Newsletter 01 July 2006 Welcome to our 1st money100 newsletter. Our newsletters have a number of aims. They are: 1. To reinforce some of the topics in money100. 2. A reminder that we are still here and the benefits of using us. 3. As an outlet for us to comment on topics portrayed in the media. Debt Facts Despite the fact that interest rates are still low compared to 20 years ago, many people are concerned about whether they will rise any further. Now our crystal ball is not very reliable just like most economists however we have concerns regarding the high level of consumer debt and ability of many people to handle an increase of 2% + on their home loans The following is some facts of debt in this country to spur people on: - As at 2005 Australian's owe more than $26 Billion dollars on credit card debt alone! No wonder the Banks continually make strong profits. - In 1995 total consumer debt (bad debt) was about half the annual income of an average family. In 2005 it is more than 105 percent! To test your ability to cope, key in your various debts into our calculators but increase the interest rate by 2%. How would you cope? ATM fees hit Aussies for $583 million! This is the headline that was recorded in the Melbourne Herald Sun earlier in the year. Newspapers love to sensationalise and if it involves the Banks, Politicians and Celebrities so much the better. The article discusses the fees, financial institutions charge when we use ATM's that do not belong to their own ie. A Westpac customer using an A.N.Z. ATM. The typical charge is $1.50 with the cost to the operator of the ATM being about $1.00. We are seeing more non branded ATM's these days in shopping centres, hotels and service stations and in some cases the convenience of using the ATM rather than searching for our own ATM is worth paying $1.50. What the article doesn't mention is why are so many people not using their own ATM? This question is asked more to those who bank with one of the big 4 majors as these have ATM's throughout the country, but most of us seem to have at least one account with one of them. If you only have accounts with another financial institution then you have less opportunity to avoid the fee. I am often shocked when perusing bank statements to see the number of these transactions when I know their own bank ATM is across the road or 100 metres up the street. These are not major roads either so there is just no excuse. It seems to be a constant occurrence that those people who regularly use other ATM's are not money conscious. Money goes into their Bank account and wallet and goes out again without much of a thought. They don't look at their Bank statements to see how much it is costing them. If this sounds like you, what can you do about it? The key here is why spend money when the transaction might be able to be obtained for free! It may be worth while to use our cash diary to review your spending. Monthly Quote He who aims at nothing is sure to hit it Confucius Newsletter No.2 August 2006 Cash Diary Do you know where your money goes? Have you ever tried to track your money to provide an answer to budgeting woes? If you say no, don't worry most people haven't successfully tracked their spending. Our budgeting section has a number of different options to handle your money better. To get a good grip on budgeting it is essential that you know where it currently goes. The cash diary is an ideal tool that can be printed off and allows you to record everything you spend, as you spend it. It is most likely the results will be an eye opener. Use this tool as the 1st step in gaining control of your money! It's so Easy! Listening to the radio the other day there was an advertisement outlining the benefits of a mortgage broker. The ad started with a young woman talking to her friend and confirming that they could go out to lunch and that she would pay, as her money problems were now behind her. Apparently the mortgage broker, who was so understanding, was able to consolidate all her debts onto her home loan when the Banks wouldn't even talk to her! Her comment was that it was so easy which was stated a number of times. Those rotten banks you might be saying! Unless her mortgage broker managed to lend her the money himself we have to assume one of the Banks did lend her the money! With so many lenders around it is usually not too hard to find finance somewhere! What is ignored is this woman has gotten herself into financial difficulty and the reasons for this have not been tackled. She is now in a position to go back to her former ways and all likelihood will see her debt problems resurface in the near future. Hopefully that nice man would have insisted on the credit cards being closed and recommended to her that she manage her day to day finances better from now on. A good rule to consider is if you are knocked back for a loan talk to the lender to find out why. Maybe you need to change the way you manage your finances before reapplying for finance. Adding smaller debts onto a home loan may reduce your monthly repayments but cost you more in the long term via interest. To see this for yourself have a play with our calculators. Your Money Personality Did you know you have a money personality? Most people don't and for those that become aware of it, it can be quite confronting. Your money personality was most likely a result of your upbringing and will stay with you for the rest of your life. Your habits with money will probably stay as they are unless you do something to change your behaviour pattern. The where are you now section is a great start to growing your wealth. Monthly Quote It's only when the tide goes out that you learn who's been swimming naked? Warren Buffett Newsletter No.3 September 2006 Compound Interest We often hear about the benefits of compound interest. Is it true or is it just some myth put out by financial institutions and investment firms as a sales technique? Just like Henry Ford said in our monthly quote it all depends whether money is worked. Leave your money in a transaction account or a savings account with tiered returns and the compounding factor can be minimal. Now we are not suggesting to you to put all your money into high risk high return products just trying to explain the benefits. I saw the benefit from my own superannuation when I left the Bank after 22 years. When I first started it was compulsory for the Bank to deduct money out of my pay into the superannuation fund and this was matched by the Bank at $2 for every $1 that I paid in. Now at the time I was earning a pretty small wage and Bank wages back then were usually less than other jobs. I know my friends doing labouring work were earning at least $100 per week more than me which is a lot considering my net pay was just over $100 per week. I couldn't see the benefit at the time of super. This system was made compulsory for most employees in the early 90's with compulsory superannuation contributions by employers which are now at 9% of gross wages. Now this is fantastic for employees, however we recommend everyone contributes something themselves just like I had to. About 6% of gross wages is a good figure to aim for. This is even more worthwhile when considering the Federal Government is kicking in money for those employees who make personal superannuation contributions themselves. This is called Superannuation Co-Contribution. For every $1 you contribute the government will put in $1.50 up to a maximum of $1500! This amount covers those earning up to $28,000 and then reduces on a sliding scale till phasing out when gross income reaches $58,000. Now there are certain conditions so have a look at the Australian Tax Office website or talk to your Accountant/Financial advisor. The benefits of you putting in more and having the Government do so as well should make a difference in the long term. Give up the fags! A pack-a-day smoker could have a new car in 5 years if they gave them up and invested the money saved. It certainly makes you think doesn't it? What would the benefits be over 20 years you might ask? $180,000! You will also live longer and be healthier! What is there to lose? Give them up now! It is estimated that the average smoker spends around $3,650 per year. Is that you or a member of your family or a friend? Did you know a smoker usually pays twice as much in premiums for life insurance products than non smokers! The reasons to give up smoking keep growing. Do it now! Monthly Quote Money is like an arm or a leg. Use it or lost it. Henry Ford Newsletter No.4 October 2006 Credit Card minimum repayments Did you know that the minimum repayment percentage on credit card varies between credit cards? I must admit I wasn't aware of it, or that the minimum amount used to be 5% of outstanding balances and now is as low as 2% in some cases. The reduction to 2% is concerning and potentially could see it take up to 37 years to pay off a card if only the minimum repayments were made and no other transactions taken place. Take control of your own finances and always pay more than the minimum. Have a go at our Debtonator to really attack your debts. Bjorn Borg sells Wimbledon trophies! This article earlier in the year really caught my eye. I am a passionate tennis player and Borg was a real hero of mine when winning all those Wimbledon titles in the 70's. His income in those days was enormous with racquet sponsorship alone worth about $600,000 per year. His annual income from other sponsorships and prize money would have easily have been well past the $3 million dollar mark. This was 30 years ago. His financial difficulty has arisen from divorce payouts and a number of business failures. What's this got to do with me you might be asking? I wouldn't be surprised if a lack of common sense was also missing in how the proceeds were invested over the years. The rich and famous are just like you and me when it comes to handling money. It isn't a skill that we are born with and for most of us we learn via trial and error. Financial education is so important; joining money100 is just the start. Use the information available and continually look to learn more and take action. Are you having trouble with your debt? Have a look at these questions: 1. Do you avoid opening your mail for fear of seeing more bills? 2. Are most of your credit cards at or over their limits? 3. Do you have a number of credit cards? 4. Do you mainly pay the minimum amounts off your credit cards? 5. Have you refinanced short term debt onto your home loan? 6. Are your financial commitments too high for your income? 7. You worry about money frequently 8. You have trouble making house or rent payments on time 9. You take out new loans before old ones are paid off 10.You've frequently had bounced cheques 11.You have to work overtime to make ends meet 12.You pay half your bills one month and half the next 13.You have been declined credit. If you have answered yes to some of these, it is worthwhile having a read of our handling debt section. Monthly Quote Money can't buy friends, but you get a better class of enemies. Spike Milligan Newsletter No.5 November 2006 Credit Card promotions I regularly receive marketing material from credit card providers suggesting I take up their offer. One from American Express caught my eye for a number of reasons. Firstly, that I was among the first to be pre-approved to experience the benefits of a platinum credit card. This was later explained to say the pre approval was subject to certain income & credit criteria. Talk about misleading, all loan/credit card applications when approved are done so because they meet the financial institutions credit requirements. So basically the pre approval is just a big marketing ploy. The second area to catch my attention was the great marketing spiel to make me feel like I am part of the rich and famous. Statements like: - When you use the new Platinum Credit Card from American Express, it's bound to be noticed? - Feel like a high-flyer every day, experience life more with Platinum in your pocket? - Relish putting your card on the table, with its good looks it's no wonder it's first to touch the table? You may have seen the Mr Bean episode where he goes shopping in a department store, where he proudly showed to fellow shoppers and sales staff that he, Mr Bean was a winner because he had a gold credit card! Unfortunately for Mr Bean in an endeavour to make more profits the gold credit card was promoted to many people and as a result the exclusive feeling that went with a gold credit has gone. Now we have the platinum credit card, there is already a titanium card on the market. I personally am waiting for the kryptonite card! Of course the card providers now understand that not everyone wants a prestige card. The younger market is now being offered sexy, funky and fun cards. Where is it all heading! For many people it is a continuation of the debt cycle that they have been in for a long time. It may be time to review where you are at. Perhaps listing your assets & liabilities in our balance sheet will set off the need for greater attention to your spending followed up by the use of the cash diary. Whichever option you use, stick at it. 5 steps to becoming wealthy These are 5 common sense steps if followed consistently should ensure you reach your financial goals. 1. Spend less than you earn 2. Pay yourself first 3. Invest automatically 4. Build a smart investment portfolio 5. Start today All 5 are very important and the benefits are far greater if you tackle all rather than 2-3. Steps 1-3 are mentioned many times in money100. Step 4 relates to the need of having an investment portfolio that is planned for the long term, is not too conservative or too risky and has a mix of investments (property, shares & cash). Step 5 is very important, as I have seen many people who have every intention of starting an investment portfolio but never get around to it. Start the process now! This doesn't mean you have to invest now but to start the process ie. research. Good Luck Monthly Quote There was a time when a fool and his money were soon parted, but now it happens to everybody. Adlai Stevenson Newsletter No.6 December 2006 Insurance Cyclones, bushfires and floods are common events in Australia. Usually it seems to affect someone else and we often believe the area we live in can't be affected. Those living in major cities are probably correct, but even pockets of these are hit by bushfires, and major storms can happen anywhere. Home buildings insurance is not expensive when compared to other expenses we have like car insurance, registration and the cost of increasing our policy is even less of a burden. Why then are so many Australians underinsured? How long has it been since you reviewed your insurance? Have a read of the insurance area under the houses section or call your insurance company and tell them of your concerns. They should be able to provide some details of average replacement cost. Don't wait; review your house and contents insurance now! New Subsections In the next week we will have 2 new subsections. Both are in the miscellaneous section. The 1st is 'Kids' which assists us to help our children to learn money skills. The 2nd is 'Great Books to Read'. This lists different books that we believe will be of value in improving your understanding of money. Money decisions Our ability to make wise money decisions at different times of our lives can have a big difference as to how much we have when we retire. The basic money skills we promote ie live within our means, pay off debts fast and invest wisely are the cornerstones of reaching our financial goals. Other decisions can make a difference. As a family we recently purchased a 2 year old car bringing the number of vehicles to 3. We initially decided to sell my 13 year old Holden Commodore which is only worth about $2,500 and keep our 6 year old Toyota Camry wagon. After talking to a couple of people in the car industry we decided to keep the Holden and sell the Toyota. Our decision was swayed by the knowledge that in 4 years time the Holden will still be worth the same while most likely the Toyota will have reduced in value from say $12,000 to $8,000. We don't need 2 relatively new cars as most of our travelling is very low ie trip into town and back -5 km. We have had the Holden for 11 years and it is still a good car. Given this information the benefits of being able to make a lump sum repayment of $10,000 + off our home loan couldn't be avoided. The best way to repay a loan faster is by paying extra off it. Increasing loan repayments and making extra repayments whenever possible is fantastic. Sometimes we need a psychological boost and seeing your loan reduced by a large amount can spur you on to look for ways to make further reductions. Now this scenario would not work for everyone and I expect in about 4 years time we will definitely sell the Holden if not before then. Our situation may have changed where we are doing more kilometres and therefore require 2 newer cars. What this does point out is the benefits of weighing up all the facts and also asking for a second opinion from a respected person. Are you struggling along with your debt situation? Maybe there is an unused asset that you own that could be sold and the proceeds used as a lump sum repayment to reduce your debts. This could be just the spur you need to fast track your debt reduction. Merry Christmas 2006 for most of us has been a very busy year and 2007 won't be any different. If you are able to, find time to refresh and spend some quality time with your family. Have an enjoyable Christmas Monthly Quote Effort is the key, but direction and loyalty are paramount.
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