January 23, 2012
 What is Your Why?
Setting your financial goals is not a simply a process of deciding how much money you need. Examples of common financial goals are:
- To save $5,000 over the next year
- To save $500,000 for retirement
- To have a passive income of $50,000 a year
Goals such as these are unlikely to be achieved. That’s because money has no intrinsic value; its value comes from what it is used for. Unless you are clear about what purpose money serves in your life, you will never be motivated to accumulate it. Finding your purpose is simply a matter of asking yourself ‘why’. For example, the reason why you have a goal of $50,000 passive income a year might be ‘to achieve financial independence’ . Now ask yourself why financial independence is important. The answer might be ‘to have financial security’. In turn, the reason why financial security is important may be ‘to provide for my family’. The trick is, to keep asking yourself ‘why’, until such time as your discover what is fundamentally important to you. Ultimately, you may uncover higher level objectives such as pride, satisfaction and personal fulfillment. These are the things that will motivate you to achieve your financial goals.
For most people, lasting satisfaction and fulfillment come not from possessions but from intangibles such as relationships with family and friends, good health, or broadening your life experience through education and travel. When you truly understand what motivates you and what you want to achieve in life, rewrite your financial goals to include how much money you need and why, for example, ‘to achieve financial security and independence through having a passive income of $50,000 a year’. Writing your goals in this way makes them much more meaningful and powerful and more likely to be achieved.
January 16, 2012
 Get to Know Your Investments
It is not uncommon for investors, particularly those in superannuation or retirement savings schemes, to be unfamiliar with how their money is being invested. All too often, there is disillusionment when the investment does not perform in line with the investor’s expectations. In most cases, this is not because the investment has been a poor performer, but because the investor either had unrealistic expectations of the investment or did not understand the nature of it. An investment portfolio or retirement savings scheme needs to be treated like a member of the family. It needs to be understood, nurtured and brought back to health when it isn’t doing very well. Having a stranger in your house brings about a degree of tension and discomfort, whereas with someone you know well, you know what to expect and what actions to take. Get to know your investments so you feel comfortable with them. This means giving them attention rather than putting them into the bottom drawer. Read the investment statement and the performance reports you receive. If you don’t understand them, ask questions and spend time on them so you do. If you are invested in managed funds, make sure you understand what kind of assets the funds invest in. Stay in tune with what is happening in each of the main investment sectors (fixed interest, property and shares) and the global economy. This doesn’t mean you need a degree in financial analysis or economics; it just means you need to take an interest in financial matters in the news and to have discussions with other people who are experts, such as your financial adviser, or friends with particular expertise. Each week, take time to learn something new about investing, perhaps by reading a book or going to an investing website or blog.
January 9, 2012
 Advice for Kids Leaving Home
There are times as a parent when you look forward to the day your children head off into the world to make their own way. When that day comes, it often comes with worries about how your children will cope with life as adults, and in particular whether they will succeed financially. Here are three basic principles to teach your children before they leave home.
- Set a limit for spending on non-essentials. Money that we spend falls into two basic categories: what we spend on essentials (things we need, like housing and food) and what we spend on non-essentials (things we want but don’t really need, such as dining out or movies). The best way to keep a limit on spending on non-essentials is to have a separate bank account for it. Each week transfer a set amount into that account and keep your spending within that limit
- Put aside money for unexpected expenses. There are some essential expenses that occur infrequently, perhaps only a few times a year. Often these expenses are unexpected, such as medical or dental costs, or car repairs. Spending all your income every week means you won’t have money on hand to cover these costs. Transfer money each pay day into a savings account to cover unexpected expenses.
- Stay out of debt. By following the two principles above, you should avoid being forced into debt to cover essential spending. The worst kind of debt is money borrowed to buy non-essentials such as new furniture, televisions and computers. This kind of debt is usually short term with high interest rates and the high repayments can prevent you from being able to set aside money for unexpected expenses.
Encouraging your children to use these principles should set them on the path to financial success.
January 2, 2012
 Turn Resolutions into Reality
A New Year, a new start and resolutions to get fit, lose weight and spend less. Every year it is the same story. The trouble is, most people fail to understand how to turn resolutions into reality, so nothing changes. There are some very simple ways of making sure you achieve your goals.
Avoid making high level, non-specific goals. If you want to save money, think about how much you want to save and by when. Being specific helps to focus your efforts and gives you something to measure yourself against. Think about the alternative options or strategies you have to achieve your aims. Are you going to save money by spending less or by increasing your income? Perhaps you have an idea for a business opportunity that could bring additional income.
Once you have your strategy, break it down into specific details. If you want to spend less, where exactly will you cut back? Analysing what your money is spent on now is a good place to start. Break down your long term goal into shorter term intermediate goals that are more easily achievable. For example, set goals for how much you can save in the next week, the next month, the next three months and so on. Put any other detailed actions into a time line so you can measure your progress. Once you have a plan, share it with your friends and family. They can help check on your progress and encourage you to stick to your plan.
Finally, the most important step is to take action within the next 24 hours. Think of something you can do, even if it is as simple as making a phonecall or checking your account balances online. This will be your first step towards turning your resolutions into reality.
December 27, 2011
 Declutter Your Money
Holiday time is a great time to declutter. As well as cleaning out your cupboards and wardrobe, it’s a good idea to do some housekeeping on your financial affairs. Start with your bank accounts. Do you have accounts you seldom use? It is best to have all your accounts at one or two banks rather than three or four, especially if you use internet banking to track your spending. Having too many accounts means you may be paying unnecessary fees and also makes managing your money more difficult. Arrange to do regular saving by automatic transfer into a high interest account and to pay your bills by automatic payment or direct debit. Set up your online banking so you can easily see the balances of all your accounts and arrange to have your bank statements sent to you electronically.
Next, take a look at all your credit cards and store cards. With multiple cards, your total debt can easily get out of hand. Aim to have no more than two cards on which you owe money.
Investments should also be reviewed. If you have small holdings of shares that you own purely for historical reasons (for example if they were gifted to you or you inherited them) consider whether you should continue to own them. A good test of whether to sell them is to ask yourself whether you would buy them now if instead you had their equivalent value in cash.
Finally, sort out your paperwork. Put all your important documents together in a safe place. Record important details such as policy numbers or account numbers in a separate place (computer or notebook) in case they get lost. There is a great little tool called myINFOSAFE which helps you organize and protect your personal information. Happy holiday!
December 19, 2011
 Grow Rich Gratefully
One of the most important lessons learned by our forebears in the Great Depression was to be grateful for whatever you have. There is nothing like experiencing disastrous financial times to make us painfully aware of the potential for future hardships. Focussing on what you have rather than what you don’t have increases feelings of happiness and contentment and reduces the urge to spend. Our forebears combined their grateful attitude with a strong work ethic and avoidance of debt. Despite the difficult times they were able to use these values to gain financial security and independence.
Today’s beliefs and values are very different. Top of the list is an attitude of self-entitlement; that we deserve a certain standard of living regardless of how hard we work or how much we earn. This attitude is responsible for people spending more than they earn or, even worse, committing theft or fraud to obtain the standard of living they feel they deserve. Next on the list is a belief that what we want is what we need, or failure to clearly distinguish between wants and needs. What were once considered luxuries (for example televisions and mobile phones) are now considered to be necessities. In today’s society, spending has become an antidote for unhappiness or dissatisfaction with life. Unfortunately, it has only a temporary effect. The joy of a new purchase turns to remorse when it’s time to pay the bills.
Your ability to create wealth is directly linked to your beliefs and values. The best way to get rich is to:
- Be thankful for what you already have.
- Be clear on the difference between wants and needs.
- Be prepared to work hard.
- Find happiness in friends and family rather than shopping malls.
Follow these principles and grow rich gratefully!
December 12, 2011
 Spending your Nest Egg
There comes a time in life when you have to flick the spend/save switch from saving to spending. If you have been careful with your money during your working life, it can be hard to spend and watch your savings dwindle. Spend too much and you might run out of money; spend too little and it will be your children who get the benefit of your life savings.
There are three phases to retirement which each have different spending requirements:
- The Live It Up phase where you travel, enjoy sports and participate in community activities
- The Fix It Up phase during which the house needs renovating inside and out, you need a new car, and various body parts need replacing (hips, knees and hearing aids)
- The Wind It Down phase where issues such as home help or moving to a rest home become important
Making the right decisions about how much to spend and when can be difficult. The three major risks to be considered are:
- Timing. It is hard to judge when each of the three retirement phases will start and end. Spending too much in the Live It Up phase may leave you short by the time you get to the Wind It Down phase.
- Longevity. With improved health care, people are living much longer in retirement and there is an increased risk of running out of money before you run out of time.
- Inflation. The longer you live, the greater will be the impact of inflation on your savings. With 3% inflation, the purchasing power of your money will be almost halved after twenty years.
The best approach is to plan ahead as far as you can and steer the middle course of living in comfort rather than poverty or luxury.
December 5, 2011
 The True Cost of Lunch
People who complain about not having enough money to enjoy life are often guilty of spending their money on things that aren’t important to them but which make them feel good for a few brief moments. The classic example of this is money spent on takeaway food and drink, especially lunches and coffee breaks at work.
If you spend $10 a day on lunch, that’s $50 a week. If you ‘brown bag’ your lunch and instead invest $50 a week for a return of 3% per annum compounded, here’s what you can do:
- After one year, you will have around $2,638; enough for a holiday in Australia
- After five years, you will have around $14,021; enough for a trip to Europe
- After ten years, you will have around $30,310, which would go a long way towards a deposit on a house or your children’s education costs
- After twenty years, you will have around $71,222; enough to buy a brand new luxury car
- After thirty years, you will have around $126,443, which might allow you to retire much earlier than age 65
- After forty five years, you will have around $247,513 which, combined with your KiwiSaver funds, could allow you to live a very comfortable life in retirement.
I am reliably informed by several ‘brown baggers’ that the best way to take care of work lunches is to cook extra for your evening meal and serve it into a container that you can freeze or refrigerate for the next day or later. If you don’t have a microwave at work, stock up on easy to prepare cold food that won’t go soggy if prepared the night before. Do a quick internet search for ideas for lunches that taste good and help you save to enjoy life.
November 28, 2011
 Make Smart Financial Decisions
Life is full of financial decisions. Whether you are deciding how much to spend on your holiday, how to finance your car purchase, which house to buy, or how to invest your nest egg, the consequences of your choices can have a lasting impact on your financial future. Sometimes the way things work out is a matter of luck, but rather than leave your life to chance, here’s how to be smart with your financial decisions.
- Set your emotions aside. Decisions made in a state of excitement, nervousness, fear or greed are often regretted. Financial decisions should be based on cold, hard analysis of the information at hand. If you are not sure what to do, sleep on it, get more information or seek advice.
- Look at the worst case scenario. If things don’t go according to plan, will your financial situation still be secure? How much can you afford to lose?
- Look at the best case scenario, but don’t make it too optimistic. Make your best case scenario your most realistic one.
- Do your financial calculations so you can see in black and white what the implications are. Read the fine print so you know exactly what costs are involved and how your decision will affect your financial situation in the long term.
- Write down the pros and cons on a piece of paper and consider alternative options.
- Make sure you understand exactly what you are committing to, especially when it comes to signing documents.
- Get professional advice. It’s not always possible to know all the aspects of a financial decision or how to accurately predict outcomes. A professional adviser can help you ask the questions you didn’t know to ask and learn from the mistakes others have made.
November 21, 2011
 The Plight of Charities
It’s been a rough year for charities and my guess is that over the next year, some very worthy organizations will be forced to close up shop. There are many factors working against charities at present:
- The Christchurch Earthquake has sucked up a huge amount of money from the big charitable trusts, leaving little behind for charities who have in the past relied on those trusts for funding.
- Government funding for many programmes delivered by charities has been cut back.
- While revenue is dropping, operating costs are going up.
- With the economic downturn, more people require assistance from charities and fewer are able to make donations.
- We are becoming an increasingly cashless society, leading to reduced revenue from street appeals.
Charities are being forced to think outside the square when it comes to funding. At the leading edge are organizations moving towards ‘Social Enterprise’, which is a blend of enterprise, capitalism and philanthropy. They fund their charitable objectives with profit made by selling products and services. In some cases, these organizations are able to raise funds from investors on which they pay a modest return. Social impact bonds, which are being trialled in several countries, raise money from investors to fund delivery of preventative social services. If the social outcomes are achieved, the government pays back the money to the investors and adds a success payment. There is no reason why social enterprise needs to be driven by charities. From the other end of the spectrum, large companies are seeing benefits in applying some of their profits for philanthropic purposes under the banner of ‘Corporate Social Responsibility’. What a different world we would live in if this combination of enterprise and philanthropy became the norm for all businesses, charities and government.
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