Personal Finance

Advice and what cost and value?; Retiring on an average income; Defining success; So you want to be the boss?; The joy of paying bills

Amanda Morrall — Mon, 20 Feb 2012 19:32:01 +0000

By Amanda Morrall (email)

Here's what's interesting and inspiring in personal finance for Tuesday Feb. 21. Thanks all for the great vampire stories, your comments, feedback and salutations. Keep 'em coming.

1) Good advice?

Niko Kloeten of Good Returns reports on a survey that found less than one in five KiwiSavers make use of a financial advisor to determine what provider to engage and what fund to invest in. The findings are consistent with a financial literacy survey done by the Retirement Commission which found that many Kiwis rely on well meaning friends and family members for financial advice instead of professionals.

What's most interesting to me is the comment thread unmasking the view from the financial advisory sector.

Seems even folks within the industry are conflicted about whose qualified to give advice which is hardly confidence building for the investing public. Here's an outline from the Financial Markets Authority explaining whose entitled to give what advice under the new regulatory framework. Still many grey areas in my opinion as QFEs (qualified financial entities) i.e. banks, can decide from themselves whether their employees are qualified to do the job of advising singularly on their own product. Pays to do your own research.

2) Average Joe

Every day I discover a new personal finance blog it seems. Here's one outlining the retirement outcomes of five "average" Americans and how they got ahead. Proof positive that you don't have to be a millionaire to live comfortably in retirement. What's most inspiring and impressive is that the candidates profiled were all philanthropists and left behind them a legacy of goodwill and money for good causes.

3) Happiness and success

Happiness is both enigmatic and elusive. I tend to think that it is a relative state. I also regard contentment as a more sustainable and achievable state but of course relish jubilant highs.

This bog by themillionairenurse.com discusses the difference between happiness and success and how productivity can impact on the latter. Good food for thought, even for those outside of the medical profession.

4) Boss for a day

I vaguely remember a trend in the late '80s or early '90s where you could swap jobs at work and be boss for a day. Or possibly I've confused it with "slave for a day.'' I have no desire to trade shoes with my boss. They're massive. Also too many bumpy flights to Wellington for OCR updates (decidely uneventful occasions these days) and three-espresso economic lectures. Those who aspire to take the corner office should do their research first so they know what that job really entails apart from a bigger paycheque. At least that's the suggestion in this blog which also troubleshoots three other "sticky work" situations. For those eyeing up #4 on flex time and working from home, here's a link to the Department of Labour's website explaining the rules of the Flexible Work Arrangements Act. A progressive piece of law in my humble opinion.

5) The joy of paying bills

Last week, I had a lovely surprise. I heard from a former colleague and friend from Canada who has a somewhat parallel life to mine; single mother, business writer, a great lover of life. I discovered that she also has a money blog. In her latest, she writes about why paying the bills bestows upon her a warm fuzzy feeling. At first I thought she must have gone mad from the arctic cold in Canada. But as I read on, I discovered that she's just basking in the glow of gratitude (being in a position to pay the bills) which I believe is a solid foundation for wealth creation. Thanks babe! Come to NZ when you've licked the mortgage.

To read other Take Fives by Amanda Morrall click here. You can also follow Amanda on Twitter@amandamorrall

How to protect your young ones from financial vampires and a long slow bleed in KiwiSaver

Amanda Morrall — Mon, 20 Feb 2012 23:58:56 +0000

By Amanda Morrall (email)

Dear readers;

Thank you very much for sharing your stories of financial vampirism.

I thought I would share with you a horrifying true life tale that landed in my inbox. This one relates to fees paid on a junior KiwiSaver account that has been losing money ever since inception and with fees at the higher end of the chart.

First the email:

Yes, you were correct, fund managers seem to be among the biggest of vampires. When Kiwisaver first started I enrolled my two daughters with the thought of getting them onto the Kiwisaver ladder early with my chosen Kiwisaver fund. Little did I know that in reality I was only lining some one else’s pocket with any returns they may make.

The latest statement (Feb 2012)shows just how much blood they suck.

Total contributions $ 1040.00 (all govt)

Account Balance      $ 897.18

Simple return since inception -13.7%

Fees incurred so far: year end 31/3/09    $29.12

                                                             31/3/10    $49.92

                                                              31/3/11    $49.92

                                                              31/3/12    $49.92 (probable guess)

So to sum up. A loss of $150 ish and still charged fees paid of probably about $180 ish.

This is a grim story to be sure. I can't decide what's worse, those exorbitant annual fees or the poor performance. I am guessing that the fund is of an "aggressive" nature in exchange for those above average fees. I confess, I also put my kids into a growth fund that has also gone backwards since inception. (Here's a story I wrote about it awhile back. My apologies for any confusion at the time writing about member tax credits applying to under 18s; they don't.)

For the benefit of other junior victims out there, check out our balance estimator calculator below which shows how long it could take to lose your kick-start without putting in any additional contributions, and with fees and negative returns stacking up.

A reader kindly pointed out that Westpac does not charge fees on its junior KiwiSavers provided they have a savings account with them which is laudable. If there are any other providers that do this I'd love to know about them.

In the meanwhile, I am in search of more true life tales of financial vampires, in particular those relating financially lecherous partners, tax horrors and insurers.

Please email me directly at amanda.morrall@interest.co.nz

Investing in your relationships; 10 traits of an outstanding leader; The toothfairy as a financial advisor; Lifestyle inflation; Tax credits

Amanda Morrall — Fri, 17 Feb 2012 04:13:43 +0000

By Amanda Morrall (email)

1) Connectivity

On a business trip awhile back, a Maori delegate I was travelling with us gave a closing speech in his native language and translated it into English afterwards. I can't remember the talk chapter and verse but it closed with an important lesson about how the real value in this world, "what counts most" is "people, people, people.'' I was reminded of that sage bit of advice after reading this piece from financial advisor Liz Koh on the value of investing in personal relationships.

Invest in Your Relationships

One of the most interesting aspects of wealth creation is that it is virtually impossible to do on your own. Put a person on a desert island and he or she will not create any additional wealth than is already present on the island. Give that person the best technology available to communicate with others and suddenly there is an almost unlimited ability to create wealth. There is a direct correlation between your wealth and the nature and extent of your relationships with others. Think of any super wealthy person – Bill Gates, Mark Zuckerberg for example – and think about how many people in the world they interact with either directly or indirectly. It is through these connections that their wealth has been created. There are, of course, many different types of relationships that we all have which contribute in different ways to our financial wellbeing. The better your relationship with your partner and immediate family members, the happier you will be and the more likely you will be to succeed financially. Separation, divorce and arguments about money on the other hand, lead to financial loss. Good relationships in the workplace lead to increased opportunities for career development and pay rises. Developing networks with people in the wider community can lead to both career and business opportunities. Professional relationships with experts such as accountants, lawyers and financial advisers will help you make the right financial decisions in life.

So many people live their lives with a narrow circle of friends, barely interacting with the rest of the world, and wonder why there is little change in their financial position. These days, with the advent of social media networks there is little excuse not to be well connected. You can achieve financial success by investing time and effort in developing your relationships.

2) 10 traits of a good leader

I don't think it's any coincidence those who invest in their inner circle, on an authentic level and not just an exploitative how to get ahead basis, make good leaders. People are drawn to them and inspired to reach their potential as well. Here's an article from pickthebrain.com on the 10 traits of an outstanding leader. Good food for thought for those trying to cultivate success beyond a six figure salary.

3) Tooth fairy money lessons

My youngest looked me square in the eye last week and asked me whether the tooth fairy was "for real.'' I crossed my fingers behind my back and replied "Yes, of course.'' We visited the tooth fairy's den once in Kaikoura on a cave tour I reminded him. I know the gig is up soon but it's nice to stretch the magic of make belief a bit longer. Here's a piece from the Globe and Mail on making financial mileage out of the tooth fairy by using her as a opportunity to engage your child on the subject of money. A survey, out of Canada, shows 87% parents give between $2 and $5 per tooth so the lessons x32 could be valuable one day. And here's another from frugal zeitgeist on the benefit of early education in money.

4) Lifestyle inflation

It is a fact of life that for all but the most restrained the more you earn the more you spend. Call it lifestyle inflation. I was talking money with a friend the other day who confessed that he had more money and less worry of it as a "broke student" than an active and thriving member of the workforce because as a student, his financial life was relatively uncomplicated. No money, equals no spending. It also equals no savings which is no good but by adopting this student mindset and habit, most of us could stand to gain.

On that note, I also found this financial confession from sustainablelifeblog.com quite interesting. In it, he talks about how despite a pay increase that came with a new job, he ended up blowing more of his discretionary income. A shrewd inventory of his expenses found the main culprits were take-aways, taxes and a one-off splurge on an engagement ring. Can't fault the guy for spending on love but the added tax grab for worker trying to get ahead is a burn to be sure.

5) Tax deductions

The aforementioned blog resonated with me on a few levels. The move from Christchurch to Auckland was sweetened by a pay increase but lifestyle inflation, even though I seldom go out, has been a burn. In my case, the lifestyle cost increase came in the form of a beach. School expenses have been another unanticipated gobbler of income. This year's fees went up almost 20% to $300 per kid. I understand that's not bad compared to what others are paying but still. A reminder to parents that school fees are a claimable tax deduction. See Inland Revenue's website here for other eligible tax credits.

To read other Take Fives by Amanda Morrall click here. You can also follow Amanda on Twitter@amandamorrall

Live, learn and grow; How much do you need to save for retirement; Losing money while you sleep; Automatic savings; Median rents

Amanda Morrall — Thu, 16 Feb 2012 22:05:51 +0000

By Amanda Morrall (email)

1) Educate yourself

I have a repertoire of mantras that I draw on in both good and bad times. One of them is "If you lose don't lose the lesson.'' I borrowed it from the Dalai Lama. I have found it to be quite profound and apply it often. It makes disappointment and frustrations a lot easier to take. I have come to believe there is always something to be gained, even from the ugliest of situations if you open your mind and eyes to it.

Personal finance blogger squirrelers.com shares that view and suggests that adopting this attitude across all facets of life, experiences and relationships will also add to your bottom line if you take the lessons on board and apply them.

2) How much do you need?

Is 2% of your gross salary going to cut it for your retirement savings? Maybe if you live like a monk in retirement. I like learning from monks but I don't want to live like one. How much you need will depend on a whole range of factors including when you started saving, how much you are setting aside, your returns, tax, inflation, fees, and lifestyle in retirement. This blog by sensetosave.com reviews some of the basics. Substitute 401s for KiwiSaver.

See also our Kiwi-friendly cost benefit calculator here for more retirement savings guidance.

3) Losing money while you sleep

Apparently I was sleeping a lot last year. Global equities sucked the life out of my kid's university education funds. Here's some sobering advice for investors with individual stocks in their portfolio basket via reuters.com.

4) Automatic savings

Pay yourself first. It's a standard line uttered by financial advisors to get clients into a savings mode. One of the most practical ways to achieve that is by having the money come out of your paycheque before you get a chance to spend it. Novelinvestor.com extols the virtues of automatic savings here.

5) Median rents

Our median rents chart here pains me every time I see it. Why? Because even though I live in a modest three bedroom home, and not a mansion, my proximity to the beach means I've crossed the median. Nationally it's NZ$320 per week. Auckland's fell from a peak of NZ$510 last November to NZ$495 in January. I look longingly at the median but fear another move might just kill me. Life is a series of trade-offs. Fortunately, I love the beach and go there most days.

To read other Take Fives by Amanda Morrall click here. You can also follow Amanda on Twitter@amandamorrall

Personal finance editor Amanda Morrall exposes financial vampires in our midst, asks for your stories for publication

Amanda Morrall — Thu, 16 Feb 2012 01:19:29 +0000

By Amanda Morrall (email)

Some of you might know I'm writing a book. It's a layman's guide to personal finance. It's the anti-thesis of the how to-get-rich quick genre of books. My thesis is that in addition to being mindful, smart, and sensible with your money, you need build up your inner bank account.

What does that mean? Lots of things but it starts with taking stock of your non-financial assets, what you really want out of life and how you can make a difference. My thinking is that it's not going to do you much good having a million bucks in the bank, if the means by which you achieved it makes you miserable, sick, divorced, or perhaps morally bankrupt.

A more holistic approach to personal finance takes into account the bigger picture. Finding a job you enjoy, or at least find rewarding; balancing the emotional with the financial; cultivating relationships and communities which enhance your sense of well-being; and curbing consumer urges and splurges that are really just a substitute for emotional voids or unhappiness in your life.

My intention was/is to write and slow release parts of the book as it gets written. My hope also is to include some case studies, or lessons learnt from our readers.

Here's an excerpt below. If you care to send me a 300 word max account of any encounters you have had with a financial vampire, I would be pleased to use them in the book for the benefit of helping others to avoid similarly bad experiences.

If you want to interfere with the process of flow, here’s a good way to do it. Get yourself into debt. Load up the credit cards, spend without consideration of consequences (or the killer high interest rates attached to this form of borrowing) and drip-feed the debt forever, and ever, and ever. This is a sure fire way to wreak havoc on your balance sheet and also mess with your flow because you’ll be permanently indebted to the bank, finance company or another financial vampire that will suck you dry of your money, creativity and inner peace.

Financial vampires are sneaky for a number of reasons. For one, many of them are well disguised. You won’t necessarily know a financial vampire just from looking at one because they’re masquerading as someone that will help you. Heck, they might even be wearing a smile or sleeping in your bed.

Another thing that makes financial vampires sneaky is you never really know what they’re up to until it’s too late. While legally, they are obliged to be honest with you (at least the one’s operating in an official capacity) they won’t actually tell you how sharp their fangs are, they’ll only bare them so they can say you were warned.

Thirdly, financial vampires are extremely crafty. Because you are their meal ticket, they won’t cause you any immediate harm. Instead, they’ll keep you in their clutches for as long as possible. If they’re really good, you won’t even feel the sting until they’ve bled you dry because they’ve done a number on your head and conned you into thinking you need them.

So how can you protect yourself from a financial vampire? Unfortunately there is no silver bullet. The best defence is a good offence and in the case of your money, it’s avoiding these toxic relationships at all costs.

As you’ll have gathered, I don’t like debt. I get the difference between “good debt" and "bad debt” but I don’t buy it. I think debt and good should get a divorce. Still I appreciate that in the modern world it is pretty hard to avoid financial vampires altogether.

The key to managing these relationships is knowledge and that’s knowing everything there is to know about the financial vampire, and also their peers, so you can play them off against one another to minimise the sting of borrowing and terminate the relationship at your earliest convenience.

Here’s a few financial vampires you’ll want to be aware of:

Payday lenders

Avoid these guys at all costs. Borrowing against your paycheck might sound like a good idea if you risk getting kicked out because you’re late on rent but if you lose 20% or more of it as a result this is just plain dumb. If you can’t make it until payday, you need to get tough about your spending habits and also get into the habit of budgeting. It’s a bit painful at first, well mostly just time consuming, but once you know how much need for the essentials and how much is coming in exactly, you’ll be able to plan accordingly. Borrowing at a high interest rate will only set you further back on the path to financial freedom and seriously get in the way of your flow.

Finance companies

These guys will pretend to be your friend. You might actually believe it because chances are you need a financial lifeline and no one else is prepared to throw you one. It’s a bit like making a pact with the devil. You’ll get what you want but you’ll pay dearly for it. What’s not always readily apparent to those who end up borrowing from a finance company is the true cost of doing so. In addition to the monthly borrowing costs at crazy interest rates, you’ll get hosed with a number of other charges. One off fees, penalties for late-payments, and interest that compounds out of control if you fail to repay the loan in the prescribed time. At a loan shark summit I attended, I overheard one finance company executive talking at length about what a great favour he did for a frequent flyer re victim. This “customer” had about five loans with the finance company but wanted desperately to finance a trip home (far away) for a funeral. The financial vampire made possible the trip and patted himself on the back for making his victim happy but essentially he’d stuck his fangs in even deeper to ensure this guy would be a permanent source of food. I don’t doubt there are some nice financial vampires out there but don’t for a second fool yourself into thinking they are your friend.

Bankers

These guys have an air of respectability about them but don’t be deceived by their designer clothing and impressive dens, they’re still financial vampires. The only difference is they’re richer and more influential than most. They’re also voracious feeders. Because they are so ubiquitous, they’re virtually impossible to avoid. The only real protection against the banking vampire is to study its habits and fine print, keep a close watch on what its rival gets up to, and fly in its face to keep them more honest than they otherwise would be telling them you’ve been surveying the landscape. Given what can prove to be a very long relationship, you need to stay alert. Pay attention to how much the banking vampire is sucking up in account fees and credit cards if they have them, how much interest they’re paying you for the privilege of keeping your money in their vaults, and also the depth of the bite on the arterial vein if you have a mortgage with them. You might think you need the bank more than it needs you because you are at their mercy as a borrower. While it’s true they wield power as a creditor that doesn’t mean you are powerless. If you want to test this assertion, inform your bank that you are considering leaving them for another and watch the blood drain from the vampire’s face. At their moment of weakness, present your demands and strike a deal.

Insurers

Insurers are another vampire to be aware of. Like the banking vampire, they’re pretty much impossible to avoid if you drive a car, bike or own a boat, if you own a house, rent a house and want health care coverage beyond the minimum. Insurers prey on fear made worse by statistics. As no one wants to imagine the worst case scenario, which the Christchurch earthquakes drove home are possible, we pay, and pay and pay. In most cases, paying is a pleasure compared to the grim alternatives that play out in our nightmares. As the option of going without is not an option many want or can afford to entertain, insurers are another financial vampire that we are forced to live with. As such, financial vigilance is of the utmost importance now more so than ever in the wake of the Christchurch earthquake. A sharp rise in reinsurance costs post-quake has seen New Zealand insurers raise their rates between an average of 20-50%. This is all the more reason to take note of what this financial vampire is up to and of course the terms and conditions.

Fund managers

With all due respect to the profession, (one of my dear friends is a fund manager) fund managers are as much a part of the vampire club as the others. Year after year, regardless of whether they make or lose your money, they’ll take a percentage of your investment. During the decade leading up to the global financial crisis, no one took much note of how much. Now that fund managers are struggling to make an after-tax, after fee return for their clients, investors are finally taking note. So you should. Fees do count. That's particularly the case if you are in a long-term saving investment such as KiwiSaver. The fees over 45 years of investing will bite into your nestegg by a not insignificant amount.

Financially lecherous partners

Okay, they’re not listed on the Financial Services Provider Registry but the free spending, credit card loving, bill neglecting boyfriend or girlfriend is bad for your flow. I know but you love them! Fair enough but will you love them when you are 45 and have no savings and are being drained by all manner of financial vampires whose clutches you’re forced into as a result. I doubt it. What you don’t know about your partner’s financial habits may not kill you but it could potentially destroy your credit record (at the very least impair it), steal your joie de vivre, drain your savings, and throw you off course as you try to find your path. Communication is one way to deal with it but changing engrained habits can be challenging at best. Before you partner up with another financially make sure you have the talk.

Other financial vampires to be aware of include realtors, lawyers, brokers, and even health care outfits if you pay on a monthly basis but never use them.

Have you been bitten by a financial vampire? Tell me your story in 300 words or less for inclusion in my book. Email me directly at amanda.morrall@interest.co.nz Anonymity is guaranteed. You can even pick your own pseudonym.