Amanda's Take Five for Friday

Personal Finance

Shrinking the McMansion? 'Yeah right!'; Expanding disequilibrium; Five stupid money fantasies; Well-being and money; Protecting yourself against sexually transmitted debt

14th Dec 12, 10:51am by Amanda Morrall

By Amanda Morrall

1) Shrinking the McMansion

So, your retirement fund is a bit thin, possibly anorexic, but you think you have it covered because you're planning on downsizing that four or five bedroom home when it becomes too unmanageable in old age? That's all well and good provided someone pays what you think it's worth. And therein lies the danger that many financial planners are signalling given looming affordability problems for Gen Y and Z. Vanguard Investments explains why shrinking the McMansion is not a reliable retirement financing plan. The times they are a changin'.

2) Expanding disequilibrium

The latest posting in the Economist's Buttonwood blog, explores the vagaries of the financial markets, finance's expanding role in the economy and the inherent dangers for investors trying to chase returns. The columnist opines that investors will be better off in simple index trackers but predicts they'll rush into high risk alternative funds instead.

3) Five stupid money fantasies

Another ill-fated solution to the anaemic retirement fund? Vain hopes of winning the lottery, marrying rich, becoming an Internet billionaire...Learnvest.com explains why these and two other common financial fantasies are not only foolish but deadly to your personal financial well-being.

4) Well-being and money

Motley Fool's Robert Brokamp, in this sequel to his latest blog on longevity, explains why health and well-being are a crucial part of financial planning. Brokamp also fills us in on his personal plan to get fit in 2013 and his aspirations to reform his "awfulizer" worrying ways. Can I suggest yoga Bob? Does wonders for anxiety.

5) Sexually transmitted debt and how to prevent it

Claire Brown, writing for Get Rich Slowly, looks at the widespread problem of sexually transmitted debt, and how to avoid it. See also my interview with Dun & Bradstreet's John Scott on what steps you ought to take to contain the problem in the event of a break-up.

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

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22 Comments

by Chris-M | 14th Dec 12, 12:05pm 1355439915

Re cost/value of the McMansion.

In reality it does not cost that much extra to build a large house. The cost in my experience has more to do with the fixtures and fancy bits in the house. The cost of making a room larger is very little. Just a bit of extra framing and lining etc in the middle of the room. We once built ourselves a 400 m2, 3 bedroom, study and rumpas room house and it really did not cost that much more than say a 250 m2 house. So I see very little very little benefit in shoe horning ourselves into miserable little houses for the sake of saving a few bucks. False economy.

by StanGoodvibes | 14th Dec 12, 1:05pm 1355443555

True. I once looked at a house for sale in Mahurangi East, and it was truly massive. Shaped like a big T it had about 3 lounges, internal parking for about 5 cars, you could have played cricket down the hallways, and the laundry was bigger than most peoples lounge; but it was cheap to build because it was all one level and just two big boxes which are just standard prenail trusses and straight run iron etc, stuck together.

It's all the fiddly bits to a lot of home designs with bits sticking out here and there and gables and two stories etc that bump up the build cost. Stick to reasonably standard size boxes on one level with lots of polished concrete floors and you can really go large for a reasonable price, and with a big passive-solar concrete slab to help with heating/cooling.

In NZ with it's piddling population there is more than enough land for everyone to have a 1/4 acre section and a decent size house - the percentage of the UK that has been 'urbanised' is about 7%. So even though it's the same size roughly as NZ with 60 million people, 93% of the UK is still rural (I can't find figures for NZ). So if there is a squeeze on land pushing up house prices anywhere in NZ, it's due to incompetence rather than environmental factors.

We also have quite a lot if forestry. It should be cheaper to knock up houses in NZ than practically anywhere else in the world. That it isn't is again, down to incompetence.

by Chris-M | 14th Dec 12, 2:10pm 1355447459

When you look at the house designs over the years, we had generous houses before the war but the need to build a lot of houses for the returning soldiers and their growing families stretched the supplies of materials and manpower. Accordingly it was mandaded that houses should be small and the bare minimum for the familly commisioning the house. The recent return to more reasonable sized houses is really just a correction of should have been a temporary aberation. The problems we face now - Incompetence? I doubt it. I suspect there is a lot of competence at play; rather sinister competence.

by StanGoodvibes | 14th Dec 12, 3:40pm 1355452825

I've contracted to local council before - people don't go to work there while they're waiting for their MENSA results to come through, or NASA to call...

by splineman | 14th Dec 12, 1:54pm 1355446454

Chris-M

I hear what you are saying, but if I may put a different spin on you point. If it's not that much more expensive for a larger, house, and you are probably right, then surely the value (price) is hollow as we have just said the cost is not there.

Small is not always miserable.....lower overheads all around. Perfect for a retired couple and going to increasingly be in demand as incomes are squeezed.

I have seen houses steadily increasing in size over the years along with the overheads to run them.

Cheers

by Chris-M | 14th Dec 12, 2:19pm 1355447972

I agree. The real value of a smaller simpler home for older folk is that they are more easy to maintain and suited to the physical limitations that age brings. We need to be building a lot more of these sorts of houses, but I would not want to see a whole lot of miserable tasteless boxes. Who would want to down size from a McMansion to something like that. (by my own logic they will not necessarily be that much cheaper (which may have been the point of the original article))

by splineman | 14th Dec 12, 2:27pm 1355448438

Point taken.

I am in Palmerston North so a small nice modern house is mid $300K. Not too bad really. And a more liquid market if the need arises.

Cheers

by Craig Simpson | 14th Dec 12, 3:16pm 1355451375

$300K seems quite expensive for Palmy Vegas given it is full of students and retirees.

by splineman | 14th Dec 12, 3:27pm 1355452031

Heeey.....my daughter is a student......and I may soon be a retiree.....don't be mean.

You can do better but for a new nice townhouse.....and it ain't Auckland ;)

Cheers

by Craig Simpson | 15th Dec 12, 4:17pm 1355541456

I grew up there mate, my folks still live in Palmy and are retirees. Did have some good student parties but was pleased to leave I must say.

by StanGoodvibes | 14th Dec 12, 3:35pm 1355452510

but I would not want to see a whole lot of miserable tasteless boxes

Like Albany you mean?

by splineman | 14th Dec 12, 1:38pm 1355445519

#1. Spot on there......

A house is a place to live. Investments are for income. Savings are for retirement. Quaint I know, but still it's timeless advise.

But how to save with all the manipulation of statistics and no monetary standard by which to measure your progress? This is the elephant in the room.

Cheers

by KH | 14th Dec 12, 2:24pm 1355448256

The article is not wrong. The cash freed up is often not significant. I have observed many older people downsizing, but it is often into a smaller house quite sensible for an old person with much less maintaince, but it's often newer and much the same price.

The tragedies are the long term renters, who drop off the income cliff at age 65 -70. And those still with a mortgage.

by splineman | 14th Dec 12, 2:36pm 1355449001

I guess it comes back to the fact of a house not being a bank account. It is a house, a place to live. You still need money to live on.

I personally think folks go wrong looking at their family budget through accountants eyes with notions of capital gain, equity, and balance sheets.

You borrow an eyewatering amount of money, for you whole life, paying literally hundreds of thousands in interest to the banks and then think it'll pay off with balance sheet fiction.

This attitude has wrecked more companies than I care to mention and has no place in a family budget.

Sorry but I reckon it's a mugs game for the financial sectors growth......and that is what has happened.

Cheers

by SK | 14th Dec 12, 3:04pm 1355450653

Whatever you think of the game - the biggest mug is the one who doesnt participate and is left at retirement not owning the letterbox.

by splineman | 14th Dec 12, 3:16pm 1355451376

Maybe. My father rented till 60, retired and bought a house cash.

Having not had a mortgage for 25 odd yrs now I can honestly say it is money you can bank.

Yup Auckland is out of the question....I accept that. Renting is expensive, also true. Dead money, not always true.

Instead of thinking of your house as relative to something else, think of the cost, alone. The hundreds of thousands given to the bank, for a "service" that costs them minimal. A lifetime of debt slavery for a potential paper gain. The longer the time horizon the fuzzier the payoff. We do have a choice.

It ain't easy, but if people focus their minds on the billions being squeezed out of family budgets for a lifetime, perhaps we can come up with a better plan.

Just saying....

Cheers

by Von | 15th Dec 12, 11:10am 1355523012

So True. Many years ago a very dear (now deceased) friend of mine who was a wealthy man (self-made- successful business) always said that your house (which you lived in) was "dead" money! He had a lovely house but it was not over the top, it was elegant, well-built, and even though he could afford it was not worth millions. A wise man. His family are now living well on what he left behind!

We are in the process of "downsizing" we have an offer on our home and have seen a well-built brand new "spec" house we would like to buy. We will have money in our pockets after the sale and purchase of both houses to top up our retirement funds before we get carted off to the resthome or the grave - and the new house is actually slightly bigger than what we are selling!!! The reason for the profit and money in our pocket, location, location, location. We're moving to a different town - just a few kilometres from where we are that is not quite so trendy! Its also what we did when we were first married and bought the first house, living where we could afford and not where we really wanted to where it was too expensive for us. I'm learning that the ego goes down with age; doesn't matter what other people think of your house and your "things!"

by Gummy Bear Hero | 15th Dec 12, 11:19am 1355523557

Funny thing that , in other countries home ownership is much lower than in NZ , and renting is seen as the prudent thing to do ..... Germany for instance , they revere ownership of the means of production , owning businesses , or funding start-ups ....

... and the last time I looked , their economy had more depth and breadth to it than just a ponzi-housing scheme and a few dairy farms .

by StanGoodvibes | 14th Dec 12, 5:45pm 1355460315

#4 apparently Olympic medal winners live longer...

http://www.latimes.com/news/science/la-sci-olympics-longevity-20121214,0,2457154.story

So I need to win an Olympic medal. I've kind of left it a bit late for starting an athletics career, which really only leaves synchronized swimming, or maybe archery.

by Christov | 14th Dec 12, 6:11pm 1355461884

What about Yoga, I understand you have a thing for the tights.........and you'll find the stretching benificial in the long haul.

Stanley, if they doled out Olymic medals for suavey...I'm sure you'd be in with a good shot at it.

All the best, enjoy your round trip and that sleep in to 7.30 am.

Cheers.

by Wolly | 15th Dec 12, 7:59am 1355511553

"....a team from the office would look into the issues and report back to the judge, but it was unlikely the findings would be made public" ....http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10854196

That's right folks....don't ask because you are just a taxpayer and you have no right to expect anything...whitewash on the way...big brush this time...no worries...bonus payments to bureaucrats involved for doing such a great job, with the whitewash.

by ex agent | 16th Dec 12, 9:11am 1355602303

The banks who finance housing loans are landlords in drag. Interest is equivalent to rent. The trick is not to put yourself in a position where you are not paying too much rent to the bank. If you are it might mean something has to give like being able to enjoy some of the niceties of life . Life is all about balance and moderation. I suspect some of those buying at present are paying their banks silly amounts of rent. I hope they have fat available to cope when interest rates rise one day as they will.