Friday, 31 January 2014

How much SHOULD you pay in rent?

I have mention in several posts recently that I have moved into an apartment on my own recently.  I decided to continue renting instead of buying as I wanted to save up a larger deposit for my own home as well as the fact that I have several big life goals that I want to achieve later this year.  This post will cover what I thought about when I was thinking about how much I wanted to spend on rent and what you should think about if you are looking into it.

The question is what SHOULD I spend on rent? NOT what CAN I afford?

When most people think about renting a place they think about what they can afford to get.  While it is important to live within your means I think it is much better to think about what type of place you want first and then look at how much it costs to get a place like that.

The problem with looking at what you can afford is that we are all maximisers.  I don't know anyone that would choose a place for $300 per week when their budget is $350 per week because in most cases the $350 place is much much better than the $300 place.

I have outlined a process below that I went through (and that you can follow) to work out what you should be paying in rent.

Step 1: Make a list of what you need and want in your home

Every one of us has different things that we need and want in our own home.  I was very focused on space and entertaining while the newness of the place was much more important to me.  If my girlfriend was choosing the place it would be a place which was smaller but where all the fixtures, fittings and appliances were new.

Work out what is important to you and then make a list of everything you want.  I decided that I wanted a 2 bedroom place - I hated en-suite only bathrooms (which typically come with one bedroom places) and I also wanted to have people over regularly so wanted to extra space that came with a 2 bedroom place.  I also drive so a car park was a must.  I needed to be close to the station because I catch the train into work every day.

Making this list of needs and wants helps focus you mind and will stop you maximising when you are hunting for a rental property.

Step 2: Work out what you can afford

I know I said that the question above should be what SHOULD you spend not what can you afford but it is important to keep your expectations in check.  If what you need and want far exceeds what you can afford then you need to trim back on your expectations.

Also - your rent should never

Wednesday, 29 January 2014

First Home Saver Account - Super Return but mind the strings attached

The First Home Saver Account is an initiative by the Australian government which allows people buying their first home (to live in) to get help from the government to save up for a deposit.  I remember being turned off by all the strings attached to the plan when I first looked at it a few years ago but if the timing works for you it can trump any other savings plan / investment in the market.

What is the First Home Savers Account?

The first home savers account is basically a savings account that you hold at your bank or credit union (note that most of the major Australian banks do not offer this any more but you can still get it from credit unions) which you use to save for your first home.

The benefit of this account is that:

  • For every dollar you put into the account (up to $6000) in any financial year the government will co contribute $0.17 (i.e. up to $1020)...that's a 17% risk free rate of return on the $6,000 deposited 
  • The account earns interest like a normal savings account.  Members Equity had the highest rate I could find at 3.25% p.a.
  • The earnings in the account are only taxed at 15%
Trust me when I say there is nothing else out there which gives you a return anything like this.  In fact if it wasn't the government giving you the return I'd wonder if it was a scam.  But there are strings attached...make sure you don't trip over them.

What are the strings attached to the First Home Savers Account?

There are some pretty big strings attached to the account.  Look at the Australian Tax Office website for full details but in order to be eligible
  1. You need to be an Australian citizen or Permanent Resident
  2. You must not have owned a house in Australia as your primary residence (this is how I still qualify - I own an investment property but it was never my residence)
  3. You must not have had a first home saver account before
Then there are the strings attached to being able to withdraw the cash itself:

Monday, 27 January 2014

Selling at a loss hurts...but lazy capital hurts more

Towards the end of last year I wrote quite a long post on the need to constantly re-evaluate your portfolio.  The chances are that you do not understand why you are holding onto every one of your stocks.  Worse, there may be some stocks in your portfolio which you know are never going to recover but which you hold onto because the original thesis (which was great) never panned out and you now have lazy capital.

Just because a share has decreased in value does not mean it is a bad investments

An investment thesis almost never plays out straight away.  If you buy a share or other investment and it goes down over the next few weeks or months don't stress about this - if your thesis still holds and you have confidence in it, then have the courage to stick by it.

An investment thesis can sometimes take years to play out but the rewards are there at the end - one stock I owned kept falling for almost 2 years but I still believed in my thesis and then within the space of a few months it more than doubled in value from my original buy in price on the back of that thesis.

Where your thesis has not played out...and you have turned out to be wrong then it is better to admit your mistake quickly

The first step is to stay on top of your investments.  If you have invested in a stock that seems undervalued and then the market fundamentals of that stock deteriorate rapidly then it is better to admit your mistake quickly.  Several years ago I invested in Fairfax Media (ASX: FXJ) on the basis that the stock was trading on an extremely cheap multiple - implying that the market expected print media to go out of business rapidly (i.e. a significant earnings deterioration in a very short period of time).

I thought that the market was over-doing it and I invested in the stock at $0.99 per share on the basis that I thought that it was worth at least $1.20.  In hindsight the market was completely right and I was completely wrong.  The stock very rapidly declined in value, with earnings being eaten away much more quickly that I expected and before long the stock was trading in the mid $0.30 range.

The dilemma I then had was that the stock once again appeared to be

Friday, 24 January 2014

Are crowd sourced product reviews really that helpful?

Several of my posts recently have been about setting up my new apartment.  This is the first time that I have lived on my own (and not in a share house) and so I am going through the joys of getting basic services set up such as gas, electricity, internet, contents insurance etc.  I have written a series of posts on how you should always shop around and that you can save significant amounts of money if you search for better deals on things like your power bills and your car insurance.

Getting the cheapest price is not the only also need to consider service quality

There is normally a price / quality trade off.  Customer service is often significantly over rated but you really do want good dispute resolution practices and a company that is prompt in responding to your concerns or issues.  The ideal situation therefore is to find a company which is reasonably priced but which provides an adequate service and deals with you in a fair manner.

We often look to 'unbiased' crowd sourced reviews on the internet before purchasing

The internet allows any one of us to express our views about both the good and bad about anything we buy and use.  It also provides you an opportunity to find out about the service level offered by different companies before you sign a long contract.  This is definitely a good thing as it allows us as consumers to make more informed choices about what we buy.

However...there is a natural bias when it comes to 'real' reviews which most people ignore

I only realised that there was a natural bias when it came to reviews when I came to sign up with an energy provider.  I found one (Red Energy) which appeared to give me the cheapest price and then I went online to look at what other customers were saying about them.

I was aghast at some of the things that their customers had to could one company be so bad.  No wonder they were so cheap!  I was relieved that I had stopped myself in time and I then went to look at the next cheapest company and was dismayed to find that they too had a litany of complaints about them.  And so it went on...every company I checked out had complaints.  I went to the expensive 'premium' service providers and they too had pages and pages of negative reviews.

That was when I realised that crowd sourced reviews have a natural bias

Wednesday, 22 January 2014

Fitting out your house or apartment on a budget

In recent posts I posted about both how I was moving into my own apartment and also my budget for 2014 and all the things I wanted to achieve this year.  I wanted to fit my apartment such that it looked classy and had good quality items, but at the same time I had quite a limited budget.  Here is how I did it and how you can fit out your apartment or house on a budget.

My budget: $2,000
What I needed to fit out: Everything except the bedroom

I was moving from a share house into my own place (as most people do) and so I had my bedroom furniture all sorted.  However I needed everything else.  Here is a guide on how to fit out your apartment or house on a limited budget.

Work out what your priorities are

There are some things which most of us will be able to get off friends and relatives, some things which we want new and other things which we are happy to get second hand.  Work out what your priorities are.  I am not that fussed about everything being new but I did want high quality furniture but was happy to get lower quality appliances.

Unless you have a budget of $10,000 - $12,000 you are not going to be able to get everything high quality and new so work out what is important to you.

Work out what you can get from others

If you have family the chances are that you will be able to get something off them.  I managed to get my washing machine and microwave from an aunt who had some old ones in storage.  I also got a fridge off her but after transporting it and cleaning it out thoroughly it turned out that it wasn't working so I needed to get another one...this is the danger of second hand goods.  My parents also had far too many pots and pans in storage that they never used so I managed to get this off them.

Now not everyone is going to be able to get this much stuff off others but most people find getting rid of large appliances to be quite a hassle so they typically put them in a shed and forget about them so ask around and see what you can get.

You can get high quality furniture second hand

Second hand does not mean

Monday, 20 January 2014

Get your Financial House in order

I have not posted in over a week which has to be some sort of record for me.  Normally it is the first thing I do every morning.  For my regular readers - don't worry - I haven't run out of ideas at all.  I have just been getting my financial house in order.  It's like a spring clean of my finances and I highly recommend everyone does it at some point or another.

It is easy to be lazy and let contracts roll...but this is not always the financially smart thing to do

Whenever we sign up for a new contract we typically research it extensively.  I generally spend hours looking up everything from health insurance to the price of my mobile phone contract to my gym membership.

However once these are in place it is generally a pain to renew them.  We often will for bigger ticket items that hurt every time we have to pay it - a good example of this is car insurance.  However if we pay a fee monthly (for example our mobile phone, internet or health insurance) we may not look at what else is out there...we may be missing out on paying a cheaper price for the same service or getting a better service for the same price.

Either way, this inactivity is how companies often make money.  In fact, energy companies are notorious for this.  They give you great discounts

Friday, 10 January 2014

Weekend watching: Palmer Drama

In the recent Australian election I was dismayed to see Clive Palmer elected to the Australian senate.  I wrote about it in a post about why you should not trust billionaire politicians with the basic premise that they are self interested and although his public rhetoric may be about 'the Australian people' that I suspected his true motivation lay elsewhere.

About a month ago, 4 Corners, an investigative television journalism show did an in depth report into just the issues I was talking about with respect to Clive Palmer.  I have great respect for the quality of journalism done by 4 Corners (especially the depth of detail they go into - see my Nathan Tinkler post for another example of a quality piece of theirs). When it comes to investigative reporting which relates to business activities, most media outlets dumb down their pieces far too much - what I like about 4 Corners is that they keep the complexity while subtly getting across they message they want to convey.

You can view the video here - it is a fascinating piece and really worth a watch.

Can Palmer do something for his electorate that doesn't benefit him?

The level of ego and self interest

Monday, 6 January 2014

2014 Financial Goals

I have been mulling over my financial goals for this year for quite a while.  When I first wrote my post about thinking about your financial goals for 2014 I thought I would have my goals set well in advance of the new year.

What ended up happening was that I really sat down with my pen and paper and started thinking about what I wanted from my life and from my finances.  I have written about how your financial goals and life goals are inherently intertwined.  I also wrote about how I keep putting off my personal gratification in order to achieve a better savings outcome.  I am lucky enough to have saved a lot over the last few years and this year I decided to take a different approach.

2014 will be unconventional for me...savings / investments will stay flat and I will do everything I wanted to do

I probably signalled in my post on not putting off your gratification for too long that I was thinking about doing things I had been meaning to do for a while.  At the same time I hate taking money out of savings.

I came to the decision, therefore, that in 2014 I would save very little but I would achieve everything that I had been putting off and that I wanted to do but which cost significant sums of money.  I will not dip into my savings to achieve this, but rather will spend what I earn and continue to invest the investable assets that I currently own (which are getting up around $300,000 so there is a fair amount I can do without saving more from my wage).

My expenditure tracker is changing to reflect these changed goals

Anyone reading this blog would have seen the format of my expenditure tracker - I track how much I save into shares, into my offset account and into personal expenditure.  Because this year so much of my expenditure will be in personal expenditure, I decided to split this into several different categories in order to better track and control my personal expenditures.

This was a useful exercise in itself because it forced me to think about how much I actually spend on different things.  Some of the spending categories really surprised me.

What are these 'big goals'?

Normally I don't put much about my

Friday, 3 January 2014

December 2013 Expenditure Tracker

This is my final expenditure tracker for 2013 and uses my reset expectations for 2013.  It also continues to be influenced by my smoothed expenditure technique.  This month I was good on so many fronts - my expenditure on Christmas gifts remained under control, I invested cash in both the stock market and into my home loan offset account however towards the end of the month in the height of the Christmas season I went a little silly and spent far more cash than I should have on going out and having a good time.

The full details of my monthly savings and expenditure are below:

ItemDec 2013Target (new)Over/(Under)Target (old)Over/(Under)
Share Investments-$9,944+$2,500-$12,444+$2,000-$11,944
Offset Acct.+$22,907+$2,400+$20,507+$3,500+$19,407
Personal expenditure+$6,845+$2,800+$4,045+$2,200+$4,645

As you can see my personal expenditure has once again blown out in quite a large way.  The major movements for my accounts are discussed in detail below:

  • Share investments
    • In previous months I had transferred funds into this account for FKP's latest rights issue
    • After being allocated my shares in this issue, I transferred the excess funds back into my home loan offset account
    • I also continued to

Thursday, 2 January 2014

December 2013 Net Worth: $478,000 (+4.6%)

Value% Change
Net worth$478,000+4.6%

My final net worth for 2013 was far in excess of where I thought it would be.  I posted last month that I was hoping for a net worth of $465,000 but as you can see above I managed to do much better than this due to the allocation of my FKP rights as well as the granting of my share based deferred compensation (the deferred part of my bonus from last month).

Over the last 12 months my net worth has increased $144,000 from $334,000 to $478,000.  This was approximately $20,000 more than the previous year which was an unexpected outcome because I have actually been saving far less out of my wage since I moved out of home.  The increase really reflected an incredibly strong performance in the share market.

I normally set my net worth goals on a June year end basis and when I set these in 2013 I set my net worth goal at $550,000.  This will be a bit of a stretch given my large cash flows tend to come in the second half of the year although it does feel achievable.  I am looking forward to crossing through the half million mark in the next few months.

Below I have outlined the positive and negative factors which impacted my performance

Positive factors:

Wednesday, 1 January 2014

Happy New Year and best wishes for 2014

A very happy new year to everyone!  I hope you all had a great night last night and are now excited about the near year and the things to come in this new year.

I love new years resolutions.  I rarely manage to achieve all of them but (as a list person) my new years list is normally miles long and covers every part of my life.  I encourage you to make a new years resolution list too!  Set your personal, financial and career goals for the year.

Take time today and in the coming days to think about you really want to achieve this year...perhaps it is finally losing those few pounds or perhaps getting a new car or going on that holiday you always wanted.  Or perhaps they are other goals like having a child, or giving a certain amount of your time to good causes.  The best thing about new years is that they are a blank start filling yours out.

I will upload my financial goals very soon.  I have been thinking about them for some time now and have just about sorted out what I want to achieve this year.

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Start thinking about your 2014 financial goals
2013 Financial Goals