Investor Book Review - Damn It Feels Good to be a Banker

I have finally uploaded my latest book review to my Investor Book Review website. Check it out:

Damn It Feels Good to be a Banker by Leveraged Sell Out

Once again this site seems to have 'fallen through the cracks'. I think there are a few reasons for this.

1. I am devoting much more of my time to this blog and tracking my personal financial journey
2. In my new job I am finally 'doing what I want to do' and am involved in investing decisions and research every day so my desire to read books on the subject has been somewhat limited
3. The last book I started reading 'Guns, Germs and Steel' has defeated me in a way that very few other books have. I find it really interesting though extremely dense so I can really only read one chapter at a time (compared to other books which I just fly through)

Anyway hopefully I will be able to find more books to write about in the near future. I may even tackle some technical books which I actually use more frequently but are not for your 'average punter'

The real cost of car ownership

In trying to break down why my personal expenditure kept going so far over my limit I started examining my major expenses. One of the biggest expenses I have (other than rent) is my car. I compiled the annual expenses of running a car and then broke it down by month and I was amazed what it came to!

It is really an exercise worth doing if you want to keep track of everything you are spending. So the annual expenditure for my car (a 2003 Mazda with only ~60,000 km on the clock which I bought for ~$19,000 in Jan 2010) is:

• Insurance: $1,100 p.a. ($91.66 per month)


• Servicing: $800 p.a. ($66.66 per month)


• Fuel: $2,340 p.a. ($195 per month)


• Cleaning: $360 p.a. ($30 per month)


• Registration: $676.50 p.a. ($56.38 per month)

The variable costs on owning a car therefore come to $5,276.50 per annum or $439.71 per month.

Further this does not include the effective ownership cost of your car. The newer (or higher priced) your car is the worse the depreciation effect and effective cost is higher. For example I did a quick check and my car could currently sell for ~$13,000. So for 26 months of ownership I have paid $6,000. This works out to an extra $230.77 per month giving a total ownership cost of $670.48 per month!

It really is worth doing the math yourself to see how much your car is costing you!

Expenditure Tracker - February 2012

As a reminder to the readers my monthly expenditure goals are as follows:

• $3,300 increase per month in my share investments


• $1,600 increase per month net increase in my loan offset account


• $1,500 increase personal expenditure allowed per month

In February 2012 this whole system seemed to go haywire. The main problems were around my personal expenditure (again) and as mentioned last month, if this continues into next month I will need to consider whether I've underestimated the amount I require to live on. I realise that many people would say that $1,500 per month is more than sufficient however as argued in my new years goals - I do enjoy some of the nicer things in life and I want to be realistic when setting my expenditure goals.

Below are my monthly performance numbers along with the over / under expenditure associated with them:

• Share Investments: +$1,125 ($2,175 under)


• Home Loan Offset Account: +$2,888 ($1,288 over)


• Personal expenditure: $2,748 ($1,248 over)

On a cumulative basis (January 2012 - February 2012) the accounts are as follows:

• Share Investments: +$6,125 ($475 under)


• Home Loan Offset account: +$2,597 ($603 under)


• Personal expenditure: $5,451 ($2,451 over)

In this month my personal over-expenditure cut into my investment programme significantly. On a cumulative basis however I am only ~$1,100 behind which isn't that big of a problem. The biggest problem I foresee for the next month is that based on my credit card expenditure I am already very far ahead of my personal expenditure cap (I believe March 2012 will be the largest credit card bill I've ever received). As a consequence both my share investments and home loan offset account will suffer.

February 2012 Net Worth - $228,000 (+8%)

Assets: $584,000 (+3%)
Liabilities: $356,000 (+0%)
Net Worth: $228,000 (+7.6%)

Although it appears that the performance this month was quite good it was actually a rather poor month. Of the $14,000 incrase compared to last month, $12,000 of this was due to an updating of my superannuation figures which had not been updated since I started tracking my networth.

Other asset movements included:

• Flat / slightly negative share market returns across the board. This was particularly impacted by the negative return over the month for the share that was rumoured to be under takeover consideration last month


• The first month allocation of my employee share plan (which I have written about previously)


• A relatively small increase in the amount of cash allocated to offsetting my home loan

Liabilities movements included

• A significant increase in my credit card debt due to significant over expenditure this month. In my expenditure tracker for February 2012 that I will post in the coming days I will detail how my personal expenditure blew completely out of proportion for the month which is going to impact my expenditure goal significantly for the coming months

For the month of March I am currently forecasting my first negative returns since I started tracking my net worth. In down months my net worth has been driven by inclusion of amounts previously not included (mainly around superannuation) and also the relatively frequent allocation of cash to my loan offset account. In March I will have virtually no cash to allocate to my offset account as most of my wage will go towards paying down my credit card debt.

Friday night budget blow outs

As indicated in my January 2012 personal expenditure tracker post, I am broadly keeping in line with my investing goals however my personal expenditure was far away from my goal and this month is actually looking significantly worse.

As a result I have been keeping a fairly close eye on my personal expenditure and there are several reasons that this keeps happening which include

1. I blindly pay fees for services I don't really need or because I'm feeling lazy. E.g. I will go to the closest ATM to withdraw money (and incur a $2 charge as it is not my bank) instead of walking for 2 - 3 minutes and getting it for free. As I normally only withdraw $50 - $60 at a go this really starts to add up


2. I spend a LOT on eating out. For me to spend $60 - $80 on a dinner is not unusual. I think there is a pressure to go to the best places and not worry about the cost because I am seen to be earning well (and my professional friends tend to have the same attitude.

The biggest thing that tends to throw my personal budget out however are Friday nights. As I prepare to leave work currently for a Friday night out I just did a quick calculation of how much I would probably spend which I've outlined below

• $30 - $40 on dinner


• $50 - $60 on drinks at a bar somewhere


• $60 on a taxi ride home (I live quite far out of the city as this saves me a lot of money but costs me on Friday nights)

The above represents a standard to a quieter Friday night and there is $140 - $160 of expenditure right there. That could easily go up to $250 if I am going out partying. On a monthly basis this works out to ~1 / 3 - 1 / 2 of my monthly personal expenditure without including things like memberships (gym etc), charities, hobbies, rent etc.

Over the next month I'm going to see if I can exercise some self control and will post about my progress.

Taking advantage of extreme foreign exchange rates

As I write this post, the Australian dollar is back close to all time highs against the USD ($1.0804), it has reached 27 year highs against the GBP (0.6795) and is at all time highs against the Euro (0.8147).

I have previously posted that a good way to take advantage of this is to invest in undervalued foreign indexes / stocks when your home exchange rate is high so you get the double benefit of a recovery in the stock price and the benefit of downside protection due to an expected improvement in the currency (note that this protection is over the long term).

The problem I am currently facing is that stocks had their best start to the year in a decade in January in almost all markets. This means that the case for investing in those stock markets on their own merit is not as strong as it otherwise would have been. I have been looking at other products to see if the idea can be replicated. Interest rate products in the US / UK and Europe are not attractive to Australian investors currently as their low yields (1 - 3%) are far below what could be achieved by investing in Australian bank stocks (6 - 8%).

An alternative I looked into was also buying and holding foreign currency. The opportunity cost of this money however is the interest / dividend yield I could be earning while invested in other products. Options offer an attractive way to gain exposure at a lower cost however their costs tend to be very high and as they are OTC products making a small investment to 'test the waters' does not appear possible.

I am leaning towards putting my money into a German micro cap stock that I believe in as the stock is not affected by European woes (Chinese based company listed in Germany). The exchange rate for the Euro is outrageous and if the Eurozone was to come up with a solution for their current woes the currency would immediately snap back.

Expenditure tracker - January

As I outlined in my new years financial goals I was going to track my expenditure over the year and see whether I have been keeping in line with my expenditure goals. As a reminder my targets were

• $3,300 per month increase in my share investments


• $1,600 per month increase in my loan offset account (net of interest costs)


• $1,500 per month allowable personal expenditure

As I mentioned in my January net worth post, I found controlling my personal expenditure the hardest. My performance is listed below along with my over / under performance of my relevant targets

• Share investments: +$5,000 ($1,700 over)


• Home loan offset account: -$300 ($1,900 under)


• Personal expenditure: $2,700 ($1,200 over)

I was relatively happy with my combined investment performance. Effectively I was only $200 below my target and this will balance out in the coming month as I allocate money to my offset account and not to my share investments.

The part that I found most difficult (as evidenced above) was personal expenditure. The problem that I have when I look at my performance is that I know in the next month I am going to increase this deficit as my credit card bill for February has already come through and it is not an improved situation.

I suspect that I've underestimated my own cost of living (i.e. I can probably live on $1,500 a month but I'm not sure that I want to) and will continue to evaluate over the coming months whether this is an unrealistic objective.