Financial Freedom

for Gens X & Y’s

Who’s Watching Your Money?

May 4th, 2013

I learned today of a shocking case of conduct on the part of a debt recovery agency which borders on theft and invasion of privacy.

A friend of mine, Narelle* recently discovered an amount of $600 missing from her Westpac bank account that didn’t make sense to her as to who had taken it and why. A few enquiries later and it turns out that her husband, Gary*, had been driving a tad too quickly (5kph over the limit) in Sydney. Five years ago.

Unbeknownst to Narelle and Gary, the speeding fine had been sent to their old address so the first they knew about it was only a couple of days ago. The authority that issued it had made no attempt to contact them other than, presumably, to mail a reminder that they had not paid the original $200ish fine. After a while the authority had passed the matter on to a debt recovery agency.

You’d reckon that at this point the debt collector would’ve made a rude phone call or Googled them and sent a message via Facebook to track Narelle and Gary down to get the money back. Nope. It seems that the agency sat and waited, watching Narelle’s bank account ready to pounce.

The thing is, not only have this lovely couple not had a run in with a debt recovery agency before, but they’re pretty good with their money. Narelle’s account is set up to transfer her pay over to their mortgage as soon as the dosh hits her account. They’d had this arrangement for several years and it pretty much always meant that she had next to nothing in her account.

Then one day recently that changed when they sold some shares, depositing the money into Narelle’s account. Taking their opportunity, the debt recovery firm suddenly pounced and withdrew $600 without Narelle’s knowledge or permission. How the hell the law allows any individual or company to monitor someone’s bank account without the account holder’s prior knowledge or permission, let alone withdraw money, is beyond me. And why Westpac allows customers’ accounts to be monitored without letting them know an outside organisation is wanting to track them down also makes no sense. But the debt collection agency has rudely informed Narelle that if she wants to contest it that she must prove that she and Gary never received the original fine in the mail and that they’d better get a lawyer.

So it’s now up to Gary and Narelle to either spend an unknown amount of money to fight the case, or have a black mark on their credit file for the next five years that’s not their fault.

Oh, and the agency also says that because Westpac charges a $13 withdrawal fee, Narelle and Gary have to cough up to cover this fee too.

*Names have been changed for privacy.

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The Medicare Levy

May 2nd, 2013

If you live under a rock, you will not have heard of the National Disability Insurance Scheme (NDIS) and you also won’t know about the government’s proposal to raise the Medicare Levy. Ok, I’ll assume you have some idea that the NDIS is proposed legislation to help out those Australians who have a disability and those who care for them.

Firstly, what’s a levy? Well, it’s not something you drive your Chevy to, only to find that it’s dry (that’s a levee, as all fans of Don Mclean and karaoke would know). A levy is another name for a tax, used by politicians when they don’t want to use the word tax ‘cause they don’t want to sound like they’re taxing people more. Levies usually have a specific political agenda attached to them, such as the Flood Levy that was raised to compensate Queenslanders after the 2010-11 floods and the levy that paid for the buyback to gun owners after the 1996 Port Arthur massacre. In the past, special levies have been temporary and they have generally been seen by the public as necessary to raise the funds needed for a fair dinkum worthwhile cause. (When thinking about how successful the gun buyback has been for reduced gun homicides in Australia, nobody actually says “Whoop-dee-f*&cking-doo!”)

Ok, so what’s the proposed increase in the Medicare Levy? The Gillard government wants to raise the Medicare Levy from 1.5% to 2% to pay for the NDIS (partly pay for that is, as the states pick up the rest of the bill). The difference it would make to someone on $75,000 a year is $375. Whoop-dee-doo. Low income earners would obviously pay heaps less than this, and those on the lowest incomes, below about $20,000, don’t pay the Medicare Levy at all. Considering the difference the NDIS would make to the lives of thousands of struggling Aussies and their families, I reckon it’s the least we can do to help these people out.

*I must disclose that this blog was written 5 days after I stuffed my ankle at touch footy and had to use crutches for the first time. It’s the closest I have ever come to appreciating (to the tiniest degree) what life could be like if I were not able to walk freely. This week has been a struggle, but the big differences between my temporary medical condition and the permanent situation of those who will be eligible for the NDIS are 1) there’s really bugger all wrong with me and I’ll be fine in a couple of weeks, 2) I don’t need a carer (I hope Claudia doesn’t read this!), 3) I have not been financially disadvantaged, and 4) there’s no stigma attached to bung ankles.

Posted in Taxation | Comments Off on The Medicare Levy

What’s On Your File?

April 4th, 2013

The short answer: more information than there used to be. Like it or not, there is a record kept dating back several years, accessible by companies who need to see it, that shows your credit history.

Ever applied for a car loan, credit card, business loan, mortgage, hire purchase or investment loan? (Note that sentence reads “applied for” not “do you have”.) What about a utility bill – has your name appeared on a statement for gas, electricity, internet or for a mobile phone? If your answer is yes, you have a credit record.

Credit records are used by companies like banks to see how risky you are when it comes to repaying a loan, and businesses like telcos to indicate if you are likely to pay your bills on time. They’ve been around for years and include info such as how many times you have applied for credit, when you were given credit and when you have been late in paying. Your credit record will also show details of bankruptcy.

It used to be that this was pretty much all the stuff that was on your credit file, and the black marks would only appear if you were about 60 days overdue on your bills. But now that’s changed.

As soon as you are one day late on a bill, that information can now be recorded on your credit file. It’s bloody harsh and means that unless you have automatic payment plans set up for all your bills, you really need to be on top of things to ensure your credit file remains looking good.

If you don’t know what your credit file contains it is a good idea to get a hold of a copy of it. There’s two ways to go about it – the quick way (yeah, it’ll cost you) and the slow way, which, if you can wait a week or two for it, will be free.

Contact Veda Advantage, Dun and Bradstreet or the Tasmanian Collection Service (there are direct links to the forms you need for these guys under the Debt Elimination topic) and get them to send you a copy of your file. If you find something there you have forgotten about or something that shouldn’t be there at all, you will have every chance to sort it. That’s particularly important to do before you go cap in hand to your bank for your next loan.

Posted in Debt | Comments Off on What’s On Your File?

Things I Don’t Quite Understand

March 23rd, 2013

There are a bunch of things I don’t really get. I don’t understand how the bottled water industry remains viable when their biggest competition should be free tap water. It amazes me why anyone who owns both a car and a mobile phone would not be able to afford to purchase a $40 phone holder for their car without taking up the offer of “Five easy payments of $7.95!” I don’t get people who believe the Facebook ad claiming that you can make thousands of dollars a week from home with nothing other than your computer and six hours of your time. And why anyone would ever think that money spent on a Star Wars figurine is a better investment than purchasing shares in the chain of stores that sells them, is beyond me.

But a big one I can’t understand is how the people behind We Buy All Homes can sleep at night. The two pics below are ads that may be similar to ones you have seen in your area. Handwritten in texta on a bit of cardboard, you could be forgiven for thinking that someone is trying to make an honest buck by dabbling in real estate without you having to deal with an estate agent.

At this point I must disclose that I hate the average real estate agent with a passion. But these “Homes For Cash” type real estate speculators are something altogether different. They’ll tear you a new arsehole.

Take the sign below. How much do you reckon you would get for your house if you were able to make a quick sale? Market price? Above market price? Or would the buyer pressure you into an offer tens of thousands below what your place is worth? Nothing illegal in doing that and arguably nothing unethical. After all, the seller doesn’t have to hand over any keys if the price isn’t high enough.

Now look at the next photo (yep, it’s the same mobile number). I was interested to know what “NO Bank Req’d” meant, so I rang.

“Have you heard of radio rentals or Flexirent?”, asked the voice on the other end of the phone.

“Yeah, I have,” I replied, but neglected to add that I have a specific case on my website where Flexirent’s fine print is explained in simple terms so that they can be seen for the rip off merchants that they are.

“Well this works the same sort of way. Let’s say the house you’re after costs $545,000. You pay rent of $747 per week for three years, then you buy it for $545,000, even if the value has gone up in the meantime.”

Wow, that’s really generous. You can lock in the price of a house now and buy it in three years without having to worry about house prices going up. All you have to do is give the guy $116, 532. Over a hundred and sixteen grand in “rent” for the privilege of locking in a house price.

This is such a big rip off I had to do the calculation twice before I believed my calculator. All done in the guise of helping renters to get into the housing market. Good luck raising a deposit.

If you’re wondering wether or not $747 a week rent’s a bit steep, a rule of thumb is that the value of a property divided by 1,000 will be a fair weekly rent. So normal rental prices for a $545,000 property are closer to $545/week. Much higher than this amount and it means the place is under-valued or that the rent’s too high. A bit of quick searching and I found the property in question on a prominent real estate website advertised for not $545,000 but $505,000+. So as well as being a rip off, they’re using bait advertising.

As for the “NO Bank Req’d” unless you can pay cash for a $545,000 in three years time, it’s just delaying the inevitable.

Posted in Housing | Comments Off on Things I Don’t Quite Understand

The Flexi Loan

March 16th, 2013

I walked into a Westpac branch recently and noticed a brochure for a new product – the Westpac Flexi Loan. This is a “convenient” product that will help you “start afresh in 2013” if you believe the bold print. As with any bank issued information there is fine print on the back of the brochure, right down the bottom, which makes for interesting reading.

A Flexi Loan is like a combination of a line of credit, personal loan and credit card. Effectively, it’s a personal loan that you have a pre-determined credit limit on, between $4,000 and $75,000. Like a line of credit you may redraw up to the amount of your approved limit, without reapplying. Like a personal loan, the Flexi Loan can be for one, two, three, four or five years. Like a credit card, the minimum repayment is equal to 2% of the unpaid balance (or $10 – whichever is greater), plus any unpaid amounts and any amount that exceeds your credit limit. (I have always wondered how it’s possible to exceed a credit limit, especially as just about all exchanges of money these days involves using a card (credit card purchases, debit card ATM withdrawals, withdrawing cash over the counter at a bank after swiping your relevant bank issued card, etc) and that any attempt to withdraw/purchase over your available amount should simply be disallowed by the card issuer.)

Upon application you’ll be encouraged to get a loan with a higher credit limit than you need, just in case you need it in the future. You’ll pay an establishment fee of $150, plus $10 per month at a variable rate of, currently, an incredibly high 14.69%.

Reading the Flexi Loan brochure was the first time I’ve come across this type of loan but I dare say it won’t be the last. It’s something that has the potential for decent bank profits, regardless of whether or not it’s in the best interests of consumers.

As this product is a combination of a credit card and a line of credit, it’s the sort of loan that I reckon should only be used by people who really know what they’re doing. People who are really good with their dough.

Ironically this means that it’s really best suited for people who don’t need a personal loan.

Posted in Debt | Comments Off on The Flexi Loan

Wouldn’t It Be Nice?

February 22nd, 2013

Wouldn’t it be nice to win a million dollars? Well, if you believe the Lotto people, it would change your life so that your dreams came true. Of course, that’s bullshit.

Watching one of the weekly lotto draws on the telly last night, I thought how many people there must be who are glued to this advertisement, same time, each and every week. It hit me that there are literally millions of Aussies who spend more time every week trying to win the “big one” than they do sorting out their finances. This doesn’t make much sense to me.

Think about it for a minute – how many people do you know who have played Lotto (well, I say play, but it’s not really a fun game if you lose every week is it)? Now think about how many people you know who’ve won. Personally I know a large number of people who have lost a lot of money and one person who won an amount that was equal to her mortgage. She was smart and paid it off. And there was a former colleague of mine who correctly picked four or five lotto numbers and ended up winning less than the cost of the ticket.

If all those yet-to-win-lotto players (let’s call them losers) were to spend a little bit of time every week dedicated to their personal finances, they could start to change their situation to the point where playing lotto wouldn’t matter. It doesn’t take a full on dedication to watching the markets and studying a real estate website to start to get ahead. Just the desire to improve your circumstances, the right knowledge and a small amount of time regularly devoted to it.

And if you swap buying lotto tickets for getting your financial life organised, you’ll end up saving a truckload of cash that you can spend the rest of your life.

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The Best Things In Life Are…

February 6th, 2013

“They say the best in life is free,

But if you don’t pay then you don’t eat.” – Another Day, Bryan Adams

One of the best things in life are memories. Growing up listening to Bryan Adams was something I look back on and remember enjoying (well, at least up to Waking Up The Neighbours, then I reckon he kinda went backwards). Memories cost nothing. As a matter of fact, a lot of things don’t have a cost associated with them.

Depending on your circumstances, you won’t pay a cent for love, sex, oxygen, warmth, laughter and cuddles. Yeah, there are situations where you can pay for all of those, but generally speaking they are all free.

If you get the feeling that this blog is going to turn into an advertisement for Visa, you’ve got the wrong end of the stick.

It might be a bit cocky to refer to Financial Freedom For Gens X And Y as one of the best things in life, but bugger it, I’m gonna be cocky. ‘Cause now it’s free. Yep, that’s right, the $25 subscription fee that we used to charge for a sign up to access the course on our site has been dropped. There is no need to even send us your email address so that we can send chapters to your inbox every week ‘cause it doesn’t work like that – the whole course is now available and open to all.

Unlike other places where you can find information on money, Financial Freedom For Gens X and Y does not carry advertising. Nor does it attempt to persuade you to sign up to something for an annual fee or a product that we receive kickbacks from. It’s fair dinkum free.

Of course if, after going through the site you reckon you have saved yourself a load of money and that it was well worth your time reading through it, you still have the option to throw 5 or 10 bucks my way. After all, running a website doesn’t come for free.

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Currency Exchange

January 27th, 2013

A great way to save money – don’t ever go overseas with young children, get your overseas relatives to come to your house. The money you will save on airfares and psychologist’s bills to get over the long haul flights with jetlagged infants will run into many thousands.

If you decide to ignore that advice, another great way to save money when travelling overseas is with the money itself. Unless you are going to Christmas Island, the only value your Aussie dollars will have overseas is in entertaining people with the little windows on our polymer notes.

When you go overseas you will need to get yourself some local currency and there are a number of ways of going about this. Probably the most convenient way to get cash is at an ATM at the airport you land at (assuming you arrive at a major destination in a developed country). You will be hit with a fee from your bank as well as probably a currency conversion fee. Expect the same sort of thing if you purchase stuff overseas with a credit or debit card.

Travellers cheques are handy if you happen to purchase something in the handful of locations that still accept them, but they are not free.

Having a few local dollars/pesos/pounds/yen on you before you arrive will involve a visit to your bank or a currency exchange place before you set sail. Doing this at the airport is probably the most expensive way of buying a foreign currency or converting your overseas money back into Aussie dollars on your return.

Prepaid travel money cards are becoming a popular way to access your money overseas as they are relatively inexpensive and can hold multiple currencies like $US, Euros and Sterling. There are a bunch of them around and may be good value depending on whether they have conditions like an expiry date on the money held on the card.

How much money you end up with is dependant on the exchange rate. Even the most economically challenged among us would be able to tell you that the Australian dollar is strong at the moment. One Aussie dollar will buy you around $1.05 in the US. In theory. In reality the exchange rate used by banks, and in particular currency exchange places, is crap. Your $1 here would be lucky to purchase one US dollar, with the five cents difference going to the company exchanging the currency. Five cents doesn’t sound like much but it certainly adds up over the total cost of a holiday.

No matter what the currency you are converting or the strength of the currencies being exchanged, you will never be offered the actual official exchange rate, unless it involves some hefty fees. The only way to get the official rate is by setting up an exchange yourself, if not before you go, at least when you get back. Whack a status update up asking if anyone is about to head off overseas and would like to exchange the currency you have leftover. Offer it at the official exchange rate on the day of your exchange and you will get the absolute best saving possible – for you and the person you swap the money with.

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The Ups And Downs Of The Holiday Season

December 29th, 2012

As I write this, it’s half past four in the afternoon and almost completely dark outside. No, I’m not experiencing an eclipse, Claudia and I are in Germany. Yes, we brought the kids with us. You’d be surprised how many people asked me if we were going on holidays with our girls as if there was the option of some sort of boarding kennels for infants available that we were not considering. Mind you, after going through the hell that was the flight over here, we may not bring them home with us.

Germany is a country that’s renowned for leading the world in all sorts of areas with brands like Mercedes Benz, Miele, BMW and Bosch just to name a few. They don’t lead the world in share ownership on a per capita basis though.

Thanks to floats of big Aussie companies like Telstra, the Commonwealth Bank and AMP, the level of share ownership in Australia remains among the highest per capita of any country in the world. We also have a much higher percentage of our super invested in shares than most other countries have invested in their equivalent retirement vehicles. And yet, when it comes to information about share prices, there’s one area we fall behind the Germans.

Watch any TV news bulletin and you will see that the finance report focuses on how much the share market went up or down by since its last close. There is rarely info telling you how much it’s risen or fallen by in the last week, fortnight or month, which I find annoying as the day to day price changes mean bugger all in the long term. They only serve to make people shit themselves if they’ve just seen a 1-2% fall in the value of their investment.

A much better approach is the one the Germans take. Have a good look at the graph below and the first thing you’ll notice is that it’s in German. Allow me to translate.

Graph from Sächsische Zeitung 20/12/12

The DAX is the German stock exchange (the equivalent of the ASX – the Australian Stock Exchange). The single black line is how much shares are jumping around by on a daily basis. Tage Durchschnitt means days average, so the double black line shows an average over 38 days, the grey line is an average over 200 days. That grey line is the bit I find most helpful as it really shows a trend over a longer time period, cutting out the noise of all the jagged daily spikes. As shares are an investment that should only ever be held over the long term, it’s the information that should carry the most weight with shareholders and potential shareholders.

Ideally, graphs like these would show even longer trends – over one, two, three, five and seven years, and the people who own these share would only be concerned with how these companies perform over the long term. Until that day comes, just remember that there’s more to German ingenuity than autobahns and great beer.

Gesundes neues Jahr! (You’ll need to Google that for a translation.)

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A Massive Income

November 19th, 2012

I attended a reunion on the weekend, not with former schoolmates, but with people I used to work with. It had been 13 years since I had seen most of my old colleagues and the department we were in closed down in 2001. When it closed around 40 people lost their jobs without any warning in one of those meetings that every worker dreads. People came to work that morning, went about their normal jobs, then were called to an out of the blue meeting around morning tea. By lunch everyone was unemployed.

I have been lucky enough to have never been at the receiving end when the axe has fallen. Somehow I have managed to avoid it by leaving an organisation before cutbacks, or joining after the situation has turned around and hiring has begun again.

From talking to those who have experienced it, redundancy is something that certainly leaves its mark. The feelings of anger towards the bosses can take years to subside and the joy of working in an environment where you love the job you are doing and those you do it with may be difficult to replicate with a new employer. On the other hand, some people thrive after losing their jobs and look back at the incident as something that spurred them on to better things.

In a normal career (if there is still such a thing these days) you start at the bottom and slowly work your way up. Every year your skills, experience and complexity of your job increases, along with responsibilities and usually a pay rise. It is natural to picture the final years of your working life as the ones where you will be earning the most. And looking back at what you were paid in the early years of your career inevitably raises the question “How did I get by on such a small amount of money?!”

Sitting around the table at the reunion, the topic of what we were all paid came up. There were no huge surprises to discover that the people we all thought were on decent wickets reported earning the highest amounts of money. I was the second lowest wage earner present, on between $25,000 – 27,000 over the three years I spent there. The guy we all knew was earning the most didn’t actually reveal his salary but he did say that it was a lot more then than he earns now. In fact he said that he earned more money at a commercial radio station in the 80’s than at any other time in his life.

It’s a story that emphasises just how important saving is. If, by way of good fortune or hard work, you find yourself suddenly earning more money than you thought was possible at that stage in your life, don’t piss it up the wall. Rather than moving to a bigger house with a better view (and bigger mortgage), rather than upgrading your wardrobe, car and appliances, rather than holidaying in five star resorts, just picture yourself in ten years earning a fraction of your current income.

Would future you look back with regret for wasting an opportunity or be glad you had set yourself up for the unknown road ahead?

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