The Dreaded Money Talk

I don’t know about you, but I hate the words….”Hon, can we sit down and talk about the budget?”. Ugh….shivers go down my spine and my whole body goes into flight or fight mode. That was me just last night…..my husband spoke the dreaded words. At time of writing we haven’t had the talk yet, but it’s coming.

Despite my reaction of dread, I do know that these talks are necessary…..as much as I prefer being an ostrich with my head in the sand. They are necessary because it is important that we are on the same page with our finances, that we are facing reality with the state of our finances and it enables us to make small changes to prevent huge issues later down the track.

I hate budgets….my preference would be to have enough to do what I want, when I want…..I know….dreams are FREE!! Since that is not my reality, budgets are a necessary evil. Some people love budgets. They feel in control, they love knowing exactly where each penny goes and the joy of seeing the savings account blossom. I would hazard a guess that most of us don’t love sticking to budgets, but they are definitely a part of our lives if we want to get ahead financially.

If you haven’t got one in place, then think about it. If you need budgeting advice, then seek someone you trust to help you or go to a professional. At Fit 4 Life, our own Bryce Staveley helps our gym members (and sometimes non-members) create realistic budgets to achieve their financial goals. If you’re in need of some new ideas for your budget or to get one started in the first place, then contact us on info@fit4lifefitness.co.nz to make an appointment.

Now, I am off to that dreaded money talk with my hubby!! 🙂

Christy – Fit 4 Life Staff

Christy

Finance – Trimming Expenses

I thought I would blog this month on the subject of trimming personal expenditure – although I must confess at the outset that I’m not a huge fan of trimming expenses and cutting costs!

When it comes to the subject of personal finance (or even business and public finance, for that matter) there are two sides to the ledger. On the one side you have your income and profit, and on the other side you have your expenditure and/or loss. To me the income and profit side is the fun side, and it’s the side I spend the majority of my time concentrating on when it comes to the subject of personal finance. The reason is simple and logical; if you have enough money then you won’t (or don’t) need to be as concerned about the expenditure side, because you will always have enough funds to pay your bills and expenses!

Hence I find it enjoyable to participate in, study, and write about the activities of investing funds, the compound growth of money, how to maximise returns and track the growth of money etc., as it’s really quite fascinating to me. I don’t find it as much fun to have to trim expenses and cut things out of my life in order to meet budgetary constraints. Trimming expenses is quite depressing and seems to rob people, including me, of the joy of life – hence my reluctance to write this article!

The challenge is, of course, that if you have certain expenses which need to be paid and you don’t earn much money or if you don’t have much in the way of personal financial means, then you are left with really only two options; you either have to go into debt in order to fund a consumptive lifestyle (which has all sorts of negative future consequences, as the debt will have to be repaid one day) or you must trim your expenses and cut your spending until your income meets or exceeds your expenditure.

In fact, just last week the New Zealand Government released their yearly budget in which they outlined plans to trim government expenditure through proposing cutbacks to schemes like Kiwisaver, ACC, certain WINZ benefits as well as a few other areas. Many New Zealanders are complaining about what these proposed changes will mean to them personally, but the reason the Government wants to implement these changes is because they are currently borrowing around $380 million a week, or close to $20 billion every year, to fund consumption in New Zealand and this debt eventually has to be paid back – with interest. (And you thought you had problems meeting your mortgage payments!)

So here’s a few tips on trimming expenses which I hope might be of help with your personal financial situation.

 

Create a budget

You can’t trim expenses – at least not effectively – unless you know how much money you have coming in and to what areas and categories of spending you have allocated the money.

It’s surprising how many people don’t have a budget in place although they are not hard to set up. (In fact if you would like a free copy of a simple MS Excel budget spreadsheet from Fit 4 Life, please contact me at Bryce@htlministries.org.nz and I will email one to you).

Thinking through your expenses, collecting and tabulating your bills, and creating a simple budget is a very helpful exercise and is the first step to making significant savings when it comes to trimming expenses. If you don’t know how much you have coming in and where it is going, you will never be able to make any meaningful changes in your spending patterns.

 

Know your annual percentages

When it comes to trimming expenses it is helpful to know percentages. You would think most people know which of their personal expenses are the largest – and they probably do for big things, like rent or mortgage payments, and food etc.

However, for all the other activities where we spend our money during the year most people have very little idea of how much (percentage-wise) of their money is being spent in certain categories.  Off the top of your head, for example, how much are you spending on eating out, or on your cell phone plan, or on your annual credit card fees, or even on your pet?

Following on from my point on budgeting, I find that by converting all of our personal and home expenses – whether they are due on a weekly, fortnightly, monthly, or 6-monthly basis etc – into an annualised figure and then converting that figure to a percentage gives me very useful information when it comes time to make cut backs in spending and trimming expenses.

For example, our home budget shows me that we are currently spending about 5.4% of our total annual income on power (electricity), whereas we are spending only 1% on water usage. If I wanted to start trimming costs, a simple percentage comparison like this shows me that it will make more sense to begin educating my kids about turning the lights off or powering down electrical appliances like computers, the television and so on when they are not being used, rather than getting upset with them for leaving the water running while they brush their teeth. The percentage calculation helps me see that the savings we could make by reducing our electricity costs are potentially much greater than by our household taking a fastidious approach to water conservation.

Knowing the percentage of annual spending in a particular category also helps me gain perspective in other areas too. For example, when I get my annual car insurance bill for $350 it’s easy to react about how outrageous that is, but I can see on my budget spreadsheet that it represents only 0.3% of total annual expenditure. In comparison, me buying my lunch at the local bakery twice a week at $5 per time adds up to 0.7% of total expenditure throughout the year, so that’s probably a better place to look at trimming – rather than me shopping around on the internet for a couple of hours looking for a cheaper insurance company!

 

Go for the deal rather than being fastidious

When it comes to cutting expenses it’s sometimes easy to slip into the trap of saving pennies when we could be saving dollars. As an example, there are two movie theatre complexes which my wife and I frequent. One is 10km round trip from our house and the other is 20km round trip. A fastidious cost cutter might reason that, with the price of gas around NZ$2.00 a litre and the average car consuming 1 litre of petrol for every 12km or so, it costs around $1.67 to drive 10km, and so that would mean we could potentially save $1.67 by frequenting only the closer movie complex. Also with the price of an adult movie ticket costing $16 at the nearby complex – compared to $16.50 at the further away one – it would seem like a no-brainer to frequent only the closer theatre, as we would save $3.67 each visit. However this type of trifling-saving pales in significance to ‘going for the better deal’.

With the price of movies as they are, it makes better sense to buy tickets in bulk and/or go on the cheap night. On Tuesday nights movies costs $11 at both complexes, so the total cost for my wife and I to see a movie on a Tuesday night at the further away theatre is $25.33 (2x$11 +$3.33 petrol) compared to regular price $33.67 (2x$16+$1.67 petrol) at the near complex.  That’s a saving of $8.34 and that is reasonably significant. If we went every two weeks to see a movie it would add up to a saving of around $200 a year. (Of course, going on the cheap night to the closer theatre would cost us only $23.67, which is $1.66 cheaper, but then you’re really only saving the money on petrol for driving 10km less which is not the primary cost – or the primary reason – for going to the movies!)

You can also buy booklets of 10 tickets for $135 ($13.50 per ticket) at the far-away theatre and you can go anytime. That discounted price works out to be 22% cheaper than buying the regular ticket for $16.50 and that represents a decent saving of $6.00 for my wife and me each time. (In fact, a book of 10 tickets at the closer theatre costs $140, so there’s really only $0.67 cents difference between the two theatres to go any night of the week if we go for the deal!  ((2x$13.5 tickets +$3.34 petrol) – (2x$14 tickets +$1.67 petrol) = $0.67))

I also get our BBQ gas bottle filled at the local BP station and I have a discount card for 6 bottle fills. The card gives a $3 discount on the 2nd fill; a $4 discount on the 4th fill; and a $5.00 discount on the 6th fill. That’s a $12 saving over six fills and – with an average fill costing me around $35 each time – my saving after six fills is $12/$210 or ~5.7%. That’s not huge – but I’ll take it, because it’s a deal and I don’t have to go out of my way or dramatically change my spending habits!

My point here is that when trimming expenses you don’t have to turn into some kind of cost-cutting nut or have to radically alter your life. But you can make some reasonable savings if you ‘shop for the deal’. Lots of stores give deals so start asking around… you might be surprised what you find.

 

Technology is helpful but beware of ‘sales’ and impulse buying

Last week I went out to buy a book for one of our Fit 4 Life volunteers as a thank-you gift to them. I knew which book they would really like to own, and when I found the book on the bookstore shelf its price was NZ$157. I was almost at the sales counter getting ready to buy the book when I had a thought, and realised it might be cheaper to order the book through Amazon.com.  I called my wife on my cell phone and it turned out that she was by her computer.  She checked the price and – even with shipping from the USA included – we were able to buy the book for NZ$90 and saved $67. (It also arrived within four days which was impressive).

All that to say that modern technology can be a great way to save money if you know how to use it wisely. However the internet, or any modern media like TV or radio for that matter, also has a huge downside to it in that you are constantly bombarded with advertising which makes you feel like you just  ‘have to buy’ something that ten seconds before you never even knew existed!

Also, one of the greatest marketing gimmicks is when something is advertised as being ‘on sale’. Just because something is marked as ‘40% off’ the regular price doesn’t mean you have to buy it! In fact if you have not budgeted for it and you don’t really need it, then all you are doing when you buy something on ‘sale’ is spending less money than if you bought it for the full price!

You do not save money just because something is on sale. You only save money if you need the product or service, you can afford it and then (if you’re fortunate) you find the product on sale for a cheaper price somewhere else – like my earlier example of buying that book.

The advertising and marketing industry is set up to create dissatisfaction. They are very good at it and so you constantly need to be on your guard. In fact our church pastor had a good, practical suggestion last week to help control impulse spending. He said if you feel the urge to buy something, go home and wait two days and think about it. After two days if you still feel that you really need the product – and you can afford it and have budgeted for it – then go back to the store and buy it.

Watch out for impulse buying and the deadly ‘sale’. These practices can really hurt your wallet – especially when you are trying to trim expenses!

(I should also reveal that when I was trying to buy that book I failed to get on the phone and call around the different bookstores to find out the price, so I ended up driving to three different bookstores before I found it and wasted about $7.00 of gas in the process! But hey – that’s life, and nobody does it perfect all the time!)

Here’s to intelligent and practical ways of trimming personal expenses…

Bryce – Fit 4 Life Director


 

Finance – Tips on Taxes

About 2000 years ago this very week in history, Jesus Christ gave a huge boost to governments around the world when He made His famous statement, “…give to Caesar the things that are Caesar’s, and to God the things that are God’s.” (Luke 20:25)

Of course, Jesus didn’t make this statement randomly; He was answering a question that had been put to Him about whether people should pay tax or not. In fact, the question was asked of Jesus just a few days before He was crucified on what we now call ‘Good Friday’. His answer was that they should – which Governments should forever be grateful for!

It seems I have something in common with the people of Jesus’ day and age, as the New Zealand tax year just ended three weeks ago and, after completing my personal tax return, it turns out I have about $10,000 of unexpected tax to pay that I wished I didn’t have to pay! (Actually, it’s $10,000 that my wife has to pay – but that’s a technicality!)

Anyway, I thought I would write this blog on this issue on tax and give some helpful tips that have served me well over the years as I have grown in my knowledge of how tax works. To keep things orderly I will use the three headings of Attitude, Strategies, and Information.

ATTITUDE ABOUT TAX

Someone once said that ‘Your attitude determines your altitude’. While I don’t relish the idea of having to come up with $10,000 to return to the NZ IRD this year, one’s mindset on the subject of tax can make a difference to their enjoyment of life! So here are a couple of pointers under the ‘Attitude’ category:

1. Paying tax is always better than not paying tax.

I guess the guy who asked Jesus the question about whether he should pay tax or not wasn’t too excited about having to pay tax to the Romans but – on the flip side – paying tax at least means you have made some money over the past year. (If you haven’t made any money then you don’t, or won’t, have to pay any tax – but that’s not a good thing!) So be thankful if you have to – or when you have to – pay tax, because it’s a far greater problem to not have any money and have no tax to pay than the other way around! I try to keep this in mind at all times and adjust my attitude appropriately when I feel like grumbling about taxes.

Also, to sleep well at night you should ensure that you pay your legitimate taxes to the  Government, as it can cause you a heap of worry and concern – even jail time – if you don’t! Any Government in authority – even those of small nations – have coercive powers available to them (i.e. the military and police, etc). If you want to have good mental health then make sure that you pay your taxes. There are many legitimate ways to minimise tax and no-one is obligated to have to pay more tax than is necessary. However, if you find that you owe tax to the Government and you perform illegal acts like tax avoidance and tax evasion to escape this responsibility, it will eventually come back and cause you a world of hurt. (If you don’t believe me, go ask Wesley Snipes how he’s enjoying life at the moment – although you probably can’t speak to him until July 19, 2013, which is his official release day from the McKean Federal Correctional Institution where he is serving time for tax evasion!)

2. Paying Tax provides us with many benefits

I don’t believe that all the money we send to the Government through taxation is spent wisely. There’s always waste and inefficiency in any bureaucracy, and stories of Politicians excessive and abusive spending abounds in many countries just as it does here in Aotearoa (e.g. MP’s paying for girlfriend’s trips to London at the taxpayers’ expense, or spending $89 from public funds on pairs of underpants etc). However, in a country like New Zealand there are many good things we receive from paying our tax dollars. The Police, Fire Service, subsidised healthcare, cheap education, good roads, having a military to defend us (possibly debatable in NZ!) and even the most obvious thing of having an organised government, are all services we personally benefit from through the payment of our taxes.

While we might grizzle and grumble about having to pay taxes, I’m sure there would be a lot more grizzling if these services did not exist or -worse – were left to private enterprise to provide and profit from. (Imagine having to pay a toll on every road you drove down, or being barred from driving on certain roads because you hadn’t paid your annual subscription to ‘City Roads Ltd’! Even more disturbing would be the Fire Service or Police not turning up after you called them in an emergency situation because you weren’t a shareholder of ‘NZ Fire Inc’ or hadn’t paid your annual subs to ‘Police Ltd’!!) Again, I try to remember all of the benefits I receive as a citizen through paying my taxes before I gripe about having to pay them!

 

STRATEGIES TO REDUCE TAXES

There are a lot of strategies out there to help people reduce or minimise taxes. This blog post is insufficient to cover all the ideas that abound – nor would I want to try and be too comprehensive, as tax law is constantly changing and if you give ‘bad’ or illegal advice you can go to jail! The best advice will always be to seek out a professional tax adviser (more on that later).

However, the broad strokes when it comes to minimising tax usually revolve around three basic strategies which are (i) Reducing Income (ii) Increasing Deductions, and (iii) Using any available Tax Credits to which you may be entitled.

(i) Ways to Reduce Income

  • Income Split – Most Western Nations use a graduated tax system, so if you can reduce your income legally so that your earnings fall into a lower tax bracket this is often a simple way of reducing tax. Unfortunately as most people are employees, there is often very little they can do to reduce their income. However, for people who are self-employed or employers there is usually a lot they can do to reduce income. For example, if you operate a family business as a husband and wife team, try and ensure both spouses receive the same income (i.e. income split), because having one partner on a higher wage or salary than the other will often mean paying a lot more in tax. E.g. John and Jane earn a combined $100,000 in salary from their business, but John is paid $70,000 and Jane is paid $30,000. This arrangement means they will pay $18,290 total income tax between them. However, if their salaries were set at $50,000 each then their total income tax would be $16,040, which represents a saving of $2,250 p.a. This saving is achieved because much of John’s $70,000 salary is being taxed at the higher 30% tax rate. (The worst possible arrangement would be for John to earn $100,000 and for Jane to get paid $0.00, as this would mean John would be paying $23,920 in tax which is $7,880 more than if John and Jane were paid $50,000 each!) Of course, it’s not always possible to employ family members (including your children) in your business, but if it is possible then it can be a great way to minimise tax legitimately!
  • Joint Accounts – Although employees can’t do much to reduce income, sometimes in the case of husbands and wives their money can be invested more efficiently to minimise tax. The easiest way to do this is to ensure that any investments (outside of the family home) are held in the name of the spouse who is earning the lower salary. E.g. John and Jane earn $70,000 and $30,000 respectively. They have a term deposit of $25,000 held in both of their names with the BNZ Bank earning 5.0% p.a. (or $1250 interest for the year). Because they are on different tax rates, the combined tax to pay would be $296.88 whereas if the investment was held solely in Jane’s name the tax on the $1250 interest would only be $218.75, or $78.13 less. This may not seem like a lot of saving, but money is money.  (John and Jane could have a nice meal out away from the kids and build into their relationship, just from making a simple change on paper at the bank as to whose name the investment is held under!)

(ii) Increasing Deductions

  • Start a Business – You would have to be dumb as a box of rocks to start a business just to pay less in tax! The purpose of starting a business must always be twofold. First, to make or provide a great product or service; and second, to earn a profit. That said, owning a business – even a small one, like breeding guinea pigs from your home – allows a business owner to claim a lot of legitimate expenses which can reduce their tax by reducing income –  which an employee cannot do (as the business owner is claiming all the expenses!) For example, if you operate a legitimate small business from your home and have a dedicated office or work area set aside for the purpose of running the business, then you can usually claim a percentage of home expenses in proportion to the work area size. For example, if your home office takes up 15% of your total home area, then you can legitimately claim 15% of your rent or home loan interest, your power, water etc., all as legitimate business expenses which you can then offset against your income, hence you pay less in tax while experiencing no real change in quality of life as a result. A good tax professional should be able to assist you in calculating all of the legitimate deductions which you can use to lower your tax.
  • Asset Depreciation – Not all business investments are subject to depreciation, but some assets can be depreciated and this depreciation expense can be legitimately deducted against income to lower your tax. Perhaps the most obvious one is where you own a rental unit or house. The capital value of the improvements on the land (not the land itself) can be depreciated every year. In fact, it is required to be depreciated by law, and this can work in your favour. Of course, the purpose of the Government allowing depreciation on fixed assets is because they do wear out over time and will eventually need to be replaced.  So through its tax policy, the Government is acknowledging this fact and allowing business owners to depreciate and claim a certain amount of the cost of the asset every year in anticipation that the owner will, one day, need to replace the item.

(iii) Using Tax Credits in your favour

  • Donations – Perhaps the easiest form of Tax Credit to make use of comes from making donations to legitimate charitable organisations. While once very restrictive, New Zealand tax law relating to charitable donations has become much more generous in recent years, with one third of charitable giving now being able to be claimed as a credit in your favour. If you make a lot of income in a given year and wish to reduce your tax bill, consider making a large donation to a favourite charity to offset the tax payment.
  • Imputation Credits – This usually applies to investors who own dividend paying shares, and where their personal income tax rate is less than the NZ company tax rate (currently 28%). For people on lower incomes in New Zealand, owning shares of dividend paying companies can give them an advantage tax-wise, as a company pays tax on its income at a 28% rate and deducts withholding tax at the same rate from the dividend which it then pays out to the shareholders. If you earn under NZ$48,000 in salary, then your top tax rate on the current NZ graduated tax scale is only 21%, and so you will be granted an imputation credit. In other words, because you will have been taxed too much by the company (i.e. 28% instead of 21%), you will get a tax credit from the NZ Inland Revenue department which can give you a rebate of tax when you file your tax return!

INFORMATION ON TAX

Like I said, there are a lot of strategies around to help people reduce or minimise taxes as well as a lot of information out there on how to do so. But here are a couple of pointers on tax information which I have learned over the years.

Get Good Tax Advice

I’m a big fan of doing it yourself. Perhaps this is because I am from New Zealand stock, where ‘Do it yourself’ has been bred into the gene pool since the nation was colonised. Or perhaps it comes from my personality and experiences, having suffered at the hands of some very incompetent advisors in other fields over the years. However, when it comes to tax advice my recommendation is that you get the best advice you can afford. This is not an area where you want to go it alone as it is vast, constantly changing and also potentially incriminating because you are at ultimately at the mercy of the Government! (Put a photo of Wesley Snipes on your bedside table to remember this point at all times!)

While the NZ tax system is basically an honesty system and all working citizens of our nation are basically ‘innocent until proven guilty’, it is also an area where ‘ignorance of the law is no excuse’! As you begin to handle larger sums of money through your working life, you will want to make sure that your accounting, recording and cashflow are managed and overseen by a responsible professional tax advisor. Also, having an advisor working for you gives you credibility as well as liability-protection. (If for some reason a big mistake is made with your taxes, then at least you will have the option of blaming your tax advisor, whereas if you do it all yourself then the NZ IRD will not go looking for anybody else!)

Another advantage is that a good tax advisor will (or should) save you money, and maybe even help you make more money. By way of another personal example, my tax advisor gave me some advice over the phone a couple of weekends ago that will potentially save my wife and I from losing $70,000 simply by rearranging some of our affairs differently. This kind of advice and saving makes it well worth paying the advisor’s annual fee!

Continually Learn about Tax

While I am a fan of getting good tax advice, don’t stop learning about tax law and its implications. There are many good resources available out there such as books, magazines, internet articles – even friends.

Continuing to learn about the field of tax, how it works, and what your rights and responsibilities are will also help you interact in an intelligent way with your tax professional – and occasionally you may even pick up mistakes which they have made on your return, or items they may have overlooked, (After all, they’re only human!) My willingness to learn and keep learning about tax has given me the knowledge to prepare my business and personal tax returns accurately for my accountant and to present them to him in a form which is 95% completed. This saves me money by not having to have him spend time on menial tasks (like getting receipts in order and basic book-keeping/data- entry which I am perfectly capable of doing myself), and allowing him to focus on what he does best – namely giving me good advice and checking that everything is in order for the tax authorities!

Bryce Staveley – Fit 4 Life Staff

 

Finance – Four Reasons Why You Should Learn to Invest

There are only two people who can invest your money for you. One of them is you and the other person is someone else…

While some people invest through a family member, relative or close friend, the vast majority of people tend to hand their hard-earned money over to a ‘someone else’ to invest on their behalf – often to someone whose name they don’t even know! But whoever the nameless and faceless investment managers, bankers, financial advisers or money managers are, I maintain that no-one will ever manage your money as well as you can.

Those familiar with the world of investing will know that people like Peter Lynch, George Soros, Warren Buffett and Julian Robertson did a pretty good job of making a lot of money for their friends, relatives and clients – and that’s true. However, your chance of finding the next Warren Buffett or George Soros to invest your money for you amongst the tens of thousands of investment ‘professionals’ circling the globe amounts to a snowballs chance in hell.

Despite the financial industry’s constant and pervasive marketing campaign of implying to the general public that investing is too complicated and best left to the professionals, academic research has overwhelming shown that the vast majority of financial professionals do not outperform the market over the long term. Also, by handing over our financial future to others we dis-empower ourselves from learning and growing in our own ability and capacity to invest, which is a wonderful skill to have. In addition, letting someone else manage our money guarantees underperformance from us having to pay management fees for the ‘privilege’ of them managing our money (while they underperform with it!)

There’s really only two issues holding you back if you aren’t investing your own money already. The first is competence – knowing how to invest effectively. And the second is motivation – having the internal drive to begin and keep going.

I’m not advocating rash decision-making or behavior when it comes to such an important topic as your money. Investing on your own does involve having to learn how money works, what kinds of investments are out there, how they tend to perform, which ones best suit your goals and personality, what the risks are, etc. Learning these things does take time and effort on your part – but it is learnable. So while you’re learning to invest perhaps it might be best to leave some, or even all, of your money invested with the ‘professionals’ until you feel ready to fly solo.

There’s also a lot of information available today to teach you how to invest, so this blog article will focus on what I think is the more important issue for most people – finding the motivation to start investing on your own and to keep going.

Here are four reasons why anyone with reasonable intelligence and emotional health can, and should, learn how to invest their own money…

Because no-one will care about your money as much as you do

Without ignoring that money needs to be managed by someone with good character and reasonable competence (after all, who trusts an incompetent thief with their money?!) when it comes to the matter of caring about you and your money, no-one will ever care more than you!

While financial institutions say they care, the reality is that all financial organizations are started with the goal of making a profit. In other words, they exist to make money and a lot of the money they make will come from you and others like you via the fees you pay to them.

Also, all organizations are made up of people, so anyone you give your money to manage, unless they are paid solely from – and for – performance, will be paid a salary from your fees. Because most people are self-interested and want to keep their jobs, if a choice has to be made between them making the maximum amount of money for you or them keeping their job, they will not always act in your best interest to get the best returns on your money, but rather play it safe to ensure their own employment.

Making money requires an acceptance of risk. Without taking some risk there is no chance of making a return on the money. Yet taking on risk means that if it goes wrong and money is lost, they may be in danger of losing their job. Hence most investment professionals play it safe so that – at worst – they hopefully won’t lose too much, thereby ensuring their job security. (This is as it should be of course, as you can’t have investment professionals acting in a cavalier manner with millions of dollars of New Zealanders’ savings). However, in lowering the risk and playing it safe your return is often lowered, and yet you continue to be charged the same amount of fees for their underperformance!

Because you can do it yourself

Think about all the ‘professional’ investors out there. How did they get started? Who taught them? How did they learn to invest? Everybody starts out as a beginner, so if they were able to learn how to invest then anyone with sufficient motivation can also learn how to do it. In fact, it’s never been easier.

The age we find ourselves living in is the greatest of all time to be a private investor. We have more resources, information and technology available to us than at any time in history. Not so long ago financial information was hard to come by. Financial books were few in number and decent financial books even harder to come by. Today it is a much different story.

Substantial bookstores like Dymocks and Borders now carry thousands of financial books and titles covering every possible topic with regards to money and investing. Or, if you can’t afford to buy financial books, you can use your local library which will have hundreds of titles for you to choose from. Also the internet has revolutionized the way we receive information. Today in just a few hours of searching you can uncover information that would have taken you years to find only a decade ago.

Technology advances are also making investing simpler. Personal computers have revolutionized the investing process. I invest from the privacy of my home using a laptop computer (that was given to me for free). Combining the computational and display power of a free laptop with cheap internet, I am able to move hundreds of thousands of dollars around with the click of a mouse and I don’t have to talk to anybody.

But like that famous philosopher, Spiderman’s Uncle, once said, ‘With great power comes great responsibility’, there are certain risks that must be accepted by the private investor. No-one is there to supervise me or prevent me from making a foolish mistake, so it is critical that the private investor develops their own rules, guidelines and disciplines to avoid potential financial disaster.

But again, these are all things that can be learned and/or created by yourself when you decide that it’s worth doing it yourself and you take the time to learn.  You can do it yourself!

To assist with the costs of modern living

One thing we can know with certainty about the future is that it will be more expensive than today. Prices will keep going up, because inflation is a reality of the modern world and inflation represents a huge challenge to our future wealth. The NZ Government seeks to keep inflation under 4%, but even at 3.5% inflation in 20 years time that means our money will buy only half of what it buys today. Or, looking at it another way, every product or service we wish to buy in the year 2030 – from Aardvarks to Zumba classes – will cost at least twice as much as they do today, and most likely a lot more.

Earl Shoaff once said, ‘The problem is not that things cost too much; the problem is that you can’t afford them’. So rather than continuing to complain about a problem that isn’t going away, it’s far better to focus on a solution, which is learning to invest so that you can have more money in the future.

There are two ways that people often sabotage their financial futures; the first is by not getting reasonable returns on their money, and second is by being in debt for a long time.

At a 3.5% inflation rate, your investments need to return around 5.0% (before tax) just to keep up with inflation! If you are paying hefty fees to investment managers – who have your money stuck in underperforming investments – then you are falling way behind. But if you know how to seek – and find – higher rates of investment returns and pay less in fees allowing your money to at least keep up with, if not exceed, the eroding effect of inflation on your money then you will be in good standing for the future.

Debt is a challenge to be reckoned with. Financial debt we incur must be repaid and the accepted form of repayment is with money. Selling off your children doesn’t cut it anymore! However, financial institutions want to keep you in debt for as long as possible – sometimes for 30 years or more – and pay high interest rates of 8% or more (and sometimes 25% or more on credit cards!), again for as long as possible, because they profit greatly by having you pay them compounding interest for a long time.

If you have to take a long time to pay your debt off it means your financial future can be compromised, because by paying them interest you lose the potential opportunity of investing that money for yourself. However, by minimizing debt and learning to invest you can turn the tables around and start having compound interest work in your favor and not against you.

Learning to invest gets your capital working for you rather than for someone else, helps eliminate debt, and allows you to face the future with a smile on your face rather than with uncertainty and even terror!

Because a lot of money will pass through your hands

If you work for 40 years from age 25 to age 65, even if you never get paid more than the median New Zealand wage of $538 per week (June 2009 survey, Statistics NZ) over all of that time, then $1,119,040 will pass through your hands. Most likely a lot more than that will come your way, which means that almost every New Zealander will be a millionaire in their lifetime.

Again quoting Spiderman’s uncle, ‘With great power comes great responsibility’. Having a lot of money brings responsibilities with it – not only for ourselves and our loved ones, but also towards the society which allowed us to create and/or receive it. The actress Susan Sarandon once said, “Everyone has a responsibility towards this larger family of mankind, but especially if you’re privileged, that increases your responsibility”. I agree with Susan… It is our moral duty to use the money we receive wisely and contribute to making society a better place for all. Taxation partly serves as a conduit to return some of our money to society, and paying taxes allows our nation to provide us with benefits such as roads, police and defence, courts and the legal system, healthcare and education.

But having great wealth also allows us to make our own choices about where our money goes and how to improve our nation and the world, by giving part of our wealth to charitable causes such as relief of poverty, care and protection of children, care of the infirm and the aged, spiritual and moral advancement, the arts and music, and global protection and care of the environment.

Of course to give money away you need to have a surplus, and that’s why learning to invest can not only generate extra means for your own present and future needs, but it can also provide you with additional wealth to distribute to worthy causes and people in greater need. Money can be a wonderful force of good in the world – but not if it ends up in the hands of evil people who don’t share. Better for more money to end up in your pocket rather than theirs… Like Jesus said, ‘It is more blessed to give than to receive’, and anyone who gives will realize this to be true. By having more money to give away, you will experience the joy of helping the world and others.

Learn to invest. The skill will serve you well for a lifetime.

Bryce Staveley – Fit 4 Life Staff


Finance – Grocery Shopping Online – “To shop or not to shop…”

Early last year I had heard about online grocery shopping through a friend and after moving house and feeling completely exhausted, I thought I would try it for a week. Well, a week turned into a month, a month into a year and here I am still online grocery shopping. People do look at me funny when I say I do my weekly shopping online, but here are some of the benefits I have found. I use Foodtown/Woolworths Online Shopping.

  1. I save money – no spontaneous shopping. So often I find when I am in the actual store something catches my eye and I think I will try it out. Online shopping helps me stick to what I need which helps with the money side as well as the over-stocking side. The website saves my previous lists and purchases so shopping is pretty easy and I save on petrol which is a massive benefit these days!!!
  2. It saves time – it takes me about 15 minutes or so to order my groceries online and then about a 1/2 hour to put them away. That is a savings of about 1 hour or more.
  3. It involves the family – my family is more involved in choosing groceries as we are all at home when I am shopping. Even my husband can grocery shop if he chooses and that is indeed a benefit.
  4. Keeps me to my budget – surprisingly because I stick closer to my weekly budget than I do in the store. This is due to the spontaneous shopping that occurs and also because I can just shop the previous weeks’ list. My hubby likes that part!!!
  5. Uses my credit card – now that sounds weird, but because we pay off our credit card each month it is a practical thing to do. We get True Rewards points and we’ve been able to see a number of movies using those points. Grocery shopping is a necessary expense and it is fun to get a side-benefit from those dollars.

I have found online grocery shopping to be a lot of fun, I save money and stress and that is important to me!!!

Check it out for yourself – https://www.foodtown.co.nz

Happy shopping and don’t forget that Fit 4 Life members receive free financial planning as part of their membership. Chat to Bryce at reception to make a time.

Christy – Fit 4 Life Staff


The Recipe for Investment Success – Financial Planning

One Saturday morning a few months ago, my daughter made our family some pancakes for breakfast. They looked great; they smelled great; we were all hungry and looking forward to eating them. There was just one problem… they tasted disgusting. We ended up throwing them all into the bin, because it turned out she had accidently put baking soda into the recipe instead of baking powder!

Finding investment success can be challenging even at the best of times, but it’s a lot like following a recipe to bake a cake – or pancakes. If you get the ingredients right you can end up with a great financial outcome, but if you mess up even one of the ingredients you can end up with a disaster on your hands.

So here’s my thoughts on six ingredients that are necessary for finding investment success…

  1. Surplus – An ancient piece of wisdom teaches ‘the ruin of the poor is their poverty’. This is very true; those who have no surplus money to put aside for investing or to better their financial future will struggle to break out of the cycle of poverty. And all the financial planning in the world – no matter how brilliant – cannot help someone who has no surplus money to invest. However for those blessed to be living in the Western world, having at least some surplus wealth is often not as much of a challenge as it can be for those living in third world economies. While you may not have much, there is usually some way for Westerners to put at least something aside to invest. Having something to invest is the first and most basic ingredient, and nothing can be achieved without having money to invest.
  2. Knowledge – The second ingredient to successful investing is knowledge. Of all the ingredients for investment success, knowledge is the simplest (although not necessarily the easiest) ingredient to acquire – again, for those living in the West. Today a multitude of information is available on the subject of investing. Bookstores such as Borders and Whitcoulls have hundreds of books and magazines available on the subject of money and investing. Or, for those on a restricted budget, go to the public library where you can check out as many books on the subject of investing as you like for free. The internet is also filled with financial information which, although it’s not always the best or most accurate, at least we are not lacking for it. The Bible says, ‘if you search, you will find’. This is just as true for knowledge as it is for finding anything else in this life.
  3. Action – The third ingredient is the ingredient that is usually missing for most people – taking action. Even if you have some surplus wealth to invest and you have read a hundred books written by the greatest minds on the subject of money and investing, nothing will ever happen unless you take action and actually do something. You eventually have to take the plunge, put your money down on the table and invest in something – like buying some real estate, purchasing a part interest in a managed fund, buy some shares, invest in some bonds, open a term deposit at the bank, or buy (or start) a business, or what have you. It’s obviously best to have done research and some reading before you make the investment, and have done some financial calculations to see what sort of return you might expect and to calculate your risk, but never confuse knowledge with taking action!
  4. Time – The fourth ingredient is time. Time is the miracle ingredient that allows the power of compound interest to work in your favour. In fact, provided you are getting some return on your investment – even if it’s only small – the amount of money you start with is far less important than the amount of time that you can let your money grow. One dollar ($1.00) will grow to $1,000 in 50 years time at a growth rate of 14.82%. That doesn’t sound too exciting. However, if the money can be left to grow for another 50 years at the same rate of return it will turn into over $1,000,000. I’m not saying getting a +14% return is easy or even possible or that we all have 100 years to leave our money compounding without dipping into it. This is just an example to show what time – and a reasonable rate of return – can produce. However the principle is just as true as Benjamin Franklin observed – ‘time is money’. Like yeast in dough causes a loaf of bread to rise, time is what makes money grow.
  5. Evaluation – It’s a good practice to evaluate your investments from time to time to see if they are performing satisfactorily. This, of course, might lead to questions such as, ‘What does satisfactory investment performance look like?’ (which falls back on the second ingredient – knowledge – to be able to answer) but the practice of checking, reviewing, and evaluating is an important exercise to carry out at regular intervals for any investment. For property investments a review might possibly be carried out every three to five years, whereas with shares it might be carried out every six months to one year. (For share traders, evaluation might happen weekly, daily or even hourly(!), but traders really fall outside the definition of ‘investors’). The time period between investment reviews really depends on the type of investment as well as the goals of the investor, but nonetheless evaluation is a crucial ingredient for investment success. Nothing manages itself – including money. You should have a regular evaluation procedure in place to keep track of your investments. Mark Twain once wrote, “Put all your eggs in one basket; and then watch the basket”. While you may not wish to follow the first part of his sentence when it comes to your investments, the second part is always a good idea for investors to follow through on!
  6. Personality – This is the sixth and final ingredient for investment success. The most successful investors ultimately find an investment area that they enjoy and that gels with their personality. An old friend of mine recently wrote to me concerning a statement I had made in an earlier blog, where I had written that the returns on residential real estate are highly overrated. He said that he had had good experiences with his rental properties – and I don’t doubt this to be the case. For me, however, I hate investing in residential real estate! To maximise your returns with this kind of investment you have to be prepared to negotiate with many different people, including real estate agents, bankers, tenants, insurance companies, repair and maintenance contractors, lawyers, city council members  and the list goes on. It’s also a fairly illiquid type of investment so you have to be prepared to sit and wait – often for years – to really benefit from the investment gains you could possibly realise. If you dislike talking and negotiating with people, or sitting on your hands and waiting for long periods of time, then you might (like me) prefer investing in something else such as shares. For me, I find the daily action of the stock market stimulating; I don’t mind sifting through the myriad of information the markets produce to make decisions; I also don’t mind the lack of social contact; and I far prefer the ease of transaction that is available to me with share investing in the computer/internet age, where all I have to do is click a mouse to make a transaction – even if I am overseas and in a different time zone; also the returns I have experienced with my share investments have been much greater than anything I ever experienced with my residential property investments. But its horses for courses… Donald Trump seems to like investing in hotels, whereas Sir Robert Jones thinks hotels are the worst real estate investment known to mankind. My point is that each person needs to try different investments to see which ones suit them best – not only from the financial results that they produce, but also whether they suit their individual temperament and personality. Many financial advisers recommend that it’s good to have a variety of different investments (diversification); but here is where I do follow the Mark Twain school of investment and choose to put all my eggs in one basket (shares), which –proving my point about the sixth ingredient – suits my personality to a tee.

Bryce Staveley – Fit 4 Life Financial Planner/Fitness Instructor – a Glenfield, North Shore, Auckland gym