Archive for March, 2012

Never Too Late

Sunday, March 25th, 2012

I was on the phone yesterday talking to my 17-year-old nephew about the super fund I am helping him to set up, and a colleague in his late 40’s was overhearing the conversation. When I got off the phone he asked who I was talking to and I replied it was my 14-month-old daughter. When I fessed up, I explained that I was aiming to teach my nephew the power of compound interest at a young age. The colleague replied that he wished someone had sat down with him and explained the basics at such a young age and I could hear the regret in his voice. Most people learn their financial skills from the family they grew up in, and in the case of my colleague, they hadn’t experienced nurturing from someone with good financial skills.

I learned about money from my parents, my father learned about money from his. On that side of the family nobody was rich but they wouldn’t see themselves as poor either, and they passed that knowledge down through the generations (I posted a blog about the lessons I learned about money from Grandma Haggarty just after she passed away last year).

My mother, on the other hand, must have got her financial skills from outside her family. Her parents, my Gran and Pa, rented their home in Sydney under a scheme that saw rents kept low after the Second World War. For years they lived in the suburb of Willoughby (quite close to the CBD), ignoring the advice of my dad to save for a home of their own (dad reckoned the cheap rent wouldn’t last forever). One day in the early 1980’s the inevitable happened – the scheme ended and Gran and Pa were forced to move out. They couldn’t afford the rent anywhere in Sydney, let alone in Willoughby, and were facing the prospect of having to leave the city they had lived in most of their lives.

Then my parents stepped in and bought a house for Gran and Pa to live in. The only place mum and dad could afford was as far north as you could go and still be in Sydney. My parents did it tough to pay that place off, and my grandparents were very grateful for the assistance they had from them.

Years later, after Pa had died, Gran realised she could no longer live in the house and decided to move out. With the help of my aunt and uncle, some savings of her own and the First Home Owner Grant, Gran bought her first home. Aged 87. We reckon she must’ve been one of the oldest recipients of the grant. The new place was a simple unit in a retirement village, 30 kms south of Newcastle, and she absolutely loved it. Gran loved what it represented – she loved the fact that it was hers.

When Gran passed away I was reminded at her funeral just how proud I was of her when she bought her unit – a place, after so many years of renting, that she could finally say was her own.

Next time you think that you are too old to start saving for your first home or sorting out your finances, unless you’re in your 90s, think again.

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Paint The Town Red

Saturday, March 17th, 2012

We’ve finished! Regular readers would know that Claudia and I have been renovating lately, including painting the interior of the house, but the brushes have fallen silent because we have finished painting. We spent a bloody long time doing it and learnt a lot along the way. All that time spent staring at the ceiling and walls sent me a little mad, but it did make me think how similar painting your house is to paying off a mortgage.

Sure, there are heaps of differences between painting a house and paying it off, like the fact you can’t pay a house off in 2 months and, try as you might, you normally can’t get someone else to do the job for you. But the similarities are worth exploring.

Firstly, if you’re renting, it’s somebody else’s problem. It may well end up being something you tackle later, but for the time being it’s not your top priority.

Before you start on your endeavor there is a part of you that says “This can’t be too hard, heaps of people do this”, and another part of you that can see the enormity of the task ahead. Every stroke of the brush is the equivalent of another dollar paid towards the mortgage. Fair dinkum, there would have to be many tens of thousands of brush strokes in the job we’ve just done.

To really get stuck into it you have to wear old tatty clothes, you say to yourself how much easier it would be without kids, and dream about it at night. You lose the motivation to comb your hair on the weekends, and, as you’re not going out anywhere special, it doesn’t really matter anyway.

Doing it by yourself is a tough slog. Yeah it’s possible, but any help you can get will speed things up. Two people working together are twice as productive and family often contribute towards a room or two.

It seems to take forever before you can actually start to see some progress. Ages of fixing holes, sanding, sugarsoaping and taping is the equivalent of the early repayments when you can hardly notice a dent in the loan. Getting to the point of using a roller is like a bonus of money – that pay rise, the tax refund you were counting on, an inheritance, or winning the lucrative contract – large amounts of the task get done in seemingly record time and it gives you real encouragement to keep going.

There are always things that crop up to slow you down – illness, unexpected repairs, a whoops pregnancy and concentrating your efforts on other things.

The final stages flash by as you are able to look back at all you’ve achieved and can imagine what it will be like when it’s done. When you finally reach that end point it’s a bloody fantastic feeling, made all the better by celebrating (but not with champagne ‘cause the last thing you want to do is risk the cork dinting the pristine ceiling).

And when you look back on it there is a stupid, stupid part of you that says “That wasn’t so bad, we can do that again one day….”

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The Right Information

Saturday, March 10th, 2012

There are bucket loads of places to get information on money. Websites and books galore, newspapers, magazines, finance professionals and, of course, family and friends. But how do you know where to find the right information for you?

With apologies to anyone reading this from overseas, the best information for us Aussies is homegrown. Admittedly, there is plenty of good stuff in books and websites written overseas, but it will inevitably be surrounded by info specific to the country the author is based in. I haven’t got a clue what Britain’s tax system is like, how the yank’s 401K plans operate or what the go is with NZ’s student loans. Read sources from overseas and you’ll be reading a lot of irrelevant stuff that will just confuse you.

That’s not to say that all stuff sourced overseas is gonna turn your head to mush, or that everything written by Aussie authors is good. There are a number of good books that look at the generalities of money without going into things specifically for readers in the country it was written in, and plenty of homegrown crap.

With any source, be it website, magazine of face-to-face advice, you need to know if there are any conflicts of interest or biases. Anything that comes from someone with something to sell, be it shares from a stockbroker, property from a real estate agent or loans from a bank, is not going to be conflict free. And if the source receives their income from advertising revenue you have to be assured that the advertisers are not tainting them.

Turning to family and friends for advice means you must remember that they will be swayed by their own experiences, good and bad. Unless the person giving you that guidance is knowledgeable across all areas of money, they will steer you towards the places that made them successful and away from things that burnt them. And when it comes to going halves with a friend on an investment property, for the thing to work you want to ensure that you are both the same age, earn the same income, have the same number of kids who are the same age, share the same tolerance to investment risk, have the same health and life expectancy and the share the same timeframe you want to hold the property for. Yeah, right. Once you throw a few differences into the mix you risk ending up in the situation where one person is needing to sell to access their money and the other person is not wanting to or not in a position to be able to.

So, where to go for the right info. Any federal government websites (.gov.au) will be free of bias and generally contain really good stuff. Books written by guys like Paul Clitheroe, Noel Whittaker and Scott Pape are great – Pape’s Barefoot Investor is a ripper, I’m not a big a fan of his website though. And, of course, I reckon my website ticks all the right boxes, but then I would say that, wouldn’t I!

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Our Insect Nightmare

Friday, March 2nd, 2012

So many Aussies have been hit by floods over recent weeks, and due to the nature of insurance companies, if you live in a flood prone area you have bugger all chance of getting cover.  In the ideal world you would have yourself insured up to the eyeballs to cover every foreseeable event, but there are a few things that you just can’t cover yourself for. We discovered one of those things recently.

A couple of months after buying our house, Claudia and I got a kitchen company in to replace the baby blue monstrosity, that I’m sure was never in fashion, with a new kitchen. Claudia was so excited that on the morning work started she couldn’t even eat breakfast. Just after the old kitchen had been gutted and the new cabinets were brought inside, Greg the kitchen man was trying to find a stud in the wall to attach them to. Five minutes later he informed us that we had termites.

Strangely enough Claudia’s appetite didn’t suddenly come back and I tried to find a word in my head that didn’t start with the letter f.

Greg started work on the wall opposite. Moments later he told us we had lots of termites, no good studs and that he had to down tools.

Our new house was being eaten by termites not detected by 2 pest inspectors in the previous 9 months, and we had no kitchen a fortnight before we were due to host Christmas for my family. The stress over the following weeks was pretty extreme as we watched thousands of flying termites swarm out of the wall, worried that the roof would come crashing down at any second and tried to work out what we were going to do.

Two and a half months and several thousand dollars later we have had the house treated and badly damaged areas repaired.

Like floods for people in flood prone areas, termites are not something you can insure against. When they strike, you are left to fend for yourself, and if you don’t have emergency funds available you’re screwed. Without money for emergencies you either have to beg, borrow or go under.

How much money you should have set aside will vary depending on your individual circumstances and whose advice you listen to. Some money people will say you should have 6 months of living expenses saved to draw upon at a moment’s notice but it’s a pretty tough target to make. I reckon you need to have about $2,000 per family member as a bare minimum so that you don’t need to give the credit card a big hit when the shit hits the fan.

“She’ll be ‘right!” is an easy alternative to having emergency funds at the ready. But it’s not what you will say when you discover a small white insect and 10 million of it’s closest relatives have found the timber in your house is rather yummy.

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