Take Five for Monday

Personal Finance

Lame excuses that bury dreams; Layby baby; Bartering, communitarianism, and other ways to save; Credit ratings explained; Tell me what you really think

16th Jan 12, 11:58am by Amanda Morrall

By Amanda Morrall (email)

1) Going for gold

I believe 2012 will be an auspicious year. Despite gloomy global economic circumstances, I believe we're in the midst of a financial reformation that has the potential to empower individuals rather than continue to enslave them to debt, dead end jobs and other unhealthy relationships that serve a limited purpose. One indication of this is the boom in small businesses worldwide. Some entrepreneurs have been forced into it by lay-offs others are just going for it.

Kudos to those resolved to set up shop in 2012. Don't let fear or other excuses hold you back. This item from lifehack.com will undoubtedly resonate for many whose dreams are dogged by self doubt.

2) Layby baby

One of the best cures to credit card debt is to kill to the consumer urge to buy. Not owning a credit card is helpful in this regard but given modern life, it's almost impossible to avoid. Somehow I have resisted the temptation and still do not own a New Zealand credit card. For all but the most restrained and disciplined, credit cards are a recipe for financial disaster particularly as creditors just encourage you to keep borrowing and buying and to drag out your repayment as long as possibly.

Regulators overseas have begun holding creditors to account for that and are now making them spell out more clearly (in the paper statements) the cost of borrowing at the minimum repayment rate. Presently, no such policy exists in New Zealand. If you want to find out how badly you'll get burnt by minimum repayments, I suggest you check out our minimum repayment calculator here.

I'm not a big shopper, in fact if I can help it, I avoid the malls completely. Three trips to Albany Mall over Christmas for children's gifts nearly did my head in. I won't be back any time soon. Another strategy I have for controlling consumer urges is to give myself a 24 hour cooling-off period when I see something I like so I can reflect on how badly I need or want it. More often than not, the flame goes out over night.

I'm also a fan of layby although I know some, (my boss for one), who abhor this practice because of the belief that it just encourages more unnecessary consumer binges while other more toxic debt languishes.

This article from the Economist puts a positive spin on the layby practice. The author goes so far as to suggest it "fosters virtue" because it forces you to save in order to get the product. I would agree but I still think it is better by far to snuff the buying urge and find happiness outside the mall.

3) Painless cuts

I count myself very lucky to have attracted or ended up with fabulous neighbours these past few years. Not only have they been extremely nice but they've been valuable teachers and aides on the personal finance front.

My former neighbour, a gardening guru from Christchurch, got me going on my veggie garden and also my short-lived backyard chicken experiment. She's also inspired me to think this year about how to cultivate some bartering relationships; a practice that has kept her in fine wine, custom designed silver pieces and an abundance of good friends. My new neighbour and I have a reciprocal child minding arrangement that has saved me heaps in child care costs so I'm off to a good start.

Here's financiallypoor.com with three others pain free ways to trim costs from the budget.

4) Credit ratings explained

Downgrades are very much in vogue these days. This piece by the Guardian explains why you should care about the latest round in Europe.

Closer to home, here's a primer on how to apply credit ratings to financial institutions that you are banking your savings with.

5) Tell me what you really think

Being in the financial advisory business is hard work these days. Explaining to clients why their portfolios are bleeding money is an unenviable job to be sure, however, I don't have too much sympathy for them. For far too many years, advisors were let off the hook, taking fees and commissions without having to explain much at all.

Regardless, I was still interested to read this article from the Globe and Mail "What your advisor really thinks of you" looking at matters from their perspective.

To summarise, many belive individuals need to stop blaming financial advisors for circumstances beyond their control, give up on the idea of 8% p.a. returns, take greater initiative and interest in their personal financial affairs, stop being so complacent about things like fees and commissions, and basically stop being lazy when it comes to money management.

Separate but related, here's an insider view from NZ Institute of Financial Advisor chair Tony Vidler on how remuneration ought to be explained to clients and best structured. It helps to know how they see the relationship, particularly if you are planning on forming one this year.

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

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7 Comments

by Amanda Morrall | 16th Jan 12, 12:31pm 1326670306

One way or another you'll hear about it, as a taxpayer or a friend of someone who is broke and begging at 70. Hopefully that won't be me Ivan.:)

by scarfie | 16th Jan 12, 7:04pm 1326693863

I agree, a very good take five Amanda.

It would be interesting to see the tax implications of swapping child care investigated. The very idea that it could be taxed is abhorrent.

But what it really highlights is the exacerbating effects a recession has on the tax take. I liken it to real estate agent commisions, everybody reluctantly pays them when everything is going forward but the pressure to discount fees comes on when the market is flat or going backwards. Everyone will be looking to reduce expenditure and tax will be viewed as an unnecessary and avoildable expenditure as things grind down. Eventually the resources of the IRD will be insufficient to cope with everyone circumventing the rules. 25% unemployment will be a bitch for the government in more ways than one.

by scarfie | 16th Jan 12, 8:52pm 1326700354

My angle on this is that paid child care is a fairly recent phenomenon, at least in terms of professional practice of it. So question hangs over the value.

It is a sad day when the practice of helping a neighbour turns into a taxable 'service'. Do we now have to quantify our neighbours in terms of value?

You could take this further and view it as a double dip by the IRD, because while the children are being cared for the presumably the parent is away working for income that is taxable.

How about taking it a step further for the sake of amusement. Imagine a society existing on a subsistent basis. A solo parent needs to work the land in order to provide enough food for daily requirements, and so the neighbour helps out and looks after the todler while he/she is in the fields. But now the subject of this scenario incurs a tax for this service from the neighbour and some of the daily calorific requirement is now confiscated to settle this debt, leaving a shortfall for both the subject and the child. Is that a valid analogy?

by powerdownkiwi | 16th Jan 12, 9:00pm 1326700844

Scarfie - maybe you could offer to work your tax off by 'babysitting' the taxman's daughter?

seriously, can you put that self-test link up again please? I've forgot which thread it were on (perhaps that was one of the questions......

Did you read this? Some of his stuff is a bit long-winded and old hat, but:

http://thearchdruidreport.blogspot.com/2011/12/future-cant-pay-its-bills.html

"To be fair, the way most people and nearly all economists think about economics makes this sort of blindness to the obvious hard to avoid. It’s standard these days to treat the circulation of money—the tertiary economy, to use a term from my book The Wealth of Nature—as though it’s all that matters, and to insist that the cycles of nature and the production of goods and services (the primary and secondary economies) will inevitably do whatever we want them to do, so long as there’s enough money"

Makes you wonder how many following the advice in 1, will fall over through taking on debt..

by scarfie | 16th Jan 12, 9:26pm 1326702365

http://www.humanmetrics.com/cgi-win/JTypes1.htm

Just remember with the test to answer with what you would want without any influences. We can be conditioned to respond counter to our natural inclination. The test isn't conclusive as only self research will determine what is really accurate for you.

ChrisJ came out at an INTJ but that is unlikely. Given his self test result and his activity on this site then I would conclude that he is an ISTJ, which is what I would have guessed.

As to the rest of your post, well you can only laugh at times otherswise you would cry. I will read that link after my late dinner.

by ngakonui gold | 16th Jan 12, 1:35pm 1326674148

The farmer finance card is as bad as a credit card if not worse.

Annual interest rate of 24.95%.

Yet Fisher and Paykel Finance whom i believe own FTC Finance offer about 6 %for 12 months.

Just another scam under another name for us dumb ass kiwis.

by powerdownkiwi | 16th Jan 12, 8:42pm 1326699753

They're all a bit related, Amanda.

The folk being urged to set up in 1, need the investors in 5, and every one not to indulge in 3, while continuing to max out on 2, or they'll end up going down in 4.