Author: Marz

Cutting down on fancy pants living

I’m going to be running an experiment for the month of October (actually starting this week).  I’d like to cut out the daily coffees and almost daily snacks and muffins I’ve been buying.  I also want to cut out or down on eating out.  I’m spending about $450 every month on this, and it doesn’t seem like a great use of that money!

Over 5 years that can add up to $27k with interest/invested in the stock market.
I know you need to live a little, but honestly – over the last few months, those coffees have been a ritual instead of an enjoyment.  And the weekly muffin is scoffed down without much thought – going directly to the hips and stomach – while reading the terrible NZ Herald newspaper.

In comparison, I’ve had two blissful afternoons in the last two weeks.  The first afternoon I cycled around the harbour – always a beautiful route.  I gazed at the scenery, enjoyed the sunshine and exercise, and felt pretty free to do whatever I wanted.

The second afternoon I spent walking around Onehunga.  I did a bit of shopping (shouldn’t do this so much!), had a packed lunch in Jellico Park, and spent a good hour sitting in the park just thinking and planning and coming up with ideas.  I walked past a Cash Converters and spent some time trying out their second hand guitars.  I then went home and played on my cello for an hour.

Both times I didn’t need to spend money, unfortunately I did.  And that money spent didn’t add a whole bunch to the experience.

The point is, there’s a lot of different things I could be doing that’s not paying for coffee and sugary treats.  I want to break this cycle and see what it’s like to not have this automatic urge to buy coffee all the time.  At the end of the month I’ll see if it’s worth paying for it – and perhaps I will reset that particular hedonistic treadmill.  I’ll try report in on this experience over the next few weeks!

 

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2017 Goals

Reviewing my 2016 Goals (which was actually more like end of 2016 and half of 2017)

 

1) Setup a regular exercise regime

I’ve started running on a semi-regular basis.  More importantly I’m biking to the train and into work on my awesome little cruiser bike.  It’s not a huge amount of exercise, but it is consistent!

2) Get off anti-depressants successfully – I’ve started and waiting for the withdrawal effects to wear off.

I went back on it for a while, and now am off it again.  Just taking 2.5mg for the brain zaps until brain chemistry comes right.  Using meditation, CBT and exercise to help me through withdrawal.

3) Get up at 9AM on the weekends (See – setting up more realistic goals, I’m learning!!)

Yup, I’m pretty much getting up at 9 or 8 if I’m doing something.  I’m also getting out of beds earlier during the week – either 5:30 and doing a morning reading, or 6 and heading straight into work.  Means I get home a bit earlier as well.

4) Install a Chrome extension to remind me every x minutes, to check if I’m reading something worthy of my time.  I’m sure there’s something like that out there.  If not I’ll develop one 😛  I hate clickbait with a passion, but somehow always find myself on those stupid “X ways you know why bla bla bla blergh” articles.

I installed something to remove clickbait, but not to remind me every x minutes.

5) Setup regular meditation – 15 minutes daily.

I got Headspace, which works quite well.

 

2017 Goals

  1. Learn to play the Cello – practice every day for 20 minutes!
  2. Meditate every day for 10 minutes
  3. RUn saturday mornings
  4. Get through my Steam games backlog without buying more games!

2016 goals and review

2014 goals review

Gee, look at that!  I missed a year… how did that happen? Oh yes, I changed companies and career, I guess that made me pretty busy 🙂

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

Yeah, not so much.  I’m a bit more aware of the time wastage, but I still do it.  I wasted like a weekend on some really dumb Youtube comedy star that turned out to be a psycopath.  I won’t say who, I really don’t want them to get more views.

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

Yup, did it.  Best decision ever!

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

Nope, nope, nope.  On average I now sleep until 10 on the weekend…  I blame it on the depression >.>  (I suspect I’m just lazy and my bed is too warm and comfortable)

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

Am reading a bit more library books, could read more.

 

2016 goals review

1) Setup a regular exercise regime

2) Get off anti-depressants successfully – I’ve started and waiting for the withdrawal effects to wear off.

3) Get up at 9AM on the weekends (See – setting up more realistic goals, I’m learning!!)

4) Install a Chrome extension to remind me every x minutes, to check if I’m reading something worthy of my time.  I’m sure there’s something like that out there.  If not I’ll develop one 😛  I hate clickbait with a passion, but somehow always find myself on those stupid “X ways you know why bla bla bla blergh” articles.

5) Setup regular meditation – 15 minutes daily.

I only have around a quarter of a year to get this going, wish me luck!

 

The Path to Wealth – the road less travelled

As readers can tell from my last post, I have accumulated a bit of knowledge over the years on how to invest in the stock market.  Most of this has just been reading some key financial blogs rather than consuming massive financial textbooks.  One of my favourite blogs, JLCollinsSnh, has an excellent series on Stock Investment, and I am excited to also share that he has just released his book on the topic,
The Simple Path to Wealth: Your road map to financial independence and a rich, free life
by JL Collins.

I received a free preview copy in exchange for a fair review, which I was quite happy with since I was keen to dig into the content as soon as possible.

In the interest of full disclosure, I also didn’t have time to finish it completely in time for the release. Like most people I have other things going on – holidays, work, other hobbies – that are competing for my time.  That’s why I enjoy taking in financial knowledge in small bite-sized blog pieces;  I enjoy reading about it more  and remember it better by doing so. Fortunately The Simple Path to Wealth is perfect for this method of consumption – being both enjoyable to read and well paced.  A good few breakfasts were spent devouring cereal and a chapter in the morning.

I started off thinking I’d just read a chapter or two to start – I ended up reading 10 and forgetting about lunch.  That’s pretty impressive for a book on money – usually I’m asleep by chapter 2 or finding an excuse to put it down.  JL Collins is very experienced in delivering difficult content in easy to assimilate pieces, and I really noticed this in his chapter on bonds.  He divided the chapter into stages to explain bonds, explaining to only read as far as you thought you needed and then move on.  It was a brilliant idea to actually get me to read about the most boring subject on Earth, and also allowing the reader to not stress too much about how “difficult” the content would be.

Another brilliant chapter included a comparison between Martial Arts and stock picking.  When Mr Collins was learning Martial Arts, he was given a warning – if he was ever tempted to use kicking techniques in a street fight, he needed to ask himself – “Am I Bruce Lee”?  If the answer was “No”, then he should keep his feet on the ground… because it’s always harder and riskier than it looks.  Stock or fund manager picking is exactly the same – ask yourself “Am I Warren Buffet?”.  If you are not, you will come off second best.

The Simple Path to Wealth contains tried and tested wisdom; forged in the fires of several market crashes, a recession and hyper-inflation.  Jim has lived through these, as well as a retrenchment and some “F*** you” moments with his boss, and lived to tell the tale. I really enjoy his writing style, and the serious financial content is lined with gems of his own stories in between.  This makes it a very enjoyable read and you won’t find more down to earth, sensible, advice very often.

I really appreciate how The Simple Path to Wealth is devoid of any horror stories or scaremongering.  In the age of “The Stock Market is doomed!” type stories, it’s a breath of fresh air to hear that it’s happened before, it’ll happen again, and don’t worry – you’ll be just fine if you stick with the ride.

This is advice that I heard years ago from my Dad as I started out on my own financial journey, and it certainly shines through that it’s his love for his daughter that has driven his blog and stock market investing series.  I’m just glad that he’s shared this insight with the rest of the Internet and now offline readers as well.  Here’s hoping that many, many more people will now hear his message, and gain many years of simple stock investment and a prosperous path to wealth!

 

 

Advise to a friend

I decided to share this on my blog as well – some advice I gave to a colleague when he expressed interest in what I was investing in.  People are stunned when I come up with this in conversation, but it’s not that I’m an investing guru – I’ve just read lots of great blogs on the matter.  And I’ve had many years of practice and making mistakes – ever since my Dad got me started with a decent sum of money in an investment account for me to work with (Thanks Dad!!).

I started off with sharing the best investment series I’ve ever read.  I love Jim’s blog – he’s got heaps of great advice and a fantastic writer. 🙂

His full series on investing

If you don’t have time to read all of that (it’ll take a while, don’t blame you), read through these first:

What I invest in

Advise below is from a New Zealand point of view, where I mention FIF or taxes, review your own country’s policies on foreign investment.  If you’re from AU, UK or US you can invest in Vanguard directly and then you just need to follow standard investment tax information.
My hubby and I invest in Vanguard ETFs – VAS (Aus 200 index) VTS (US index), VEU (world index) and NZ index SmartFunds

 

NZ SmartFunds are an easy place to start, but they have quite high management fees
 0.75%.  It doesn’t sound a lot, but it adds up over many years!!
Inline image 2
Vanguard – yay! VEU is only 0.13%
 Compare to Vanguard which is from 0.05% to 0.20%

 

Inline image 1
SmartFunds – 0.75% – not so smart 😦

 

 

Smart Funds allows you to sign up and invest a small amount monthly, like $100 or $500 – might be a good way to start saving and investing, then the investing bug might bite!

 

Downsides to direct investment in AU Vanguard:

  1. International investments over $50k (single account) or $100k (joint account) will mean you’ll have to pay FIF tax.  Below this you’ll need to pay tax on the dividends you receive.  Over $2500 a year in RIT kicks you into provisional tax regardless!
  2. You’ll have to be disciplined to not sell your shares if there’s a market crash, and you’ll be tempted to fiddle with the assets – buy/sell when you think the market is high or low.  It doesn’t work – you just have to leave it X)
  3. Each purchase incurs broker fees, so you have to do the math (And save up enough) for a purchase that’s enough to meet the minimum brokerage fee, else you’re leaving money on the table.
  4. The US and world index funds don’t re-invest the dividends for you.  You’ll be sent Australian cheques that you then have to cash in at the bank where the tellers need to work out every single time how to process an international check!  You can pay your broker to handle that, but it’s more money on the table you could be saving instead.
  5. You need to do the purchasing of shares every now and then – can be anxiety provoking.

Alternative to investing in the market directly yourself:

If you don’t feel confident to tackle the stock market just yet, sign up for a managed fund like SuperLife – they charge lower fees than most fund managers, as they in turn invest in low fee ETFs themselves.  They’ll diversify your portfolio for you across international and local markets, plus they handle all the tax for you as it’s a PIE fund – WIN!  They are pretty much investing in Vanguard like ETFs and Smart Shares on your behalf.

 

 

If I didn’t know too much about the stock market already, and didn’t really enjoy managing my portfolio and tracking it myself, I’d sign up for this.

 

Alternative, alternative to investing:

Simply increase the percentage you save on the Kiwisaver you’re on (You are signed up for it right?? ) [Note this is the NZ equivalent of a employer match saving scheme into a fund that you can’t withdraw on until a certain age/retirement)

 

It’s got tax incentives (I think…) and it should be a fairly decent investment.  You will need to just…
  1. Check what fees your Kiwisaver company is charging ( SuperLife was the cheapest when I signed up)
  2. Make sure your Kiwisaver is going into a “growth” fund or similar that invests mostly in the stock market.  You don’t want it in a “income” or “conservative” type fund – that’s for seniors who are about to cash out 🙂

Kiwisaver is awesome because the employer contribution is like getting a 100% ROI right off the bat.  There is no investment that will give you 100% back for your contribution.  I think my company matches up to 3% or so, but there’s nothing stopping you from paying in more to save up.

I think I’ve had a ROI of 110% so far with the employer and government contributions, and the investment growth – WIN!

Downside is you can’t withdraw until a certain age, except for when you want to buy your first home.  Not being able to withdraw the money could be a good thing!
Hopefully this was useful, and good luck with starting out in investing!!

How to come out ahead of house buyers when renting

I’ve just done a very interesting calculation tonight on my trusty rent vs buy worksheet.

Common wisdom says that you should rather pay a mortgage than throw money away on rent, no matter how expensive the mortgage is (after all, houses always go up in price right?).  Well here’s a nice example of why that doesn’t work so well when your country has a high interest rate compared to the US!

I am comparing a house valued at about $475 000 against a weekly rental of $490.  This is what we’re currently considering moving to! I had thought the rental very expensive taking into consideration the size (smallish) and area (lower decile schooling).  We are currently getting away with $415 a week on our current rental, but it’s quite far from work for both of us.  We should save about $50 a week on petrol, so it’s only a small bump up (Trying to console myself here, but anyway).

If we were to buy the house, we’d need to have a deposit of $95 000, selling shares to do so.  And leaving aside the fact that I would *never* sell all my shares just to invest in a single house… (Wow, the diversification on that would be horrendous!).

We would have to take out a 20 year mortgage to afford the monthly repayments.

Expense Monthly cost
Mortgage Repayment $2722
Interest repayment (part of mortgage payment) $1139
Rates and Body Corporate (if applicable) $158
Maintenance $148
House insurance $67
Total monthly cost (Buying) $3095
Total monthly cost (Renting) $2123

I’ve estimated the house would be worth $743,430 after 20 years, at a conservative 3% increase per year. If Auckland continues at 10% over the next decade then God help us all. 😉

With selling costs of $37600, that comes to $705,830 money in the bank at the end of it.
You’ve also actually spent a total of $653,385 paying off the mortgage.
So you could say you’ve come out ahead $52445, and you have a house/pile of money worth $705,830.

So the secret to renting is this…

And this is the key, because apparently not many people realise this or actually do it… Take the difference between what you would have paid on mortgage, rates and maintenance, and save it instead. Invest in shares preferably rather than stuffing cash into a bank.  In this case, the difference saved per month would be $972 per month, invested for 20 years.  Initial investment amount would be $95,000 (deposit amount that you still have), minus bond of $2000.

Compounded monthly, at a conservative rate of 7%, that’s about $884,897.08 at the end of 20 years. You would have spent $509,520 on rent.
That means you come out ahead $375,377 and you have a pile of shares worth around $884,897.

So some small tweaks that can affect these figures:

  • House price increases – could be a lot worse than 3% over the next decade and unlikely historically to be more.  Taking into account inflation it’s likely your house is worth not much more than when you bought it.
  • Stock market returns – very likely to be worse than 7% over the next decade since the market is a bit expensive at the moment.  But over 20 years we can expect to see 7% on average (Actually, I think it’s more like 11%, but taking into account *inflation* here.
  • We could move into a cheaper rental, or we could buy a shed or fixer-upper to save on housing costs.  It’s unlikely we’ll do either!  My husband doesn’t like the “Live in a RV” idea 😦

 

So what do we live on when we’re old and grey??

Well, firstly, you can’t eat your house. So if you’re banking on living on your house, you’ll need to save something every month anyway.

Secondly, that pot of $800k will be able to pay out about $32,000 (4%) if you have a mixture of shares and bonds. That will pay for a seriously nice rental!

Or you could move somewhere a bit cheaper, buy a decent house, and live off the rest.

 

Gaaah, I want a home to call my own!!

In the end, it’s a personal choice. It’s the luxury of knowing you belong somewhere, that you won’t be kicked out by the landlord, that if you dent a wall you can just not care.

I am right there with you, wanting a place of my own. But please recognise that renting is not throwing money down the drain….

… As long as you invest the difference!

Credit to my wise Dad for the advice, to myself and Excel for the calculations.

Also see:

Buy vs Rent comparison

Note this doesn’t take into account investing the difference!  In my case, it worked out renting is better than buying for less than 7 years.  After that we would break even.

Investment Savings calculator:

http://www.moneychimp.com/calculator/compound_interest_calculator.htm

Mortgage repayment calculator:

https://www.sorted.org.nz/calculators/mortgage-repayment

Rental/Buy price comparison:

http://www.trademe.co.nz

Or use local statistics – I couldn’t find any for my suburb so I used a 3 bedroom house for sale in the same area, compared with the rent our landlord is asking.

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”.