Month: January 2014

The worst advice I ever heard

I was wasting time at lunch this week, when I stumbled across this gem. Diane Foreman makes some bold statements, preaching to the choir of New Zealand Herald readers about how to best use your money.
Herald financial advice for 2014

Diane Foreman, owner of Emerald Group: Beg, steal or borrow to buy your own home, then pay off your mortgage as quickly as you can.
Home mortgage interest rates are cheap money and by paying off your mortgage you have the advantage of secure home ownership and the ability to remortgage your home for other investments, such as starting a business or investing in the stock market.
Residential real estate continues to offer a really secure investment base.

To be fair, it’s slightly better than just spending all your money on daily lattes, electronics, or other cupboard-filling gadgets/stomach filling niceties. But only slightly… Let’s go through this wisdom shall we?

Beg, borrow or steal to buy your own home.

Begging indicates that you are basically going in “over your head” to get a mortgage. If you have to beg a bank, or family, to support you, you are clearly doing something wrong. What happens when the interest rates rise and the just-breaking-even weekly payments gets too much for you? Do you know how much you’ll lose in a foreclosure? Not to mention the psychological impact of borrowing up to the hilt to get some real estate in this inflated market!

then pay off your mortgage as quickly as you can

Well that’s actually pretty good advice. Don’t go for the 30 year option – the banks love it! It means a guaranteed flow of delicious moneys for them for the next 3 decades of your life!

Home mortgage interest rates are cheap money

5-7% on a $300k mortgage (if you’re lucky! Maybe $600k if you want something decent!) is not what I’d call “cheap money”. 1% in the US – now that’s cheap money! But mostly I’d call this interest. Interest that you will be paying for 15-30 years, and will end up costing you about half of your mortgage amount.

A $350k mortgage paid over 15 years at 6% interest (Being highly optimistic here), will set you back $681 per week, and cost you $181k in interest. The same mortgage at 8% over 30 years will set you back a slightly more palatable $592 per week, and a total of $573,000 in interest. Yes, at this point, you would be *paying more in interest than for the house*.

Good luck, hope your house appreciates better than inflation! Have a play with the mortgage calculator at Interest.co.nz mortgage calculator and weep.

So to conclude, no, not cheap money at all.

By paying off your mortgage you have the advantage of secure home ownership and the ability to remortgage your home for other investments, such as starting a business or investing in the stock market.

Yes! After you have paid off that fat mortgage, remortgage it again so you can continue to pay interest! What a great idea!! And all for another investment, like a odds-are-it-will-fail business, or stock market! Oh hey, did you know that you can actually borrow money to invest in the stock market, without putting up your home as collateral? It’s called “buying on margin”, and is generally a stupid, insane idea!
This is how you invest in the stock market. You save up your money, right. And then you buy a good quality, low fee, index fund or ETF. You leave the money in there and automatically re-invest dividends. You continue buying shares throughout the good times and the bad. After 30 years, you are sitting on a massive pile of shares that are now paying out a quarterly dividend. You start moving money out of the volatile stock market, and invest it in bonds that give you a regular payout. You then use this money to fund your rent. There you go – you are set for life, and you don’t even need to worry about maintaining your own home.

Residential real estate continues to offer a really secure investment base.

No, no it doesn’t! What sort of insane idea is this? Where you under a rock in 2007-2009 during the US housing melt-down?

Let me drop some links to better people than me. Robert Shiller, insanely brilliant and very experienced economist says, “Your house is not an investment

JCollins, who writes a blog full of wisdom, says “Your house is a terrible investment

And how about Mr “Rich Dad, Poor Dad” : Your house is an asset scam

Why is it not a good investment base?

  • It’s illiquid – hard to get rid of, especially if the market is down the plug hole.
  • It can be wiped out in a few minutes by an act of God.
  • It needs constant maintenance to keep it’s worth, or perhaps you prefer to run it into the ground and sell it at a loss as a “fixer-upper”?
  • It requires yearly fees.
  • The price you sell it for will incur a ridiculous 5% sales commissions from your real estate agent.
  • It invites you to *spend more money* to make it look pretty and accumulate *stuff*.
  • It barely appreciates above inflation level.
  • It does not provide any cash returns on a yearly/monthly basis (unless you’re renting out a granny flat – great idea!).

The sad truth is, this is the majority opinion in New Zealand. I wait for the day for a rude shock to the market, or the retirement crisis, when retirees realise that they cannot afford to stop working, since “you can’t eat your house”.

If you really want to own a house, and can afford to do so without endangering your financial position. Then by all means, have at it. Just don’t delude yourself into thinking it’s an “investment base” or a great “investment”.

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Into 2014

2013 Review

1. Get more bad-ass at programming, more programming on my own projects, learning new technologies and techniques, and learning from the masters.

Yeah… well I guess I’ve learnt a lot. Wouldn’t say I’m any *better*, I just know how to use more technologies. Still getting some “flak” at work, but mainly because of constantly changing requirements/scope which makes the old design look ridiculous in the light of the new software requirements…

2. Get a qualification or two (Microsoft certification), and then start applying for senior development positions.

Nope… I started learning for the HTML5/JavaScript certificate, and I’m 50% there. Cancelled my exam in January because I thought I wouldn’t make it. Plus I’m thinking of a career change.

3. After a year, we’re going to start looking at the housing market, hopefully by this time it will have cooled down, and not gone into crazy bubble territory.

Nope… Market has gone insane and there’s no chance of us sinking $400k+ into a 3 bedroom shack. Our rent is less than the amount of interest we’d pay on a mortgage like that, plus it’s considerably overvalued, so any correction would be leveraged down to biblical proportions.

2014 Goals

On that note, let me outline my goals for 2014.

1. Spending much less time reading news, blogs and forums posts. My goal for January is no news at all (Newspaper, online or TV), and I’m only reading the blogs that I’m subscribed to. I’m hoping I’ll use the time for more productive activities.

2. Consider a career change into software QA. I used to be a hot shot QA a few years back, before I moved into software development. I thought at the time that development was my real “passion”. The first few years, I was relieved at having nice projects to work with, not being crunched at the end of the software life cycle, and the status of being a developer. It was a lot less monotonous developing than testing software.

Now after a few years in, I’ve noticed a distinct lack of passion in my work, I’m lagging behind my peers in skill and knowledge, and just feeling generally like a washed out developer.

Here in sunny (at the moment) New Zealand, QA resources get paid about 20% more than developers on average, so moving into QA would be both a boon to my wallet, as well as a potential boost to my confidence and happiness.
I think that the lower stress, lower pressure to be creative might be better for my nerves. I want to see if I’m more passionate about being a great Tester.

3. Wake up earlier in the morning – during the week I force myself out of bed at 6:30, sometimes 7, to get to work by about 8 – 8:30. On weekends, I generally sleep in until 9, I just can’t get myself out of bed before that. I hate the waste of 4+ hours on the weekend that I could be doing something, even just reading.

4. Start reading more – there are so many books I want to read, but because of items 1 and 3, I haven’t had much “time” to do so. Hopefully I will now!

Not really a goal, but I’ll be helping my husband get a job now that his studies haven’t panned out, and hopefully he’ll be happy for a few years before he starts burning out again. Ah, the joys of working in IT!

Summary

1. Spend less time reading news, blogs, forum posts.

2. Consider a career in QA – apply for a few jobs, read a few books, see how it goes.

3. Get up earlier on the weekends, at least 7AM.

4. Read more non-fiction and fiction books, 1 fiction a month and 1 non-fiction every 2 weeks.