Not My Mother

I’ve started helping Dave’s mum and sister with their budgets so they can learn to be better with their money. I love budgets, working out the spending plan and keeping to it, and especially paying down debt, but I hate bossing people and telling them what to do, so it’s slow going. Which is annoying because our budget isn’t that interesting at the moment. Anyway, as part of that, we all started keeping a spending diary. I bought them little notebooks where they can jot down everything they spend. It’ll help work out exactly how much they spend on each sort of budget area, but mostly it’s to try to keep them mindful of the “little” cash purchases, the ones you don’t really think about. I want them to realise that yes, that hot chocolate, or that crappy toy or that cute little outfit for their darling niece (ahem) is only $3 or $5 or $15, but the money has to come from somewhere in your budget. And also $3 or $5 or $15 might not be much in isolation but um, have you noticed how often you’re buying one of those and look what heppens if you add it all up?

So it’s all about mindfulness and just starting to work out where that $50 you took out 3 days ago has gone. I started keeping a spending diary too for moral support and to be a good example, so it’s a bit ironic that suddenly I’ve gone on a bit of a spending bender. It’s not a lot, just things like $40 at Kmart on some organisational things (a coat rack, a new foam underlay for my ironing board, a laundry basket) that I’ve been wanting for ages and make me feel happy and organised, and they all come out of my budget, but if you look through my notebook it looks like I’m spending on fripperies. Plus I keep forgetting to write stuff down. I suppose it goes to show it’s a habit that takes time for anyone to get into but I don’t like spending money willy nilly!

Anyway, my worst spending was when I was up in Ballarat. I took my laptop along with the idea that I’d get to do some writing up there (hah!) and I also took my little USB keyfob thingy that gives me 3G internet connectivity. Except once I connected up and started surfing it told me I didn’t have enough data to continue, because Ballarat is not in a 3G area, it’s only 2G, and to connect to that I needed to buy a separate block of “roaming” data, which cost $7.50. Not much, right? So I did, and wasted a happy half hour or so checking people’s Facebook statuses and stuff.

But here’s the thing. It was *only* $7.50, but it expires in a month. I’m not likely to be back in Ballarat in that time, and I don’t go anywhere anymore that I need the connectivity. (It’s true that our house is annoyingly in some sort of 3G dead area so I could use it here, but our home network works fine.) I was only in Ballarat for two days, I could have gone without internet for that time. Wasn’t getting away from everything one of the reasons I went up? Plus my phone has (annoying, clunky) internet connectivity so if I really wanted to check my email I could have done it on that.

So I’m a bit annoyed at myself. Yes, it’s only $7.50 and I used to spend more than that on lunch every day, so in the scheme of things it’s not much. It’s just annoying that I made this sort of beginner’s slip-up and it’s going to expire without being used. Plus, right now I only give myself $25 a week spending money, so there’s a huge chunk taken out of what I was saving up for more organisation stuff, or maybe even some jeans that fit.

On the other hand, I was at my Aunt’s house and when I was sitting on the floor playing with Bianca I noticed that on her shelf she has 20 DVDs (I counted) and every single one of them is of Andre Rieu. Every single one! Now, maybe she keeps her other DVDs somewhere else, but how is there even that many ways to look at that man?

I’ve been thinking a bit about Dog’s situation over at Dog Ate My Finances. She lives in a crappy rental property that she hates, but she can’t afford the kind of house she wants, and she doesn’t want to buy a “generic townhouse” that she’d have to sell in a few years time. And she seems to have a mental block on upgrading to a different rental property – I think she sees it as dead money. So she’s talked herself back into staying where they are, even though the apartment is old and doesn’t fit her needs, and her cars keep getting broken into. She doesn’t see any other option — or more accurately, she’s written them all off.

It reminded me of our situation when we moved back to Australia. We were looking to return in December 2007, just in time for Christmas. At the time the rental market in Melbourne was going crazy; there were news reports that for any property that came up you’d have 50 couples swarming the place and there were rental auctions going on. It was mad. We had friends looking at the time and they said it was true.

Now, as it happened, my work moved me to London, so they were organising moving me back, and as part of that we’d get 4 weeks’ accommodation in a serviced apartment when we arrived. But what we didn’t get was any assistance to find a place to live (unlike when I arrived in London; I guess you’re expected to know your home town yourself). It was all down to us. How would we manage to find a place that was available within those 4 weeks? Also, we wanted to buy a house, but that would mean trying to line up the end of leases with the purchase – and with the market as it was, no one needed to take on a short term lease.

So it made sense to buy before we got back. The only thing was, the kind of property that we wanted was a larger house maybe 30-40 years old, which needed some work. And it’s really hard to judge that over the internet. We tried sending family round to look at a few places, but it didn’t work. They didn’t understand what we were looking for, so they’d come back and say “Oh my god no, there is bright red shagpile carpet everywhere, run!” Well, I don’t know about you, but I like bright red shagpile, and maybe the rest of the house was okay. But the point was, buying a house you’d be happy to live in is a completely subjective matter. It depends too much on gut feel and instinct, you can’t trust it to other people, and they don’t want you to either, in case they get it wrong and you end up hating them as well as the house.

But you know what is easier? Buying an investment property. Then it comes down to cold facts: is it close to transport? Does it have a garage? Is it low maintenance inside and out, with enough bedrooms and bathrooms for your target market? We decided that we wanted an investment property eventually, so why not buy it first? We wouldn’t have to LOVE it, it just had to be good enough for us to live in for maybe a year while we looked for the house we really wanted.

So we looked, and within a couple of weeks had found something that met our needs exactly. Better yet, it was in a largish development of similar properties so we could see what they’d been going for. So we bought it. Settlement was in December, a week before we got back in the country. Perfect.

As it happened we loved the house, which was good because it soon became clear that we’d been a little unrealistic about being able to buy a second house within a year. (It took us TWO years to get to that position.) Now, we live in the second house and rent out the first one. And we love the second house.

So this is what I think Dog should do – stop thinking about it in terms of a Mansion or Nothing. Buy the generic townhouse, but with an eye to it being a good investment down the track. It’s a reasonable compromise, if you do the research and are smart about what you get. And the mortgage would be a lot less than the mansion’s, and it wouldn’t be the dead money renting something else would be.

Disclaimer: I don’t live in the US, so I’m not completely familiar with the ins and outs of purchasing properties there. But Dog’s already been approved for a modest sized mortgage, and people are still buying properties. It doesn’t matter what she intends to do with the property a few years down the track, she’s planning to live in it now.

A lot of my blogs have been setting their goals for next year, so I’ve been trying to come up with mine. It’s hard because I have no idea how next year will go. I could say that about every one of the last 6 years, but this one will definitely be different. I’ll become a mother. I’ll be moving to a part-time salary, and although I’ve worked out a tentative budget that shows we can do things quite comfortably, I have no idea how out of pocket we’ll end up with the birth, or how much the baby will cost (although Mum’s gone a bit mad buying stuff and friends have been very generous, so that helps out.) Hell, I have no idea at all what being a mother will do to me or my life, so it really is all up in the air right now.

I’ve not really tried setting goals before. Resolutions, sure, I make a billion of those, and promptly forget them. One year I had 13. How many did I achieve? Your guess is as good as mine. So for the last few years I’ve not bothered making them. Best to avoid the sense of failure. But I can see the point of setting goals, especially financial ones, otherwise you drip through the year with no focus. But how to do it? Goals should be achievable and measurable and everything else that makes them SMART. Also, I don’t want to have a goal for each aspect of my life (too much to focus on), but neither do I want just one financial one (an area that IS measurable) that I’ll get obsessive about, I’m obsessive enough about that already. So what to do?

I was talking to Dave about it and he gently pointed out that I am a knucklehead and next year WILL have one main focus, and it won’t be finances. We are becoming parents, everything is going to change. Thus, 2010’s goal should be to adjust to parenthood.

Spend the first three months preparing for the baby, then recover from the birth and adjust to being a mother. Look, I have no idea how I’ll go with that, other than it will change everything for ever (thanks, friends with helpful comments). I’ll probably be overwhelmed by it all and I’ll likely get postnatal depression. So he says I need to forget everything else and concentrate on that, get settled into being mum, get healthy and well, get our routines going and so on. And he’s right. I know he’s right. It’s really important and it doesn’t come at all naturally to me, I need to give it all my focus.

But I’ll need some sub-projects to keep me going, right? You know, for when it all that parenting gets too easy? So here are a few more I came up with.

Finance

1. Get emergency fund up to $20,000.My ultimate goal is $30,000 (6 months full expenses including mortgages for rental properties), but I’ll aim for $20,000 by the end of next year. It is currently sitting at $9,500, so we can comfortably make $20k by adding about $1000 a month.
2. Work out exact financial position. I’m embarrassed to say I don’t really know where we stand at the moment. I’ve lost track of how many shares we have (we get some as part of our end of year bonuses, usually held in trust for a year or more, and I’ve not kept the records of what’s vested and what’s not, up to date), and some of our old superannuation funds have old addresses so I haven’t got up to date statements from them. Plus, Dave tends to be a bit slack with some stuff like managing the account for paying one of the investment mortgages, which makes it hard for me to know how the budget’s going, so I’d rather just get it all under my control.

   This one also means making sure we’ve got everything covered that we should, like life insurance and wills, and to start getting educated on our superannuation options.

3. Grow net worth by $50,000. Again, I don’t know what the current year will bring so I don’t know how realistic I’m being, but if we include superannuation contributions (as we must) this should be easily achievable. It will be hard to definitely assess our success because a lot would depend on property valuations and I can’t see us paying for new ones again next year, but we’ll do what we can. For the record, I did some sums and I estimate our current net worth as being somewhere around the $490-500,000 mark, so $50k would be a nice round 10% increase. (See why I need the exact financial position? $500k would be such a nice milestone to hit and I don’t know if we’ve made it yet!)

Organisation – get home life in order

This one ties into the main goal of adjusting to parenthood, and just getting our lives working smoothly so things don’t fall apart when I go back to work. One of my most common freakouts is that I don’t feel like I’m coping now, so how will I manage when there’s a baby to wrangle as well? So this is all about setting up routines and systems, like meal plans and filling the freezer so we have food, and getting housework and admin down to a quick art. It bugs me that I always have a big list of things hanging over my head that should be done, so I want to make a concerted effort to work through them all and get them sorted out once and for all.

(And before you point and laugh at me for thinking I can do that with a baby around, she won’t be here for a few months yet and hopefully will sleep a lot at first. I could be kidding myself, but leave me my illusions for now, okay?)

Health and wellbeing

Dave says he wants to get down to 85kg (um, about 187lb) by the end of the year. He’s 6 feet tall with a chunky muscular build anda bit of a belly and probably weighs about 104kg (229lb) at the moment. I can’t imagine him that light but he thinks he can do it, and it will help with his cycling. I was 85.9kg (189lb) when we got married and am 94kg (207lb) right now, so I figure I’ll target that too. Ideally I’d like to get under 76kg (168lb) which would get me out of the obese range for my height, but I honestly don’t know how I’ll go. I’d rather have a modest goal I have a hope of achieving than something I don’t believe I can do.

Really though, I’d just like to finish the year feeling fitter and healthier, with better food and exercise habits and a body that doesn’t hurt. This will be part of establishing our new routines. Details still to be worked out.

So that’s it. Of course I’m most interested in the financial ones right now because I’m comfortable in that area. I’m actually quite excited about what next year will bring,

What do you think of these goals? What are your goals for the coming year?

So yesterday the Reserve Bank of Australia raised the official interest rate by 25 basis points to 3.25%. Westpac has already responded by raising its home loan rates by 45 basis points, and there’s no reason to think the other banks won’t follow suit. And I’m a bit cross about it.

(For overseas readers, Australia hasn’t had the recession issues that the US and UK have. Our Prime Minister Kevin Rudd would tell you it’s due to the government’s fantabulous stimulous package, but mostly it’s because our banks were far more conservative and didn’t get that involved in the subprime mortgage market in the first place. Not that it wasn’t tight there for a while, global finance is all intertwined so banks and companies had to scrabble to fund debt and there were some layoffs, but nowhere near the levels you’ve had overseas. So our interest rate is higher, and that’s why the AUD is doing so well at the moment.)

The rate rise was expected, but I find the RBA’s strategy frustrating. They raise rates to rein in inflation, but it’s hard to believe they have much of a grasp of what’s going on. For a start, they were still raising the interest rate until late last year – last September it was 7.25% – despite the meltdown overseas and rumblings here. Their excuse was that inflation was too high – but the inflation figures are measured using things like higher oil prices, leading to higher fuel and grocery prices, and housing costs. All stuff we can’t control, and hardly things we can do without. So they raise the interest rate, leading to higher costs to fund mortgages, and then act all surprised when we end up having to spend more? Sheer genius. Gosh, better raise rates again, that’ll stop people spending so much on bread.

They finally started dropping the rate in October, because, who knew, things weren’t looking so good. Over the next six months it plunged to 3%, and you could hear the sighs of relief all over the country.  But at the same time Kevin Rudd started his stimulus package, whereby he gave cash handouts to low income earners to stimulate the economy because gosh, people got scared and stopped spending money at the shops! It’d be nice to think that money was being used to pay down debt or put aside for a rainy day but it’s not, it’s buying flatscreen TVs and playstations and funding holidays. And Krudd’s fine with that. Hey, it keeps the retailers happy. It probably has saved some jobs. But it’s also made the economy look better than it should and that’s alarming the RBA.

The thing is, they’re not giving anyone a chance to react to the new rates. They won’t even have the latest figures in yet, so they don’t know how last month’s rate rise has affected things yet. Chances are it hasn’t, yet. They’re still looking at the artificially inflated figures caused by the stimulus package. So yeah, raise the rates, but maybe don’t do it every fricking month, give people a chance to work out what their new budget looks like, hmm? Or, do it half a percent every time, but only do it once a quarter. At least then you’d have time to run the figures and see what’s what.

But the real problem is that the banks won’t just pass on this rise, they’ll increase it. Westpac’s already added another 20 basis points on, and the other banks are likely to follow suit. Westpac has claimed it’s due to the increased cost of funding, but it’s also to cover themselves for bad and doubtful debts. NAB alone made allowances for $2.3 billion for this purpose last financial year. They have to make it up somehow. And yes, that is completely down to the banks’ shady ethics and greed, and the demands of shareholders. But why do they have bad and doubtful debts in the first place? Because people and companies already can’t afford to service their loans. Isn’t that a sign that the economy is not doing great? Raising rates is not going to fix that!

So  yes, I’m frustrated about this. As a consumer, it hurts, and it makes everyone that little bit more nervous about what next year will bring. I don’t deny that rates are lower than normal at the moment, but so is the world economy. A better indication of what’s going on is house prices which aren’t going anywhere right now, despite the low rates and the first home buyer’s grant. If the RBA really wanted to slow down inflation maybe they should stop Krudd chucking money at Harvey Norman’s cash registers instead.