If I had a bank account back than (before atms), I would have been saving $40/weekly, $2080 a year and let’s say from age 13 to 18 would have given me $12,480. At that time it was enough to put a deposit on a house in my country. I would have had more prestige with my friends if I had a house at 18 rather than branded clothes.

3. Cutting costs

No matter how much you earn, if you spend most or all of it you will still save nothing. First step always to cut costs: clothes do not need to be branded and wearing a new outfit is not necessary every day. Homemade meals are best, learning to look after your things like simple maintenance on car there are so many ways. Life should be comfortable but not to the point where flashy defines comfort. I have a friend Linda whose salary is nearly twice as much as I do and yet to this day she struggles to save money for a deposit for a house because of her expenses.

4. Enrolling in an investment course

My first advice came from my grandfather, very basic about saving, buying a house and land and living happily forever. Later out of necessity in my first year of uni trying to balance my expenses with my income, I took a free seminar at the university student centre to make a budget. That got me on the financial track and firstly I read books than later looked up advice on the internet. I made mistakes but learned from it. I was working two jobs and a full time study and any money I was saving was being invested in a fund. I wish instead I had enrolled in an investment course, would have saved me a lot of time and money and less struggle. This year finally at the age of 31, I enrolled in an investment course and learnt so much and also kicked myself for taking so long to do so.

5. Investing early

If I had done no 4, I would have known that saving does not get you ahead, investing does. I would have invested my money earlier meaning I would have had more than what I have today. Hell, I might have even be able to retire by now.

5. Never getting a credit card

First day of University, there were lots of booths with lots of offers from free credit cards to interest free laptops. There is always a catch and paying cash on an item means one can negotiate a good deal. At 19, I did not understand so I got the credit card and well used it in a week and then was paying it off for 6 months. Save for what you want if you don’t own a credit card and if you have one, pay it off quickly and cancel. If you buy online get a debit card.

6. Loans to friends

I call it the success guilt, the need to give money to friends as loans and never ask for it or let it slide. Hey, I am the lucky one, I have a house, good job, etc, and surely I can lend some money to my less successful friend. Don’t be heartless, bad things happen and a good friend should be there for the in need person. But giving money so they can update their car, house or go on a vacation or anything that they don’t need right now and can save for is bad. You have worked hard for it, you don’t want to work hard further to get that money back.

In conclusion, there are a lot of things I could tell my younger self but the big question is whether I would have listened than. When I was young, peer pressure got to me, so I did spend money on things to keep up with friends. In my opinion, it’s a personal choice to be financially stable and from the time you start full time doing that it will on average will take you 10years regardless of one’s income. Its individual choice whether that journey starts at 16 years old or 30.

Fix or float and for how long? A question many property owners ask themselves quite a few times. At present, I am asking myself the same question because by some stroke of good design ( pat on the back) all my 3 mortgage fixed terms are now finished and I am looking at re fixing them.

One option is to put them with different banks to split the risk but also to take advantage of any offers of fringe benefits such as overseas trips, cash back, fly buys or a TV. The downside is the lawyer fees when changing the mortgagee bank on paper,  plus for some keeping up with 3 different banks may be too much.

On the other hand, I can offer all 3 mortgages as one to different banks and get them to offer me competitive interest rates and any other deals to get it.

The next dilemma would be on how long to refix the mortgages for, too long and I may not be able to access the equity when I need to buy another property, too short and I may have to refix at a higher rate next time.

A good idea would be to split a big mortgage into smaller chunks say for example a $175k mortgage with ASB can be split into 3 mortgages of $25k for 1year @4.69%, $50K for 2 years @4.79%  and $100k for 4years @ 5.29%. Than if after one year if interest rates rise to their former average of 7% at least the majority of your mortgage would still be on a better rate. Moreover some banks allow a lump sum payment every year without charging extra repayment fees such as BNZ which allows up to 5% every year. So on a $175K mortgage that’s $8750 extra payment every year.

But for myself, I do it a little bit differently. I look at what my plans are for the coming few years and base my mortgage terms on that. For instance, my smallest mortgage left is around $15K (Yippee!). It is absolutely doable to pay off this amount from rent and income in a year but in the coming year there is a wedding in the family planned (not mine!) plus I want to get rid of some personal loan debt that I initially took for repairs on my investment properties (interest is tax deductible) as well as due to new laws some insulation work required on the properties. So the smallest mortgage would have to be on a 2 year fixed term, next one, around $80K for 3years and the biggest one for 4 years.

If you have a different system please do share your ideas……..