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Monday, March 26, 2012

Money grows on trees

We’ve all heard the saying, “Money doesn’t grow on trees.” It’s a cliché: a catch-cry of people who need to make excuses.  It is a saying that has come to mean that money does not come in abundance.  But that is a misrepresentation.  Money is abundant and people can access that abundance whenever they see fit.  If you believe that money does not grow on trees, perhaps it is because you have not learned how to plant and tend your money trees.  This should be primary school stuff.  As a child who grows up on a farm learns instinctively how to plant and manage crops, so too should all children be taught how to plant and manage their money trees.  If “money doesn’t grow on trees,” then I suggest you have no trees.  Read on for information regarding the planting of your very own money tree.

Money trees are like any other trees, they need to grow from a seed and for the first few years, will not bear substantial fruit.  If you are starting your money tree from scratch (ie putting a few savings away in a separate bank account) don’t expect too much from your tree until it grows to a substantial size.  This could take years. But have faith that in the long run it will grow.  We know this about trees: it is also true with money.

If you want to go ahead and buy an established tree so that it grows faster and bears fruit immediately, you will need substantial funds.  If you don’t have these funds you may need to borrow them.  The fruit that your tree bears will be needed to pay off your loan and my not cover the interest in full for quite some time.  For example, if you buy residential property, you can borrow the amount from a bank. Most of these investments will require all of the rent (fruit) to cover your mortgage and you will still need to put up the costs of management fees, insurance, rates, water and maintenance. But your investment will grow over the next ten years and you will eventually be able to harvest more fruit than you need for the upkeep of the tree. 

Take into account the seasons.  During a drought, trees need more care and attention and regular watering.  So too will your investment property during a real estate slump.  If you have invested in shares, they too die off a little during their own drought.  Do not be too quick to dig up all of your sick and dying money trees because there is a lack of water.  Do your best to keep them healthy, knowing that there will be a change of season and when this comes, your trees will grow taller and bear more fruit than ever before.

Do not put all of your faith in one tree.  Sometimes, for whatever reason, a tree will not do as well as others.  If you have a money orchard instead of just the one money tree, you will be able to fend off natural disasters that may single out one tree.  Continue to plant small trees even if you have some large ones that are doing well.  Reap the fruit and replant the seeds instead of wasting the entire crop.  A share portfolio will grow much faster if you reinvest your dividends. A positive cash flow property will be paid off faster if you use the extra money to pay down the loan.

That is all I have today on money trees.  We can go into detail in another post.  For now, begin by planting your first money tree.  Put 10% of your income into a separate bank account until it grows enough to purchase an investment.

Tuesday, March 20, 2012

Saving 101

In a former life, I was going to be an actor.  Ha ha ha.  No, it’s true.  I was working at a theme park as a ride attendant and doing a part time acting course . At the end of the course, we were each given a showreel, which is a video of us acting in some scenes of our choice.  To get it though, we had to fork out a whopping $1000 on top of our course fees.

I asked a friend of mine how she was going to save for the showreel.  She said that she was putting away $50 per week and that she’d have enough by the end of the course to pay for it.  I, on the other hand figured I could save far more money if I just didn’t spend anything.  I didn’t go out drinking with my mates or to the movies or buy anything unnecessary for a whole six months.  At the end of the year, guess how much I had saved. Nothing. I had no more money in my bank account than what I started with.  My friend, on the other hand, had saved her $1000 and had enough to pay for her showreel.  I had to get my parents to bail me out.

How does this happen?  My friend and I had identical jobs and the same expenses but she managed to save and I didn’t.  Not only that, but when I did spend money, whether it be on a phone bill or lunch or groceries, medication, rent, the odd “treat”. I was completely aware that this was eating into my “savings” and took myself on a guilt trip about it. 

So what’s the best way to save?  Pay our bills and expenses and save whatever is left over? 

How about this?  As soon as you get your pay, put some money into another bank account that you don’t touch.  After you have saved, you can pay the rest of your expenses and even give yourself the treats you deserve, totally guilt free.  This way you can go from “trying to save” to actually saving.

Go ahead – get yourself a new bank account this week and ask about how you can direct deposit your money each pay so you don’t even have to think about it again.

Wednesday, March 14, 2012

Creative Credit Card Capers

Aah, the credit card.  Is it the bane of your existence or an indispensable financial tool?  Are you living at the end of your credit limit, paying off the minimum amount each month then spending it again before the next paycheque?  Or are you using it to keep track of your spending whilst keeping your cash in the bank earning as much interest as it can before paying off the entire balance of your card when the bill comes? If you are the latter, I don’t need to tell you anything.  If you are the former, you probably don’t want to hear anything but for those of us in the middle, here’s a few tips to get those debts reduced without making drastic changes to your lifestyle. 

Rounding Up
If your finances are so tight that you only pay the minimum of your credit balance when it’s due (and lets face it these are tough times) a good trick to get that balance down is to pay a fraction more than what the bank is asking.  Round up to the nearest $10 and pay that instead.  You’ll find that you won’t miss those few dollars and you’ll be on the road to paying down your debt sooner and better still, paying less interest to the bank.

Transfer your balance
If you have a heap of money owing on your card and are having trouble paying it down because of huge interest bills, consider transferring your balance to another lender.  Periodically banks will offer very reasonable rates on balance transfers to get your business.  At the moment there are banks offering less than 1%.  If you have $10000 on a card which is costing 12%, that’s $1200 you have to pay the bank in one year.  Transfer to a bank offering these deals and you’ll only be charged $100.  Use the other $1100 to pay down the card and look for another balance transfer deal next year. Of course, you’ll have to be careful not to run the balance up again on your current card or you’ll be in worse trouble.

Work at the beginning of your credit and not the end
You may be at the limit of your credit card and therefore don’t use it anymore except to pay the CC bill when it comes in.  Instead of looking at it as just another bill, why not use your card as a tool for your expenses.  When you get paid, decide how much you want to save and leave this in your savings account.  Transfer the rest onto your credit card, then use this instead of your EFTPOS card or cash to pay your bills.  This has the benefit of you paying less interest on your card, and if you manage to pay it off each month, you will benefit from the interest free period (if you have that feature), which will mean that you pay no interest at all.  Obviously you’ll need to make sure that you are not charging more to your card than you are putting into it. Remember to include the interest in your budget until this gets paid out.

Friday, March 9, 2012

Education's next important step.

I worked as a teacher aide in a city state school for two years and as a teacher in a country state school for two and a half years.  In my time at these schools I observed many children who our system deems "at risk".  These kids were not just slipping through the cracks, they had gone.  There was little left that the current education system could do for them.  They were practically illiterate, innumerate, had no self-worth and no motivation to try to do anything to improve their own education.

I also saw kids who were highly motivated, had a fabulous outlook on life and were getting exceptional grades.  It distressed me that these students had no real skills which would benefit them out in the world.  What I mean is, that they could use a formula, write a story, read a book and pass a test.  What concerns me is that they had no idea how to manage money and it didn't occur to them that there was an alternative to getting a job or going to university for further study to get a different type of job.  Even then, they don't have the interview skills to be able to get a job, let alone negotiate wages.

Within Queensland's Educational curriculum I was unable to help either of these groups of children.  The new Australian curriculum also does not allow for students to gain the necessary assistance.  Here's why:

1.   Students are assigned a grade based on their age.  This does not allow for gifted students or those requiring extra support to get the help they need to progress at their own level.  Teachers are unable to help students because they have to teach a certain level to this group as a whole.  Even if the entire class is  at a level lower than they should be, the teacher still has to teach the work at which they should be, because they have to report on that higher level.  For example, I might have a class of fifteen year old students.  They are in grade ten.  The grade ten curriculum requires that they learn algebra to a certain difficulty level.  The parents are expecting a report on their child's progress at this level from A to E.  To give them this report, I must assess the students at this difficulty level, to assess them, I must therefore teach this work.  No problem so far, I'm all for giving kids the opportunity to excel.  But if I teach everything on the year ten maths curriculum, I don't have time to catch these kids up on things that they don't understand that they should have mastered by grade 5.  And tell me, what is the point of standing up in front of a class and explaining pythagoras' theorem when the entire class of kids themselves think that 4.12 is bigger than 4.4?  They don't get it, they don't care and they're not going to do the work anyway so why not just teach place value instead?  Because I have to give them a test so that their parents know that their kid is an E standard in year 10 maths?

2.  The work the students are expected to do, conditions them for a world in which we no longer live.  Before computers, it would have been an advantage to be able to recall vast amounts of information.  A person who was good at learning facts could have gone far in a company.  Now there is no need to be able to recall huge amounts of data.  Science has shown that within days after learning something, we recall barely ten percent of what we have learned.  Even if we memorise something, unless we use the information regularly, we will forget it soon enough anyway.  So what is the point of the current forms of testing in schools?  Would it not be better to give students the skills to find the information they need rather than learn complex formulas and historical facts.  There is nothing in the world resembling the current form of "tests".  Even if people are given the data, and a time frame in which to extrapolate some meaning from it, they are given days or weeks, not mere hours and they have access to other research tools, other people's skill sets and opinions on which they can draw to gain an answer.  Instead of "Testing" our kids individually, should we not be encouraging and teaching teamwork, communication, negotiation, research and critical analysis of sources?

3.  The subject matter which is compulsory in schools barely gives students any skills which they will require on completion of their studies.  By all means, teach the kids to read and write and do basic mathematics, but beyond year eight, the conditioning process begins and students are only being prepared for a life of further study.  Think about what every person does when they leave school.  They have to earn an income in some way.  They have to drive a car.  They have to vote in government elections.  They are likely to enter a romantic relationship.  None of these things are addressed in school.  English, Maths, Science and History should take a back seat to new subjects which teach our kids something useful.  If they want to read Shakespeare down the track, or learn calculus, by all means, let them at it. But how about we teach our kids how to find work, both with an employer, and on their own merit.  How about we give them communication, negotiation and teamwork skills to be able to run a committee or speak to an employer in an interview.  What if we have an entire subject on responsible driving and get them all a car, bus, motorbike, heavy vehicle and powerboat licence before they leave school.  What if the majority of Australians were taught about our current political systems and were encouraged to speculate on its merits.  What if relationships and parenting were subjects taught over five years during high school?  Would our divorce rate drop?  What would the next generation of kids benefit from that?  Let's teach financial management as a subject instead of a brief unit in one strand of a Maths option (a perceived lesser option that the "Smart" kids don't take).  How would our country fare if everyone knew how to maintain a surplus monetary fund?  Our "A" students are not tomorrows leaders, they are tomorrow's followers.  They are fully conditioned to work hard, get a good job, not challenge authority, vote for the party representing the working class, and pass on these values to their kids.  How often do we hear that our leaders (I'm not talking political leaders) and wealthy people were school dropouts.

4. The school terms are not conducive to learning.  Let's argue for a minute that what students are taught in school is actually worth learning, and for primary school, I do believe that it is.   Our current school year is made up of four, ten-week terms with a fortnights break between them.   The first four weeks of each term is filled with productive learning.  The teachers are motivated and organised, the students are refreshed from their break and everyone is on top of their game.  Then we get mid-term testing and everyone breaths a sigh of relief that the unit is over.  After about week six, it's a hard slog for everyone.  Teachers are burned out and students are tired.  Lessons drag, and everyone is counting the days until the final week of term.  More testing takes place and student attendance starts to drop off during the last two weeks of term.  Whilst schools maintain a policy of teaching right up to the last minute, no real learning takes place in that last week.  Ten weeks is just too long... for everybody.  My suggestion is that we shorten the terms to six weeks.  You can fit six units of six weeks into the calendar year with two weeks break in between each one and a six week break at Christmas (our summer holiday).  You lose four weeks from our current model, but if the last week of term is just filling in time at the moment, what is the difference?  Spend the first five weeks teaching and learning and the last week completing assignments (not tests).  Have a break and begin again refreshed and revived.

I will be home-schooling my children through their primary years because I live in a rural/remote area.  I'd like them to be able to attend a high school for social reasons as well as resources that I do not have at home.  I'd like my children to be able to stand in front of a room of people and speak confidently.  I can't teach them that when there are no other students here.  But I will not accept that they be conditioned in the manner in which the Australian public is currently schooled.  I have twelve years, I guess, to write a new curriculum and start a new type of school.  I would appreciate any and all help in this crusade.  Please contact me by email if you have anything to contribute.

Wednesday, March 7, 2012

Be an underachiever

When we finally make that decision to begin something new, often we are keen to start immediately.  We are motivated, fired up and want to get stuck in.  There's always a lot to do.  This has happened in many areas of my life and can be as mundane a task as cleaning the house or as profound as starting a business. I can look at my messy house for weeks and then, BAM, I go on a rampage and spend an entire day cleaning bathrooms, the kitchen, laundry, floors, and then start washing walls and vacuuming spider webs off the ceiling.  A week later you can't even tell and the motivation to keep my house clean has evaporated once again.

I went through a period of being overweight when I was in my twenties and did the same thing.  Got motivated, spent hours each day exercising and eating nothing but stir-fry.  I used my six-month gym membership for a month and ultimately lapsed back into old habits.

With money....  well you can probably guess.  I learned sometime in my twenties that if you put away 10% of your earnings each pay, money starts to build up and compound interest makes it grow really big down the track.  You can use this money to invest and make a bundle, retire rich and retire early.  Wow huh?  just 10%?  Back then, that meant saving a dollar an hour, or about $30 a week.  But what if I saved $50 a week?  I'd get there even quicker right?  I put as much money away in savings as I could.  But then a bill would come in that I wasn't expecting and I had no other reserves so guess what, there goes my savings, or at least part of it.  That was ok.  I'd start saving again next week, but then another bill would come in.  Eventually that savings money would be completely depleted as was my motivation to save for investments.

I've know the 10% rule for about fifteen years now.  I tell other people how simple it is, yet it has taken me about that long to implement it consistently myself.  There are plenty of excuses.  One of which is that I have investment properties.  Surely paying the interest on them counts for more as the capital increases...doesn't it? And if I keep the 10% in my loan account instead of putting it in a separate account, I'll save the larger interest (which is tax deductible) instead of earning the smaller interest (which is taxed).

But I have realised that I don't need to compromise on one thing to be able to do another.  I can do all the things I want to do, if I don't try to do a complete job of everything.  In other words, do little bits at a time.  It is far easier to attack that mess in the kitchen if I make the decision that I'm only going to clear the benches for now.  I can get motivated to do a ten minute walk far easier than trying to jog for an hour.  I can get the washing folded if I'm just going to do ten minutes.  Even my new money management tutoring business is getting going because I'm not trying to spend all day, every day on it.  I figure I can set a goal of writing one blog post per week and achieve that comfortably.  If I spend fifteen minutes a day on other aspects of my business, that is also achievable.

As for the 10% rule....  I have been putting that away in a separate bank account for a couple of years now.  Each time it gets to $1000 I buy some shares.  And guess what?  I still manage to clear my credit card each month, and pay the interest on my mortgages.  I even have spare money for when opportunities come up to holiday with my family or the unexpected expenses such as fixing my car after a kangaroo decided to wipe out all the panels on the left side and take out my tail lights.

The trick is to do small things often.  Stay motivated to keep on top of your finances by reading from a money book five minutes a day.  Stay on top of your health by doing that 10 mins.  Stay on top of the house cleaning by spending 5 mins tidying up before bed.  Put a little bit away into a savings account, pay a little bit extra off that credit card this month, put a little away into an emergency fund.  Do not enough that you'd notice it now.  Compounding suggests that in time, your house will always be clean, you'll enjoy excellent health and your money will be plentiful.  

Friday, March 2, 2012

Five Easy Steps to get those finances back on track

Five Easy Steps to get those finances back on track

Here we are in March already.  If you are like most people, you probably spent January’s budget recovering from Christmas and didn’t quite get around to thinking about what next. For those of you who made the goal to get on top of your finances this year, I’m here to help get you back on track and give it your best shot.

It’s hard to get your head around money sometimes, especially if you haven’t really focussed on it before, not least of all because it involves maths.  So here’s five easy steps you can take to get motivated again and make 2012 the year you hit your financial goals.

Step 1 – Define your reason for wanting to make changes
Change is hard for most people, and habits can be especially hard to break.  People who are successful in making changes, whether it’s to their health, finances or something else, usually have a very well defined reason.  So if you want to make some changes this year, have a think about why this is, get it very clear in your head and then write it down so you can remind yourself every time you start to veer off track again.

Step 2 – Start with small goals
It’s all very well to say, “I want to be rich”, or “I’m going to save $10 000 this year” but if you don’t have a plan or you don’t believe it’s possible, it’s less likely to happen.  Smaller goals such as “I’m going reduce my credit card balance by $200 each month,” or “I’m going to save $50 out of my pay each week”, are goals that we can believe are possible and therefore ones that you are more likely to stick with.

Step 3 – Don’t spend $5 notes
This is a very easy way to save money.  Each time you get a $5 note, put it away into a drawer at home.  You’ll be surprised at how much money can be saved this way – and you won’t even miss it.  If things are so tight that the fiver is needed, ask for your change in coins so you don’t have to break the rule.

Step 4 – Don’t play catch-up
Trying to make or break a habit takes time and work and inevitably we slip up. If your goal was to save $50 out of each paycheque and one time you couldn’t because of an urgent bill, don’t try to take out $100 next time.  This only puts strain on the next pay cycle.  Simply acknowledge the misstep and start again with your original goal next time.

Step 5 – Plan a reward for your achievements
It’s easier to stay on target if there is something to look forward to at the end.  Tell your friends what you plan to do so that they can help you stay on track and celebrate with you on your achievements.  An example of this might be, “Once I have saved $1000, I’m going to spend $100 on some new shoes”.

There you have it folks, five easy ways to get those finances back on track.  For more advice on money or your free money health-check, email michellecroner@y7mail.com.  My new E-book for young adults, Do I Have To Get A Job? will be available soon.