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.
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'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 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.


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'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 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 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 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:

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

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%

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%

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. 

Sunday, April 19, 2009

What are "Guaranteed" cash flow sources???

One day, I am planning to live off my cash flow producing asset classes, so that I can quit work and feed my never ending need for doing sweet f@#$ all. Seriously, don't we all just want to have our "own time" where we can do whatever we want, without worrying about where money is coming in from? 

For me, the motivator is travel. While the thought of sitting on my arse all day and do nothing but play WOW (World of Warcraft) and eat pizza till I can no longer use my fingers from the inevitable osteoporosis that would result sounds tempting, I want to go and see the world, meet interesting people and fulfil my life long ambition of buying McDonald's from every country in the world that has them. 

So how will this be possible? No asset class is bulletproof. None. Zilch. Period. BUT, some come very close. Shares are risky, real estate can be a very long road, art is a bit of a gamble and if you are going to buy trees, sheep, cattle or any other weird asset class, you may as well throw your money into a piranha infested pool. They would probably eat it. ANYWAY, lets look at these "almost bulletproof" sources, online savers and term deposits with the major banks. 

Online Savers

I'm going to assume you are not a greedy person, because if you are, building cash flow is going to be difficult using this process. If you are inpatient, perhaps this will not sound very tempting either. 

Online savers offer "reasonable" interest rates for your cash. Unless the bank closes, your money is safe and access is soooo easy.  Currently, my bank is giving me 2.75%, but that is quite low and is the result of our (Australia's) dropping interest rates of recent. I was receiving 6% a few months ago before the slippery slide got a work out. I know that some other banks at the moment are offering much better rates then mine, but I get fee free banking with my mortgage, so I'm staying put. So what sort of cash flow does this equate to?

For a modest $10,000 balance, you get the equivalent of 76.2c/day...not bad for just having some money in the bank. 

For something more serious like $150,000, that becomes $11.45/day, which could pay for your food bill, unless you like McDonalds, or like me, KFC.

At $1.7million, this equate to $128.08/day, or roughly $46,000 per year. This could be the start of being financially independent. 

If I look at the good times when online savers were around 6%, this becomes $102,000/year. Definitely enough for me....I'm not greedy :)

Remember, this money is "guaranteed".  

From my point of view, the easy access makes this a bit more attractive over term deposits. Also, the rates are variable....

Term Deposits

Term deposits as far as I'm concerned are becoming less fashionable with the introduction of the above, but still, better short term value. 

Term deposits tend to offer higher rates than online savers, but they should as the product is not as user friendly. From 1 month to three years, term deposits currently range between 3.5% to 5% but this changes day to day, depending on which side of the bed the bank woke up on that particular morning. 

The penalty for getting this higher rate is that you are virtually cut off from using the money, until you receive your payouts, which could be monthly, quarterly, or annually. Not too bad of a compromise, but that's how it is and you can not touch your money for the entire period, or they WILL charge you. Term deposit rates are also "locked in", meaning they won't change throughout the period, so, if throughout a three year term, the bank starts offering higher rates in the second year, tough bickies, you are stuck with the initial rate. MMMWWHAAAA (evil laugh), I can hear the bank already.

Term deposits are also "guaranteed", so once again, a very stable cash flow producing asset with very low risk. 

As I have said this before in another post, these should always be part of your overall strategy, don't put all your eggs in the one basket. But do put eggs in your basket. But not all in the one, but different baskets, and different eggs. OH, you know what I mean. You have to be in it to win it. Well that's not entirely what I was trying to say, OK I stop now. 

Look forward to the next episode, when I share the true secret of making cash flow - stealing!!!

(You know I'm kidding...don't you?) Yeah you do...


Saturday, April 18, 2009

Being Frugal - is it for you?

I just stumbled across a site that gives some simple easy to follow ideas on frugal living. As I was reading this I was reminded of my university days. Yes, they were fun, not a lot of money was spent, but seriously, who wants to spend all their time watching every single little electricity usage in a house? Who, especially in Queensland, want's to be REALLY selective about using air con? Who really wants to make sure the floor stays clean for ages, so you don't have to use the vacuum cleaner? So take this with a pinch of salt. Yes, you can reduce your costs and even feel good about yourself for reducing your "carbon footprint", but some of life's little luxuries shouldn't be forgone, like messing up your floors. 

Still, some great ideas for reducing your costs. I suppose thinking rationally, if you don't have to spend as much money on these sorts of things, your cash flow doesn't have to be as large to maintain a certain standard of living... 

Fight night!!! Which bank will win???

Banks are an unusual breed. They love their food (read:money), grow up very quickly and then often bite the hand of the ones that feed them. Yet, somehow mysteriously, the bitten return once again, they get bitten again and so on and so on, until the relationship breaks down and someone loses an eye.

Banking has come a long way, but unfortunately, so has the weird and wonderful tactics they come up with to get you to part with your cash. Application fees, account keeping fees, fees charged to administer a fee, and finally, who can forget the fee that was created so that you can have a fee free account. The news isn't all bad though and I must admit, sometimes it seems like the banks are ACTUALLY trying to help you make money, but this is rare...

So what can you do to get yours back? What can you do to bite them (a little anyway)?

Luckily for us, there are many banks out there. In Australia, we are especially lucky, because we have the very stable Major 5 (ANZ, Westpac, Suncorp, NAB, CBA) and some secondary options as well (Bank of QLD, Bendigo and RAMS to name a few). Here is where the fun begins. All of these guys have wonderful products and for a long time, I stuck with ANZ with their "$5 account fee for not having any other fees" account, which was working well for me, especially because in my snobby little mind, I was too lazy to search for ANZ ATMs and wanted fee free access to all ATMs. While this was working fine, it was still $60/year they were pulling from me. Before this, I had multiple bank account with different banks and union societies. Why? Who the hell knows, but it seemed right at the time!

Now that I have realised I want to make cash flow positive income decisions, I have made a few decisions about how I structure my accounts to pay virtually no fees. 

So what can you do?

If you have a mortgage, easy, most offer fee free banking for you. If you are one of the unlucky ones that does not have a mortgage, sometimes the Major 5 have what I call "minimum balance bait" accounts, where you don't pay account fees if you have lets say $5000 sitting in there. These are quite OK, but once again, only if you are using this to disperse the additional cash into other cash flow producing online savers. 

Shop around, let the banks "fight" for your business. Don't be happy with a 0.01% interest on an account just because you wanted a blue card from ANZ, make decisions that start putting money into your pockets, not the bank's. Sometimes in their wisdom, banks lure you in with additional little bonuses, like a wonderful pocket to put your cards into, filled with useless, tree wasting pamphlets, but stay away....glossy equals money.

Also keep in mind how you use your money. A while ago, I made sure I had an overdraft facility, because my then cash flow dictated the need and indeed the one fee I paid for this, paid itself off numerous times when I had to access the facility. Not all fees are bad (dare I say it), the key is the overall net cash flow position that you will be in.  

I am not going to say go for this account, or go with that bank, but what I will say is go to ALL of them and let them earn your business. They make trillions, they can give something back...

Finally, products change. Banks decide to get rid of certain accounts, or shock horror, something better is invented by one of the other banks. Keep vigilant, keep updated.    

Friday, April 17, 2009

Opps Australia!

It seems we haven't learned our lesson card (read: the evil shiny one) debt  is still on the increase . Why is this? I thought people were spending less? I thought the day of buying KFC or Hungry Jacks for dinner every night was over? Perhaps I was miss-informed about us as a population finally removing ourselves from the couch when we couldn't afford pay TV? It appears I was wrong. Perhaps once again, the media has glorified this economic downturn, instead of focusing on facts and figures. Oh well, if it makes the news....

Something you may not have known about the banks!!!

The other month, my bank manager got a shock when I refinanced and took all my business away from the money hungry, paperwork losing, miss-communicating bank. Unfortunately I ended up with another money hungry, paperwork losing, miss-communicating bank, which begs the question, are all middle managers and loan account personnel in major banks idiots?

While I let you ponder over that question, I did bring up this topic for a reason. The banker called me, that's right, personally called me and asked why I hadn't spoken to him. So I proceeded to tell him, using very simple language just to make sure he understood, that my broker found a better deal. What happened next surprised me. He said, "You know I could have matched that rate?" 

This blew me away. Is it possible that I can haggle and bargain my way to better deals with the banks? Is it possible that all those published rates are a crock of shit and I am actually able to "shop around" until I get to the lowest rate? 

He actually informed me that yes, he is able to offer better rates to keep my business and to continue to use the services of his money hungry, paperwork losing, miss-communicating bank (lets call it mhplmcb for short). 

Next time it comes time to refinance, I will put this to the test with my new mhplmcb. Maybe you should try it too...:)

Where does my money live???

Let me ask you a simple question. If one of your dollars was like one of your children, how would you treat it? Before you go all silly and suggest I'm a bit of a fruit loop (yummy), lets consider that notion.

You want the best for your kids. The best clothes, the best pram, the best school, etc. etc., but what about your money? Do you want the best for it? Most people wouldn't "dump" their kids into a crap school, yet most people dump their money into a "savings" account. I am sure many of you have pondered over throughout the millenn
ium, why these accounts are called "savings" accounts? I actually have the answer:

It "saves" the bank having to go and ask for loans from the reserve bank. It "saves" them interest. Are there any benefits to you? Well, yes, you get a fancy (debit) keycard and you can use it to buy panda bears and measuring tapes, but in reality, the benefits are minimal. You may even be one of the lucky ones that gets a 0.01% interest bonus per month! Hurrah!

Of course having a "savings account" (which many over 50s have caught on to and are wooing young lasses by suggesting they should be called "spending accounts" ha ha, bloody ha) is important and you must have one for instance if you need cash from an ATM and of course EFTPOS machines takes these cards as well. 

So you may now be asking, what the hell can I do to maximise my "passive" cash sitting in my savings account?

Fortunately, a number of special products have been created that actually help you earn more than 0.3c per month. Let's have a quick look at these:

Online Savers

Every one of the major banks, and even some savvy financial lenders have online savings accounts. These earn modest interest from anywhere between 1-3% less than the going mortgage rates. They have the added bonus of having no fees (if yours does, GET OUT NOW!) easy access via online banking (I'm assuming you have a computer if you are reading this :P) and monthly interest payments. 

XX days Interest Free Credit Cards

This is your best weapon to reduce the boredom that currently is having your money in a savings account. While credit cards are inherently evil, they can be utilised to provide a nice little cash flow management account. Typically, smart people use their credit cards to make purchases knowing that they have the cash in another account
 to pay off the purchase before the interest period kicks in. 

- You can keep your cash in a income producing account for longer.
- Most credit cards come with rewards, that may equate to you being able to buy a toaster with your 30,000 points. 
- You won't have to worry if you have the cash in your account (although you should know you can repay the purchase).
- Having a credit card makes you feel like you're invincible and you get to live the high life of Paris Hilton or Bad Pitt.

Not so good bits
- Credit cards make you spend and sometimes the balance can get out of control. You must be disciplined to use one.
- If you don't pay off during the interest free period, you may have to eventually sell a kidney.
- Usually, credit cards have annual and monthly fees. If used accordingly, the rewards often offset this charge and some cards even allow you to pay your fees with  the required points (like mine from the CBA).

Offset Accounts

If you are one of the lucky ones that has a mortgage in Australia and are paying off principal and interest, you can probably link an offset account to this mortgage. Any spare cash you have sitting in this type of account, virtually makes you the equivalent cash at the interest rate of your mortgage, since you are paying down the principal. This can be a happy little bonus in the long term, but may seem like a waste of time when you realise that for every $1000 you are offsetting, you make back $1.50/week in interest savings. Still, $1.50 is useful if you want to buy second hand jeans from Vinnies

So how does all this work?

By setting up your cash flow structures differently, you can be like me and have only a small amount of cash sitting in your "savings account", while having your cash work for you in other accounts. For example, my online saver is producing steady income (albeit not huge income) that I will be using to top up my savings and further compound the interest I earn. The credit card ensures I can easily make purchases without having cash in the savings account and can control my cash flow by utilising online banking to transfer funds as required.

As of now I do not have an offset account, but my latest mortgage is P+I, so I will have to investigate the possibility of this occurring

Moral of the story: Even though its only a small amount of income, the right structure of bank accounts and credit cards can reap some financial rewards. 

Welcome to Blog Version 2.0!!!

Welcome to Making Money, a blog that tries to answer, amongst other things, the question "How the hell can I buy that firetruck if I have no cash?"

This is a follow up blog to Property Investing in Australia, which, I have to say, has been as successful as a wombat trying to stay awake for 5 minutes, but now that I am more "learnned", I hope to spread the knowledge that is in my head for all readers to benefit. Do not be afraid, I come with SOME credentials, I do manage the budget of a small government institution and hence have had first hand experience at fiscal spending to maximise operational requirements. In other words, I have learned and am continuing to learn how to be a tight arse. 

Please visit again and again if you are interested in my ramblings and, probably more importantly, are interested in making money. Not just pocket money for drinks at the pub on Friday, but real money that will allow you to retire within 10-15 years. 

Upcoming topics:

Savings accounts and you - how to spice up the relationship!
The Mortgage Monster - Don't fight it, let them fight amongst themselves, ninja style!
Term Deposits and Online Savers - the quiet assassins of your job!
Property - bloody property!