Tuesday, 21 October 2014

What is a normal home loan interest rate?

When you look to buy a house, chances are the first question you will ask is "how much can I afford to pay" which is really asking the question "how much can I borrow?".  Once you know how much you can borrow, you can go out house hunting and buy that perfect home.

Unfortunately most people just Google one of those home loan calculators or go into a bank branch and ask them how much they can afford to pay and don't look at the biggest assumption that will determine the answer to the original question...the interest rate on the home loan.

The interest rate is the biggest unknown factor when it comes to taking out a loan

In Australia, most loans are variable rate.  If you are lucky you may be able to lock in a 5 year fixed interest period but for the majority of your loan you will be paying an unknown rate of interest.  Why is this a problem?

The problem is that most 'affordability' calculators assume the prevailing interest rates or they may have a small buffer in there if rates move.  In Australia the current rate of interest is ~5% on 30 year mortgages but will it stay like this forever...and will you be able to afford the interest bill if the interest rate moves?

The question we should be asking is: What is a 'normal' home loan interest rate?

The problem with this question is that there is no right answer.  Economists will argue until the cows come home what a steady state 'normal' interest rate will be but the fact is that it will all depend on the economic conditions and government policy in the future and there is too much uncertainty around that question.

So how do we deal with the uncertainty associated with unknown future interest rates?

The simple answer is to

Tuesday, 7 October 2014

I did my own taxes...and it was great!

I am usually terrible at doing my taxes on time.   I always have the receipts sorted out and spreadsheet done well in advance however when it actually comes to seeing the accountant and submitting my taxes I tend to procrastinate for weeks or even months.  Last year I submitted my taxes 6 months late.

This year I swore I would be different.  But not only that...I also decided to do my taxes myself

Why did I do my own taxes?


There are a whole host of reasons I decided to do my own taxes this year including:

  1. I virtually do them for my accountant anyway!
    • The spreadsheet I give my accountant is so detailed it means he never has to look through any of my documentation and I generally only have a few questions that I need to ask him
  2. I value my time less than my accountant charges me
    • My accountant charges $120 per hour to do my taxes and given the work I normally do on them I generally only get charged for 2 hours of work (i.e. $240)
    • I wasn't exactly sure how long it would take me to do my taxes but I was pretty sure I would be ahead if I did them myself
    • As it turned out it took me 4 additional hours to do my taxes (i.e. the time taken to do what the accountant usually does) 
    • I value my personal time at less than $60 per hour so it was a great trade for me
  3. I hate taking time off to go to my accountant
    • I normally have to take a bit of time off work to go to my accountant who works in the suburbs (while I work in the city).  Work doesn't have a problem with this but half the reason I generally procrastinate for so long is that I find it such a waste of time to go out there
    • I thought about getting an accountant that was more convenient but this one knew my personal financial situation rather well and I didn't feel like having to explain it to someone new all over again

Would I do my own taxes again?

Thursday, 2 October 2014

September 2014 Net Worth: $509,000 (+0.1%) and Expenditure Tracker

I managed to get back into positive growth with my net worth this month but it was a close run thing. There were a range of factors which influenced this outcome which I will go through below.  This post also includes my expenditure tracker which helps me track my financial goals for the month.

September 2014 Net Worth: $509,000 (+0.1%)


Value% Change
Assets$877,000+0.1%
Liabilities$369,000+0.1%
Net worth$509,000+0.1%


What drove my net worth performance this month?

There were a range of factors which influenced my net worth this month.  The share market was a significant negative (and although I felt that a correction was coming I didn't alter my portfolio in time) however a range of small factors all combined to ensure that I was still slightly ahead for the month (although I did miss my target of $510,000 for the month).

  • Positive factors
    • My restricted bonus vested
      • Part of my bonus every year is restricted and vests in portions over a multi year period.  I count this restricted amount in my net worth so this did not move the dial significantly however it did help pay off some of my large, engagement ring driven credit card bill
    • Continued contribution to superannuation and my employee share plan
      • The power of automatic savings cannot be underestimated and my continued contributions to my superannuation and employee share plan helped incrementally improve my net worth performance this month
  • Negative factors
    • A weak share market performance
      • The sell off in the share market towards the tail end of the month caused a ~$5,000 decrease in my share portfolio and consequently my net worth
      • This would have been much worse if the exchange rate hadn't fallen as well.  A significant part of my portfolio is in US$ denominated investments and these benefited from the falling A$
    • High personal expenditures for the month
      • I will discuss this more in my expenditure tracker below but as I have written about before this year is a year for large one off expenditures on things or experiences that you only do once in a lifetime
      • A lot of these expenses (such as my large overseas holiday, my sports car and proposing to my girlfriend) were tail ended in the year - i.e. I have been building up cash for these expenses and now I am making them
      • The expenditure of this cash on both credit and from savings has started to hit my net worth and will continue for the foreseeable future

What is my outlook for next month?

October is likely to be another flat to negative month for me.  I have several large swing factors hitting in this month including

Tuesday, 30 September 2014

Get your business off the ground quicker by Outsourcing

A few years ago I came to the realisation that you can't do everything yourself when you are setting up your own small business.  You really should get help in areas that you are weak in so that you focus your time on the areas where you really add value.

In that post I mentioned that I was seeking help from a friend who had experience doing what I wanted to do.  The problem with using friends is that they are doing you a favour and so you're less likely to be go back for exactly what you want and also you can't push them to get the work done.

So what is the solution?  Easy...outsource some of the tasks that are incredibly time consuming for you but that others have expertise in.

Outsourcing doesn't have to be complicated or expensive...

The biggest block that most people against outsourcing is it's cost.  Most of us like to test our ideas out before really committing some capital to it.  But outsourcing doesn't have to be expensive.  In fact it is incredibly cheap for some things!

The problem is that most of us don't know
  1. What to use it for
  2. What we should be paying for different tasks

What should you outsource?

The first thing you need to think about is what you should outsource.  If you are setting up a fairly simple business or website (like I was with Banker's Pitch) you want to outsource all those things which you find time

Friday, 26 September 2014

Scale backs...why do you bother me so?

I recently wrote a post outlining my dilemma about investing in the most recent QBE share purchase plan.  I had already been stung once by a massive scale back and I wasn't keen to go through that experience again.

I phrased my dilemma as 'fool me once shame on you...fool me twice shame on me'.  As it turns out I was fooled twice and this time the fault is definitely my own.  However that being said it wasn't nearly as bad as last time.

I used my last experience to inform my decision this time

While it is true that you can make a lot of money from Share Purchase Plans, it is also true that you can effectively lose money if you get scaled back significantly.  I had experienced a significant scale back on the last QBE SPP and so was very aware that this could happen again.

Investing is all about learning from your previous experiences, and also from your previous mistakes and I was glad to learn from that previous mistake because it informed my decision making in the most recent share purchase plan.

I didn't apply for as many shares

In the last QBE SPP I applied for the maximum amount of shares (set at $15,000) in the hope of maximising my profits.  When I got scaled back this also resulted in me having the greatest opportunity cost loss.  I realised that this could happen to me again and so I only applied for the smallest possible parcel ($5,000).

Why did I do this?
  1. I wanted to

Tuesday, 23 September 2014

Is there a right way to combine finances with your partner?

Over the weekend I proposed to my girlfriend and we are now engaged to be married which is incredibly exciting.  I have been talking about doing it for so long on this blog that it a little surreal that the event has finally come and gone (although now a whole set of new planning starts).

A few months ago I wrote a post about money and relationships which encouraged readers to communicate with their partner to avoid misunderstandings, but also to make sure you are on the same page when it comes to finances.  For once I have been taking my own advice and my girlfriend fiancĂ©e and I have had some great discussions about our goals and objectives.

Finding a 'system' for finances is important...

However it is something that I have absolutely no experience in.  Most of my posts on this blog go through things I have settled on or decided but this question leaves me floundering.  I have absolutely no experience in sharing finances with someone else...


I have taken a poll of my married friends and friends that are in long term relationships and the number of systems are as varied as the number of relationships.  

Some people work on a strict system...

Some couples have a

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?