Tuesday, 16 September 2014

Life lesson: Always put buffers into your budget

Having a tight budget this year and trying to achieve a lot with it has had some interesting (and unforeseen consequences) which I only really realised when I looked at myself in the mirror this morning and this was the thought that came to mind:

"I look like I am struggling to make ends meet"

My shirt is frayed, my suit hasn't been dry cleaned in far too long and my tie looks like it has been run over by several cars.  I really wish I was exaggerating but I really do look down on my luck which is crazy...

It's also not great for my career.  The way you dress and carry yourself is incredibly important to how you are perceived and this is definitely not the look I want to be going for.

So how did this come about?

I'm going to blame it on my budget and more accurately my focus on my budget this year.  In prior years I have had a fair bit of flexibility in my budget and when I have run over on some areas it hasn't really affected any other areas.

The big change this year is that I have accounted for almost every dollar I am going to earn and I have some pretty aggressive targets for what I want to achieve including:
  1. Buying an engagement ring
  2. Buying a sports car
  3. Saving for a wedding
  4. Going on a big overseas holiday

If I have budgeted for all of this...what's the problem?

Friday, 12 September 2014

We all need to withdraw money from savings...but make sure you put it back!

If you have ever set yourself a budget you will know that things don't always go to plan.  Sometimes there are unexpected expenses and sometimes you just spend more than you wanted to on a night out.

If you have budgeted for almost all of your income this means that one of two things will happen in those months where things don't go to plan:

  1. You will not save as much as you intended to in the month; or
  2. If things really get out of hand you will need to dip into savings

Don't write off the bad month...

One thing I realised since I started tracking my expenses fairly religiously was that if you 'write off' a month as bad you will never really catch up again.  You need that bad month to be made up by a good month later down the track.

Writing off the month mentally makes you reset to zero and you go back to trying to make your budget in following months.  I think this is a bad way of approaching it.  Bad months need to be compensated for.  You need to replace that amount you have taken out of your savings account or actually contribute that amount you didn't contribute in a previous month.

So how do you do this?

What you need is a way of tracking your unexpected withdrawals from savings...

If you have a way of tracking your unexpected withdrawals from savings then you can keep track of how much you 'owe your savings account' on a real time basis.  Not only does this motivate you to save more or be more wary of your expenses, it also reminds you that when you are having a good month that you may need to contribute a little bit extra to your savings account.

If you want a way of tracking the deviations from your budget I recommend the following method.  I have been using it for a few months and have found it quite effective.

1. Have an excel file which tracks what you do with your money when you get paid.  I call mine my 'wage day' file

This is a super simple spreadsheet which every month tracks what you do with your cash.  It is not a budget of any sort but it interacts with your budget.  For example I get paid monthly so my Wage Day file is updated monthly 

Below is an example of a month where your income doesn't quite cover all the expenses and savings plans that you had for the month


Let's work through this tracker:
  • Income
    • In this (fictitious) example

Tuesday, 9 September 2014

Going on holiday? Get some tax back using the Tourist Refund Scheme

If you're an Australian like me and travel overseas you have probably noticed that the immigration form on the way home has a question about whether you are importing anything in the country with a value over $900.  Did you realise that there was a way that you could save money even if you don't buy something overseas?

What is the Tourist Refund Scheme?

The Tourist Refund Scheme (TRS) is an initiative by the Australian government to encourage people to buy goods and services in Australia.  It allows you to get back the tax you paid on the item when you leave the country with that item.  For most items this will be the Goods and Services Tax (10%) that you paid although for some items it may be even higher (e.g. wine gets 14.5% back).

What are the eligibility requirements?

The eligibility requirements are actually rather simple.  The goods need to be
  • Purchased in the 60

Friday, 5 September 2014

What is a cheap, safe way to travel with money around South America?

My long awaited annual overseas holiday is coming up and I am excited!  I am going to Latin America for the first time and I have been planning this trip for months. However, as with any international trip you need to have plan for how to carry your money around when you are travelling.

Travelling to South America I wanted to make sure that my plan for my money

  1. Minimised the amount I was going to be paying in fees (these can really add up)
  2. Ensured that any payment option was convenient
  3. Ensured that any payment options was also safe (i.e. I was going to be safe and my money was going to be safe
Several of my friends had their accounts hacked when they were in South America so I spent a fair bit of time and effort developing the following plan which I wanted to share with you all.

Check your fee structures carefully before deciding what payment method to use

Fees suck and they really suck when you are travelling overseas.  If you decide to withdraw cash from an overseas ATM on your credit card you are normally stuck with the following fees:
If you withdraw $100 in cash you're paying ~$10 (or 10%!) in fees and getting nowhere near what you thought you would be getting in foreign exchange.  You try and minimise the impact of the fees by withdrawing large amounts (e.g. $1000) but you are still paying $50 in fees.

Tuesday, 2 September 2014

August 2014 Net Worth: $508,000 and Expenditure Tracker

This post covers my net worth and budget tracker for the month.  This month I suffered only my third monthly loss since I started tracking my net worth more than 3 years ago.  For an overview of what drove my performance keep reading below.



August 2014 Net Worth: $508,000 (-0.4%)


Value% Change
Assets$876,000+0.6%
Liabilities$368,000+2.0%
Net worth$508,000-0.4%


What drove my net worth performance this month?

In my last net worth post (July 2014) I mentioned that I expected this month to be challenging driven  by the fact that I was buying a diamond ring to propose to my girlfriend.  I had hoped to stay even with last month's performance (at $510,000) but in hindsight I was lucky to only be set back one month.

I have provided a break out of the key positives and negatives which affected my net worth performance below
  • Positive factors
    • Almost all the positives this month were driven by the share market
      • My portfolio increased nearly 2% over the month almost entirely driven by my investment in FKP (which I have written about extensively before).  I am currently looking to sell down this investment as it has performed well beyond what I expected.
    • My employee share plan vested and I received the inbuilt profit associated with these shares. 
      • I recently started accounting for the tax owing on these transactions as part of my net worth performance so the gains aren't quite what they used to be!
      • I continued to invest in my employee share plan in this month
  • Negative factors
    • My credit card bill was higher than it has ever been
      • I have a $12,000 limit on my credit card and I was butting up against this limit all month as I paid for the engagement ring on credit
      • Note that I had the cash to back this (I wasn't using debt to buy the ring!) 
      • I was also paying for various trips and holidays associated with the proposals (I had to pay for a flight to visit my girlfriends parents to let them know about the proposal...something I hadn't factored into my calculations!)
    • This month I experienced a significant cash drain 
      • In addition to the big expense above several large expenses fell due this month including my car registration
      • It was actually an interesting experience trying to manage all these expenses without dipping into savings (in the end I had to withdraw $2,300 from savings to cover some expenses)

What is my outlook for next month?

I am going

Friday, 29 August 2014

I lost money on the last Share Purchase Plan...do I try again?

"Fool me once...shame on you;  Fool me twice...shame on me".   That old proverb is ringing in my mind as I try and decide how much money I want to commit to the QBE share placement plan (SPP) that was announced in mid August 2014.

This is not the first time that I have had to decide to participate in an SPP run by QBE Insurance.  The last time was in 2012 and I saw an opportunity to make a nice little profit.  However, as I documented on this blog I got scaled back to such an extent that I actually made an effective loss if you account for the amount of time that they held my money before returning it.  I had applied for $15,000 in stock but received a paltry $32.10 and had the rest of my cash refunded to me.

A quick refresh on how to make money from Share Purchase Plans (SPPs)

I thought I would quickly run through how you can make money from share purchase plans.  In fact it is quite similar to making money from a rights issue:  You don't make the money from taking up your rights - the share price should adjust for this.  You make your money from the difference between the price at which you buy the shares and the theoretical price the shares should trade after the raising.

For example.  Assume Company A is trading at $10 per share and there are 100 shares.  
  • The issued capital of the company is worth $1,000
  • Assume that it wants to raise another $500 for acquisitions so it taps it's shareholders for some more money
  • The shareholders aren't necessarily going to give the company all of the money that it needs so the company issues shares at a 50% discount to the current value (i.e. for $5) per share.  It needs $500 so it is going to issue another 100 shares
  • The company now has an extra $500 of cash and an extra 100 shares.  Therefore the company is worth the original $1000 + $500 = $1,500 and there are now 200 shares on issue making each share worth $7.50
  • This $7.50 is the theoretical price the shares should trade at after the raising is done
So how do you make money

Tuesday, 26 August 2014

The single easiest way to get ahead financially when you are young...

If you are finishing up your college or university degree or have just started working you may be looking at ways to invest your new hard earned cash so that you can get ahead financially and can afford the nicer things in life.  There are a million options and as many tips out there on how to do this.

Well I think there is one thing that you can do which will make more of a difference than almost anything else and it is incredibly easy to do.  So what is this wonder solution?  It's really simple:

Stay at home for as long as you can...

Staying at home for longer is the best single financial decision that you can make when you are starting out on your wealth building path.  There are many reasons for this including

1. You avoid the high costs of rent

Rent is a massive expense and even if you share can really eat into the amount of money that you can save.  Now I'm not advocating mooching off your parents.  Pay them some sort of rent every month if they will take it or contribute to