March 2016 (Shameful) Expenses

Alright internets, you can look but you can’t touch. Here’s the expenses for the month. Not so pretty. March madness, thats what I’m putting it down to.

It was my birthday, which led to a trip to Nelson, where I attended a home brewing conference and Marchfest.

And I splurged on a fancy present for myself, a new iPhone SE. I don’t feel too bad about it, as my last phone lasted me 5 YEARS! It was definitelty time for an upgrade as the old phone was beginning to feel quite unusable.
Actually the phone just arrived this evening, the courier asked if it was a new iphone and I felt compelled to tell him I had my last one for 5 years, 5 YEARS PEOPLE. Is everyone understanding that I don’t upgrade my phone willy nilly yet? otherwise I’ll have to mention the 5 years thing again…..

A graph of my horrific spending habits

Mortgage payments are way up because we managed an extra Thursday this month. Gee thanks March. (It’s paid weekly).

Managed to put a whole lot of money in savings, but also pulled some money out of a short term savings account to purchase myself a new phone. 2 steps forward, one step back.

a more detailed look at my monthly expenses.

Professional registration – the government decided my job requires registration. Can’t have any ol bum working in the lab, might make meth or something? I dunno. Anyway every March I write them a letter swearing I didn’t commit any crimes in the last 12 months and they let me carry on.

Spending money was some computer bits and pieces that we bought to finish up a PC that we put together for the teen living with us. Teens need computers for school and stuff, stuff being streaming music really loud all the time….. plus I bought loads of craft beer. Restaurant category was eating out for lunch a dumb amount of time. I was quite disorganised this month.

After the trip to the homebrew conference I felt compelled to start brewing again. Uh oh, I better start a new category for this. So I bought ingredients for a batch of beer and some misc parts for the kegerator I built couple years back, some new beer lines, connectors and things.

2016-03-18 16.15.30
Actual label in the test brewery at Plant and Food research
2016-03-18 12.07.05
Punched hole in a bale of hops to test for moisture content etc
2016-03-19 14.25.30
Marchfest line up, I tried them all!
2016-03-18 17.12.48
We got to sample/sniff a new variety of hop in development at Plant and food research!

Holiday spending was over 4 nights in Nelson, including beer money for Marchfest. I paid for a lot of things in advance so the expense was just food really. Nelson was just wonderful, I really enjoyed it there. I hope they do the conference again next year.

So what can we see from my expenses? Well I’m definitely not in the frugal category and I actually get to go to far off places and do things I like (beer festivals yay!). There is room to save more/cut expenses if I want to ramp things up a bit. I do prioritise beer and food over entertainment (no pay tv for me, not even netflix bro!).

Did you notice something else? Apart from the mortgage I have no debts to pay down. At 36 I have finally learned how to use a credit card properly and all my student loans are dust. No car payments either because I drive a 1999 mazda familia.

Sometimes I feel like its a quite spendy budget, but I do feel in control of the direction of that spending. I get the the things that matter the most to me while still paying down that mortgage, investing and saving.

Considering the Not so Frugal Purchase

Are you considering purchasing something ridiculous like a jetski? A $1000 piece of home brewing equipment? A fancy new smart phone? There’s a few hard questions worth asking yourself before you make the plunge.

Can you afford it? Can you pay cash and not be absolutely devastated by the drop in net worth. No wiping out your emergency fund for a new kitchen! Buying it on credit…uh sorry, no, you can’t afford it, forget about it. “Oh but I can afford the repayments!” nope, you can’t afford to buy yourself a debt. Thats stupid, just don’t.

How long will this item last? A lifetime, amazing! 10 years, great! A couple of years, its okay I suppose. A year at most because its got some “fashion” time limit on it, very very bad.

How often are you going to use it? There’s definitely a justification for buying quality things that you’ll use everyday especially when you work out a cost per use of the item e.g A jetski, maybe a couple times a summer till you get bored of towing it places and paying registration on the trailer and then it will sit in the garage for ten years. Say 10 uses, jetskis in NZ cost about $12,000 so $1000 per use. Hmmm Maybe you’re better off hiring one for now until you are absolutely sure you love it so much you’re going to use it every weekend, or better yet use it to commute across the harbour.

man on a jet ski
Just $12,000 to look as glamorous as this guy. Bargain.

How about the home-brew gear, how often does that get used? Probably once a month….for many years, at least until the doc says no more alcohol, which might never happen. So conservatively maybe 10 brews a year for 5 years, 50 brews, cost of $20 a brew.  If you brew more often or make the equipment last longer costs will drop. Still looks like an expensive spend for a hobby.

Home brewing equipment - grandfather
mmmmmmm grainfather

What about the smart phone, you use it every day for GPS, photo’s, internet, keeping in touch etc. So over a year a $949 works out at 2.60 a day. My last smart phone lasted me 5+ years (Its true I have a 2011 smart phone) so that works out at $0.52 a day. Not a bad price for having a little powerful computer in your pocket at all times.

So for not so frugal purchases, make sure you can pay cash without it setting you back, that it’s going to last and you’re going to use it often enough for the cost per use to be really really low.

What else should we keep in mind?

When we want something bad enough its easy enough to justify it to ourselves, we can make up any number of reasons, truths or half truths (I will surely use this jetski every weekend for the rest of my life!) to get ourselves the object of desire. It can be difficult to sort out these half truths from the facts until after the event has occurred, just like how I promise myself I’m going to eat healthy this week but by Wednesday I’m chowing down on a cheeseburger. It’s hard to protect yourself from future you! Future you is probably going to get sick of jetski maintenance after a couple seasons!

A good budget can help protect you from excessive spending, at the very least all your savings and emergency funds should be out of easy reach and a discretionary fund for free spending is a must. Becoming financially independent doesn’t mean not having any fun ever, but large purchases should be well considered and delayed. The dent in the timeline to financial independence that these kinds of purchases cause should be carefully weighed along with how often you are making these larger not so frugal purchases. A new smart phone every five years is pretty good going, a new smart phone every year is something you might need to reflect on.

 

Understanding Marginal Tax Rates!

Nobody likes taxes, I figure thats why a lot of people don’t take the time to understand them.

When I was younger I thought the tax system was horribly unfair. Why would anyone want a pay rise if it meant getting taxed more! You might end up with less money in the hand after a pay rise!

Oh how wrong I was.

You see New Zealand has a marginal tax system, when your salary increases to fall in a higher tax bracket only the dollars over that income threshold are taxed at the higher rate.

Screenshot 2016-03-13 09.51.23

So if you get a pay rise from $48,000 to $49,000 only the $1000 over the $48,000 will be taxed at 30% rate NOT the whole $49,000. This way you retain the benefit of low taxes on a portion of your income.

Lets look at a breakdown of a real world salary, lets pick a completely random, no relation to this blogs author, made up, fictitious number out of the air……$66,740.

Screenshot 2016-03-13 09.56.37

Well that salary is not even large enough to get hit by the top tax bracket. How disappointing. (This person should really get off their ass and try hustle a pay rise). The table nicely breaks down the tax paid in each bracket, leaving a final cash in the hand annual salary of 53,698.

However there is one more tax to be paid in New Zealand, the ACC levy. The Accident Compensation Cooperation is a government run initiative that “provides comprehensive, no-fault personal injury cover for all New Zealand residents and visitors to New Zealand.” Yes you read that right, no fault and visitors covered. Its pretty amazing, most medical bills resulting from accidents are covered 100% and you can get income compensation payments if you can no longer work as a result of the accident. Like income tax it is deducted directly from wages.

Screenshot 2016-03-13 09.59.29

So even though the salary of 66,740 falls into the 30% tax bracket the effective rate is only 20.99%. The effective tax rate is much lower than the tax bracket your salary falls in.

If you want to see how your salary is taxed in New Zealand then the calculator at salaries.co.nz breaks everything down nicely, it even can account for student loan deductions and Kiwisaver.

Why you need to start NOW if you ever want to buy a house.

OK lets take an average Kiwi looking to get on the property ladder. You’re 35, you got married a couple of years ago and now you’re thinking of starting a family. Wouldn’t it be nice if you could have your own home. A backyard with a garden and space for junior to play. Walls you can paint and garage you can have a workshop in, a kitchen you can upgrade.

However house prices have really gone up in your area, and a 20% deposit is now well over $100,000. You’re thinking of going down to one income for a few years to start a family, how in the HELL are you going to save up $100,000 before you’re 40?abode-987096_640

The truth is I think you need to plan for the financial decisions you make in your thirties while you are still in your twenties. Even if you are single, a free spirit roaming the country currently never planning on settling down it can’t hurt to plan ahead. You need the power of time when it comes to accumulating enough funds for a deposit.

But does your average graduate or school leaver think like that? A young person finally getting a paycheque after years of schooling isn’t thinking about what they might want 15 years down the road. They have disposable income they are primed for spending. Hindsight is a beautiful thing but I only listened to about 1% of things people over 30 told me.

If I was young again I’d be maxing out my kiwisaver from day one. 8% of income plus 3% match plus tax credit will add up to a nice chunk of change by the time you are ready to buy a house. Hopefully chunky enough that you don’t have to withdraw all of it for the deposit. I like kiwisaver as a vehicle for saving a house deposit over the long term for young people mostly because the money is untouchable for anything else. You can’t decide to blow it on a trip to Thailand with your girlfriends. Its LOCKED DOWN!

Then I would match that again into a regular savings account. Yep another 8% of wages into the lowest risk high yield deposits you can find. And I’d whack a portion into an index fund because its not just enough to save money, you need to invest money! Now that portion you’re not planning to spend it in a hurry, you need to leave it in the market and add to it regularly to gain the benefits over the years.

This gives you a 16% savings rate plus a bonus of the 3% employer match. So pretty close to 20%. Set it up and forget about it until you get a pay rise, adjust your savings to match. Now 20% may seem like a lot, but it’s really not. You’ve been living on next to nothing while you were finishing your schooling so avoid inflating your spending to make 80% of your pay packet disappear each week. You can probably save even more. Keep upping the amount by 1% of your wages every pay day till you hit the sweet spot. Your savings/investing rate is directly linked to your ability to become financially independent. So keep an eye on it, don’t let any bad spending habits erode your savings habit.

Balance your budget with a Potato
Balance your budget with a Potato

If you start saving like this from your very first paycheque you won’t even feel the pain of missing that money. Despite what you end up doing with your life you’ll have plenty of capital for making those big financial decisions in the years ahead. You’ll have more freedom than many of the adults you know.

Depending on your job and social circle there is a lot of pressure to upgrade your lifestyle rather rapidly. But when I think back to my student days, well I was broke sometimes but things were uncomplicated. The house we rented was old, with internal windows and we didn’t have worry about maintenance. We split the bills 5 ways so everything seemed cheap.I walked everywhere and lived with all my friends in flat. The furniture was old and it didn’t matter if you spilled a bit of beer on it. On sunny days we’d drag it out to the porch or garden. I was happy and yes its unrealistic to stay living like a student forever, but the longer you can hold on to the uncomplicated liftstyle the bigger headstart in life you’ll have.

Millennials are often being underestimated, I think they are a very interesting group. About half the ones I know are barely interested in wealth and the other half are very motivated in following their goals, but they may not be related to wealth in any way. I’m not sure if its because they have already decided that they can’t achieve the homes and assets of their parents generation, or if growing up in a world with global warming and population explosion has made them search for meaning in other ways. So maybe that first home isn’t part of the life plan, well that doesn’t mean that saving investing that money isn’t a good idea. Money isn’t just something your parents generation obsess over, money in the bank is actually stored freedom and choice.

You never know what you’ll need the money for. It could allow you to retrain in an exciting new profession, take year off work to travel, quit that soul destroying job, allow you to invest so you can always be financially free and buy that first home. Give that gift to your future self.

 

 

February Expenses and Savings!

Oh man, the things I did this month. WAY MORE SPENDING! But also so much AWESOMENESS!

Took a plane to Christchurch to watch my brother in the Coast to Coast. It’s a mad event where people run/cycle/kayak from one side of the South Island to the other (IN ONE DAY!). It was an amazing day and quite emotional. I was really proud of my brother but it was pretty hard watching him at some of those checkpoints, I could tell he was in a bit of pain but he just kept on pushing. It was a 14 hour day of racing. I wouldn’t have missed it for the world it was really inspirational.

dbikesupportteam

dylkayakdylfinsh

My brother had a very deep connection with my Grandparents. Both have since passed and my Grandmother suffered through an oesophageal cancer. This was the second time he’s done the coast to coast and each time it was to get donations for the Cancer Society. His goal was to raise $24,000 he’s pretty close at $15,657. I would not be surprised if he raced again just to get to his goal. He is that kind of guy.

So a weekend away certainly added to the budget, but I don’t regret it at all. I also had a few other unexpected expenses. Last months water bill was double the usual! Why? Well it was A BLOODY LEAK. Under the concrete floor of the garage. Re routing the line coast $864! Also my laptop seemed to be dying a spasmodic beachball death but a new hard drive seems to have solved things ($173). Cheaper than a refurbished laptop thats for sure. There’s years left in this baby. Woo! Thanks to husband for perseverance on that one! So many OS installs.

Oh and I went to the dentist : /

So here’s the damage.

Screenshot 2016-02-29 20.34.19

I had to top up the rental property mortgage this month. But that was only 2% of the budget.

Oh and we took on a youth. Yep we have an 18 yr old living with us, they are paying a small contribution towards expenses but really its about helping them get some qualifications (high school GED I guess for those in US). We have free second chance education for anyone under 19 who dropped out of high school. So extra groceries and what not to keep the youth comfy. (Apparently they like the nutrigrains and mac and cheese)

Screenshot 2016-02-29 21.27.09

 

Spending money – yep a large category. It was buying YNAB, a new laptop hard drive and some craft beers. That’s it!

Clothing – I gifted my husband some new undies. No regrets.

Holiday spending – Damn I ate out A LOT on that weekend away. Sometimes cause of family pressure. But it was worth it. I also pre booked some tickets for next months Beerfest getaway.

Restaurants – One Saturday date night at Deep Creek brewery for husband and me plus two pizza nights, one at home and one at a friends for our D & D night.

Bonus month because I ended up doing two weekends on-call for extra monies. (Usually only once a month) So income was up a bit.

Still managed to save heaps despite the speedy month! It feels like even a small amount of discretionary spending easily leads to a budget blowout. $8326 is just such a massive amount of money.

 

The Pak’nSave Christmas club card that has a better ROI than your bank

stickmanchristmas

“So I’m wondering how my local supermarket can offer better returns than the bank. I’m guessing it comes out of its margin on the groceries.”

Pak’nSave have a Christmas club card that gives you 6.4% simple return (not compounding) after 10 months i.e any money loaded on to the card between January and February will be worth 6.4% more when you access it in December (money loaded after Feb has a lower rate of return). My current budgeted monthly cost for groceries is $800. If I load that on to the credit card now it will turn into $851.20 in December. That extra $50 is enough to cover some of the treat items I end up buying for Christmas, certainly enough to keep my ham fiend of a husband drowning in glazed pork for the season.

To put it in perspective $800 in my banks saving account (which has monthly interest and compounding) would grow to $806 with the extremely generous interest rate of 0.75%. But that is before tax, so lets say more like $804. Not exactly thrilling.  Or I could put it in my Rabosaver for a whopping 2.25% return netting $818. (Again its before tax though!)

All these calculations make me think I’m mad keeping anything but the bare minimum in cash, its not really earning its keep!

Currently New Zealand also has super low inflation the and buying power of a dollar doesn’t change much over the year. This makes me feel better about keeping a months grocery budget tied up in a gift card for 10 months.

Pak’nSave has one of the best Christmas savings clubs I’ve seen for a couple of reasons. You can spend the money at anytime, if you need the money before December you can spend it at the store. Sure you can only spend it at Pak’nSave, but you are not locked into a pre-determined set of goods like some of the Christmas hamper clubs, so you can buy what you usually buy. Another bonus is that the increased spending power isn’t taxed.

Down side is taking that $800 off the table for investing and budgeting now. Then in December that $800 that would usually go on groceries should in theory go back into savings with a net gain of $50. Or I could load $753 now and it would net $800 on the card for December groceries. Take a $47 discount or have $50 more to spend in December? Other risks include inflation running rampant and my $800 is only able to buy a loaf of bread (unlikely) or that PaK’nSave go bankrupt (very low risk). What if I lose the card? Well as long as you register it on their website you can deactivate lost cards and order replacements.

chirstmas_club_new_logo_1

Another of New Zealand’s supermarkets offers exactly the same returns with their scheme but they are much a more expensive grocery store than pak’nsave. Also they have a few fancier gourmet product lines that I’d rather not get tempted into buying!

What do you think? Is it worth loading it up with my December grocery budget?

 

January 2016 Expenses and Investments

This has been my first month using ‘You Need a Budget’ or YNAB software.

Before I just used the system of paying myself first, so essentially I saved what I thought was a reasonable amount and then I spent what was left over. I never really had a handle on my actual expenses. Hopefully YNAB will give me a better understanding of my spending habits and hopefully I can start to increase my savings. YNAB claims most users save an extra $200 a month when they use the software

To explain my budget a little – I pay most the bills and my partner gives me money each month for their share of the bills e.g groceries, mortgage and insurance.

So here is the nice little graph that YNAB generates. Keep in mind everything is in New Zealand dollars. (The link will give you some idea of the purchasing power of a NZ$ for those who are curious).

Jan 16 YNAB

Ooooooo pretty colours. I love graphs!

As you can see most of our spending is on the mortgage. Holiday spending was paying for a trip I am taking in March, I booked the accommodation now. I didn’t take it out of my vacation savings instead I just absorbed it into this months spending. Below is a more detailed break down.

Screenshot 2016-02-01 15.03.09

Saving and investing: $1,153 saved or invested for the month. Not bad! I’m also saving some spending money for an upcoming vacation.

Groceries: This is really high! However it’s for 2 people and we just started a “healthy” eating plan so while I was getting my head around all the different meals I think I spent way more than I needed to. I also pre-loaded a grocery credit card for spending in December (I get a 6% return on the money loaded onto this specific card during Jan and Feb).

Spending Money and Restaurants: So summer time vibes and “holiday” mode may have lead to a few extra treats. I do like to go out for meals occasionally with my partner but by being a bit more creative I think I can cut these categories down. The spending money went on some hairdressing scissors (worth it!) and a fancy bottle of wine (not worth it, sad face, lesson learned) plus a book and a lotto ticket (Argh curse you lotto, the tax on those bad at math, but its our combined workplace lotto ticket, I don’t want those bastards winning without me!)

Clothing: For $90.50 I got 2 pairs of shoes, 4 tops and a pair of shorts and jeans. Clearance sales for the win!

Household goods: A multifunction stick blender (heavily discounted $100 off!), bathroom organiser and air tight container for dry goods.

I don’t generally carry a credit card balance but YNAB seems to take your starting credit card balance as a debt that needs to be repaid.

Goals for next month: Increase savings, reduce grocery spending. Also I’m thinking of starting a sinking fund for house repairs and maintenance. How does everyone budget for this? Currently I would take the funds out of our general savings.

Also I may have to start paying a little extra into our property investment fund next month as I want to pay down the mortgages on those little faster and build up a buffer for any renovations and repairs.

What are your budget goals for the next month?