Archive for October, 2007

How much do I really need in my EF?

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I’ve been reading a lot about emergency funds on random PF blogs lately, and the common theme seems to be the need to have a reasonable amount in your EF to avoid falling into trouble. While I never originally planned to fund an emergency fund at all until my debts were paid off, that has changed since I began this blog.
I’ve managed to assemble a $1000 fund, which I have no intention of dipping into.
That’s despite the fact I really need new tyres on my car and there’s not quite enough amassed in my billpaying account to pay for them.
However, in the past few weeks I’ve become quite focused on getting a bigger EF set up.
This has partly been because I’ve been following the struggles that JW has been going through over at Need to Be Debt Free (link via the Blogroll if you haven’t checked out
this great blog).
Poor JW has experienced an almost unbelievable number of adversities in the past few months but is still afloat (in fact, a darned sight more so than he would have been if not
for this debt repayment journey).
I continue to take my hat off to JW as he weathers this storm.
Anyway, it made me think that $1000 wouldn’t really make enough of a difference if I found myself in a similar situation, with a similar set of problems.

And since my next goal is home ownership, it’s fair to say that I need some extra cash
lying around _ above and beyond any home deposit _ to avoid the chance of having some big drama derail our mortgage repayments (which are likely to be hefty!) when and if we start making them. We really probably need to fund an EF to the tune of at least $3000-5000 to ward off any immediate dramas once we eventually do buy. This is especially true since we want to have a baby in the next few years too!
The idea of putting more towards an EF at this time pains me (and I doubt we will even
contemplate it until we have paid off our car) but I am starting to see how easy it would be to end up back in credit card debt if just one thing went wrong. As an alternative to saving the funds directly to boost our EF there are a few other options, neither of which are helpful in the short term:

1) Hope for the best and wait for those annual lump sums to come around again. This is not really a short-term option as we willl not be due for any payments now until after July 2008. This is fine if nothing happens in the meantime.

2) The other, perhaps even longer term option, is to save a larger deposit overall before buying a home and use part of the $7000 first home owners grant (FHOG) to boost the EF up to $5000. That would still leave $3000 from the grant for buying- and loan-related fees. Since my major concern is how we would cope with a crisis once we have to make
mortgage payments, this is probably the better option for us.

It’s interesting to me that as I become closer to being debt-free (well, free of `bad’ debt anyway), my goals and my focus have changed. Though I should be celebrating the approach of our last debt being paid off (early next year), instead I am thinking where the money will go next. It certainly won’t suddenly be available for pedicures and high fashion, though I might adjust my budget to allow for these as once-in-a-blue-moon treats! It sure proves that once you are focused on it, money management is a lifetime goal.

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Dreaming of an easy-buy Christmas

So I have been thinking about Christmas, because my son’s birthday is coming up at the end of November, and this makes me think about what we will get him at Christmas vs his birthday.

At least I have a present in mind for his birthday – it’s a little vehicle dashboard, with a rolling display of the road, steering wheel, gears and all the appropriate bells and whistles. Best of all, it’s only $24.95 (I found this out after I decided to buy it as his major gift – I thought it would be more). I don’t really buy into the need to pay more than that though. I know he’ll love it and I’ll probably wrap up a few little extras like a bubble wand and a hand puppet, to have a couple of extras on hand to unwrap. But he’s only 2 years old and he’ll get a truckload of things from my family, so he certainly won’t go without.

My father-in-law likes to halve his gift of $50 so that some goes in an investment and half goes towards a gift. However, we haven’t figured out the best way to put money away for our children yet, so we are just putting money like this in a high-interest savings account for now.

My exams finish on my son’s birthday so I will be a lot less stressed and we will have a lovely afternoon sitting under the trees and enjoying each other’s company. I might even decorate a sponge cake if I get time.

As for Christmas, I’m not sure what we will buy my son, but I do have the budget planned. We run a bill-paying account through the year. Each week we put a certain amount away, based on our calculated spend in a range of areas (medical, Christmas, insurance, utilities, registrations etc). Each year I allocate $1000 from the billpaying account for presents, food, postage etc. This is a little more than we end up spending, but as I’m the only child from my family who contributes to the expenses my mum incurs to hold Christmas each year, it’s nice to have a cushion. There is also the fact that New Year runs close behind, and this usually means buying snack food, champagne etc. This all comes out of the same money.

We usually spend $20 on each of the children in the extended family (8), buy a nice bottle of wine for hubby’s brother-in-law and his wife ($40), and swap a Secret Santa gift with the adults on the other side of the family. Of course, we usually buy something nice for each other too, and since we are usually pretty good with our budgets throughout the year, we have a pretty generous maximum amount we’re allowed to spend on each other.

Anyway, I always find it so much easier leading into Christmas knowing we will have the cash available by the time it rolls around, and it means that – even though at times I’ve managed to rack up credit card debt, when the January credit card statement rolls around each year, I’ve never had to shreik in horror because of over-spending on Christmas.

PS: If $1000 (Australian) sounds expensive (it did to me!) and you have never added up all the little costs of Christmas (including gift wrap, cards, groceries, work Secret santa gifts, Christmas functions, stocking fillers etc), spend a few minutes thinking about what you are likely to spend this year. It might surprise you …

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We could be doing so much better

I have to say that I’ve been trying to keep track of my little `day to day spending’ and I’ve figured out that it’s terrible!

I realised I was spending $9-$12 a day on `stuff’ – thats $80 or so a week! I don’t have that kind of  money to throw around!

I was buying:

– lunch and a drink at the hosital: OK so food is necessary but usually I have a leftover meal sitting at home when I do this. At the very least I could buy the drink only at $2.50.

– a pack of mints or fruit lollies – nearly $2 more

– a gossip magazine: this is usually when I am in a procrastinating space – this is bad for my study habits and my budget

– alcohol: again, not good for study. This is usually a weekend thing only but with all the rugby league and AFL football finals in the past month, alcohol has made a dent in our budget. Luckily this has cut down to zero for the next month or two.

I know there’s a bunch of other things and while I recognise everybody needs some fun money, I could be using that to get my hair done or buy some new clothes. I am going to make an effort to switch to leftovers, cut out my sweet tooth and avoid a beer (or wine) belly until December! Bring on Christmas!

 On another note, you’ll be glad to hear that we have commenced work on my father-in-law’s garden. My hubby spent the past two weekends and a few rostered days off to prep the garden for the landscaping. He also did the big biannual mulching, replanting, weeding and cropping effort. Already the garden is looking so much better, and hubby’s dad is already very pleased. It will be great when we are done and I am able to take off the `qualifying statement’ that I have left on the family debt label (on the right).

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Planning our future

I’ve had a slow week as far as posting goes, though that’s partly because my exams are nearing. I have been thinking a little bit about the future – specifically when and if we might have another baby.

I know that I want to have no personal debt before we have another child, and ideally I’d like to be paying off a home by then.

But the reality is, to have a baby I’d need a significant slice of time off work … and that does not fit with paying off a home.

I won’t even start earning a full-time wage until about 14 months time, and then if I fall pregnant, we’ll be without one again for at least 6 months (preferably a year).

I was further concerned that even if I did work for a year and then have a baby – meaning I would normally be entitled to 12 weeks’ paid maternity leave – under the terms of the junior doctor employment contract in my area, I wouldn’t be eligible for the maternity payments because they employ juniors on a one-year contract.

However, I’ve since found out that this doesn’t matter and I WOULD be eligible for paid maternity leave after my first year of work, so perhaps it is worth waiting a bit longer before having a baby (this would mean I couldn’t fall pregnant until early 2009, instead of early 2008).

This could mean a potential difference of about $12,000 (gross wages), and it would obviously make it much easier to maintain mortgage payments. I may also be allowed to take half-pay, extending the period of paid leave to 6 months, plus any accrued holiday pay can be tacked on to this period of leave too.

However, we had planned to have our second and probably our final child sooner rather than later, and I don’t think my husband will be keen to wait too long.

Anyway, this is great news … my hubby and I will have to have a chat about our future plans and see how we think things will pan out.   

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Busy, busy, busy

I am really chasing my tail this week, hence the reduced frequency of posts!

A few quick updates though: Have not achieved the $430 a week car payment this week for a few reasons:

– I’m not being paid this week because of the night off work I had because my friend came to stay (in addition to the $400 blowout while she was here!).

– My husband is up for a regional award and we are going to the presentation cocktail party (how can we not?). We will be sitting with the mayor and several other dignitaries. But … it will cost us $135 for my ticket. However, there is one plus: it’s not a black tie function, so we don’t need to hire a suit for him.

So we are just going to pay $150 (still more than double the minimum weekly payment).

In other news, I am studying hard and will try to post every few days!

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Dave Ramsey, eat your heart out

Well, I just checked out Dave Ramsey’s web site again for the first time in a few months, and again, I really liked most of its messages. It certainly has me back in high gear! However I have had to modify his `baby steps’ a bit according to my own goals …

My plan (Dave Ramsey style):

1. $1000 in an emergency fund – this baby step is done, baby!

2. Pay of all debt a la `debt snowball’  – have this in process, with final and largest debt (car) being paid off at a rapid rate, hopefully by early next year.

3. Save up for 5% home deposit – This is not in Dave’s Baby Steps, but since these appear to be aimed at people who already have a home, I am going to include it. This will take at least the next 15 months (at least), by which time I should be earning some moolah!

4. Save 3 to 6 months of expenses – this will take a few years, I’m sure, but will get easier when I start working full-time. We will definitely buy a home well within our means in order to get these steps happening faster. I am excited at the prospect of having money `lying around’. I LOVE having even $1000 in my EF at the moment …

5. Invest 15% of income – not sure about this one, as I’d probably want to start paying a little extra off my home loan first or at the same time. Maybe 5% extra on the home, 10% into investments?

6. College (university) funding? – not sure about this one either, as Australian university debt is owed to the government, is interest-free and relatively affordable (maximum $30,000 debt if studying in a high-earning course like medicine or law only; otherwise about $20,000). I am paying my own way, and I think my kids probably can too. This way  will be maximising family wealth in some high-interest earning way, ready to help them out if and when they really need it.

7.  Pay off home early – I like this one. This is something I will be very focused on. Though it seems such a long way away …

8. Build wealth and give – well of course I’m looking forward to this! In fact, once I reach this step I think I’ll be so pleased with myself that I’ll be adding in another element: have some fun! Well I would anyway … and only within what I can afford!

So there are my customised `baby steps’. I really like the concept of marking out your goals this way and plan to do my best to meet it.

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My Biggest Financial Mistake

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Good photo, huh? I took it on my holiday to a South-Pacific island earlier this year. It was a great spot with lovely people and beautiful conditions, but this trip was my biggest finance mistake. After reading a fellow blogger’s account of her biggest financial mistake recently, I thought I’d share mine.

It all started about this time last year when I was still very much trying to keep up with the Joneses – a bit hard when you’re essentially living on one-and-a-bit incomes. I had the travel bug bad … so I bit the bullet and booked us for an island holiday.

Here’s why it was a mistake:

1) We didn’t actually even go to the place we wanted to – For years we have wanted to go to Italy for a holiday. We were about to accept a family loan (yes, another one) so we could go with a family member who wanted travel companions (No, I don’t know what we were thinking either). I eventually regained my senses enough to realise we couldn’t afford to go halfway around the world … but what about an island getaway? Surely that’s affordable, right? Ha!

2) We couldn’t afford it. Well, I guess that’s obvious, but I am ashamed to say that I used the credit available on our CC to charge our holiday … the whole thing!  (This available credit was only there because of a previous attempt to get out of debt which I eventually lost sight of). Of course, once the holiday was charged, that didn’t leave much for spending money. So most of our dollars from then on had to go on accruing some spending money, not paying back the holiday. So we left for our trip in a pile of debt.

3) We made some mistakes before we left – others had told us the major banks in Australia had branches at this island nation and getting cash out from the ATMs would be no problem. Well we didn’t realise that our bank wasn’t a `major bank’. Therefore, we had $300 worth of local money but were otherwise cashless for several days (it was a Friday when we arrived). We had no choice but to charge our meals to our room by eating at the hotel (expensive!) and using our cash to get us through. Of course, if I’d thought ahead and memorised the PIN number to get cash advances on my credit card that might have helped … of course that would only have worked if I’d had enough spare credit available on the card to help us in this emergency situation!

4) We finally got the money situation sorted, withdrew some more money and resumed our holiday … that worked well until I left my wallet – with all the money we’d just withdrawn and all my cards inside – on the bus on the way back to the hotel. Words can not explain how bad that night was. My husband was inconsolable, while I thought I might have dementia or some other brain-damaging condition. Generally we didn’t cope very well. Added to that, our one-year-old son was running a temperature, so none of us slept that night. After an awful 24 hours, in which I finally ended up crying in the hotel reception area, the general manager finally made some enquiries in the community.

He managed to find out that a young local girl had left my wallet (with all the money still inside) at her local church. She had called the hotel the night before but reception had lost the message. She had also apologised because she used the phone card I had purchased to make the call! How could she apologise for something like that!  Needless to say, we left her a significant reward and a personal thankyou .. and obviously she got to keep the phone card!

This trip really taught me that there is no value in trying to buy something you can’t afford – it is not worth the stress and in fact, you can end up further away from your goals. If anything, our dreams of going to Italy are further away because of this holiday, and while it was enjoyable, our crazy money mismanagement led to a lot of stress. I am never going to charge a trip to a credit card again, and I will ensure I am not dependent on credit for spending money either.

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