Thursday, 18 December 2014

Review: Flash Boys by Michael Lewis

I love reading Michael Lewis' books - they are almost never dry (which financial books can often be) and he has a particular skill of weaving technical information in with the human experience to create a story out of something that most people would have trouble relating to.

This is exactly the kind of book he has written with Flash Boys - a book dedicated to exposing the rise of high frequency traders and exposing an industry which most do not understand and fewer have an interest in exposing.

What is Flash Boys about?

Flash Boys is the book to read if you are a lay person looking to understand how High Frequency Trading works.  It goes through the industry participants, how the board has been tilted against investors in favour of high frequency traders and how you (as an individual investor) and large institutional investors are being screwed by the stock market which is meant to be clear and transparent.

So what is High Frequency Trading?

I don't want to ruin the book and get into the specifics because it can be extremely complex but broadly speaking high frequency traders have better and faster information than anyone else in the market and can use this information to trade faster than anyone else and make a profit in the market based on this information.

Most people don't understand High Frequency Trading because they don't understand how the stock exchanges are actually set up.  They don't realise that most stocks are actually traded on multiple exchanges in a market.  Why does this make a difference?  Say you are looking to place a large buy order of shares in a market.  Your broker sends it to exchange 1 and exchange 2 both at the same time.  The high frequency trader sees it at exchange one (because your electronic signal gets there first) and then gets to exchange 2 ahead of you (because your electronic signal takes slightly longer to get there) and pushes the price up so you are forced to pay more.  They are effectively front running you...and the system is designed to let them do this.

You as the investor get screwed because you are forced to pay a higher price than you would if you could have gotten all the shares at the market price.  Although this affects large shareholders more than small investors the reality is that even as a small investor you end up paying more for your shares than you have to.  The difference can be tiny but these tiny amounts add up to huge profits for high frequency traders.

I won't go into more detail - but will let you read the book.  It is a fascinating expose on a little talked about industry.

This book is great for any one interested in the share market...but it will not make you a better investor

I generally love books which

Friday, 12 December 2014

NEVER ever take a Cash Advance or a Pay Day Loan

Getting into debt around Christmas is incredibly easy.  It is easy to fall into the spending trap and to feel obligated to spend large amounts of money.  The constant bombardment of advertising at this time of year was what prompted me to write my article providing 5 tips on saving money this Christmas.

However this year I noticed another worrying trend when it came to advertising: the number of payday loan companies that started to advertise on the radio, internet and on television.  "Strapped for cash...stop the worrying and say yes" type advertising  that most of us should ignore.

If you thought credit cards were bad...wait until you see cash advance loans

I have talked about how the best way to get ahead is to avoid credit card debt (where the interest becomes payable).  The interest rates on credit cards run at 19 - 22% p.a. which is least I thought so until I saw the types of rates being charged on cash advances.

The first site I clicked on charged 24% for a 30 day loan...24%...that's not a per annum rate.  That is the rate over the 30 days.  That is a 966% interest rate per year (compounded).

I was going to do a full summary of payday lending but this video encapsulates everything I wanted to say:

The more I research this issue the more saddened, outraged and worried I am for the financial health of some of the most vulnerable people in society.  However for an explanation which is far more complete than mine could ever be check out this brilliant video by John Oliver

But what if you need the cash right now?  Should I take a pay day loan?

No!  There is almost no situation I can think of where you should take a pay day loan.

When you're desperate, you're desperate right?  What if

Tuesday, 9 December 2014

How to achieve your goals in 2015

And it's that time of year already.  This is the time you should start setting your goals for 2015.  Leave it any later and the holiday season and holiday mood will over-take you and you will get nothing done.  Leave it until next year and you're already behind the 8-ball.

I think when you set your goals you should make sure that
  1. They are written down
  2. They are achievable / realistic (but not too easy - they should be a challenge)
  3. They have a set time frame
  4. You have a plan to achieve these goals
Note that these don't only apply to financial goals - I talk about financial goals on this blog because that's what this blog is about but I do this for every goal I set for the year.  

Make sure you write your goals down

How many times have you made a new years resolution at a party on new years eve or perhaps the next day or week and then have forgotten about it?  Maybe it was to lose a few kg or perhaps it was to pay off some debt?

It's too easy to forget a goal and not hold yourself accountable if you don't write your goals down.  So write them down.  Start a blog if you want to and track your progress towards your goal (that's what I did with this blog!).  Or just keep it simple and write them on a piece of paper.  I wrote mine in a little notebook I keep on my desk.  For 2014 it had 8 goals (of which I managed to achieve 5 and get awfully close on 1).

Make your goals achievable...but challenging

Having achievable goals is

Friday, 5 December 2014

5 ways to save money this Christmas

Christmas is an expensive time of year for a huge number of reasons: you have to buy presents for family and friends, you need to book new years events and there are dinners to attend (or to host yourself) as well as work functions and whole heap of other things to do.

I love Christmas and everything that comes at this time of the year but it does get expensive.  Here are 5 simple ways that you can save money this Christmas (I'm doing all of these this year).

1. Set a budget for gift giving (per person) and then stick to that budget

Christmas gifts can get incredibly expensive especially if you have a lot of close family and friends.  It is easy to see an item and think "oh my mum would love that" and then pick it up only to realise far too late how much you've actually spent cumulatively.

I recommend setting a budget for each person you are giving a gift to and then stick to that budget.  I normally have a budget of $150 for each of my close family members however this year I'm dropping it to $75 because I have some incredibly large expenses coming up (and they got some pretty cool gifts from me when I got back from South America)

If you have to give presents to a large number of extended family consider reducing the amount you spend per person because even $30 - $50 per person can add up very quickly.

2. If you have a large extended family consider instituting a Kris Kringle or Secret Santa

Large and close extended families are awesome however they can be a real problem around Christmas time because gifts cost so much.  It can get especially painful if there are lots of kids involved because there is no way you can get away with a $10 box of chocolates or skimp out.

What you can do is to have a chat about this with your family and institute a Kris Kringle or Secret Santa program.  These programs work for multiple reasons - it saves you time and money and people actually get better and more thoughtful gifts and they can be pretty fun around a Christmas tree if you have a large family gathering.

It is generally pretty easy to institute one of these systems:
  • Meet up a month in advance - everyone's name gets put into a hat and you draw out a name for yourself and for each of your kids (if you have more kids you have to fund more presents)
  • Set a maximum amount that you are allowed to spend per gift - this is crucial. 
    • In my family this is generally around the $50 mark - it's not too expensive and as a receiver you are getting a pretty decent gift
    • You can have different caps for children and adults if you like (so that kids get nicer gifts)

3. Do your shopping early OR after Christmas

You can save a great deal of money by timing your shopping.  You either need to:

Tuesday, 2 December 2014

November 2014 Net Worth: $561,000 (+8.8%) and Expenditure Tracker

I should state upfront that although this headline number looks like a massive jump, I have set aside ~$15,000 of this to fund my new car.  If you want to know a more accurate 'look' through net worth you need to subtract the assets by $15,000

November 2014 Net Worth: $562,000 (+8.8%)

Value% Change
Net worth$561,000+8.8%

What drove my net worth performance this month?

Holy Moly!  That performance was far better than I expected this month (although as I indicated above this number is flattered because I haven't yet bought my sports car...I'm in the process of buying one from Japan).  This is also the first month where my assets exceeded $900,000...$1 million seems so close.  So let's jump straight into the factors which affected my performance this month:
  • Positive factors
    • My bonus was paid this month
      • My bonus is paid in November every year and as a result it tends to be the 'wow' month for me
      • My bonus this year was far better than I expected which I confess is not something that happens very often.  However tax being what it is the amount that actually made it into my account was far less that the original headline number I was so excited about
    • I paid off all amounts owing to myself and saved a heap
      • By sticking to a pretty rigid budget I found that I was having to borrow money from my savings every month to make up for over-expenditures
      • When the bonus was paid into my account the first thing I did was to pay all of this back (my savings account is now 'whole') 
      • After that I put away some money for my wedding and for my car (for more details see the expenditure tracker below)
    • My credit card balance is the lowest it has been since July 2012
      • My credit card balance at the end of the month was ~$1,500.  I haven't had a balance this low in nearly 2.5 years!
      • This was driven entirely by the fact that I had saved for and cash funded my holiday expenditure.  The budget I set at the start of the year is really starting to pay off!
  • Negative factors
    • I generated a little bit of capital gains tax through share trading
      • I keep track of how much I owe in CGT so that I'm not surprised when it comes around to tax time
      • I sold some shares which I bought years ago because they had increased in price fourfold and I no longer really understood why I owned them

What is my outlook for next month?

Last month I knew my bonus was coming however I didn't realise how good it would be.  I targeted $550,000 and was happy to more than exceed this number.  In the coming month I don't have any 'big positives' coming and I'll probably be spending a bit on Christmas presents and the festive season.

I am also hoping to have purchased my sports car (which is going to cause a definite hit to my savings balance).  I am therefore going to keep my target for December 2014 to be a net worth of $550,000.  If I complete the year having achieved this I think I'm going to be pretty pleased with the outcome!

April 2014 Expenditure Tracker

ItemApr 2014Monthly TargetPerf. vs Target
Accommodation / Living expenses $1,703$2,246-$543
Car expenses$436$692-$256
Health / Well being expenses$427$566-$139
Entertainment / Personal expenses $1844$1,230+$613
Travel expenses$391$675-$284
Other 'big' expenses$4,600$3,508+$1,092
Savings / Investments$13,836$1,051+$12,785

If we look

Friday, 28 November 2014

I'm importing a car from's why

I have been talking about buying a sports car for years and it's finally in progress!  After humming and hawing and budgeting and saving it feels good to make some concrete steps towards buying this car.

As you could probably tell from the title of this post I am not going down the conventional route when it comes to buying the car.  I have decided to import a luxury / sports car from Japan and below I'll outline why and how I'm going to do it.

Why on earth would you want to import a car from Japan?

I have had this response more than once however having done my research there are a few reasons I wanted to import a car from Japan:
  1. I had looked through the cars available in Australia and I either didn't like them or they were too expensive
    • I spent weeks if not months looking at various cars on car sales websites and they were either not exactly what I was looking for or if they were they had high kilometres or were too old
    • I decided to drop my two door requirement and decided instead to look for a 2 door sports car that had practical back seats 
    • I then came across the Nissan Skyline 350GT which seemed to be exactly what I was looking for - it may not be a 'true' sports car but it certainly has enough grunt to make me very excited about buying one
  2. The only problem was that this car was never sold in Australia and all the cars you see on the road are actually imports
  3. So why didn't I buy a second hand one in Australia? How do you know what you're getting when you buy overseas?
    • It is true that a lot of cars which are imported into Australia have their clocks wound back - the problem when you get it here is that the a lot of the original documentation is actually missing so you can't verify that the km are genuine
    • If you can get this documentation and if you go through a genuine broker your chance of getting a wound back car is significantly reduced.  Why?  Because brokers trade on their reputation and they are reliant on people saying good things about them to get more business
    • If I bought a car in Australia (privately)  I would need to take it to a mechanic near the seller (one I don't know and wouldn't trust because there is no ongoing relationship so they could tell me anything).  This is no different to getting someone in Japan to check the car out for me
  4. There is greater choice when you are buying from Japan
    • Not only do they have more cars but it honestly doesn't matter where in Japan I am buying the car from.  In Australia I'm basically restricted to cars I can go and see while in Japan I have someone doing that for me
    • Further there are more options coming onto the market in Japan so I can be a bit more picky
  5. The price is slightly better
    • The price is only slightly cheaper in Japan than it is in Australia once you take into account shipping, compliance, taxes and registration
    • It is actually incredibly easy to import a car from Japan in Australia (provided it is on the list of approved cars for import) so Australian second hand models tend to depreciate with their Japanese counterparts

Aren't I going to have issues with insurance and repairs?

Insurance is the one big draw back of getting a Japanese import.  Insurers generally hate them and the ones that do insure you will charge you a massive amount.  However when I got a quote for insurance on the car I was quite pleasantly surprised.  Although it is $500 a year more than my current insurance it certainly wasn't the massive bill I was expecting.

I imagine this is for a few reasons:
  • I'm a bit older and have an extensive accident-free driving record
  • The car I'm getting isn't going to have any modifications 
  • Although it is a sports car it is also a bit of a luxury car - i.e. their accident record isn't as bad as some other hot imports
Repairs aren't going to be an issue either.  I did a lot of research on this topic and it isn't really an issue because it shares an engine with the Nissan 350z which is sold here so there are plenty of parts around.  You generally have to wait for body parts to arrive from Japan which is a 2 - 3 week wait but that isn't a big issue either.

I haven't bought the car yet...but the process has started

The thing about importing a car is that you have to wait for the car you want to come up at an auction.  I have appointed a broker to help me facilitate this process and provided him with my budget and requirements. 

My request for a sunroof means that I am going to have to wait a lot longer than I would normally...and I've given him quite a challenging budget so it will be interesting to see whether I can get exactly what I am looking for.

So far I have paid the $1,100 broker fee (which needs to be paid upfront) but nothing else.  As I get further along in this process I will keep you up to date.  As with my wedding spending I am not going to do a whole heap of posts on this topic but if you're interested shoot me an email and I can give you some great reading that I've done on the whole import topic.

Many thanks also to one of the readers, Mike, who put me onto the whole concept of buying cars at auction.  I really do get a lot of knowledge from those who shoot me emails and ideas.

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Tuesday, 25 November 2014

How to combine finances with your partner...a transitioned approach

A few months ago I asked whether there was a right way to combine finances with your partner.  I received some great tips both from the comments on the website and from some very detailed emails that people sent me.

What I realised was that everyone's situation was different and it completely depended on the couple involved.  In my original post I outlined some of the ways that couples combined their finances.  In this post I will talk about transitioning to such an arrangement - i.e. how do you combine finances with your partner smoothly.

How to combine finances with your partner in a smooth and trouble free manner

Some people are completely comfortable joining their finances together immediately.  I talked to plenty of people who didn't bother thinking about it too much - they just did it and worked it out along the way.  However largely these people seemed to either
  • Be broke (or not have a lot) when they combined finances - combining nothing is quite easy to do!
  • Regret not thinking about it more at the start - they were 'young and thought nothing could go wrong'
If you are thinking about combining finances when you're a bit older and if you're the type of person that thinks about things far too much (like I do) then mashing together two peoples financial lives straight away doesn't seem like the best idea.

Transitioning to joint finances has many advantages

There are several advantages of transitioning to joint finances instead of setting up one bank account and putting everything you have in there straight away.  These include:
  1. Being able to see how your partner deals with money
    • You will probably have a feel for this well before it comes to it however when you are actually sharing finances you will learn far more about how your partner thinks about and deals with money
    • For example - I never thought my fiancĂ©e was bad with money however she never really seemed to save a lot and didn't have any sort of nest egg.  What I discovered when we started saving together was that as long as she had a goal and knew how much she had to save each pay check then she would save like a fiend!  It's not the way I operate with money but it gave me far more comfort in combining finances
  2. Allows two people who come to a relationship with vastly different financial situations to have a 'mine', 'yours' and 'ours' bucket
    • I have no doubt that eventually everything is going to fall into the 'ours' bucket...especially when I get married
    • However in the interim I didn't feel comfortable lumping everything together straight away.  Perhaps I'm just a cautious person but I did prefer a slower integration
  3. You don't feel 'trapped' too early
    • A lot of people (including myself) valued the sense of freedom that came with being single.  This didn't mean that I don't want to be in a relationship...but if I have been saving for my sports car for a few years I don't want to have to have to run that by someone else (I saved for this!)
    • Eventually your finances will probably be completely shared and then something frivolous like a sports car becomes a joint decision but early on it should still be yours and transitioning to combined finances helps with this!
  4. Avoids some potential tax issues
    • If you already have a share portfolio or other assets be careful about transferring title (even when you do get married)
    • Often transferring title (even to a trust if you decide to set one up) will result in a capital gains event and will result in you having to pay tax even when you don't plan on selling the shares

A slow and progressive transitioning to combined finances is both natural...and it works

I found that slowly moving to more integrated finances is the best way to combine finances.  Below is an example of how you can slowly move to integrated finances:
  1. Set up a joint account and pay shared bills out of that account if you live together  
    • Work out roughly how much you need to spend each month in joint expenses and then each of you transfer an assigned amount into this account (it does not necessarily have to be half and half but it should be shared)
    • Continue to pay your wage etc. into your own account...the point of this is to combine finances slowly