April Dividend Income

New Zealand is weird and quirky, a little different compared to the rest of the world.

Most companies put out half year results in March and September and dividends are paid the following month in April and October. So with a few exceptions I only receive dividends twice a year.

Individual Stocks
Auckland International Airport $14.32
Metlife $3.56
PGG Wrightson $49.83
Michael Hill International $30.97
Mighty River Power $44.13
Meridian Energy $99.90

Total $242.71

Index Funds

Smart MDZ (NZ mid cap companies) $98.01
Smart MZY (AUS mid cap companies) $31.08

Total $129.09

(The smart funds are local low fee index funds. They allow for monthly investments at no extra cost so its easy to invest a little every month.)

So all up $371.80 (this is the after tax amount). Not quite enough to retire on just yet. Everything stays in the brokerage account and is reinvested. I figure if I can increase this return by a factor of ten I’ll be damn close to retiring. I’m fairly heavily weighted in energy stocks. Those companies used to be government owned, then our government was all like “Hurrr duuuuh these assets are making us too much money, lets sell half to whoever want to buy them.” So we raided our savings. They are good companies (mostly clean energy, hydro and geothermal), but they should have stayed state owned. Those dividends could buy a lot of schools and healthcare.

nature-1436732866NMV

I don’t understand the reasoning  for selling off income producing assets. Most of the country was pretty pissed off about it at the time.  Anyway I felt a sense of national obligation to buy them which is probably just what the government anticipated. They’ve been good income earners, can’t complain so far.

Some Mornings I Wake up Angry

I don’t know if it is weird dreams, my cold house, the alarm going off in the pitch black, my cat insisting on waking me up at 5am with some creature she’s brought me from the garden or depression. But when that alarm goes off some mornings I am pissed off. Thats the first feeling I get for the day.

I’m angry that I’ve got to freeze my butt off getting ready for work. I’m annoyed with myself that I can’t get up any earlier than 6am and I have no time for breakfast, I shower, dress and drive to work.

I don’t mind the drive to work, I listen to National radio. It’s calming and informative with a business update at 6:45am just as I’m pulling into work. One day they’ll be like, Abano shares go up by 1000% all holders can now retire! Sometimes on the drive to work I fantasise about missing my turn off. I’ll just keep driving I think, I’ll drive to Napier, I’ll buy a house in Hastings. I’ll wander the vineyards. But I never do it. I always make that right hand turn. Queueing with the other hundred or so people that start shift at 7am.

The first thing I do at work is make coffee and make my co-workers coffee. Cause thats breakfast. Then while we all break some minor health and safety code we drink coffee at our work stations.

As you may have guessed I’m not a morning person, but coffee and some nice repetitive routine work is just the thing to bring me to life…..except I have to endure a robust dissection of last nights “bachelor” episode.

At 10:30am I’ll treat myself to breakfast and check the sharemarket. Nope, can’t retire yet.

I’ll spend some time dealing with a supplier claiming they can’t supply us with ph6 buffer anymore until I send them my approved handlers certificate. WTF (Vinegar, VINEGAR from the supermarket is more harmful than this stuff!) I scan my approved handler certs and email them off. Meanwhile my bulk chemical supplier sends me 20L drums of flammable petrochemicals with incorrect labelling. No certification required.

IMG_5165

My boss gets on my case about spelling dnagerous wrong in an email to the compliance officer. Gah sometimes I’m just smashing out emails in the few minutes I have spare between getting through all our pathology specimens for the day. Note to self …. must be mor eproffesional.

I eat some leftovers for lunch and go back to work for a few more hours.

And really its nothing to be angry about. Its just ordinary. Nothings that horrible. I’m not mistreated or underpaid (up for debate). I’m not the victim of sexual harassment or workplace bullying.

It’s just simple everyday stuff.

I’m not sure why I feel so ragey in the mornings. Maybe its a micronutrient deficiency. I kinda hope so.

I go home and spend time with my husband, he tells me of all the good things that happened to him today, we hassle the teenager about all the hair dye on the pillow cases and nag about leaving the heat on in their room with all the windows open. Cook some rare beef for dinner with a sesame sauce. Cups of tea after dinner and few laughs later I feel like a normal person.

By bedtime I’m not angry anymore.

I’m me again…… at least until 6am.

22.18% effective tax rate and Health care in New Zealand.

So my effective tax rate is currently sitting at around 22.18%. And we have a goods and service tax on almost everything we buy of 15% (housing is exempt). Those taxes cover a lot of services.

That is life in New Zealand.

After reading about so many people worrying about what they are going to do for healthcare after they retire I feel absolutely lucky to live in a country where healthcare is relatively affordable. Healthcare is largely covered by the government. (Via taxes of course.)

If you have an accident and need to see a doctor the cost is almost nothing and all the treatment thereafter is mostly covered. Accident insurance is included in the taxes that come out of your wages and if the accident is so bad that you can’t work you can get 80% of you previous salary in compensation until you are either rehabilitated or retrained for work. Accident bad enough that you need hospital care? No problem its covered. The accident can be at home, work, doing sport or whatever, you’re still covered.

A doctor visit for a medical reason ranges from free (under 13yrs are free) to about $80. (You’ll pay more for seeing a doctor after hours or on the weekend and cost varies a lot by location, e.g poor areas have cheaper fees). Most medicines are subsidised and cost around $5 per prescription.

Referrals to specialists are triaged on need. If its urgent you will get seen quickly, if not you may have to wait a while.

Likewise with any surgery in the public system. You get seen according to need. There’s not a lot wrong with that. Most New Zealander’s are fairly accepting of this kind of system. We love fairness! We don’t like seeing people get special treatment because of “who” they are or because of how much money the have. Now granted, the system aint perfect, a lot of people wait longer than they want. But its the best we can do with what we have.  It could definitely do with more funding of course! Those funds have to come from taxes and the country has to bear the cost a the end of the day. There has to be balance.

IMG_5202

Now I also have private health insurance ($21.01 a fortnight for surgical and specialist care, cheap as! It a not for profit organisation) but I only have it because I might want a private room in a fancy private hospital. Or I might want to be seen by doctor ASAP if I’m freaking out over something. It doesn’t let me skip the queue in the public system, rather there are some doctors that operate outside the public system and I can pay to see one of them privately. My money doesn’t disadvantage anyone in the public system, rather it benefits them, because I am one less person the that they would have had to queue up with for treatment. The government has considered incentivising private health insurance to reduce the pressure on the public system, but so far nothing has changed.

I’m considering dropping the insurance. The older I get, the more costly it is and is it really that necessary? I’ve started a small savings fund for health, and every five hundred dollars I save I add that as an excess (I think Americans call it a deductible) to the insurance and so my fortnightly fee drops. Eventually I hope to have enough in the fund to cover the costs of anything I might want to have done privately.

One school of thought is that if you have the money, you should pay for private treatment and ease the burden on the public system. Or even if you have the money why would you even put yourself at the mercy of the public system? To be honest, the public system has some fantastic doctors. I work in a little non specialty of healthcare and even I see specialists (earning very big dollars!) are having hip replacements on the waiting list via the public system. The care is just as good or in some cases better than private. You may not get a private room or the fanciest food but you get great surgeons and nurses.

IMG_5159

So I have to make a call, yes I can afford private healthcare insurance, but public is just as good. Private will be faster and public I’ll have to wait my turn. Its for the good of the country if I pay for private insurance, but I pay my share of taxes so why not go public…… What’s a responsible citizen with dreams of financial independence to do?

You Need a Mall Diet

The need for a new pair of work pants drove me to the mall on a Thursday. Chatter from the co-workers had led me to believe that there was usually a sale on Thursday at one of the department stores and yay they were right. 20% off woohoo. So with work pants purchase achieved I decided to have a little browse, a little wander, around the rest of the mall.

What was I thinking? Oh my, all the pretty things. Shoes, I could use another pair of shoes and winter coats are in stock, gorgeous woollen pea coats with wooden buttons. The lights were bright and the smell of doughnuts was wafting up from the food court. The new homeware store had some new funky looking cushions on display and all of sudden I was thinking about buying a new couch. I WANTED ALL THE THINGS and I hate that it made me feel like that.

shopping-562616_1280
Ah the land of false desires……..

Does this ever happen to you? You go to the store to purchase something specific and find that your desires are being stimulated by all the bright lights and pretty things. When I’m at home, or work, or with my family I don’t even think about shopping or things I want. Its only if something breaks, or wears out that I begin to ponder a trip to the shops.

Lets face it, malls are desire stimulating machines, they are designed to make you browse and lust after items. Craftily staged window displays or furniture arrangements make you long for something as attractive in your own home. Theses are desires for items I didn’t even know existed until I went to the mall. How can you have a burning desire for something you didn’t even know existed until just now?! I wasn’t sitting at home yesterday thinking “damn my life would be way more complete if a I had an antique copper frame kitchen pendant light”.  The mall is a crazy place it makes me greedy and wanty!

mannequins-449947_1920
Attack of the mall drones. Don’t be a mall drone.

And thats why I have to severely limit my trips to malls. I am happy and content with my home and what I have until I go to a mall.

If you find yourself swayed by pretty things, if your credit card spending is out of control, then you need to go on a mall diet. We’re talking complete mall restriction!

5 ways to put yourself on a Mall diet.
  1. Shop for groceries at cheap supermarket not attached to mall. I visit our local Pak N Sav which doesn’t really have any other shops nearby. Shopping for food is a necessity so don’t let it become contaminated with the expectation of having a browse of other shops.
  2. Change your commute so you no longer drive past your favourite shops. It may take you a few minutes longer, but out of sight is out of mind.
  3. Only allow yourself to shop for replacement or worn out items. When you go to the mall you are ONLY there to find and purchase the required item. If you see something else you want put it on a list and go home. Decide later in the week if you really need the item.
  4. No more going to the mall for “fun”. No recreation browsing or window shopping. No going just to see whats new. NO. Find yourself a hobby that’s better for you than just looking at stuff you might want to buy. Shopping shouldn’t be anyones major hobby let alone something you do when you are bored.
  5. Don’t meet friends at the mall, if you want to meet for coffee or a cheap meal find somewhere stand alone, better yet, invite them to your place! There are hundreds of ways to hang out with friends that are not shopping related.

If your focus is becoming financially independent then with a mall diet and a bit of reflection eventually you’ll become immune to malls. Your desire to shop will drop away and the mall will become a rather boring place.

 

 

My First Rental Property Investment – And how it sucks

 “I should invest in property.” – Thought I had one day last year.
Picture of a rental property

Property is such an attractive prospect. With a good property manager its largely passive, there are sweet sweet capital gains and I could see in the future having a few properties could be a great way to provide steady income in retirement. I don’t know about anyone else but I really really struggled to find a property with decent rental returns. New Zealand houses are really expensive and sometimes not great quality. I couldn’t afford anything in my home town (Current average house price – $931,061!) so I had to look in some of the smaller regional towns nearby, I started with Hamilton but the houses I could afford there tended to attract tenants that looked like hard work. After spending many weekends looking at dismal homes I gave up on Hamilton and started looking further afield.

Ariel photograph of Tauranga
The Charming Coastal City of Tauranga

I finally ended up looking in Tauranga (a coastal town with a large port about 3 hours away) and I found a large 2 bedroom home, with a really light and bright living space. It had a lovely feel to it and if I were to one day fully renovate it the results would be a very classy living space. Even in its current condition it was very liveable.

I didn’t have a deposit

Yup, I bought the property with no deposit. I own my home here in Auckland (well a large % of it) so the bank was willing to lend me 100% of the purchase price of this property.

The thing with houses is that the purchase price is just the beginning of all the things you are going to have to pay for. Although I did talk the sellers down from a list price of $235,000 I ended up paying pretty close to that figure by the time the purchase was done and the house was ready to rent out.

Purchase price $224,000

Pre Purchase Building Inspection $517.5
Drain Inspection $230
Legal $900
Drain rehab and repair $3624.1
Insulation and ventilation $2949.61

Total purchase costs $232,221.21

As you can see it cost me another $8,221.21 to get the property ready to rent out. I wasn’t to upset about the prospect of getting these repairs done as I felt I was still getting the property for a good price. The drains were completely clogged and causing dampness around the property but they are fully functional now. I also paid to have a high standard of insulation and ventilation installed. New Zealand properties are notoriously cold due to poor insulation and are often prone to mould issues as tenants trying to keep heat in will not open windows in winter. All the moisture from regular household activities can create an environment that encourages mould growth on ceilings and soft furnishings. It was really important to me that any home I rent out is warm and dry.

And how about those ongoing costs…..

Costs, coins, accounts.

Well lets start with a happier note. The place is currently rented out for $340 a week and they’ve paid on time, every time. Gotta love that.

Annual Rent $17,680

Annual Expenses
Mortgage (principal and interest) $14,736
Rates (property tax) $1,845.90
Property management $1,016.6
Insurance $1,136

Shortfall of  -$1,054.5

So this is why it sucks

I have to pay out $20.27 a week to keep the place going. I also will have to pay out of my own pocket for any unexpected repairs and regular maintenance. It’s a negatively geared property. Its quite common in New Zealand to invest in property this way, however I would prefer to making money! I can offset the losses against my income so I end up paying less income tax, which is nice.




There is some good news!

After one year the mortgage is down to $218,574 and the rateable  valuation on the property is $256,000 giving me equity of $37,426! So you could look at it as spending $20.27 a week to acquire $37,426 which I’m sure you would agree is a bargain! Its been a great boost to the net worth. I was extremely lucky to buy when I did. The market in Auckland had become ridiculously expensive and a lot of young families were looking to move to more affordable towns. The market in Tauranga was only just starting to heat up and I’m sure I got an absolute bargain. You can’t find much for under $300,000 in Tauranga now.

Am I going to keep this money pit of a property?

YES! For now I’m going to hold, I have the opportunity to refinance in February 2017 and I should be able to reduce the mortgage payments. The Tauranga property market is booming and the current valuation of $256,000 is a very conservative number generated by the council when they are determining property rates. If I were to get a proper market appraisal I believe the value would be a lot higher. There’s no tax on capital gains in New Zealand so I get to keep all of the profit.

There’s always the possibility of increasing the rent, my property manager keeps on top of the market and will assess if any increases are justified. I plan on having the property at least cashflow neutral by March 2017. For now I’ll continue to pay my $20.27, which to me seems a small price to pay for owning this assets which keeps on increasing in value.

Actually its not as much of a money pit compared to last year

I did two things this month to improve the returns, I re-evaluated the insurance and discovered I was really over insured and paying too much. I got this bill reduced by $200. I also switched property managers, my first manager was useless and expensive. I finally got fed up and found a company recommended by the property investors association. The price is excellent and he’s a great communicator (which is exactly what you need for an out of town rental). I was inspired to see what savings I could make after reading a post over at Afford Anything about the incredible power of the 1% margin for improvement. The idea that loads of small improvements can make a big difference was so obvious and I felt like an idiot for not optimising my expenses sooner. Yes property can be passive but for the best returns its helpful to keep a watchful eye on things!

**October update

Values in Tauranga have skyrocketed in the last 6 months. My modest property purchased for $224,000 ($216,000 mortgage) in 2015 is now worth $340,000-$370,000. The rent has been the same but my tenants are moving out in a month and my property manager has advised that he can increase the rent. Interest rates are dropping and the reserve bank has signalled one more rate drop before the end of the year. My fixed term mortgage ends in April 2017 so hopefully I’ll be able to take advantage of a much lower interest rate. With the increased rent and lowered interest rates this property should be making a profit next year woohoo!

 

Quickly Fulfilled Desires – “The Things That Control You”

Like a lot of younger folks (I’m under forty, thats still young right?) when I find something I desire I want it right now.  But as someone who looked wiser than me pointed out “Those things which you can easily grasp have the most control over you”. It sounded confusing to me at first but I’m sure there’s some wisdom in there. I understand it like this… if you can whip out the credit card whenever you want to buy something, then spending has control over you. Whereas you should control the spending! If you pour yourself a beer every time you even think of having one, then beer has some control over you. You are no longer in control of your drinking. For some of us the things we desire in life have to be put a little out of reach so we can exert control over them. We can put things physically out of reach, separating ourselves with distance. So even if you want a beer there is none in the house. Or we can separate ourselves via time i.e I only drink beers on Fridays and Saturdays and so you wait till the weekend, you put your beer drinking in the future. I’ll fully admit that chocolate in the house has control, I have to eat it. They only way I can resist is to actively remove temptation. I do this by eating all the chocolate in one go……..but usually by not buying any except for rare treat occasions.

All the beers I would drink, if i had my way
Just a couple of beers won’t hurt

I wanted to upgrade my phone about 2 years after I bought it, but it still worked and had all the functions I needed. I delayed the purchase until my current phone no longer supported the apps I wanted, was far too slow and kept crashing. Then I waited even longer till a model came out that suited me. Thankfully new gadgets have no control over me. Do you upgrade every year, are you controlled by technology?

I discovered early on in my life that money does indeed have some power over me. When I look at my bank balance I immediately find ways to spend it. Over the years I developed strategies which involves moving most of my money (money for savings, investments, bills) to separate accounts. Then my checking account only has my spending money left in it. And I’m allowed to spend that however I want. As the years go by I’m getting a lot better at holding on to that money and a positive balance in the account no longer drives me to spend like it once did.

It takes time to learn which things in life have the most power over you and how to push back and regain control.

Time travelling wealth

By investing and saving my money I am putting as much of it as I can into the future. Out of reach and yet still under my control. In a way I have time travelled my wealth to distant future, hopefully a future that involves driverless electric cars and robot butlers. Some of it is going 29 years into the future! (Kiwisaver, can’t touch till I’m 65). A portion of my funds are only going 15 years into the future. I’ll have to patiently wait till I catch up to it. I’m putting my wealth out of reach where it no longer has any power over me and hopefully in the interim years I will be well practised at budgeting and living within my means so when it finally comes time to pull the plug on the job and quit work forever I’ll be able to manage the lump sum in a way that will make it last till the day I die.

A big pile of cash
This looks about right.

I wonder if 2 million dollars dropped in lap right now (apart from the inevitable bruising and crush injuries) would I be able to make it last forever? Have I learned enough yet? Have I practised disciplined budgeting for long enough to keep control over 2 million and not got nuts buying home-brew equipment and extravagant holidays?

I figure that the large amount of time it takes to reach financial independence is a right of passage that educates and tempers us. It’s a chance to make small investing mistakes with small chunks of savings, its time to learn how to build a portfolio or find out who you can trust to build one for you. Learning that just because you have money in the bank does;t mean you can afford to buy whatever you want. I’m only a year into this way of thinking, but I’ve learned a lot about myself by setting off down this path. I’m looking forward to learning even more.