The last post (Re-cap Part 2)

Well, our time on Trade Me is nearly over, so here’s one last post to finish off what I started last week…

Week 5: What to do with our new (and modest) budget surplus? Well, it was “no” to term deposit saving and “yes” to upping our mortgage payments.

tiktok said...
the extra (money) should be used to reduce debt. The cost of interest on debt is higher than that earned on deposits.

… but now that extra on our mortgage will have to wait, as your votes told us Matt should take up the opportunity to join his employer’s super scheme (matching 3% salary contribution dollar for dollar) :

irma vep said...
Go for it. If you can't afford the whole 3%, put in as much as you can for the meantime. Who else is going to offer to match your savings, and make sure you can't break into them!.

Week 6: Your votes agreed we should reflect our different money personalities by opening separate accounts. But we also followed Martin Hawes’ advice and kept our joint account for things like the mortgage.

Anonymous said...
Have a set allowance that you each receive into your separate personal accounts each week to do with as you please. My feeling is that you as a woman who is not working need to have some financial freedom too.

… then your votes favoured buying an investment property as a long-term financial goal, rather than hoping the equity in our home keeps increasing.

Week 7: It’s a complicated area, but the majority favoured the idea of us setting up a family trust. This isn’t something we’ll dive into right now, but look to establish later on - particularly if we get that investment property.

Anonymous said...
Trusts are great, as you all will be safeguarded in the long-term should you and Matt separate and divorce later on or should one or both of you die.

… and we ventured into even more controversial territory when I suggested setting up a company rather than working as a sole trader in my one-day-a-week physio job. Your votes told us to keep things the way they are.

Carla said...
… all this other talk should be wayyyy down the track...

Anonymous said...
Are you likely to have personal assets at risk by operating as a sole trader? I wouldn't have thought so. So a company is just more hassle and expense for no benefit.

Week 8: So the big question is, after two months, are we sorted now or not? Well I reckon we’re well down the track. We’ve tightened up our spending, got some extra income coming in, put some retirement savings in place and started making plans for the future.

Pretty good for a couple of months work?

I know we’ve had our lovers and our haters, but I hope the issues we’ve dealt with over the last 8 weeks have helped some of you get “sorted” with us.

Thanks all


Steph, Matt, Caleb… and the Sorted Team : )

Let's re-cap...

What a crazy couple of months it’s been! Here’s a quick re-cap on what you’ve helped us achieve over the first 4 weeks, and some of your great comments that helped us along, and might help you along too!

Week 1: We paid off Matt’s credit card with our emergency savings. One debt down!

Anonymous said…
It is foolish to owe money on a credit card, which is high interest, if you have money sitting around in an emergency fund. With no emergency fund temporarily you can still rely on the credit card if something comes up. In the meantime - save on the interest!

Week 2: We decided not to extend our mortgage to buy a bigger car. Our little hatchback is still a pain (in my back!) but at least it’s still going…

vdanegerous said...
Hang on to the car you have got for a bit longer and don't spend anymore than $5,000 on another car when you have saved that much. Avoid paying interest as much as possible.

… and then your votes told us to go cold turkey on our spending…

Carla said…
Its AMAZING how much extra a week you spend on NOTHING! get a little notebook (they only cost .30c at a stationary place) and take it EVERYWHERE with you, write down EVERY purchase whether it be a $3 coffee or a $150 food shop, at the end of the week, go through your notebook and work out the amount you spent on things you really did not need, its amazing how it adds up and can all contribute towards your household.

Week 3: Matt was the loser in this one – goodbye to his $8 lunches, hello to making sandwiches in the morning. But I felt sorry for him and gave up my gym membership as well. Result? $280 saved off our budget each month!

stacey_kay said...
Not only is a budget about compromise, so is a relationship. I do not know why only one of you have got to miss out on their luxury - how about you BOTH cut something out. Yep I think Matt should start packing his lunch as $8 a day soon adds up to a few packets of nappies a week! But in saying that, you too should drop something. Maybe the gym membership (if you pay as you go and there are no costs involved in stopping) as at least with pay tv you and Matt can sit down together to watch it.

… then in some ways you could say I was the loser on the next question – back to work one day a week! But of course it had its bright side – turned our budget around from an $11,000 deficit to a modest surplus.

Anonymous said...
Definitely go for the part time work. It will keep your skills current and you won’t end like me who was a SAHM for 7 years then had to entirely retrain because I had lost all the knowledge by being at home.

Love that SAHM acronym!

Week 4: We changed our mortgage from monthly to fortnightly, paying half our previous monthly amount each fortnight. It’s going to cost us more over the year, but the result is our mortgage will be paid off a couple of years faster, saving us about $20,000 in interest.

JB said...
By repaying your mortgage fortnightly you will save heaps of money in the long run, and wipe years off your mortgage! You should aim to pay 50% of your monthly repayment (if you can manage a bit more - go 4 it).

… then your voting was pretty much 50/50 on whether I should start paying off my student loan or not. But the weight of opinion in your comments pushed me away from doing this for the moment.

Anonymous said...
I would say to pay off the interest bearing debt first and then tackle that student loan. Maybe you could put the amount that you WOULD pay on your student loan - onto the interest bearing debt. That way - once you have paid off that debt - you could transfer the payment straight to your student loan and you won't miss it! :)

Back later to review what happened over the last few weeks.

See ya!

Steph

Week 8, Question 1

Let’s get a few things straight. Recently we’ve been talking about issues like buying an investment property, setting up a family trust and forming a company.

Judging by your comments, some of you obviously reckon we shouldn’t be thinking about these things.

With the exception of the company (which as someone has pointed out is no big deal to set up), these have NOT been things we would necessarily plan on doing in the near future.

Now that our finances are on a reasonably even keel (thanks to the decisions you’ve helped us make!) we just wanted to take the opportunity to think about our long-term financial future and set a direction to head towards.

OK, got that off my chest.

But back over to you. Do you think we really are sorted now? Or do we still have a way to go?

Steph

Company vs Sole Trader

Here's the latest from Martin Hawes on whether we should set up that company or not. Looks like "not" - from his point of view at least!

Steph

At the moment I would simply stay as a sole trader. It is usually my preference for people to trade through companies (usually for tax purposes) however there is likely to be no tax saving for you because your income will be too low.

When your income increases to over $60,000 pa a company could give you some good savings. In the meantime, I would not bother about the expense.

Martin

Judging by your votes, quite a few of you agree with Martin on this one. But we'll see what the final result is tomorrow.

Bye for now.

Steph

Week 7, Question 2

Right.

Thanks to your votes, Matt and I are going to take a serious look at setting up that family trust. Not really sure what we're in for there but we'll see how it pans out.

Another thing I'm looking into is whether we should set up a company, now I'm working one day a week. Although I'm working out of a physio clinic I'm actually self-employed - what IRD call a "sole trader" which means it's all very straightforward.

But just about everyone I talk to who is working for themselves has set up a company, so I feel I must be missing out on something here!

Your thoughts?

A matter of trust

Hi all

Well the family trust looks like being a definite possibility, judging by your votes and comments so far. But here are some words of caution from Martin Hawes:

Steph

I cannot think why you would go to the expense of a trust. There would be no tax savings that I could see, you do not need the asset protection, there are no relationship property issues and you are a long way from needing rest homes!

The expense and time cost of a trust would seem to me to be a waste of time and money.

Martin

Good to get another perspective on this. More views and votes welcome!

Steph

Week 7, Question 1

Ok so it's not the easiest time to add a blog post today. Now I'm working a day a week it does upset the flow I'd had with Caleb a bit. But I'm really loving having just a wee bit of space to myself.

Anyhow, nevermind that, it's back to money matters. Trusts is where we're at now. With the last vote saying we should buy an investment property we need to start thinking beyond our next pay cheque.

Matt's sister and her husband have just set up a family trust. They're pretty switched on and have got two flats which they're gradually doing up. They're rented out at the moment and they've also set up a company to manage them. So with our latest plan of attack changing - we're thinking about setting one up too.

The Trusts section on Sorted had a really good run down of the pros and cons so we've got a feeling about what we want to do, but as is the way, we'll go with your vote...

Steph

Week 6, Question 2

Following on from the eye-opening look at our money personalities the other day, Matt and I have been talking about our financial goals. Shock horror!

Now Matt’s signed up for his employer’s retirement savings scheme we’re actually thinking further ahead than next week for a change.

On Sorted it says one of our goals should be to increase our net worth over time.

Well, house prices seem to keep rising and as our mortgage gets paid we’ll have more and more equity. So that’s one way.

But another idea might be to leverage off the equity in our house and buy another property as an investment (no, not right now, we’re talking long-term!).

You always hear about people doing this – why not us?

Oh – thanks for all your votes on the bank account question. We’re going to open separate accounts for each of us, but also follow Martin Hawes’ advice and keep our joint account for things like the mortgage.

Steph

Pots of money?

Hi guys

Here's an interesting spin from Martin Hawes on that joint vs separate bank accounts issue:

Steph

This is a really hard one - it depends on a lot of personal issues. Separate bank accounts can make money management more difficult and there is also the issue of what happens when one of you runs out of money!! This can mean that things like the mortgage cannot be paid.

One thing that you could think about is having three pots - i.e. his, yours and ours. This would mean that you would pay joint expenses (like mortgage and groceries etc) out of one account but you would each have a separate account for your own personal stuff (clothes etc).

You still have the problem of what happens when one of you is broke, but at least you both know that the important stuff will be paid. It also means that one is protected from the profligate ways of the other. A lot of people use three pots because it maintains a sense of togetherness and partnership, while still giving some independence and protection.

Martin

Some good advice there - didn't really think about doing both. Interesting thought!

Keep those votes and comments coming.

Steph

Week 6, Question 1

I’m a Money Surgeon and Matt’s a Money Maestro!

Well, that’s what the money personality profiler on Sorted said anyway.

I like “order, stability, clear systems and being in charge”, while dear Matt likes the good things in life and is prone to “bursts of extravagant expenditure”.

Couldn’t have put it better myself!

I’ve often thought that we had very different ideas about money and this just confirms it.

We’ve had a joint account since we got married. Which has led to a few arguments over the years about where our money’s going.

But now I’m wondering if we should have our own accounts again – maybe with some “pocket money” for each of us to do with what we want. So I can buy my magazines and make-up without feeling guilty. And Matt can buy the odd CD or nice bottle of wine.

Worth a try? What do the rest of you do with your finances?

Steph

Golden opportunity?

Hi all

Here's a short and sweet comment from Martin Hawes, on whether we should take up Matt's opportunity to join the workplace savings scheme.

Steph
This is the breakthrough you have been wanting – a great chance to get ahead. Think about the opportunity: someone is prepared to give you a dollar for every dollar that you invest. That is a good deal!

You have to find a way to do it. Employer-subsidised Super Schemes are one of the exceptions to that rule of paying off your mortgage before you start to invest. Do not turn down an opportunity like this.

Martin

Couldn't be much clearer, could it? I'm feeling quite enthusiastic about this now!

Steph

Week 5, Question 2

So it’s “no” to term deposit saving and “yes” to upping our mortgage payments.

Your votes made the decision clear on this one but thanks also to the helpful feedback from Martin, tiktok and JB.

However, Matt’s employer has just thrown a spanner in the works (potentially a nice spanner, though!). He’s starting up a workplace savings scheme and has offered everyone a place in it. The deal is Matt can contribute up to 3% of his gross pay each month and Matt’s employer will match it dollar for dollar.

So that would take care of our surplus (around $2,000), but could be a better option than putting it into a term deposit or even the mortgage? Or maybe this just isn’t the right time for us to be looking at retirement saving?

Martin Hawes will give us his view later this afternoon.

What do you think?

Steph

Budget update etc.

Hi everyone

In response to tiktok’s comment we’ve put up some screenshots of the revised budget we worked through on Sorted’s Budget Calculator. More income and less spending!

Budget page1
Budget page2
Budget page3
Budget page4
Budget page5
Budget page6
Budget page7
Budget page8
Budget page9

But is there room for some saving? Here’s Martin Hawes’ view:

Steph

Having money in the bank while you have a mortgage is a really bad arrangement. In effect, you are lending the bank your money (the term deposit), the bank puts a profit margin on and then lends the money back to you.

The result is that while you’re paying 9% interest on your mortgage, the bank only pays you 7% on your term Deposit. Then, of course, the IRD takes its share of the interest you are being paid and so you end up getting around 5.5%. That is not a good deal.

You are much better using any spare money that you have paying off the mortgage. To be better off you would have to get over 9% after tax from an investment – that’s not easy and would certainly mean taking some risk.

There are some exceptions, but most people are better to clear the mortgage before they start to invest.

Martin

Oh well, doesn’t look like such a smart plan at this stage after all. But let’s see where your votes take us.

Steph

Week 5, Question 1

Phew, that was close! Your voting was pretty much 50/50 all the way on whether I should start paying off my student loan or not. But the weight of opinion in your comments has pushed me away from doing this, for the time-being anyway.

We’ve done some more work on our budget. After keeping track of our actual spending in the last month, we realised we'd over-estimated some of our expenses like baby clothes for Caleb (we've managed with the bagloads of hand-me-downs from his cousins so far!), and luxuries like wine and takeaways. We've also decided not to spend any money buying new appliances this year - that new dryer will have to wait.

The result is that our budget calculations on Sorted now show a projected surplus of around $2,000.

So the next question is, what should we do with it? One idea we’ve had is to get into the “saving habit” again and put away $50 each fortnight from my pay.

Then at the end of the year, along with the $700 left from our emergency fund, we’d have $2000 to put into a term deposit and start earning some interest for a change. The other option of course is to put the same amount of money onto our new fortnightly mortgage repayments.

So it all boils down to whether we should start saving a little now or pay more off our debt … what dya reckon?

Steph

Too close to call?

Hi all

Good to see the student loan question has got you thinking. And judging by the votes so far this one could go either way…

Pay it or forget it? Here’s what our friend Martin Hawes has to say:

Steph,

My advice on this is simple: forget the student loan at the moment. The recent Government changes that mean there is no interest payable allow you to sit on it at no cost. One day you will have to pay it off – when your income rises. But in the meantime, I suggest that you do not need to worry about it.

Martin

Keep those votes and comments coming, everyone, we’ll see how things turn out next week.

Steph

Week 4, Question 2

Well, thanks to your votes we’re asking the bank to change our mortgage payments to fortnightly. That’s also what my new pay frequency will be, so makes sense.

Following your feedback, we’ll be paying half our current monthly amount each fortnight. It’s going to cost us more over the year, but we’ll have to find a way to make it work. More on that later.

And on the subject of debt, have I mentioned my $13,000 student loan? Probably not, as I haven’t had to make any repayments since I stopped work.

But now I’m earning again I wonder if I should start paying it off – even though I will be under the repayment threshold ($17,160).

Getting rid of debt is our number one goal, and now there’s no interest adding up, the student loan should be easy to knock on the head – well, easier than our mortgage anyway.

Just a bit each month wouldn’t hurt? Worth it?

Steph

Fortnightly vs monthly

The voting so far would suggest this issue is very clear cut, but maybe not...

Here's the Martin Hawes angle on fortnightly vs monthly mortgage repayments:

Steph

This question is not as straight forward as it sounds - there is a lot of
misunderstanding about it.

Fortnightly payments are good for many people because they end up paying a lot more on their mortgage than they were paying before. There is a great saving, but only because they are putting more money against the mortgage. If they pay the same amount of money as they had been, but pay fortnightly, there is only a very minor saving.

Here's what I mean: You're currently paying around $2050 per month. If you decided to pay fortnightly, you might choose to pay $1025 per fortnight. You would in this case make a great saving because you are paying a lot more on the mortgage – as there are more than 24 fortnights each year. When you pay $2050 per month, you are paying $24,600 per annum. But if you pay $1025 per fortnight you are paying $26,650 per annum. That extra $2,050 per annum that you are paying does indeed lead to greater savings, but only because you are paying more.

If you changed to fortnightly payments but still paid the same amount (i.e. your $2050 per month went to $946 per fortnight) you would only have a very small saving over the life of the mortgage - around $225.

So, start to pay fortnightly by all means, and if you pay half of the previous monthly payment, you will make a great saving. However, it could blow the budget - and your budget is already fairly tight.

Martin

Mmmm, not so black and white after all! How has it worked for others out there?

Steph

Week 4, Question 1

Hi ho, hi ho, it’s off to work I go...

Well, not just yet but that’s what your votes have told us should happen.

Matt’s pleased he can keep his weekends off and to be honest I am looking forward to keeping my hand in at work. We’re both a bit apprehensive about putting Caleb into child care. But it’s only for one day a week, and the money will make a big difference.

In fact, with the savings we’ve made over the last few weeks through getting rid of Matt’s credit card debt, his bought lunches, my gym membership, and now the prospect of extra, regular income, things are definitely looking up.

Still a way to go, but we’re now well on our way to getting things sorted.

So next on the agenda (has it ever been off it?) is the mortgage. We’re still mulling over whether to go to a broker or just talk to our bank, but whichever way we go, one thing we’re going to have to decide is whether to change the frequency of our payments.

Matt gets paid monthly, so we thought it made sense to have monthly payments. But it seems everyone these days pays their mortgage fortnightly, so maybe that’s the way we should go? And if we do pay fortnightly, should it just be half of what we pay each month? Or less? Or more?

Steph

Freelance vs Physio

Hi all

Just got these wise words from Martin Hawes about the extra work question:

Steph

Thank goodness Matt got rid of those bought lunches. Think of it this way: $8 per day is $40 per week, $168 per month, or around $2,000 each year. If you saved that money at 5% interest, in 30 years you would have almost $133,000 - see for yourself using Sorted’s regular savings calculator. Expensive lunches! (You would be even better off if you applied that $168 per month to additional mortgage payments.)

When I think about whether Matt should freelance or whether you should take on part-time work, it’s a more difficult question. Financially, you would be better off having Matt doing some freelance work. By the time that you have paid childcare and transport costs, there will be more money from Matt’s work than yours. Especially since his hourly rate is higher.

However, there is another really important factor: being out of the workforce means that you risk losing your employability. This affects a lot of people – especially women. A few years out of the work force leads to a loss of your network, and a loss of your currency within your profession. It can be very hard to get these things back when you need to. Lots of women, in particular, find that when something bad happens (death or illness of their partner or marriage breakup) that it is hard to get back into their professions and they no longer have the ability to earn a good income.

I know that you will be better off in the short-term if Matt starts freelancing. However, in the longer term I think that you would be better advised to get yourself back in the game by doing some part-time work. Doing this means that you will have a bit more income to help your budget. You will also maintain your professional currency, important if you are struck by one of the Three Ds (Death, Divorce or other Disaster).

And when Caleb gets bigger and you can go full-time, you will be able to earn more than Matt would ever earn freelancing.

Martin

Thanks again Martin, some strong arguments there. But I'll keep an open mind until the voting finishes on Monday.

Have a great weekend everyone!

Steph

Week 3, Question 2

Poor Matt. No more bought lunches.

Now I do feel a bit sorry for him (truly!) so in solidarity I’ve decided to cancel my gym membership as well.

So together we’ll have shaved about $280 a month off our budget. And no doubt we’ll find some other ways to save thanks to all your great suggestions.

The last message from Martin Hawes really got us thinking though – that budgeting isn’t just about cutting spending but also looking at opportunities for increasing income.

So we’ve also come up with a couple of ways we can earn a bit extra to get us out of the red.

Matt thinks he can pick up the odd bit of freelance graphic design work to do on the weekends. Maybe 5 hours a week (around $200 after tax) – but the downside is he’d have less time to spend with Caleb (and me of course!)

The other option is me doing some locum physio work for one day a week.

Working 8 hours I’d probably earn about the same as Matt’s freelancing – and we’d have to pay for child care - but it would be regular income we could bank on.

What does everyone think?


Steph

Week 3, Question 1

Thanks to everyone who voted and commented on our last question – going cold turkey on our spending was another clear winner. Martin Hawes has given us some tips about how we should go forward with our budget which I’ve included below.

This week's question should get some good discussion going - it certainly has in our house!

Matt and I have been debating which “luxury” to ditch first. Top of mind were the lunches Matt buys each day vs my gym membership and Pay TV subscription. Not sure how I ended up having two items on the table but there you go. Come on girls, stick up for me here!

Anyway, here’s what Martin has to say about budgeting:

Matt and Steph,

A budget is not all about scrimping and saving. It is deciding what you want to spend your money on, doing the things that give you good value and life enjoyment and not doing the things which don’t. (Your gym membership might fit into the first category but Pay TV???)

When you take another look at your budget on Sorted, you should keep a few things in mind:

1. A budget has two sides: income and expenditure. A dollar of extra income is as good as a dollar cut from expenditure. Is there any work that you can do, Steph? Matt’s income is good, but can he improve it even further? When did he last ask for a pay rise? Don’t ignore the income side of the budget – it’s not all about taking a
   chainsaw to expenditure.
2. Have you got any records of what your expenditure has actually been? It is much easier if you can look back to see where money has been going in the past.
3. You need a way to monitor your performance against the budget. I can guarantee that your actual expenditure will not be what you planned in the budget and you need to know what differences there are.
4. Watch out for “petty cash” – money that comes out of the pocket for little things. For example, Matt’s brown bag lunch might not sound a lot, but it sure adds up. If he spends $8 on lunch each day that’s $40 per week, $160 per month and $1920 per annum. Go on a money hunt, to find what those small things are - Carla’s idea of a little notebook is great.
5. Don’t make the budget so tight that you can’t stick to it. It’s a bit like dieting: if you make it too tough you are likely to throw in the towel and give up!
   

Thanks Martin - some good food for thought there! Let’s see how the vote goes over the next few days.

Steph

Week 2, Question 2

75/25 against buying a car! OK OK I feel told off. The message is very clear, we will just have to put up with our little car for a while longer. So who do I bill for the chiropractor???

Phew. Now that controversial item is off the agenda, do we take a chainsaw to our spending or go see a mortgage broker and fix our mortgage?

Now I’m sure many of you will be thinking “Steph you idiot you need to do both!” but we just need a steer on what to do first.

Oh, should let you all know that the three of us are off to Matt’s parents over Easter, and will have (shock horror) NO INTERNET ACCESS!

So have a good one everyone, don’t eat too much chocolate and see you all Tuesday.

Steph

Save or put it on the house?

Hi everyone

Well, Martin Hawes isn’t too impressed about our plans to buy a bigger car. Here’s what he had to say:

Steph

The first thing that you and Matt need to do is think about whether you really (and I mean REALLY!) need that new car.

Cars are the bane of every financial adviser’s life - they destroy budgets. The thing that most people forget with cars is depreciation – the moment you drive it away from the seller, it is worth less (I wonder what you paid for that car that is now worth $4,000). And it keeps on getting worth less as the weeks and kilometres turnover. Petrol, insurance, repairs and registration costs pale to insignificance compared to the loss of value over time and kilometres. Nevertheless, that depreciation is real money which has to be found when you are up for replacement.

If you add up all the costs for the car (repairs, petrol depreciation, interest if you borrow etc) you might be shocked at the total.

If you and Matt really do have to buy a car but can wait a bit, you should save for it. You should save either by use of a deposit account or by reducing the mortgage by $5,000 - having got the bank to agree that you can draw it back down when you are ready (the revolving credit facility would have been ideal for that).

If you have to have the car now, put it on the house – i.e. increase the mortgage. Home finance is the cheapest available and that will be your best form of borrowing.

But, of course this will mean that you mortgage will go to $216,000 and along with your car decreasing in value you are going backwards. That will be exacerbated by the extra interest that you will have to pay.

I had thought that you were worried about your finances and were determined to get them straight…

Martin

Mmmm, we are worried about our finances but I’m also concerned about my back! Anyway, we’ll see how the voting goes over the next day or so. Oh, and keep those comments coming (Isn’t Carla a star?).

Thanks!
Steph

Week 2, Question 1

Thanks guys for helping us sort out Matt’s credit card. It's great to get rid of a chunk of debt, although a bit scary to have our emergency fund down to just $700.

Now I know we shouldn't be thinking about spending any more money right now, but we really need to do something about our car.

It's not flash (most of the car costs in our budget are for petrol) just a hatchback, but it’s getting too small for us now. With just two doors it's a real pain (in my back!) to get Caleb and his car seat in and out. And once the buggy and change bag etc. are in the hatch there's not much room for anything else.

Matt reckons we could get about 4 grand for our car (maybe more thru TM Motors!), so that would leave us needing around $5,000 to trade up to something bigger but not over the top - like a 1998 station wagon.

We could find a way to save up the extra money we need, but seeing as we're going to review our mortgage soon anyway, why not just put it on the house? We've got plenty of equity, so another five grand wouldn't hurt, surely?

Your thoughts?

Debt dilemma

Hi Everyone

We've talked to Martin Hawes about our budget, our debt and our current dilemma. He said:

Steph

The answer to your credit card question is fairly straight forward, but first, there is another option. You could as I suggested have a revolving credit facility, pay your emergency funds into it and then pay your bills from it (including that credit card bill). This way your savings and any other money that you have will be working as hard as it can by reducing interest on a daily basis (instead of gaining that little bit of after tax interest your savings are currently earning).

You’ve decided not to go ahead with that because you say you lack the discipline to resist the temptation of credit facilities (you told me that Matt is a tiger with the credit card –what is his version of this?).

Anyway – no revolving credit – fair enough, a good call in the circumstances.

So I do think you should pay the credit card bill with your emergency savings as soon as you can. You will be paying a horrendous interest rate on the credit card (my latest statement says 19.75%) – whatever it is, it will be much higher than the after tax interest earned on your savings at the bank.

I’d also really love you to cut up that credit card, but unfortunately I think that you had better keep it (but not in Matt’s wallet!). When you have paid off the credit card you will have only $700 of emergency money left (not a lot to cover illness, redundancy, leaking roof etc). If something bad happens you may need to draw out cash on the credit card. I really hope this does not happen but an unused credit card left in the bottom drawer could be a life saver. Just make sure that you do not open that bottom drawer unless you really, really need to.

Martin

Revolving credit? My head's spinning enough as it is! haha.

So pay off the credit card? Comments below seem to agree, but 1/3 of the votes so far say keep the emergency fund. I hate to see that cash cushion go, especially since with our budget we're not going to get it back in a hurry. But we'll go with whatever the voting says over the next wee while.

Thoughts anyone? Steph.

Week 1, Question 2

Well, now we’ve got a budget together we can see that debt is sucking up a lot of our income.

We’re going to follow up the ‘biggie’ (our mortgage) soon, but in the meantime there’s the small matter of Matt’s credit card. It’s currently got $1800 owing on it and we’re only paying just over the minimum each month.

We might have an easy solution to this one, though. Our budget doesn’t show it, ‘cos we’re no longer putting any money into it, but we do have a $2500 savings fund for emergencies (in case the roof needs fixing, that sort of thing).

So what do you reckon? Should we pay off Matt’s credit card with our savings - and have one less debt to worry about - or keep all of our emergency fund for a rainy day?

Thx, Steph

Budget blow out!

Hi Everyone

There have been a lot of comments from people who can't believe we'd 'struggle' on $68k. Well, I didn't think we'd be struggling either - but what I really can't believe is just how much we're over budget!!!.

We've put in our actual spending, or made reasonable guesses for some things, and loaded it into the Sorted Budget Calculator.

So anyway, here's the link to a screenshot of our results page.

Thx, Steph.

Comments feedback

Hi Everyone

I've given Matt a hurry up on helping me with the budget. Its a bit scary!!! I know everyone thinks $68k is heaps but... well, you'll see and then tell me where we're going wrong.

There's been some great stuff posted in the comments. I thought I'd bring out the stuff that struck a nerve with me and respond directly here. Thanks to those people that took the time to think about it and post something really smart. If I've missed something let me know, its not because I haven't read it, its because I haven't had time to respond.

Is the problem really debt repayment? Or is the problem that they don't know how to make their money work for them? I still think going to see a financial planner would be best.

It looks like mortgage and food are our biggest ticket items. Well, we bought in Grey Lynn a while ago, and we did it to be close to work. Now we want to stay here to be close to family, both our parents are in Auckland and with living right here we can get my Mum around to help with babysitting anytime - it's hard to keep her away sometimes! So we want to keep the house, I think.

At Saturday, April 01, 2006 10:01:09 PM, JB said...
In this fictitious situation...

Fix your mortgage
(which is a relatively small mortgage for Auckland) of $211,000 for 5 years at approx 8%pa, with monthly repayments of $1549pm (assuming a 30 year term).

Wow, okay, thanks for thinking that one through! Click the title link above or here to read the full comment on that. That is/was a great post. Quite a few other commenters (?) said things along those lines. I can't believe how much we spend on food when I added it up. As well as the mortgage we're going to tackle our grocery bill big time! But it looks like rather than one big problem to solve, it might be bunch of little things working together that make a difference?

Living in a big city such as Auckland means that cost of living is greater. Of course comparibly, incomes are greater. So while $68k may sound a lot to some of our rural dwellers, it is actually very easily spent in Auckland.

That might be it. There is quite a good cost comparison of Auckland versus elsewhere there. Can anyone tell me if it is really like that? Okay, so I knew it was expensive here (I didn't grow up in Auckland so I *do know* what the rest of the country is like btw!) but didn't think through how much it affects us day to day. Matt and my Mum would kill me if I even suggested moving though!

Anyway, thats it for now. Thx, Stph.

Advice about advice!

Hi Everyone

Okay, so talking to my brother seemed like a good idea at the time. I'll take it from you guys that its not.

Some of the comments below reckon that a financial planner is a good idea, some say a waste of money, and that we should check out the free budgeting services. I guess there are more than just the two options (brother or planner) to consider on this one. Everyone does seem to agree that doing a proper budget and a getting control of the mortgage are our two biggest/best things to do.

Anyway, I mentioned we had Martin Hawes looking at what we're doing - not as our financial planner, but as a financial expert who can help explain some of the issues. This is what he's said so far:

Steph,

Brothers-in-law (along with cousins, kindly uncles and the likes) have cost more people more money than just about anything that I know. You need advice – good advice.

Your main issue is your $211,000 mortgage. If it is a standard mortgage repaid fortnightly over 25 years at 9.5%, you will end up paying $435,810.25 for your house. That’s the same again in interest payments!

There is a great deal that you can do to make the mortgage more efficient and so reduce that interest cost. You need to start up “Project Mortgage” – open a file and set out to save as much as you can of that cost.

The first thing that you should do is learn all about mortgages – how they work, the products that are available and the different interest rates from different providers. Go to the library or search the web (I know www.sorted.org.nz has plenty of information) and play with some online calculators to see the difference that even an apparently small interest rate reduction can make.

Concentrate on two things: first getting the lowest interest rate possible. You can do this by using fixed rate mortgages which have mostly been much cheaper than the variable rate ones. The bulk of your mortgage should be on a fixed rate. You may also have a revolving credit facility (you will need to be disciplined!) which Matt’s salary is paid into (along with any other money that you have – savings or work bonuses), and which you pay the bills out of. The idea of this is to keep total indebtedness as low as possible. Consider also switching to a lower cost provider although be sure that they offer the products and services that you need – e.g. a full range of fixed rates and revolving credit facilities.

Second, make sure that you are putting as much into the mortgage as you possibly can. Lenders calculate interest daily and every day that you have their money, you pay.

While you are up-skilling yourself on mortgages you should also see some professional advisers:

1. Financial planners can help. Go and see a selection on a no obligation basis and see if you can spend an hour or two with one to help with the mortgage. It might cost you a few hundred dollars – but the savings will be far greater than this.

2. Mortgages brokers can help. They will want you to switch to a different lender, but if they can show you how that will save you money the hassle will be worth it.

3. Your bank might be able to help – especially if it knows you are considering switching.

Steph, you and Matt have a lot going for you with all that income. Get some proper advice – it does not have to cost much; it may not cost anything at all. And anyway as an old friend of mine once said: if you think that dealing with a professional is expensive, you wait till you deal with an amateur.

Regards, Martin

At this stage I'm not ready to commit the $$$ to going to a planner, we might, but some people have given us really detailed comments below, so we're going to run with those and see where it takes us.

Thx TM MB!

PS. Working on our budget now, there's a lot to go through but its well worth it. Link soon!

Week 1, Question 1

Parental leave's gone. :-(

We're down to one income. (Matt's getting $68,000 which is not to be sneezed at, but it's a lot less than we're used to!) Anyway, my brain feels like bursting when I look at our bank statement so I reckon we need some help.

Matt thinks we need to see a financial planner, but my brother Dave is a bit of a whiz with money so I wonder if I should talk to him. He's making a killing on the stock market, or so he reckons. What should I do?

Thanks for your comments!

Hi Everyone

Thanks for all the comments over the weekend, sorry I couldn't respond to them all faster. Rather than try answer each one, I hope this post will cover some of the important stuff for now.

There's a lot to think about, we're going to try and do what is suggested in the comments and work out a complete budget. Probably most of what we're worried about is not having a good grip on the money, and we've seen people earning more than us get into situations where, like one of the comments says, the mortgage/house owns them not the other way around!

A lot of the comments have been that what Matt earns ($68k) is pretty good and we shouldn’t have any worries. Well, we know that should be enough, which is sort of why we’re doing this. We want to have our finances sorted, and make the most of where we’re at.

We’re not asking for any hand-outs, and we’re not looking for people to feel sorry for us. That’s not the point - this blog is called “Sort Me” not “Poor Me”!

Keep an eye out for my Budget, and this week I’ll ask you to vote on a couple of big decisions we need to make to kick this process off!

Thx, Steph.

Welcome to Steph's Blog

Hi I'm Steph.
I'm 32 and live with my husband, Matt and our wee boy Caleb who's 3-months old and counting. I’m a trained physio but I stopped work at the start of the year to have number one son.

My parental leave has just run out – and somehow I've ended up with the job of working out how we can survive on Matt’s salary with our delightful $211,000 mortgage!!!!

Over the next couple of months I'll be open to suggestions to help us work through our options. Financial expert Martin Hawes is also going to be lending us a hand. I have a funny feeling we’re going to have a few teething problems but I look forward to seeing what everyone thinks we should do…