Personal finance editor Amanda Morrall (email)
1) Savings and spending
I disclosed a few months back that in moving to Auckland from Christchurch, I had unwittingly put myself in the poor house having grossly underestimated the massive rental increase I'd be facing among other costs related to big city living. To my own horror and embarrassment, I calculated a $7,000 shortfall.
I was besieged with some fantastic advice and recipes about how to balance my accounts including one suggestion that I move into a retirement home where I could enjoy war stories and endless cups of tea in exchange for cheap rent and free motorised scooter access. Blessedly I avoided that fate (I'll be checking in on my own accord soon enough) and went to battle instead with my budget. It was ugly but I've come out on the winning side partly as a result of a fortuitous outbreak of mould. That's right, mould saved my bacon. You see the hideous spawning spores of green and black (gone now due to a miraculous ventilation system) inspired a robust rent renegotiation.
Between my sizable rent reduction and revised calculation of food costs (I'd been budgeting for a family of four instead of my current three - a reality I was unwilling to accept perhaps) I'm back in the black. My financial nightmare turns out to have been just that -- a nightmare which ended happily with a wake-up call and righting of ledgers. And I didn't have to hock granny's silver tea service either.
2) Credit and debt
New Zealand's retirement commissioner Diana Crossan challenged the banks this week to take some initiative in helping Kiwis to tackle "dumb debt.'' That's the debt that languishes on credit cards, hire purchases, car loans and such collecting high interest and rolling over month to month. There's something like $3 billion carried over each month in NZ. In the United States (where consumer debt is in the trillions) banks and other lenders have been forced to revise credit card statements so that borrowers are alerted to how much they'll pay back on a minimum repayment basis. In Australia, similar moves are afoot.
In New Zealand, it's status quo.Even BNZ, whose Australian parent NAB shifted it policies on credit cards, hasn't budged. (For the latest on credit card changes in Australia see this story in the Australian.)
Our interest rate watchdog Suhaimi put together this chart for me showing the comparative minimum repayment amounts set by various banks and how long it would take to repay $2,000 on that basis. It's a shocker. The worst offenders (given their 2% minimum repayment figure) are Westpac, ANZ, the Warehouse and BNZ. Stay tuned for more credit card hijinx exposure. (Next week, we'll look at transfer balances and where that can leave you depending on who and how much you transfer over.)
Here's a cross section of minimum repayment rates on standard Visa/Mastercards.
|Min.payment > %||2%||3%||5%||2%||5%||5%|
|or Min payment||$5||$10||$10||$5||$10||$50|
|Min payment first mth||$40||$60||$100||$40||$100||$100|
Now, check out how long it will take to repay that $2,000 on a minimum repayment basis and how much it will cost you.
This is what should be included on your statement in bold print, in place of the visual queue on minimum repayment amounts.
|Time to repay in mths||724||178||91||724||87||45|
|Time to repay in years||60.33||14.83||7.58||60.33||7.25||3.75|
And finally, here's what you end up paying if you repaid that $2,000 at a flat rate of $100 a month, instead of the minimum payment and how much you'll have saved by doing that.
|Time to repay in mths||24.52||24.37||24.21||24.52||24||24.52|
|Interest paid in $||$452||$437||$421||$452||$368||$452|
|Savings with interest||$8,458||$1,672||$449||$8,458||$380||$272|
If you want to run the numbers on your own credit card debt, try this calculator or this one, we used them on the scenario above to check their accuracy and they both checked out with the same results.
Some long over-due relief (or at least certainty) this week for Christchurch homeowners in the worst affected earthquake zone. The Government announced a plan to buy as many as 5,100 homes off home owners in the identified 'red-zone' where rebuilding has been ruled out. Banks were quick to rush in with special offers for those homeowners who will be looking to rebuild or buy another property. BNZ even stepped it up a notch offering 2% above normal deposit rates. (See Gareth's Vaughan's story here). Residents will be wise to weigh the options carefully and explore the full spectrum of offerings, as well as their terms and conditions and consult with at least two mortgage brokers and insurance specialists.
4) Death and taxes
Gift duty is getting buried as part of the Taxation Administration and Remedial Bill. But among the other changes also slated to take place is a "relaxing'' of IRD's policy on taxpayer secrecy. Several parties, including the Privacy Commissioner, have challenged IRD about the upcoming changes but they've mostly been rejected.
IRD argues that the rules need to be softened so that it can share information more freely with government departments. In loosening the vaults on private information, the IRD will also be able to fight back against "aspersions" cast by taxpayers through the media.
How and under what circumstances it will wield this newfound power remains to be seen. KPMG tax specialist John Cantin anticipates IRD will release a standard practice statement outlining such details.
On the overall 'relaxing' of the rules around the more liberal sharing of taxpayer information, KMPG has some reservations. Cantin said the main concern is that it could turn taxpayers against the system, more than they already are. For that reason, they suggested there be more research done in the public's willingness to accept these changes before they're pushed through. IRD is supposedly looking into it but the bill is moving fast towards royal assent.
Hands up everyone; are you for or against the IRD having loos(er) lips on taxpayer secrets?
5) Books & Film
Readers' choice this week. I asked a few of our regulars to send me their top picks for personal finance books. Add your own favourites to the comment stream.
Here's "Gummie's Starter Pack of Essential Investment Books" : Peter Lynch's "One up on Wall Street" (click here to read a review on The Motely Fool).Philip Fisher's "Common Stocks and Uncommon Profits" (click here to read a bio on Fisher published by Forbes) James O'Shaughnessy's "What works on Wall Street"; and for those suffering from ADD , an easy peasy junior's booklet : Robert Cole : The Unwritten Laws of Finance & Investment . (To read a preview click here, takes a second to load from Amazon.com.)