Archive for August, 2007

We’re a fraction of the way there

Well we now have $2500 in the bank towards our home deposit! That is one-sixth of the way towards our initial aim of saving $15,000. We had planned to put that down as a 5% deposit on a home, and use the $7000 first home owners grant towards fees. However, the subprime market problems over there in the US are affecting the share market here, which has resulted in the first of what is predicted to be several interest rate rises. So we have been thinking that we should really have $30,000 saved, to reduce the amount we have to borrow so that an interest rate rise has less of an effect on us.

However we are in two minds about the whole thing, especially given the way the housing market continues to rise. So we are not thinking about it too much …. just plugging away at the credit card debt and saving each week.

The best part of being one-sixth of the way there is that in two weeks’ time, we’ll be more than one-fifth of the way there ($3000 saved). See how I continue to find ways to make myself feel good about this!

I have to admit, I have never had $2500 in cash in the bank before … though it doesn’t really count yet because we still have the credit card debt, which is currently higher than our cash supply. However, in  a couple of weeks’ time when the government rebates arrive (just in time for the election – funny that!) we will be credit card debt free!!!!

US? CREDIT CARD DEBT FREE?

Depending on how much we receive, it might push our emergency fund up to $1000 too.

Isn’t it amazing how things can go uphill and downhill at the drop of a hat.

Meanwhile, I also had a good talk about business and personal finance with one of the general practice (family practice) doctors that has been teaching me. He told me about the income I could expect as a GP and how I could expect to be able to work flexibly for a good salary (any salary looks good to me at this point!). Seriously though, I was very happy with the expected income, but more so he impressed me because he talked to me about a lot of the same stuff that we talk about here in the blogosphere.

He told me how he is working extra hours and trying to sink his earnings into shares etc while he is younger and without a family yet. He talked to me about having concrete goals, and one of his was to have a passive income of $100,000 a year by the time he was 40. He said he wasn’t on track to achieve that yet but that he was going to be a hell of a lot closer to it for trying. In his words, I think he said “oh boo hoo if I’m 44 before it happens”. He wants that so he can continue to do his job for the love of it, but also be able to survive comfortably without an income if it’s ever necessary. And he wants to be able to spend time with his kids (when they arrive). So though at first glance he may appear a little money-focused, he is actually looking for the same thing as other people – security and stability for the future.

He really inspired me to continue my debt reduction efforts and buy a home, then work hard towards getting some money in an investment fund . As he was saying, the value of compound interest (when working for you, not against you) can not be under-estimated!!!

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Bumps in the road

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While things are running pretty smoothly in the PF stakes for us at the moment, our debt repayment/savings schedule certainly isn’t perfect. And it’s time to readjust our budget to figure out why.

Basically I have noticed over the past month that we have been spending, saving and/or repaying more than we earn. How has that happened, I hear you ask? Well, you may remember that about a month ago we received a tax return cheque of about $800 for my husband. We decided to put that aside because his clothes were particularly poorly, and he needed to start looking a little more professional. I just left it in our general account, and watched that we didn’t eat into it too much. Then we got an extra $300 back when the govt sent us a cheque due to a late rebate. So I used that to put a little extra into savings but we should have had at least $800 left for clothes. Well that was the plan anyway.

Meanwhile,  this week we had a bit of added expense. A good (older) friend passed away, and though we couldn’t make it to the funeral for a range of reasons, we sent flowers. With delivery to the church in another town, these came to $72. Also, my son’s kindergarten photos were ready … and available at the highway robbery price of $34. However, some of the funds are going back to the kindy so I can accept it.  Finally, we have had some very high mobile phone charges stemming from hubby’s job. Only some of this will be reimbursed by his work.  

So anyway, this Saturday we spent $415 (Australian dollars, obviously) on some good clothes for my husband’s forthcoming conference. Sounds like a lot, I know, but this included a jacket that I think is very versatile and a good investment. I would have like to spend a bit more, to be honest, to get him a good pair of Colorado sandals (he wears them into the ground) and a couple more pairs of shorts. However, we didn’t and that was a good move.

We paid with the credit card and in the car I thought that when I got home I’d pay the money straight over from our savings account. I also knew I’d have to add about $100 on to pay for the flowers we sent and a couple of other little items we’d charged.

When I got home and logged on, I found I could easily cover the $515, but the other money left was only the money we SHOULD have had left from this normal pay week. In other words, we’ve over spent more than $250 (the remainder of the $800) over about 4 weeks.

I think I know how this happened … little extras here and there that we wouldn’t normally buy or do. And luckily it hasn’t mattered too much because I was determined not to misappropriate hubby’s tax return for savings or debt. I did want it to be fun money.

However, I can’t help but think we culd have had a little more fun on this $250 _ perhaps this little experiment into not planning what to do with our money was a mistake!

Anyway, I’ll adjust our budget a bit but otherwise, it’s time to tighten our belts! 

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The PF blogosphere

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Being Frugal has replied to a question I posted about why she was planning to move her blog to her own domain. Because I am really too busy to even be doing a blog at all, I haven’t mastered the art of linking yet (and don’t really plan to start in the near future), so if you’d like to check this out, just click on the Being Frugal link in the Blogroll. If you haven’t checked out this blog already, it’s a fun read and well worth a look. And the post was very helpful!

On another point, Get Rich Slowly featured a guest post from a woman who discussed how her husband came to the relationship with about the same amount of debt as she had in savings. She decided not to pay  it off for him though, fearing that if it just got paid off, he’d never really realise why it was an issue to be high in debt. He made massive inroads though, and when they did marry, she started helping him pay it back. It got me thinking about us. Luckily, we both have the ability to give and take, and though I am much more focused on debt reduction, my husband doesn’t mind going with the flow. He is happy not to spend up, as long as he can go fishing occasionally (though this does end up being a bit pricey sometimes, I grin and bare it because it’s his only passion and he deserves to have some fun occasionally).

Also, because I hold the pursestrings (so to speak), I fully realise that I am able to `budget in’ a haircut and colour at the salon whenever I want, while he kind of has to `ask me’ if we can afford for him to have a day out on the water (though neither of us sees it as me giving him permission).  

It’s great if you can find a balance in your relationship. My husband has also come to realise that bad debt is a pain in the ass, and well worth getting rid of for good. He is enjoying us having a couple of grand in the bank for a change. I think he could get used to the idea! When our TV problem got even worse recently, it was him who suggested we should ride it out as we could not afford to buy a new one. A year ago we would have `afforded it’ with $20 in the bank and our credit card handy. Now he says we can’t afford it with $2000 in the bank … isn’t that great? 

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Chugging along …

Pay day again, and a little more off the credit card ($110), plus another $200 towards home saving. But silly me forgot to put my payslip in on time at my casual job this week, so we can’t pay our usual $100 off family debt or pay $100 down on my car loan (like we normally would). Both will have to wait till next week.

In the meantime, we have been investigating kit home options ourselves. Though we are probably 18 months away from buying, it’s fun to look at prices for kitchens and bathrooms now. It helps keep us sane living here because we can imagine our `brighter future’.

Looks like we could save between 20 and 40% on the price of a home by building ourselves. We are tossing up between building a home `for now’ or `for the long term’, which I guess is a common decision when anybody buys a house.

My husband is excited about the prospect of project managing such a build, and since he manages a lot of large projects quite regularly in his work, I think he would be very good at it. However, we would have to be super-organised, and he would have to take a couple of months off work to achieve it! Luckily he accrues holiday time very quickly and having a couple of months off on paid leave is probably quite possible.

Ah, the future looks bright, if a long way off!

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The value of life and death

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Recently I have experienced the twin poles of life a little more than I’d have liked. These are: the value of having a great life and the value of having a great death.

Case in point: Being at the hospital every day, I manage to look professional, though I look a little `rough around the edges’, even if I do say so myself. My clothes are appropriate but perhaps don’t fit too great or aren’t very good quality. That’s especially obvious when one compares themselves to the doctors, who are often very well dressed. Interestingly, it’s the male doctors who tend to wear flashier clothes. I guess that’s because they can look dressed up in an expensive suit, while the girls tend to have to wear flat shoes (nothing kills your feet on a long ward round than heels – plus when you have short legs like me, you’ll have no chance of keeping up!).

Anyway, sometimes it makes me think. I can look at this guy (or girl) and she looks smart and professional. It almost osmotically transfers into my mind that because they are well groomed (read: well dressed) they must also pay a lot of attention to their job. In practice, it’s rarely true. Most of the doctors I encounter are good at their jobs, yet they can be quite variable in the way they dress (NB: We don’t wear white coats in our hospitals so there’s no hiding out under a coat).

Basically, when I look at the well dressed ones I don’ t think, `gee, he’s probably got a lot of debt’. You’re going to say, `that’s because he’s a doctor and gets payed squillions’. But in reality I’m talking about the junior doctors, who often earn around the same as the average government employee. Even though they are probably high in debt, nobody else knows. So is that a good or a bad thing? Nobody’s going to know. Even if I die, my family wouldn’t spread it around: `Oh my god she owed three Gs on her credit card!’. So the only argument is that it matters to me, that reducing debt is about my financial freedom and the way I feel about me.

I talk to some of my fellow students who tell me how they plan to get a loan for their first Audi in their first year out of uni. While they will still be young and single, I can see bad financial habits that will develop from the start. Remember, these students are 6 years late in entering the workforce compared to the friends they went to school with, and owe a mountain of student debt to the government. It’s just interesting to see people `living the high life’, even before they really have it. And its interesting to me to admit that my own attitudes to money may affect how I see another person. It’s not right but it’s true.

By comparison, I have also met a lot of patients who have, unfortunately, passed away recently. This can be traumatic or a blessing for the patient, family and staff. However, what interests me about this is that (in general) when you are lying there in that hospital bed, in your last days, nobody around you is focused on how much money you have. Nobody sees that as the most important thing about you. All of that is really beside the point, and it’s the people who care about you that matter. Yes, you may have been a great dresser, but now it’s your family who come to see you and their decision about whether whether you look `good or not’ is based on the colour in your face and your smile, not your clothes. I’m not trying to be soppy, just trying to share my current perspective.

Reduce debt and build wealth for your own peace of mind and to provide for your family, but don’t let money own you, whether because you need it or because you’re never able to decide you’ve got enough. In your final hours, I doubt it will be the first thing you or your loved ones think about.

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What my parents taught me about money

Following on from yesterday’s post about how my parents bought a home, I thought I’d share some of the attitudes to money that have shaped me and the financial position I am in today.

Basically, both of my parents are pretty cautious people. That is to say: they don’t smoke, they drink socially but never have alcohol in the house and we kids always had a stable home. As I said yesterday, my dad wasn’t a big earner when I was a kid, but they found ways to ensure they bought their own home and gave us pretty much anything we needed.

Note that above I said `needed’. We kids had heaps of toys and `stuff’ (more than we needed) but probably not heaps when you compared it to friends of ours. We didn’t have a pool or a computer, or a lot of dolls. I’m not complaining now and I didn’t then. If I wanted to play with any of those things, I just went to my friends’ homes. At the same time, my parents would buy me special things now and again, often for no specific reason. While birthday gifts were nice, they weren’t overly expensive. But, as an example, they made sure I went to see the World Expo in our capital city. I flew down as a lone child passenger and stayed with extended family. Another example was that when I was about 17, Michael Jackson came to Australia and my parents bought me gold seats and paid for my air ticket to see his concert … just out of the blue because they knew I was such a big fan. So you can see, I was hardly deprived. And remember, my parents had been separated for more than a decade when this occurred!

Part of the reason they could do stuff like this was that they actually maintained low credit levels, and didn’t splash out very often. At first, when they were in their 20s, it was because they had to (at mortgage rates of 16%, everybody had to). But over time, this didn’t change. They bought older cars, and usually with cash. My dad had a credit card limit of $500 until he got it raised this year! (By comparison, note how much owe!)

Mum is a little looser with cash and credit, in that she will trust her instinct on things. For example, she bought a duplex at a good time, and has made improvements to it slowly. She views that as her superannuation (as well as the compulsory retirement savings system we have her in Australia). She has also done things to improve our lives through her investments. For exmaple, she let my husband and I live in one side of the duplex for a very low rent for several years. She always sees investments as things that needs to meet the needs of her family now and in the future.

Mostly, my parents taught me I could do whatever I wanted and achieve whatever I wanted … but it was always up to me. They never said that, but there wasn’t a lot of spare cash around. So at 15 I started working in a restaurant 3-4 nights a week while at school. They taught me to work hard, that people weren’t paying me to be lazy (not that they even had to say that, I just knew it from the way they raised me).

In my final year of high school we were offered the chance to go to the USA for 3.5 weeks, partly for an exchange (two weeks with a family) and to see the sites of LA. I signed up and `paid off’ my trip in instalments. However, when I made a bad purchase in Tijuana at the start of my trip (a leather jacket I’ve never worn in sunny Australia!), mum wired me some more cash and without giving me the slightest hard time about it. In a way, while it would have been easier to have parents who could just pay for the trip, it meant more to me because I financed it and achieved it for myself. Meanwhile I was also paying for my school lunches and buying most other things I needed, such as clothes.

I didn’t have my finances all figured out though. When it came to car buying, I found a great car for $4000. The problem was that I didn’t think ahead to save for a car, did I? Luckily, dad was enthusiastic. He lent me the $4000 and I paid him back at the rate of $50 a week, then $100 a week when I finished school. I was responsible for putting the cash in his account myself. I fell of the wagon for a while and wasn’t paying. Eventually he got angry with me about it, so I made sure I paid him off quickly and in full. Thanks to dad, my first really big purchase was interest-free. 

When I got my own credit card (after purchasing a stereo that I paid off interest-free in the first few months), my parents were concerned. That was only because they didn’t trust my boyfriend at the time not to encourage me to spend up on it. In the end they were half right (he liked to spend, but so did I).

Over time my credit card limit has slowly increased, but I don’t think I was totally irresponsible. I never saw a need to have more than one card. I always paid more than the minimum balance. And I was never tempted by store cards.

But I have always been a person who carries a balance on her card. As I’ve said in a previous post, I actually successfully cleared my credit card down to under $500 (from abut $3000) once before, but suddenly had a brain explosion and spent up big-time on a holiday. I think it was a reaction to excessive frugality that went beyond healthy debt reduction. However, I wish I’d thought about it a lot more before I went ahead with it. I have found that saving and paying off debt works better for me than putting every dollar into debt reduction because I always feel poor. It probably doesn’t make sense to others, but this is the first time I have felt on top of my debt reduction efforts.

Basically, my parents are cautious, and they’ve taught me to be a little bit cautious too. Here are probably the biggest tips I’ve gained from them:

1) Generally, don’t let other people drive your car unless you can afford to lose it (they didn’t even let me drive theirs!). This was probably more relevant when I was a teenager, but I always think twice before I let someone drive my car.

2) You can’t afford a car if you can’t insure it (ditto for other major assets).

3) Credit is okay but don’t let it get on top of you (this part I wasn’t really listening to before, however this attitude might have stopped me from getting further into debt than I already am!).

My parents are great, and I’m glad I learnt what I have from them.

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Can’t afford to buy a home? Think again …

I thought, since I haven’t posted anything substantial in a while, I would share some of the ways my family taught me to think creatively to get what you need in a home. This may be less relevant to home buyers in the States, where I hear house prices have fallen and perhaps those trying to get into the market are in a relatively better position. Over here in Oz, house prices are climbing almost out of reach of first-home buyers, and it has made me think of ways to figure out how we will afford our first home.

My parents are not wealthy, though they have always been creative about making ends meet and willing to take a risk where necessary. My parents aren’t together anymore, but they remain good friends. This extends to the point where Dad drives around the car mum owns because she has a much nicer work vehicle. This is pretty amazing when you consider they have been separated since I was about 6.  Though they aren’t in love, they are still good friends (which is great for us kids!).

Anyway, even thought they were lower working class, mum and dad managed to buy their own home. They did this initially by buying on the outer suburbs of town (a common way of getting into the market, I guess). They bought land first, and paid off a chunk of it before extending the loan to build their home. This was at a time when my dad was earning very little and interest rates were at 17%. I think the basis for doing this was this: though they had to pay off the land AND pay rent, it was worth it to prove to the bank they were responsible enough to pay off a larger loan. At this time, you had to wear a shirt and tie and plead with the bank manager to give you a loan (not like now!).

After a time, my grandmother moved in with my parents because she had a back injury and needed some short-term support. I guess this helped cover expenses to some degree and I think they must have gotten on pretty well because after about 5 years at that house (and maybe two with Nana living there), mum and dad moved closer into town and built a new home.

Again they involved the family to make things meet. They bought from a kit home company, but managed to individualise the plan so that the home was essentially like two units (with a wall in the centre and identical facilities on each side). Nana lived in one side (two bedrooms) and we lived in the other (three bedrooms). There was also a large granny flat out the back, which was for my mum’s uncle (he paid for its construction). So essentially my parents managed to buy a nice three-bedrooom `house’ with a little help from their extended family.

Needless to say, having a lot of elderly adults in the family would have been stressful for my parents at times. However, there were also huge advantages. Nana cooked our dinner most nights, which obviously allowed mum to work part-time. Also, Nana and my great uncle put in for the food and utilities, which saved them a fair bit in expenses. Also, we kids had easy access to our grandmother (which we loved!) and my parents had built-in childcare. This meant they were able to go out at night whenever they wanted.

Eventually, the family structure started to change, and the house was altered to suit this. My great uncle passed away, and he left his part of the home to my parents (he had no children). Mum and dad had also separated by this time, so mum bought dad out. Also, as my grandmother got older, she realised her needs had changed.  Mum bought out Nana for a fair sum and this gave nana some `free cash’ – something she’d never had, as she became a widowed pensioner with two children at the age of 35.  This free cash was also going to allow Nana to leave a cash inheritance for both daughters, and pay for her own funeral (don’t ask – she’s focused on these kinds of things!). Mum `opened up’ the home by knocking down the central wall and did a few renovations so that my grandmother could keep her large room and gain an ensuite. This made it easier to care for my grandmother in her old age, and it suited her because she no longer needed or wanted so much space.

Though it took a few extra dollars along the way, Mum now owns a 5-bedroom house with 2 bathrooms and an apartment out the back – this would have been unthinkable when she started all those years ago. Having the equity in this house also allowed her to buy a duplex a few years ago before the boom, and it is now worth triple what she paid for it then. Being able to think laterally – and tolerate her relatives – paid off, so that she is perhaps in a better financial position than many of her friends who made more money along the way.

By the way, though it might sound cheap to buy a `kit home’, my mum has great taste and everyone who enters comments on the house’s high ceilings and open-plan layout (one time my brother was having an epileptic seizure and the paramedics were momentarily focused more on the home than on him!). Mum is about to put her home on the market and it’s likely she will get a higher price than most homes nearby because it is so unique.  Apart from the fact it was well designed and constructed, the fact it is a little different to the average house seems to be part of the appeal.

I guess I’m not advocating any particular plan to achieve home ownership. I’m just saying it doesn’t hurt to `think outside the box’ occasionally when trying to figure out how you can achieve it.

Tomorrow I plan to talk a little about how my parents’ attitude to money affected my own choices in money management (for the good and bad elements!).

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