Friday, June 17, 2011

Why money causes happiness (contrary to popular belief)!

You've heard the saying 'money isn't everything' and that 'money can't make you happy' and that 'KFC is awesome', but I'm here to tell you these sayings are a load of crap (except the one about KFC).

While I totally agree that money in itself can't make you happy, I would have to say that having money ensures you won't be unhappy. So often people complain and whinge and whine, it turns out that statistically speaking, a lot of people's problems revolve around the good old dollar, and more specifically, the lack of it.

Let's take a look at a simple, but common, scenario. Let me introduce you to Duffus. Duffus owns a car (like an EB Falcon in Australia). It's a pile of crap, the only car he can afford. Since it is a pile of crap, it keeps breaking down and he has to keep spending money on it. The car breaks down, the harmonic balancer needs replacing (so says the mechanic), it needs new shockies and the rego is for a 6 cylinder car. So Duffus (really, I could replace my name here) has these 'problems' because he did not have the money initially to buy a decent car.

Let's take a look at another scenario. Let me introduce you to Sparkly. Sparkly bought a Toyota Camry, the newest one he could afford. Sparky had no problems with this car, although he did have to look past the fact that it was designed to be bullet proof and made for grandmas.

So Duufus and Sparky, two, kind of different people, who bought cars. The one with slightly more money, not a lot more, just slightly more, is well out in front in terms of possible problems with cars. And in essence, that little bit more money and slightly better thinking was just enough to 'not cause problems'. I suppose the question is; if there is less problems, is there then more room for happiness?

Until next time Gadget.

Sunday, August 29, 2010

Budgeting 501: How not to spend all your money on piss.

Well, blog readers, it's been a long time between drinks. I have lead a very hectic life and let this blog slide a bit. But.....I'm back!

So, since I last wrote here, I have made some even more anal decisions and have become "Budget Boy", the superhero of budgeting that not only wears his undies on the outside of his spandex, but has also donned a pink belt of some sort to signify that he is not all macho and still in touch with his feminine side. Yes, it is I.....BUDGET BOY!!!!

Last post about budgeting, I outlined how I use a simple MS Word table to keep track of my budget and how that had lead to me identifying where my money went (and noticeably, it was KFC). Why I'm not 130kg by now is still a mystery, but I'll leave that discussion for another day. I have subsequently graduated to a different system of budgeting. I now use an excel file.

HEALTH WARNING: Unless you like staring at an excel file for hours on end, do not do this sort of budgeting. I have warned you...


Here is a screen cap of the excel file (click for slightly larger pic):


I spend A LOT of time looking at this spreadsheet, somehow thinking a miraculous truth will jump out at me and all of a sudden I can retire! But alas no...

What this tool does allow me to do is to adjust my budget "on the fly" which is awesome, as, when I sell one of my investment properties, or my wage changes or whatever happens to me financially, I can just change the relevant number and all the calculated amounts change automatically.

I have left my car rego not blanked out, to show you as an example. You can see that I use $70/week on poluting the planet, and this works out to be $3640/year. I like to calculate everything relevant to a year, as it makes the equations easier to work out. For example, I get rental income monthly, but paid fortnightly, so by calculating yearly figures, it all "averages" out.

If you post a comment with your email, I can send you this file so you can have a play.

OK, now that I got that off my chest, let's get on with the REAL topic, and that is STRATEGIC BUDGETING, HOW TO BECOME ANAL LIKE ME.

Strategic budgeting is basically that, putting logical, strategic and methodical thinking behind your budgeting. Now that I've blown your mind by using those highly sophisticated words, all it really means is doing three things:

1. Have some financial related goals. This may be something like "I wan to go on a holiday overseas next year" or "I want to buy that shnazzy new Hyundai i45 in a few months" or "I wan tot be able to eat KFC whenever or wherever I want" or "pay off my credit card".

2. Get your goals and make them a money value. For example:

Overseas holiday: $10,000
Hyundai i45 deposit: $4000
KFC whenever I want: Disposable income of at least $400/fortnight.
Paying off credit card: $3245.65

3. Align your budget to meet these financial goals. It may mean balancing a few priority items in your budget, but ultimately, remember, THESE ARE YOUR GOALS. This is why you go to work each day, or front up at the Centerlink cue (or equivalent government unemployment benefits organisation in your country).

4. Watch it all "magically" happen.

For me, the term "strategic" really means two things. Having goals and finding ways to meet them in the shortest time possible.

That's all for this installment folks, good luck, I will try to write soon again. If you like these posts, please make a comment, positive or negative...

Ciao.



Monday, July 6, 2009

The Frugalities of Being Frugal.

When I was a little boy, all I ever wanted was KFC. I loved the stuff and if it wasn't for my regiment of swimming 3-4km every morning for training, no doubt I'd be 140kg by now, instead of the 90 that I'm pushing. See back then, things were simple; you went into KFC, ordered original recipe, coleslaw, and away you went. Fast forward to today and there are too many options, like hot and spicy, cayenne chicken (what the f&k is that), gay wraps and this new contraption called a filler which, upon removing from the packaging, is virtually uneatable without making a mess. While I'm sure you're finding this very entertaining, I use it as an analogy; life too has become more complicated.

As I've grown up, I have realised (or at least beginning to realise) that I am living by my means. As a uni student living on $4 Black and Gold pizzas and absolutely putrid frozen lasagna and No Frills pies, I could get by on my measly Austudy money no worries, which was about $200/fortnight after rent. And guess what. I was happy. Today, I am also happy, but 200 bucks wouldn't cover shit. How can this be? Why has this occurred? Could it be that living costs more now?

I don't think so. All of a sudden I have a mortgage, I have these things called "bills" and insurance to pay for....stuff. All of a sudden, I felt the urge to buy a huge arse LCD TV, or to buy furniture that costs more than $50, or to buy a $100+ shirt when I was at the Melbourne F1 earlier this year. It seems my standard of living has magically improved as I began to make more money.

So I'm going to talk about frugalities. Yes, being frugal saves you money, but does it mean you have to be a tight arse still watching a black and white screen wrapped in wood?

I am going to create a new term. You ready? It's called "MODERN FRUGALITY".

Being modern frugal is very simple, easy to do and leaves money in your pocket at the end of the day, without resorting to living off rice and sugar only.

I'll give you an example. Let's look at mobile phones:

True frugality = No mobile
Old time frugality = Cheap basic mobile such as a traditional Nokia, on a cheap plan (i.e. $5/month)
MODERN FRUGALITY = An expensive mobile on a cheapish plan (for example an iPhone on a $10-20/month plan)
Totally non frugal = iPhone on a $100/month plan
Ridiculously money wasting = The above, but golden encased and comes with it's own stripper.

So in essence, modern frugality observes the best of both worlds. It's not being totally tight, but it's not being over the top. Frugal living in modern times means that you still are able to have nice stuff (if that turns you on), but are thinking about your cash flow too. A lot of kids these days have huge mobile phone bills, well in excess of $50/month and this becomes a lot of money. It teaches bad habits. "Oh, I have $100 of free calls that I pay for in my monthly fee, so I HAVE TO use it."

Whereas, you can be frugal with the same mobile. Buying an iPhone for example gives you a top of the line phone that once purchased, costs you nothing and the secret of modern frugality is in the plan that you end up getting. Modern frugality allows a person to still have quality items, but with some thought as to the ongoing financial impact.

Let's repeat this mindset for one off purchase items, for example an LCD TV:

True frugality = Black and white hand me down brick TV.
Old time frugality = TEAC or equivalent cheap SD 40 inch.
MODERN FRUGALITY = LG 40 inch HD.
Totally non frugal = LG 55 inch HD.
Ridiculously money wasting = LG 55 inch HD with it's own stripper.

So you see, the modern frugal person does not buy crap. In old frugal times, it meant buying shitty TVs but a modern frugal individual will buy "middle of the range" I suppose you might say. No that's not right...it's more middle of the range with thought. You see, old time frugal person, let's call him Bill, will end up with a TEAC. It will be fine, there will be a warranty blah blah blah. BUT, it is a TEAC and let's face it, it's going to die in the arse very quickly and Bill is oging to be one of those pissed off on-the-dole people that hate the world. LG on the other hand should last longer, but a modern frugal person does not buy the biggest, however lets keep in mind that they don't buy shit. Yeah, that's it, the modern frugal man does not buy shit.

Phew, I'm glad I came to that conclusion finally, because I was beginning to have doubt I could define it, but yes, modern frugality is about not buying shit, but also not buying excessively huge. I'll leave you with that thought...

Thursday, June 11, 2009

Money = Sweeet

Last time we discussed how diversifying what you actively do with your cash is similar to how a young girl or boy would pimp up their car. While this is all nice and good, a lot of you out there are thinking why would I want to put my money into shares, property, online savers etc etc.???

The short answer: Making money while you sleep.

A medium length answer: To provide options for you, instead of involuntarily working for your money. Making cash flow positive decisions now will lead to you having choice in what you want to do later. By investing now, you are "building options" for later.

A lengthy answer: Investing in all it's forms, whether it's buying property, trading shares, buying art, collectible cars etc. etc., all lead to the same consequence. The real question that is being asked by many young people is "Why should I save now, I can party hard, drink till I drop, live it up and worry about all that later!" Unfortunately, as young people often do, they haven't thought this scenario through fully.
Lets look at this example. Let's say I'm one of those millions of people who like to travel (as I do and you can see my travels on http://travelhurrah.blogspot.com/). An average trip to Europe etc. will cost anywhere from $4000 to $10,000 depending on how cheap you want to go and live. I know how much fun it is, I understand that it's awesome and that after finishing high school, it's pretty much all you want to do. Been there done that. But consider this. Let's say you put that $4000 away and let's say you buy shares. In a certain amount of time, between 4-10 years, this money will double (for arguments sake). When this happens, you have $8000. Imagine if you did this with all of the money you went to spend on holidays. Over a 10 year period, if you do this once a year (put 4000 away instead of holidaying), you will have....$72,000, and that's a conservative number. After ten years, you have these two scenarios:

1. 10 trips overseas and no cash.
2. No trips and $72,000.

So here you are, ten years down the track. Yes having made those 10 trips has been awesome, life skills learned, friends made have seen glorious places. No money in the bank, you are now 29, it's time to start doing stuff with your life. It's time to get a job, find a partner, have some kids perhaps, settle down and set yourself up for retirement.

OR....

Here you are ten years later. $72,000 in the bank, which modestly, earns you $5000+ every year in interest and FOR THE REST OF YOUR LIFE, you can go on one of those trips EVERY YEAR.

It's hard to fathom, but those early financial decision that we make, whether it's putting money away, going travelling, buying fancy overpriced new cars, getting personal loans for items, really has impact in the long run. Setting yourself up in that first 10 years after high school is vital to how you approach REAL adulthood in your 30s, when things get serious.

I am not suggesting you should not go on holidays, but I do want you to think about what you are doing now to set yourself up for bigger and better things for later in life.

Me personally? I think I have put certain steps in place already that have allowed me to basically approach financial freedom before I'm 40. I am always thinking about what I am doing with my cash, but at the same time, I do not have to hunt every dollar. I can still have some fun and enjoy the fruits of my labour. I can still spend some of my money now, with the knowledge that I am on my way. BUT, this has come from a hard slog of forced savings, and living on the edge of what I deem reasonable. It's worth it now though....

Tuesday, May 26, 2009

An analogy for high school males when it comes to money

Editor Note: Stay tuned for how you can own an IP from as little as $100/week and even less now! Coming soon...

We all did it. Well, in reality, some of us did it and it all made so much sense back then. In Australia, as I suppose all over the world, getting your drivers licence was akin to removing the shackles that held back your social life, growing wings which allowed us to explore the endless possibilities our new found freedom had to offer. We bought a car and away we went. 

But no, we weren't content to just leave this car alone. No, we had to put every single cent we made to "upgrade" our beast. For me, this was car sound, sub-woofers, tweeters and crossover front stage speakers, monoblock amplifiers and trying to reach 140dB. So you're probably wondering what this has to do with money and I'm here to tell you that it's a hell of a lot. 

So, Lesson101 for all those teens out there (and those of us that can relate). Think of this analogy:

When you started to get a bit of cash together from probably entering the job market, you didn't just modify one part of your car, did you? You bought a fancy head unit and probably an amp and a sub, but you also would have shelled out for nice mags, probably a body kit and even some go fast bits and pieces like extractors and high flow catalytic converters just to name a few. And I have to say, this was really smart thinking, thinking that you should take with you into the world of making money. You see, by focusing on different parts of your car, you "diversified" your interests. You didn't just spend money on mags. You spent money on all different elements to create a much better "overall" package. Imagine Fast and the Furious cars, without the cool body kits...it's just not the same. It's the same with money. If you put all your money into savings accounts, it's just one element. If you only buy real estate, it's only one element. If you pay down your mortgage, it's only one element. If you buy shares, it's only one element. You get my point...

So, I challenge everyone out there to get back to their car modifying roots and apply the wealth of knowledge to finances. Diversity what you do with your money, think about improving the "overall" picture, not just one aspect. People always say "Don't put all your eggs in the one basket", but instead I say, "Don't just get flash mags, make sure she goes hard and sounds awesome too!"

To do this with money I am going to list a few obvious options. Think very carefully about which one will suit you, but the main theme here is to have a range of them (no particular order):

1. Buying real estate.
2. Buying shares.
3. Pay off personal debt (i.e. credit cards/personal loans).
4. Invest in long term prospects such as art and unique cars and motorbikes.
5. Open an online saver and actually save your money.
6. Start a small business.
7. Consider your spendings. Do you really need that KFC for lunch?
8. Find mentors who can help you in your quest to build up an awesome car, eeer....  I mean awesome bank balance....:)
9. Live frugal, although I'm not a great fan of this...

Living frugal is an acceptable way of creating some wealth, BUT (and there is a big but, and it's not mine), it's like having a stock car. Not too much fun and ultimately, it's why you're doing this in the first place...

Until next time my loyal subjects....go forward and diversify!!!





Wednesday, May 13, 2009

So you have $100 spare a week....

I'm going to assume you've read the rest of the posts here and have found you have $100 spare a week. Instead of going out and buying that really expensive seat covers for your beast, why not think about doing something constructive with this money instead?  

You've probably already read about putting this cash into the tempting online savers or term deposits. But let's face it, you are going to earn, AT BEST, $5 per year on every $100. This is a very time consuming way to make cash flow, albeit safe and secure. Yes it's stable and you will have compounding interest working for you, but why not instead think about other cash flow streams? You could do a kazillion things with this money, but I suggest that you buy a house. 

Now, before we all get our panties in a knot about whether we should buy shares or invest in property or maybe just to go and buy a toeaster at K Mart, I'll let you in on a little secret. Buying property brings in at least three types, if not more, of income.

Here they are:

1. Rent: That's right, someone less fortunate than you, or in a particular predicament that buying a house is not for them, will need a place to live temporarily. Bingo, cash in on rent made from an investment property. 

2. Property price increasing: You may buy a house for lets say $150,000. Admittedly, it's not going to be flash, but it's a start. Historically speaking, this property will, OVER THE LONG RUN, double in price every ten years. The secret here is that you need to hang onto this rental house for at least 7 and if possible, even longer. In this time, you will make an additional $150,000, or $15,000/year and if I'm being very conservative, I'd say $10,000 a year. Does this sound good for $100 weekly investment? Put in 100, get back 200....sweeeet...

3. Tax breaks - If it costs you more to repay the mortgage, rates and insurance than you get rent, hey presto, you are losing money. But it's all good...come tax time, your income tax is reduced and you get a sort of "pseudo" cash flow. This is often refered to as negative gearing or cf- (cash flow minus).

4. Depreciation - To add further to the incentives, especially if you can afford a newer house in Australia, you treat the house as a tool for making you money, and hence, you get to claim "wear and tear" through setting up a depreciation schedule for things like carpet, the kitchen cabinets etc. These items, as they get older are worth less and you can claim this difference against your tax as well. This is sometimes called the "hidden income stream" by property gurus. I call it JACKPOT!!! :)

So by now you're thinking, well yes it sounds good, but it's sooooo risky. To all of you I say...build a bridge and get over it. Jump in. Grow some kahuunas and have a go. I always tell people that the worst that can happen is you make minimal profit, as long as you HOLD THE PROPERTY FOR AT LEAST 7 YEARS! This is almost a guarantee in the Australian market. Don't forget, this will make you serious money, but you have to wait for quite some time to realise the cash.

Finally, think how long you would have to wait to save up $10,000 normally from your everyday wage. With property, you can effectively make your first 10k in about 6-8 months.

For more info on this sort of investing visit my other blog here. At propertyinvestinginaustralia I document further thoughts and ramblings, letting you in on what I am doing to acquire more and more property and how it has put me in a financially stable position in 5 years.   

Next episode: Buying a starter investment property. How you can do it with as little as $100/week (right now!)

     

Saturday, May 2, 2009

A new property forum!!!

Hello everyone,

Just a quick note to let you know I have started a property forum. I know it's not specifically about making money, but as you are probably aware, buying investment properties is part of my strategy. I think it has potential to become an excellent resource for us all, so please, say hello, add a comment, have your say. Who knows, you may even be able to help someone with a suggestion or two, or get an answer to a question you may have...


See you there!!!

PS. Making Money has slowly increased its viewers, so please, if you find this useful, don't be afraid to tell others...ciao!

The evil B word - Budget!!!!

You all know you should have one. You all know that without one you will continue to be a slave to your job, a slave to your bank, and a slave to your mum. You all know you like KFC.

Let's face it, you need to create a workable budget that will allow you to buy KFC whenever you want, but probably even more pertinently, allow you to afford the gym membership to then work off the extra flabby bits as a result of the aforementioned chicken feast. 

Until I was 27, I never had a set budget. I just spent as I needed and if cash ran out, I would stop spending. Let's call this Budgeting101: Living by your means. At it's simplest form, this is indeed budgeting, but it's a crap way to live and as time goes on, this creates a stalemate; a continuous cycle when all of a sudden you start asking yourself (possibly as you're standing in front of the KFC counter), where the hell did my money go???    

So a budget strategy is in order.

Budgeting201:Thinking about your money
Second year budgeting involves starting to watch where your money goes. It DOES NOT necessarily mean you have created a budget, but it does mean you are starting to become aware of where you spend your dosh and why you have nothing just before you receive your next pay cheque. 

This inadvertently leads to "but I'm spending it on things I need and want, I can't change, I can't stop eating KFC!!!"  I hear it from people again and again, that their bills and food expenditure, as well as other parts of their lives that require cash are the bare minimum they HAVE to spend. But it's a load of bullshit. It is the same people I see down the pub, driving huge petrol guzzling cars and always wearing different clothes. They're the people I see buying the latest mobiles, spending money on take away and having a Telstra phone account. They are the same people...you get the idea. I was one of these people a while ago.

It is important to note though that those students taking Budgeting201 are at least considering their financial state and I would hope that at a minimum, the population is at least at this stage of budgeting. 

Budgeting301: The invention of paper

Entering Budgeting301, third year budgeting is where it all begins. Those that itemise and write down some sort of a budget are at this level and it is the first step to realising what your money is ACTUALLY doing. You may recognise a few things at this stage:

- You eat way too much KFC.
- You have way too much fun. This isn't a bad thing, until all of a sudden you want to retire or stop working.
- Most of your money goes on petrol and car costs.
- You live to the end of your income.

And it is this last point that really should be looked at. Why is it that you run out of money at the end of your pay period and are left with nothing?

I was in this position a few years ago, even though I had no mortgage to pay, or any real outlays. But when I dug deep down to the underbelly of what was going on, it soon became very apparent that there were many many costs out of control. For example, I had a mobile phone that was supposed to be at $29.90/month, and was costing me $50-$60. I was eating (WAS) take away almost on a  daily basis...cost.....$20/day!!! I was renting....giving my money to someone else to help them pay off their mortgage. Pretty quickly it became apparent I was going to have to make a real budget. And so began the arduous journey that has taken so far 3 years to perfect and still has a way to go...

Budgeting401: Creating a cash flow chart.   

This is where I am at the moment I believe. As you can see in the table, this is a VERY SIMPLE way of doing a budget. My mate does something similar with Excel, and of course there are heaps of software out there that can help make this look all pretty and give you deep analysis for further digging. This is a simple, one page view of where your money goes and shows how my cash flow is travelling. This table for example showed that indeed I had more cash available than I thought. I am very happy to be in this position, but some of you out there will have trouble just to be in a positive cash flow position = spending less money than you have coming in. Regardless, this is an Identification Tool. It's what you do with it after that really matters.

In my last post I discussed disposable income and how important it is to start having cash flow positive actions, it is now that this can be applied. If you tweak and play with your budget so that you have SOME cash left AND you are happy with your disposable income amount (the money you spend on other parts of your life such as down at the pub), then what is left can now be identified as a dollar amount that can be used. This may be $5, $100 or $1300/week, depending on your income streams and it is this amount that can work in your favour. The basic notion of making money stems from this small left over cash reserve. What can you do with this amount of cash that will change your financial position? Stay tuned for Budgeting501:Strategic Cash Flow Thinking (last year of study before Masters level)

Tuesday, April 28, 2009

Disposable Income - What the...????

We all have money. Whether you're on the dole/benefits or earning the big bucks, we all have some amount of money to live with. I can vouch for being on one end of this equation, I lived on youth/education benefits for quite some time. Right now, I am heading towards making more money, but I'm still along way away from the big bucks. 

You might find it surprising, but how much you make is not really important to achieving financial independence (ie. living comfortably and being able to buy KFC when you want). The secret is understanding what amount you have "spare", what I like to call disposable income.

Disposable income is a funny thing. For some people, disposable income is what they spend on alcohol every week, or buy smokes with for the week, for others their disposable income pays for holidays, while some people find a happy balance between saving some of their cash and spending the rest on "benefits".

So, how much disposable income do you have? In a future instalment I will explain further how you can calculate this magical number, but in the purest sense, disposable income the amount of cash you have left after paying for the "essentials". After paying bills, mortgage repayments, buying Kentucky Fried and paying for fuel, we all have a buffer amount that is left. Disposable income is the amount that YOU ARE HAPPY WITH and NEED to spend on yourself, whether that's paying for your WOW account, or buying smokes or drugs, or for drinkies down the pub on Friday. (editor note: WOW = World of Warcraft computer game). For some people this amount is much much larger, especially if they have expensive tastes. 

Throughout my life, my disposable income has changed. It was at one stage (back in my early 20s) no more than $40/week, but now I am more comfortable to be left with $200 to spend on whatever I wish. Why is this amount important to work out? I'll let you in on a secret. Very quietly now...: You should invest the rest into cash flow positive or capital producing asset classes. 

Working out your disposable income is, in a way, a way to identify how much cash you have to do something constructive with. For some of you, this amount will be $0, and I would suggest you are leading a very happy and fulfilled life (for now). For some of you, you will be surprised on how little you can get by and for others, you will notice that you have a whole heap of cash left that is "disappearing" week to week. 

In my next post, I will attempt to explain a bit more in depth how you can work out your disposable income by doing the unthinkable - creating a budget overview! SHOCK HORROR! Oh, my EYES!!!!

Thursday, April 23, 2009

What accounts the major banks are offering...

What the banks are currently offering. Rates as of 23rd of April 09:

ANZ
link here
Access Advantage was the account I used to have. Great product for unlimited transactions.
Online saver: 3.75%

Westpac
The Choice account seem like good value...
Online eSaver: 4.3%

NAB (National)
Nice website if you're after account information. Many products and they offer the "minimum balance trap" for no account fees. If you have a bit of money to keep in there, this is not a bad option. 
Online iSaver: 4.25%

CBA (Commonwealth)
Some good accounts there, but virtually the same run-of-the-mill. Not much on offer really to persuade me to go with these accounts. 
Online Netbank Saver: 2.75%

Suncorp
I like the look of the everyday basics account. Only $2.50/month fees. Also, I just found a great product which looks like a term deposit and an online saver in one!
Online eOptions Saver: 3.5% with "term deposit like" options to 4.5%

Summary 
So much choice! The major five are quite competitive and it will be hard for anyone to choose. I like the NAB "balance trap" accounts, and, apart from the superior Suncorp "term deposit in an online saver disguise" product, has the second highest online saver rate. 

Which one do I recommend? Don't be silly now, I am not going to recommend any of them, I'll just say go through a satanic ritual where you throw all their pamphlets on a bonfire and the one that survives the longest should be the one you go for.

Good luck...don't get burned.