Friday, 28 June 2013

Express Convenience Stores...A rip off by any other name

As I posted about previously, a few months ago I moved out of home.  One of the things I have to do now therefore, which I never had to do is shop for myself.  I actually find this a lot less unpleasant than I thought it would be and I'm rather organised about it - I make a list, stick to it and pick up goodies which are on special.

I generally do my shopping on a Monday night because it's the night I'm least likely to have any social activities on however as I was down with the flu last week I couldn't do my shopping.  I was then rather busy at work and so had even less time so I thought I would go to one of the convenience / express stores in the city near the office to pick up some essentials (such as bread, milk, cheese etc) to try and save some time.

I could not believe what a rip off convenience stores were

You always hear about how milk bars and corner stores are more expensive but that makes sense - they are unable to buy in bulk and thus they have a higher cost of product and you pay for the higher cost because it is convenient.

I made the assumption that it would not be as bad if I went to a 'brand name' store.  The store I went to was an IGA Express store.  The whole purpose of the IGA stores is that they have bulk buying.  I therefore expected to pay around the same price as if I went to a regular IGA or Coles wrong I was...

The prices in the convenience store were 2x - 3x what you would pay in normal stores
Instead of bread being $1 a loaf it was $3 for the home brand.  A small block of cheese was $7 instead of the $3 I usually pay for the same item.  This was true for almost all of the items that I was looking for.  I ended up buying just what I needed for that day and then doing a proper shop later in the week at a major store.

You are paying for the 'convenience'...

This is the ultimate form of price discrimination.  I have written about charging people different prices based on their ability to pay before.  Convenience stores take this

Thursday, 27 June 2013

Employee share plans: Make sure you calculate your tax properly

This post will be relevant only to Australian tax payers as it will have to do with a quirk in the tax system which means that you need to take special care about how you calculate your capital gain and tax payable on the income you make from the sale of your employee share plan shares.  Keep in mind that these rules keep changing and this is accurate for the 2013 financial year.

I have recently encouraged everyone to look at their portfolio and perhaps do some trades to avoid having to pay capital gains tax at the end of the financial year.  If you are not careful you could actually end up over or under estimating your actual capital gain and then trade needlessly

A recap of the basics

I posted more than a year ago about the basics of employee share plans and how you can make some money out of them.  They basically have some similar characteristics which include:

  1. They are issued at a discount to the market price
  2. You can sell them as soon as they are issued to you (they do not come with hold periods)
  3. When it comes to maximising your profit you have the choice of selling them straight away and making the discount in a risk free manner or you can hold onto them in the hope that they will appreciate more and sell them later in which case you can make more or less of a profit
The discount causes a tax quirk for Australian tax payers

Normally when you buy and sell shares you just look at the price which you paid for the shares and then look at the price which you sold them at including things like exchange rate movements and accounting for your transaction costs etc.

However if you look at the tax rulings given by the ATO (there is a whole section on shares issued to employees under employee share schemes) there are a few things that you need to keep in mind:
  1. The discount on the shares counts as part of your assessable

Tuesday, 25 June 2013

2013 Tax time reminders

With only 5 days to go until the end of the 2013 financial year I thought I would remind you not to fall into some common traps.  I have posted on these previously but they are good to remember before the end of the financial year.

90millionblog's tips leading into the end of the 2013 financial year

  1. Do not get sucked in by health insurance ads - it's already too late for this year
    • Every single year around tax time the health insurance advertisements remind you that you will get slugged an extra amount at tax time if you earn above the threshold and do not have private health insurance
    • They argue that you can still get cover before June 30
    • This is technically true however the tax penalty is paid for every day you are not covered for the financial year
    • If you didn't have cover you are going to get slugged anyway so take the time to find the right health insurance for you so you don't have to pay this amount next year
  2. Calculate your capital gains for this year and work out if you need to trade
    • In Australia capital gains cannot be offset against losses on your investment property - only against capital losses
    • If you have a realised capital gains in the

Friday, 21 June 2013

Don't feel guilty about taking that sick day

You may have noticed that for the last week or so I have not posted.  This was due to several factors but the biggest one was that I was down with the flu and any post would have contained more rambling than is good for any reader.

However it did remind me about something that I have been meaning to post for a while.  There are several media sources that delight in writing and showing videos about people who have been caught by their bosses when they have taken sick days when they are not entitled to do so.  Indeed there seems to be a perception in society that people will take a sick day at the slightest sniffle or cough.

This has not been my experience nor the experience of many of my friends and contemporaries.  In fact there are a remarkable number of people who feel extreme guilt about taking a sick day and who, as a result do not take enough of them.

Young professionals feel an incredible amount of guilt when they take sick days

There is a crazy guilt associated with taking a sick day.  This is particularly true for young professionals who are trying to make a good impression or who are working really hard to build a reputation in a competitive industry.  Some people who have expressed this sort of feeling to me include bankers (myself included), lawyers, accountants, doctors and dentists.

There is the feeling that you are letting the team down or that the project or deal or case you are working on is so dependent on you being there to finish your part that you could not possibly take a days leave.  And if you are finally that sick that you cannot physically come into work you feel incredibly guilty that you are at home.  You stayed glued to your blackberry or email making sure that you can respond instantly and you go back to work much too soon because your team or your clients or your deal cannot survive without you.

This is are not that important or critical that they cannot survive for a day or two

Your organisation and team was there before you got there and will be there after you leave.  You need to get out of your  head that you are that important to your team.  I totally get the feeling that you are indispensable and are needed for whatever you are working on but if you think about it objectively you will be able to see how easily you are replaced - it is not a great feeling but its one you need to come to terms with.

Further - your organisation would be better off if you actually took some time to get better

If you think about it objectively you are helping no one by

Tuesday, 11 June 2013

Watch out...winning the lottery or inheriting millions may not be the answer to your financial woes

I was having lunch with an old university friend recently who also became an investment banker after graduating.  He lives the 'banker lifestyle' and does not have a great deal in savings even though he is still in banking and is very well remunerated.  He mentioned that he plays the lottery every week and if he wins he will retire, buy the mansion and live a life of leisure for as long as possible.

Around the same time a reader sent me this excellent article on the danger coming into large sums of money and assuming that you are good at investing it when in fact you do not have the skill base required to make competent investments.

This caused me to start thinking about the problems that one faces when they come into a substantial sum of money.  This does not have to be from something like the lottery - those of us who do not play regularly (though 'dare to dream' occasionally) are never going to have a windfall like this.  However there are other windfalls which you can conceivably be fortunate enough to come across including

  • Receiving a small or large inheritance from a deceased relative
  • The company you work for gets sold and the stock you have been accumulating suddenly vests
  • You get made redundant and get paid out or take a redundancy package 
  • You win cash on a game show
However, if you are not careful, you can blow through this cash and have nothing to show for it

We have all seen the stories on television and heard about someone or the other who gets a whole lot of cash and then after 5 years has nothing to show for it.  It may even have happened to you - have you ever received even a small inheritance and then wondered where it all went just a short way down the track?

Why does this happen?

Although the ways in which this can happen are varied there are a few simple underlying causes which cause people to lose a windfall which should have helped them out financially.  These include:
  1. Treating themselves because 'you deserve it'
  2. Making bad or rash investments
  3. Taking advice from the wrong people

Most of us can see the problem

Thursday, 6 June 2013

What is the difference between the Dow Jones and the S&P500?

Anyone who is even slightly interested in the share market would have heard these two indexes.  They are mentioned constantly.  In fact, on the nightly news, when they talk about the share performance for the day it is often with reference to these two indexes.

Both these indexes seek to measure the performance of the US share market and cover US listed companies.  However they are fundamentally different both in the scope of what they cover as well as the way in which they calculate movements in the share market.   It is useful, therefore, for investors to have an idea of what they are hearing when they hear that the index has moved significantly and more importantly if investors are looking to invest in index funds - that they know what the difference between the indexes are.

Dow Jones Industrial Average

The Dow Jones Index is also known as the Dow Jones Industrial Average.  It was created in 1896 and is the second oldest index in the US.  Contrary to it's name, it is not really an average of 'heavy' industrial companies but rather covers the largest US listed companies.

How many companies are in the Dow Jones Industrial Average?
There are actually only 30 companies in the Dow Jones Index making it one of the smallest 'broad based' indexes by number of companies.

How are movements in the Dow Jones Index calculated?
I will not go into the details here but it is important to note that the Dow Jones is a price weighted index.  This means that the movements in the index reflect movements in the share prices of the shares in the index.

This has some important ramifications.  The size of the company does not impact the amount the movement it's share price has on the index.  For example, even if company A is 5x the size of company B and A's share price falls by 10% while B's rises by 10%, the net effect (all other things being equal) is that the index would not move.

There is an adjustment calculation for things like share splits and bonus issues so that these do not affect the level of the index.


The S&P500 is a more broad based index than the

Tuesday, 4 June 2013

May 2013 Expenditure Tracker

As I mentioned in my May 2013 net worth post, I spent too much and, as a result, did not save enough in May 2013.  The result would have been a lot worse but for the fact that I actually received cash this month for 'group expenditure' items which have to be paid off next month.  Much like March 2013, this month really bites however I am also going to have a bad result next month which I will discuss further below.

ItemMay 2013TargetOver/(Under)
Share Investments+$1,563+$2,000-$437
Offset Acct.+$1,945+$3,500-$1,555
Personal expenditure+$4,312+$2,200+$2,112

The major movements in my 3 accounts are listed below:
  • Share investments
    • This month I did not actively transfer any funds into my share investment account however I did actually put more money into the market
      • I normally have a certain amount that sits in my share trading account and I count this as money invested in shares 
      • This month I did not transfer any funds into this account however made 2 purchases of shares - one of a resources index fund per my post on a buying opportunity at the start of the month and the second a purchase of shares in an Australian share index fund at the end of the month
    • I also continued to contribute to my employee share investment plan
    • This month also saw some DRP shares come on which helped increase my share holdings for the month
    • With all these affects I was only slightly below my target investment level
  • Home Loan Offset account
    • This month had several countervailing factors affecting

Monday, 3 June 2013

May 2013 Net Worth: $371,000 (+1.4%)

Value% Change
Net worth$371,000+1.4%

In April 2013 I was targeting a net worth of $370,000 which I just managed to beat this month.  As I predicted last month one of the big swing factors in the month would be the share market and this proved to be the case.   Also, unexpectedly I had some big personal expenditures and my credit card bill, which blew out significantly last month only decreased slightly this month when I was expecting it to come in.

I confess that although I picked some of the factors that would drive this months net worth performance I was surprised by other factors (both positive and negative).  I have split the factors into both positive and negative factors this month for ease of reading

  • A larger than expected increase in my superannuation account
    • My superannuation sector allocations are actually much more conservative than my active share investments and I have diversified among sectors fairly evenly 
    • This would seem counter intuitive given how young I am however the risk of my active share portfolio is actually quite high (I have a large beta exposure) so I am comfortable with this
    • This has cost me returns in the last few months however it seemed to come good this month when the share market was under-performing
  • Continued contribution to my employee share plan
    • This has helped my returns time and time again as it is forced investment that I do not even think about when doing my savings / spending split
    • If you don't have some sort of automatic savings plan that takes your cash before you see it then I think you should definitely get onto it
  •  A particularly bad month on the share market
    • The share market had been running strongly for the last few months and I had noted in previous net worth posts that I was surprised at the returns I was getting from them
    • This month turned out to be a month for correction and almost all of my shares were