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 – Car Repairs….making your dollar go further!

If you own an automobile you know that they cost a lot of money to maintain.  Here are some more tips on how to make your money stretch a little bit farther.

If you avoid the regular maintenance you are setting yourself up for a big repair bill down the line.  Unless you can afford a brand new car with a warranty you will want every cent to be doing as much as it can.  There are several ways you can save money on car repairs, but most will involve getting your hands a bit dirty.  If you are willing to get some grease under your fingernails and borrow or buy a few tools here are some ways to save on car stuff.

  • Oil changes – these usually cost about $75.  You could change your own oil for $40 – $50 depending on the cost of the filter.  Now this may seem overwhelming but changing your own oil is pretty simple. Here is a video that shows you the basics.  If you want more detail a great investment is in a Haynes Manual for your car.
  • When things do break on your car take a look through the Haynes Manual and see if it is something you would feel comfortable fixing.  Many times the most expensive part of the repair is the labour charges.  You can get good used parts from auto wreckers in your area or if you a bit more adventurous you can visit a place like Pick A Part.  At Pick A Part you go in and remove the parts yourself so the parts are cheaper.
  • Another area you can fix easily on most cars is the brake pads (or shoes).  Your manual will cover it in detail for you but here is a good article about it and here is a generic video to give you an idea of what it involves
  • If you are unsure, especially if the repair involves a safety feature of the car, you may be better off seeking professional help.  If you do, shop around a bit.  Talk to friends and see what their experiences have been with their repairers.  Different shops will have different labour prices and expensive isn’t always better. Here are some places to check out different shops:
  • www.mta.org.nz
  • www.nocowboys.co.nz

Give it a go and have fun.

Jason – 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 – My Little Stash of Cash

In marriage, money is something that can become a sticky topic.

One thing I’ve appreciated about our budget is that it contains a weekly allowance for both Jason and I. This gives us each a bit of freedom to enjoy some small treats and prevents quibbles about, “Why are you buying that, do you need it?” kinda stuff. (My kind and generous husband even decided to allocate me double of what he gets in our weekly allowance! :))

Because I’m the more ‘dangerous’ spender between the two of us, I have a separate account for this allowance, so it is limited to what’s in it. I know, if you see the bank statement you will laugh because it is a separate little account for not very much cash! You don’t have to do this, but it helps me. (And probably helps Jason feel safe haha.)

This means that every week I have some money to do ANYTHING I want with- a magazine, a random coffee, a piece of clothing or other fun things. I love this as I don’t feel guilty buying something that I may not necessarily need once in a while and don’t get worried that it will eat into our budget. Even though it is not a massive amount, it is still great, as I can accumulate or save up enough to buy larger items over months.

The tricky part would probably be defining what kinds of things would go under ‘allowance’. (Oh and the word ‘allowance’ might sound funny/childlike to some. You can call it something else if that word doesn’t work for you.) It is probably wise to agree on a clear definition together.

For us, the point of an allowance is to give us a bit of a breather to spend on unimportant-but-fun things we each desire, but as the amount is limited, there are boundaries that protect our overall finances. Please note that this is a minor category in the whole realm of budgeting, but I feel that this has helped us reduce some stress in handling finances within marriage.

hmmm. I initially thought to write about something a bit more exciting, like how to spend money! But I think I’ll leave that for another day…

Don’t forget though that members of Fit 4 Life can receive free financial planning so sign up today for your appointment!!!

Sarah – Fit 4 Life Staff

Four things I wished I had learned earlier about money

1.       Profits are better than wages

Few people will ever get wealthy by working as an employee of a company. Unless you happen to be one of the favoured few who make it to a CEO position in a NZX-50 or Fortune 500 company,  or were blessed with the right genetics and/or good looks to make it to the top in a highly paid professional career such as football or acting, you are destined to be stuck earning wages in the mire of the rank and file – just another one of the millions of people laboring for the average wage,  which in New Zealand is around $25 per hour or about $45,000 per year  before tax(!)  After paying PAYE, ACC, living costs, repairing your car and spending what little you have left on the movies and McDonalds happy meals, what remains is often so meager as to be embarrassing. It’s fairly obvious that you won’t get wealthy that way. You must begin to think of yourself as the CEO of your own business – You Ltd. You are the CEO, CFO and everything in between of your own private company. Take what little you have and start to change your circumstances by investing it so that compounding interest (my second point below) can begin to work its magic.

2. How Compounding Interest really works

Somebody once wrote that $1000 invested at 8% interest will turn into $23.4 quadrillion dollars in 400 years time, and that it was just the first 100 years that were the hardest! Like most people raised in New Zealand, I first learned about compounding interest in high school (I think I was in fourth form at the time…) But it’s one thing to know about something, and another thing altogether to know and understand how it really works! It wasn’t until I was 35 years old that I really began to understand how compound interest works and to begin using the principle to increase my financial wealth. But when you understand it, it’s really quite a simple principle. Even the smallest sum invested can grow into tremendous size if left for a long enough period of time at a reasonable rate of return. For example, one dollar invested at a 10% return for 50 years will grow to be 117 times larger; at 15% it will grow to be over 1080 times larger; and at 20% it will grow 9100 times larger! That is the power of compounding interest. The problem with compounding is that 50 years seems so far away and we have real financial needs right now, so we often end up robbing our future to live in the present by spending all our money. I’m not suggesting I have found the solution to this problem – at least not for everyone. But I can say that you don’t need to invest all of your present money for your future. Even setting aside just 5% of your money today can still provide you with wealth for your future. Obviously committing 10% – or higher – is better but at least make a start! Commit 95% of your present wealth to dealing with your present day financial problems and challenges, and the remaining 5% to letting compounding interest work for you and your future. The most important thing is to get the power of compounding working for you now – today!

3. Residential Property is highly overrated as an investment

New Zealand has a love affair with residential property. Most likely its due to some remnant of our British roots, when the colonists who came over here from England in the early years of NZ history to escape the industrialrevolution were finally able to enjoy, and take pride in, owning their little slice of heaven – the quarter acre block – upon which they could grow their own vegetables and enjoy a walk on the beach in the evening(instead of having to climb up chimneys for 16 hours a day back in the motherland). However, be very careful before investing in residential property. There are many costs associated with owning this asset class, and often novice investors are suckered into buying a property only to find that they have overcommitted themselves by not having done their sums correctly. Also the returns are pathetic when you take into account alladditional expenses like mortgage payments, rates, insurance, wear and tear, rental vacancies and so on (expenses which are often neglected or ignored in the neophyte investors calculations). Investing in residential real estate is better than doing nothing I guess – although doing nothing has much less emotional and financial hassle! As much as the Real Estate Industry touts it as a wonderful investment and wants you to buy, try and get a copy of Duncan Balmer’s book ‘Stop: Do Not Invest in Residential  Real Estate’ (now out of stock, but you can find it in second hand book stores and occasionally on TradeMe).  Duncan shows clearly why Residential Real Estate is highly overrated as an investment. Also read chapter 5 of Sir Bob Jones book ‘My Property World’ for an insightful look at why Residential property is not the greatest investment for people to play around with. PS In case you were wondering, yes… I used to own 3 residential properties and speak from experience on this one!

4. How The Share Market works

My first foray into the share market was three months before the 1987 stock market crash. This was an experience I never forgot and I made two classic mistakes. The first was that when I invested in 1987 (I would say ‘gambled’ nowadays) I had no idea what I was doing. My stock selections were made purely by random selection and I got what I deserved – a financial drubbing. However, my second mistake was the same as Mark Twain’s cat, who sat on a hot stove once and would never sit on a stove again – even if it was cold. I stayed away from the share market for the next 12 years, and as a result I missed out on enjoying the huge gains that the markets of the 1990’s produced. I returned again as the new millennium was beginning – after my foray in residential real estate – although this time with more knowledge, by deciding to educate myself on how the markets work and this time to go in with my eyes open – or at least half open! My education has required the reading of many hundreds of books and articles and also learning about the share market and its workings by investing real money, but I am far better off today from having done this. The global recession certainly rocked the financial markets around, but this year has been my best ever with my returns up well over +100%. I continue to make new mistakes. (In fact, Jesse Livermore the famous speculator once said, “The mistake family is huge”) But staying invested has certainly been worthwhile; plus the satisfaction of producing your own financial results and not abdicating responsibility to a ‘ticket clipping fund manager’ (in the words of Sir Bob Jones) is extremely satisfying. The information is out there and readily available for all who wish to learn about this fascinating area of modern financial life. I just wish I had learned this in my teenage years and not in my mid-thirties!

Bryce