Crash pads and other soft savings strategies; NAB's self-imposed credit reform; affordable housing?; WINZ crackdown, and "Enough bull"
1) Saving & Spending
So, you've maximised your earning potential, sacrificed lattes, kissed Central Otago's finest Pinots goodbye and bought into the belief that cloth nappies will save the environment and money, and you're still facing demoralising rejections by EFTPOS at the check-out?
Financial defeatism is the plague of our times. Makes you wonder whether you might not be better off going on a blind and blissful spending spree, declaring bankruptcy when reality (or the debt collectors) catch up and then reincarnating yourself in the fashion of a finance company director.
Despite the obvious temptation, there is an alterative therapy for persistent bill shock. It's a new (or maybe just rebranded) model of consumerism called collaborative consumption . It encourages a deeper questioning of wants and needs and promotes homespun money saving strategies of the legal variety.
Rachel Botsman champions this model in her book 'What's Mine is Yours.' The theory is that by taking stock of and making better use of what we have; trading, sharing, loaning or selling stuff or skills that we have in our immediate possession, we'll be do our banks accounts and Mother Nature a big favour.
I'm sure there's some inherent risks converting my spare bedroom into a Crash Pad for strangers but when I view it in terms of a plane ride home to the land of maple syrup it has me thinking... Here's Botsman presenting the case for collaborative consumption on TED.
2) Credit & Debt
Kudos to NAB Australia for pre-empting legislative requirements on long-overdue reforms aimed at the credit card industry.
The Aussie bank announced on Friday it was amending a little known policy that gave repayment priority to low-interest over high. NAB will now automatically channel money it receives for credit card repayment to that which carries the higher interest, "helping to reduce the overall interest cost to customers."
In boasting about the move (said to effect 1.5 million credit card users in Australia) NAB estimated that A$225 million a year could be saved in fees and interest if other banks and lenders across the country followed suit.
Curiously, the policy was not implemented by NAB's sister bank across Tasman, BNZ. It seems only fitting - not to mention fair - that the same policy apply equally to financial institutes belonging to the same family. I reckon BNZ would put itself in good stead with New Zealand credit card customers if it followed NAB's example.
With all the negative sentiment shadowing the banking sector, those parties that initiate good practice, instead of having it foisted upon them by the courts, would be well placed to receive plaudits. I wonder which bank will be the first to step up in NZ?
3) Home & Real Estate
Some encouraging news for first time home buyers this week. As Interest.co.nz reported earlier this week, housing affordability is at its best level since March 2004.
A combination of last year's income tax cuts, the Reserve Banks' 0.5% cuts in the Official Cash Rate, and a softening in the property market are the main drivers.
New entrants to the property market appear to be going for it and banks aren't holding back. Mortgage approval rates are at the highest level in years. (Check out the historical mortgage approval rate here on interest.co.nz.)
For what it's worth, the International Monetary Fund, estimates that New Zealand's property market is still overvalued by 15-20%. It's anyone's guess where the yo-yo market is headed but for first-time home buyers who also happen to be KiwiSavers, first-time home subsidies are worth exploring bearing in mind there are some strict criteria around qualifications (mainly to due with maximum income and maximum house price caps.)
See the IRD's website for details here.
4) Death & Taxes
If I seem to be avoiding the grim subject of death, it's not deliberate. Just plenty of action on the tax side - of life. A biggie, that could have trustafarians on the horn to their accountants: changes to Working for Families Tax Credits. As part of a crackdown on high income earners milking the system, Inland Revenue is raising the bar. Effective April 1, recipients and new applicants with income in the following categories will be required to front up:
- Attributable trustee income
- Attributable fringe benefits
- PIE income
- Passive income of children
- Income of non-resident spouse
- Tax exempt salary or wages
- Pensions and Annuities
- Other payments
- Income equalisation scheme deposits (excludes "adverse events" deposits)
Inland Revenue informs that it will be conducting random audits to keep people honest. For other tax changes coming down the pipe, see Alex Tarrant's story from earlier this week.
5) Books and Film
Let it be known, I'm Canadian by birthright (not American you'll be happy to hear Wolly) which would account for the odd slip in North American spellings. On those grounds I'll hope for forgiveness for choosing a book that hails from the motherland. The title "Enough Bull:" won me over. Author David Trahair, an accountant, advocates a DIY approach to wealth accumulation, which will undoubtedly resonate with Kiwis.
Trahair suggests we forego stock markets, financial advisers and other machinations of capital markets that have emptied our pockets more than filled them. To be fair, do-it-yourself types have probably caused themselves just as much, if not more financial harm, than paid professionals, so the Kiyosaki-style assault on the financial sector has to be taken in stride.
However, Trahair raises some good points and gives readers a steer toward self managed funds, chiefly in the form of guaranteed investment certificates. These nifty little constructs are tax efficient beasts of short, medium to long term persuasion. Okay, so there a decided Canadian bias here but it's never a bad thing to learn about what's happening and available off shore. Happy to receive your recommendations on locally sourced finance books.
Here's a taster of "Enough Bull.''
We have just lived through a period of time that shifted the financial world on its axis. The old rules regarding personal finance are now
history, as in obsolete.
This happened in the last quarter, the autumn, of 2008. Let’s call it “The Fall of 2008.”
The Fall of 2008
During this period, decades-old financial institutions simply disappeared. World stock markets tanked. Entire investment portfolios were
devastated. Retirement dreams were wiped out. And it’s probably not going to get better soon.
What this series of events has done is show quite clearly the naked truth: traditional financial planning techniques don’t work. In fact, if
we had done the opposite of what the “experts” have told us to do to get ahead financially, we would be far better off today. Here are some
of the past theories and the new reality:
• Trust the stock market to make us wealthy? Never again.
• Pay our investment advisor a fee of more than 2% a year to try
to beat the market? I don’t think so.
• Risk our home trying to “make our mortgage tax deductible” by investing in mutual funds? Please, give me a break.
• Maximize our RRSP contributions religiously each and every year . . . and also save 10% of our income above that. You must
be kidding, right?
• Borrow to invest—“leverage” our way to riches? Forget it. Many have tried; you can now find most of them in the poorhouse.
• Skip a cup of coffee to get rich automatically? Yeah, right.
I am not opposed to capitalism. We need efficient stock markets so that entrepreneurial people can grow businesses that flourish—
businesses that create great products, deliver excellent services, hire good people, make profits and pay taxes.
The problem is that, obviously, markets have not been regulated satisfactorily. Businesses, especially financial ones in the United States,
have been allowed to run rampant in the quest for riches. Thousands of intelligent, well-educated people making six-figure salaries and multimillion
dollar bonuses spent years creating complex financial products that were sold to unsuspecting members of the public.
Ever heard of collateralized debt obligations? Mortgage-backed securities? Non-bank asset-backed commercial paper? What about
income trusts? Or even mutual funds? These complex instruments made many people rich. The people
that invented them. The people that re-packaged them. And the people that sold them.
Unfortunately, the vast majority of people that bought into them got screwed. There’s the homeowner with no job and no money who
was convinced to take out a mortgage on his home and ended up losing it. There’s the government, and you and me as the taxpayers,
forced to shell out billions of dollars to buy into financial houses-of-cards just to keep them afloat. And of course, there’s anyone who
holds investments in these worthless companies.