How will you live 15 years from now?

I did a quick experiment the other day. I imagine myself 15 years in the future. I guess that this is a typical thing that all of us do, especially planning for our future. Well, my experiment is little bit different. My five rules for the experiment are

1. 15 years in the future
2. no more additions to your family (pets included)
3. same house
   
4. same job
5. same networth

So the point of the experiment is how my lifestyle would be like given the five rules.

First off, I would imagine that the environment around would have keep moving along. The cost of living would continue to rise, my children would have reached high school age and is a teen-angel and will need more money to live on. From the experiment, the 3 most significant conclusions that I came across are

1. significant impact on the quality of life for the family - With the cost of living increasing, especially with a teens in the family, the quality of life for the family would be impacted. Things that we took are able to purchase currently would probably be out of our reach in 15 years time. We would not be to go on holidays and visit family in far distance places.
2. education for children - whether you like it or not, quality education cost money. With less disposable income, we may not be able to send the kids to the best school possible and give them the best possible opportunities. I would really hate myself if I made them suffer for my lack of planning.
3. health would suffer - my wife and I would be 15 years older, and would be in our middle ages. Unless we are super fit and really looked after ourselves now, our health would probably require higher maintenance. The cost of health insurance would also increase so the choice of where we maintained our health would be limited.

To tell your the truth, I would be really scare if I am really in that situation in 15 years time. I think that by doing this experiment, I am more focus in getting our family financial situation on track and moving along. It has certainly open my eyes up.

If you do the same experiment, what conclusions do you draw?

Lowering your home insurance premiums

I was shopping around for some home insurance for the new house, and started to think on how I can lower the premiums.

Home insurance is usually made up of two components, the building insurance and the contents insurance. You can't really do much to save on building insurance, but make sure that your insurance policy is for it to be replaced as new.

Content insurance is for what is being held on the property such as your furniture, your electrical goods and clothing. There are a number of things that can be done to help reduce your premiums. Essentially, if you made your home as secure as possible, it will help minimised your premiums. Here are some tips that I got from talking to one of the insurers.

1. Deadlock all your entries - Ensure that all of your external doors have deadlocks installed. Also ensure that your windows are have a deadlock on it as well, if not, at least check that it is lockable with a key.
2. Put up screen doors - Along with a front door, put up a screen doors. This will allow you to open your front door but still have the house secure.
3. Install an alarm - This is an expensive option and has a on-going cost if the alarm is monitored. However, most insurance companies sees this as a positive security measure.
4. Lockable front gates - At the front of your house, install a set of front gates that leads on to you property. Also make sure that you can gate can be lock.
   
5. Put a lock on your garden shed - Your garden shed contains many tools which a thief can use to break into your home. Secure it with a pad lock on the shed's door latch. If you are not able to, go to you local hardware store and buy a door latch that will.
6. Leave no tools lying around - Along with putting a pad lock on your shed, make sure that all your tools are put away. You don't want to give the thief a helping hand.

A lot of these security measures will have your property looking like your local bank, and will not make you home very homely. That is the way I felt when I had a discussion with the insurers recently. How effective these measures will be is totally dependent upon the area that you are living it, and some of these are not even necessary.

An interesting note is that our house has not settled yet, but many others have advise us to insure that property as soon as possible as it is in our interest to have it insured. The vendor's insurance policy is unknown to me, so to be safe, I purchase some insurance for it today. So if something happens to the house before it is settled, its repaired cost is covered.

When the current house is settled, the unused insurance policy will be carried over to the new house as ended up using the same insurance company.

Photo by Brad Harrison

Epic Journey edition of the Carnival of Personal Finance

The 106th edition of the Carnival of Personal Finance has hit the streets at The Digerati Life. SVB has gone for the fantasy theme, and aptly, this epic edition has 91 articles in it. Massive!

Among the 91 excellent articles, these are the ones that caught my eye.

1. 1mansmoney presents some sound advice on paying your credit cards - I can sure relate to this as my credit cards debt was quite high at one stage.
   
2. FMF tells us what he would do if a business makes mistake in your favour - For me, It would really depends what that mistake is and its ramification. If it means that someone is going to lose their job because they gave me the wrong change, that I would definitely speak up and let them know.
3. Matthew gives us 5 simple lunch ideas for a lowly $2 per lunch - $2 per lunch is pretty good going. These ideas looks delicious, I am going to try a couple.
4. Wallowgirl presents some excellent tips on preventing compulsive buying - compulsive buying is one of psychological problem for many of us, myself included. We see, and we want to buy. These tips are great. By putting physical barriers from buying, it strengthen our will to stop the purchase.
   

SVB was kind enough to include my entry on hanging out with other frugalists as well. Many thanks,

So grab a sword, and jump on board the argonaut and head over to The Digerati Life and read some of the fantastic articles covering many areas including real estates, retirement planning and loan management. There are more articles than an orc can swing a mace at.

Dad and my first house

I have received a few comments in response to my article " What are you really saving for?", and the majority of the comments are focusing on saving for a house. I must say that this is a very good target to aim for as it gives some solid security for you and your family.

I wish that it was one of my first aims when I graduated from RMIT back in 1992, but I had other crazy, non-future looking plans. In fact, it was my dad that taught me why it is a good idea to start on saving for a house. He went one step better and gave me a loan to kick the savings off. For me, this gave me some groundings on saving even though I was not aware of the reasons why I was doing it. All I can think of was the my net worth slowly increasing.

Looking back on it, I realise that buying that house gave the following 3 things.

1. Financial responsibility - My dad's loan was enough for me to put a deposit down for a modest house which I lived in it for a number of years. However, I was responsible for making the monthly mortgage repayments. My dad made it clear to me that it was my responsibility to make the repayments, and I will bear the consequences if I missed the repayments. For someone in the early 20s, this is quite a big responsibility.
2. Created a savings habit - As my savings was forced, it quickly became habit, and a good habit at that. This good habit is something I have today, although I still need to be strong discipline to maintain the habit. (sounds a bit like giving up smoking, doesn't it).
3. Understand the value of money - As young 20-something, most of my salary went into mortgage. So my disposable cash is limited. What this means is that I have to be careful on what I spend it on. I can't just splash it out on the latest Playstation games. I have consider the day to day spending. It clearly illustrate the differences between the needs and the wants.

After I have finished paying the mortgage, I converted the house into a rental property and moved closer to the city. Unfortunately, the tenants did not look after the house and managed to burn the house down, of which I learn many, many lessons of a different kind.

The other thing that I learned when I purchased the first house is that you never stop learning. I want to thank my dad for helping me out here.

photo by James Kurowski

novated leasing a car

With price of petrol hitting the $1.35 per litre, I starting looking at various options for reducing out running cost on a car. We currently drive a 4WD, and its fuel economy is not very friendly to our wallets. Its weight, constant all wheel drive, and lack of any aerodynamic in its design are the enemies of any good fuel economy. One of the options considered is novated leasing a car, in particular a smaller, more fuel  efficient car.

The guys at privatefleet has a good explanation on what a novated lease is. The two main benefits that I saw was

1. Financing of the vehicle is paid with pre-tax dollars.
2. The vehicle may be leased for 100% private use.

Why are these good points, bearing in mind that we are essentially borrowing money to buy a car, and all the running cost of the car is the same? Well, the above two points says that you are using the money for your own purposes before tax calculated for the tax office. The resulting effect is that your taxable income will be lower, in some cases, it may be lowered to the next tax bracket.

Before we leap into a novated lease agreement, the following questions need to be answered.

1. Do we really need another car?
   
2. What kind of car do we need?
   
3. How much do we need to borrow?

The bottom line is the we will be spending more money on a car as the money will be coming out of our own pocket, the main difference is that it is pre-tax dollars instead of post-tax dollars. If the car is not needed, would it the money have better spend else where.

In the coming months, these questions will hopefully be answered.

Options for moving houses.

Recently our house was sold and even more recently, we purchased our next house. Yesterday, all the paperwork were finalised and everything is locked in for both house to settle in about 6 weeks time.

Our house will settle first and then the next house will settle two weeks later. This will give us about two weeks buffer in packing up and shift across. Luckily, the two houses are only about five minutes drive apart.

Shifting house is always a logistic problem. You have to consider the packing of the house into many boxes, the moving of the boxes, and then the unpacking of it. The weather on the days of shifting also plays an important role as well. What can we do to minimise the cost of the shift. Lets explore the various options

1. Use a moving company for everything - There are many different moving companies around that will help you pack your house into many boxes and shift it across to your new house. Apart from being very efficient, they are extremely expensive. We used a moving company on our last house migration and that cost about $3500. Luckily, we were only shifting across town. It would have cost even more if we moved interstate of overseas. As we were living in an apartment on the third floor, we saved ourselves some backache and got the professionals. Be sure that the insurance is adequate and your are clear on what is being insured.
   
2. You pack, we shift - Some moving company will provide services where you pack your household items into boxes yourself and they do the shifting. This will save you plenty of money as they will not charge your the time of a packer. However, the insurance will usually not cover for accidental breakage as their packer was not used. They usually state they can be sure that the breakables are properly secured. This is a good compromise between completely doing it yourself and having the professionals doing it all.
   
3. Moving it yourself - This is going to be your cheapest way of moving other than outlaying for, perhaps, a moving box trailer. Other than monetary expenses, you will also need a lot of time and plenty of people power. Also remember that you will not be insured for any breakages or damages, so be prepared.

Given that we are only a few minutes drive away, we may end up moving it all ourselves with a couple of friends. I get the feeling that we will be doing a bit of a spring clean as well while we move.

During my research, I came across some nice and helpful resources for moving houses.

1. Property Guide - has a comprehensive list of things to do in the weeks leading up to vacating date.
2. Trent over at The Simple Dollar listed ten things to do when you moved into a new house.
3. David at My Two Dollars has some good advice on unclutter things and getting rid of unwanted stuff.
   

Carnival of Money, Growth and Happiness #8

The Carnival of Money, Growth Happiness #8 is on over at Credit Card Lowdown.

There some nice articles posted in the carnival. Two interesting articles that caught my eye are

1. OrganiseIT posted What Influences Our Priorities In Life. There are many influences in life and our influences are context driven as well. The article outlines some of the major ones. Good article.
2. I will change your life.com posted 5 Reasons to Grow Rich. It discusses 5 reasons for wanting to be rich. It is a nice tie in the article I wrote on What you are really saving for?

The host was kind enough to select article on Cook and Save. Many thanks.

Get over to Credit Card Lowdown and check out some of the great articles.

photo by Mee Lin Woon

Using the deposit bond to your advantage.

A few post ago, I wrote an article about getting a deposit or a down payment on a  house. As we bank with the ANZ, we went to them to draw out a deposit bond for the new house that we just bought (Yay!!).

While we were going through the paper work with the bank manager, she told us the following information.

By using the deposit bond for your deposit, the money is not actually being transfered out of your holding until it is required.

I though about this statement and realise two things

1. The money stays with you until the house is settles
2. If the money is in an interest bearing account, it will continue to accumulate interest up to settlement date.

With the average Melbourne house prices at about $350K, the value of deposit bond could get significant. For a house with long settlement period, the interest accrued may be worthwhile. It gets better f you use that accrued interest as part of your house loan repayments.

However, be sure to include fees associated with the deposit bond in your maths to determine if this would work out for you.

finding your niche opportunity

My wife runs a simple e-bay store call Michelle's Happy Corner. It is a simple business selling wedding/party invitations and stickers. She likes selling it as craft, in particular paper craft, has always been her passion. At first we thought that wedding/party invitations and stickers is niche enough to generate some income, that was until my brother-in-law started to sell his stuff.

My wife's brother is a tram driver in Melbourne, and during his route, he would take photos and videos of other trams. He also does the same for trains and planes. I think I would describe him as a transport enthusiasts. Just recently, he puts these videos and photos up for sale on e-bay, and he is making a killing.

He recently sold a DVD for some tram footage for $52. This is an amazing return for this time, effort and a little bit of outlay.

This is a clear example of searching for opportunities that are outside our knowledge domain. The domain which my brother-in-law is operating in is totally outside of what I can grasp, and I am proud of him to being able to spot an opportunity and ran with it.

So what does that mean? Off the top of my head, I can think of two main ways of possibly spotting these opportunities. If you have some ideas, share them in the comments.

1. Talk the different people - One of the easiest way to just to talk to other people. You will be surprise on what you learn. Their interests may be from an unfamiliar domain.
   
2. Step out of your comfort zone - Doing something outside of your comfort zone will allow you get a taste of something that you may have never attempted, and hence it will open up a whole different world.
   

Once you identify the opportunities, put in the effort to check it out. It may turn out to be the next big thing.

Festival Of Frugality #79

The 79th edition of the Festival of Frugality is up at FinanceIsPersonal.com. Matthew has done a fantastic job hosting it and have selected 6 very good articles from the submissions.

My four favourites articles are

1. Buying used homeschool curriculum - A great article for anyone with schooling age kids. School books is one those things that are usually only useful for one year. They are not important enough for them to hang about as reference.
2. 25 Things We Do To Save Money - A fantastic list for saving money on your day-to-day living.
3. Simplify Your Life - Who needs to be stressed out and live a crazy busy life. This article has some great advice on how to simplify your life.
4. The Happiest $6.20 I Made in My Life - Nice article on focusing on NOT throwing away free money with just a little of work.

I was made through and my article on savings was included on the festival.

There are plenty of tips and hints on being frugal at the festival. Check it out!

Are your hanging out with other frugalist?

I have just finished reading the chapter on asshole poisoning in the book "The No Asshole Rule" by Robert Sutton. Basically it says that our behaviour will alter and be influence by those that we have close dealings with. The arabic proverb sums it up nicely.

A wise man associating with the vicious will becomes an idiot.

The opposite is also true, in that a wise man associate with wiser man will become wiser himself. This is a basic human behaviour, and some calls this behaviour the herd instinct . It is present all animals, including humans. It is one of the main reasons why we don't want our kids to hang with the wrong crowd as they will become one of them.

What has to got to do with personal finance, you may ask? Well, for us to be successful in our frugal adventures, we need to hang out with other frugalists. Hanging out with the other frugalist may not give you a monetary gain, but will give you a solid personal infrastructure.

1. Mindset change - To be a good with your money, your mind needs to focus and to be passionate your personal finance. By exploiting the nature of herd instinct, after a period of time, your mind will be tuned to be thinking about personal finance, and that is a good thing.
   
2. Share ideas - Good ideas are really difficult to come up with by yourself, and a lot of good ideas are rarely original. It is typically a variation on other ideas. Sometimes, a really bad idea can become a fantastic idea with a little variation. By sharing ideas, you may help out a friend with a great idea.
   
3. Share mistakes - By learning from the mistakes of others, we can avoid from making the same mistakes.Some financial mistakes will literally kill you.
4. Feedback on your strategy - Personal finance works best when you have a strategy towards a target. By getting feedback from your fellow personal financers, you can gauge on how successful your strategy will be.

So what can you do to start hanging out with other frugalist.

1. Internet Forums - JD at Get Rich Slow has a forum specifically for discussing personal finance. Get other there and sign up an account. You may want to start by just reading the entries. Some of the discussions are emotional and passionate. A nice usenet newsgroup, misc.consumers.frugal-living, also has plenty of discussions. If you know of any other personal internet forums, share them in the comments section.
   
2. Start a blog - A blog allow you to publish your thoughts on the personal finance, and also a way of solicitating feedback on your ideas. You can start with a blog on blogger or wordpress. Best of all, you are publish your views.
   
3. Talk to your work mates - Most people I know love to talk about finance as it is one of the things that everyone needs to understand. Work mates are generally good candidates for frugalist as they are working because they need the money, just like you and I.
4. Talk to your partner - Your partner will definitely want to share your personal finance adventures with you as it will affect your partner as well.

I have written about one asshole rule from the same book as well. This book is a very interesting read.

3 simple but great ideas for your super

I recently received a brochure from my Superannuation fund, run by Zurich Australia Superannuation, on what it reckons are the top 3 ideas that would boost your retirement fund. I read it, and although the 3 ideas are very obvious, they are sometimes easy to forget. The top 3 ideas suggested are actually very good ideas and it is worthwhile sharing them.

1. Co-contribution - The ATO has some great information on this. Essentially, for every $1 that you personally contribute to your super fund, the government will give you $1.50, up to a limited $1500 if your income is $28K or less. For those earning more than $28K, there is a sliding scale on how much you will get from them. Check out this table on the payment. Hey, why not accept free money? If you partner is not generating an income, consider contribution $1000 in your partner's Superannuation fund as the government will contribute the maximum.
   
2. Salary Sacrifice - With salary sacrifice, money is taken out of you pay packet for your Superannuation personal contribution before tax is applied. This means that your taxable income is lower. Doing this has some tax effects on your money. The sacrificed salary is subjected to 15% superannuation contribution tax instead of the up to 46.5% marginal tax rate. It may also drop you down to the next marginal tax bracket, and because your taxable income is lower, the amount of free money (co-contribution) from government may also increased. This page shows the amount of tax you will be paying.
   
3. Consolidation - With the current Australian population quite job mobile, the number of Superannuation fund starts to grow. This is especially true if you are switching between industries. All these Superannuation funds could charge fees. By consolidating all your Superannuation funds, you are only subjected fees from one Superannuation fund. I think that Zurich mentioned this to get more people to consolidate all their accounts into Zurich's account.
   

Your superannuation is a very important saving plan for your retirement, and the strategy that you put in place to make it grow is critical to how you will be living when you are in retirement.

Remember that as of 1 July 2007, any Superannuation withdraw for your retirement is tax free if you are 60 years or older. So make the most of it.

Cook and save

Learning to cook is one of those skills that have many benefits for your life. Not only that it is much healthier for your body, you are also absolutely sure of what is in your meal (you know, no nasty preservatives to keep you awake at night!). I didn't really learn to cook until I was in my early 20s. I regretted not helping mum more in the kitchen and therefore pickup some of her magical cooking skills.

As my son grows, I will endeavour to teach him to love the kitchen and love the art of cooking.

Lets see what you will get if you learn how to cook.

1. Always ready to cook up a meal - Understanding the basics of cooking allow you to cook up anything that is in the pantry, or the fridge. Further it will also taste good. I had a small discussion on why it is a good idea to use what is left in the pantry, money wise.
   
2. Makes your meals more enjoyable - I always seems to enjoy the food that I have cooked much better than the same dish if I have had it at a restaurant. Maybe it is because I can feel the effort that has gone into the preparation and the cooking of the meal.
3. Impress your partner or date - By preparing the meal yourself for your partner, it sends a message that "I want to cook this meal for you to show that I really appreciate you". It is a win-win situation. It has been shown that living in a happy relationship usually promotes healthy living, which means less medical bills.
   
4. Save tons of money - By cooking a nice meal and eating in, you will save plenty of money. Some of the fancy meals could be cooked up for a fraction of its restaurant prices.

That is fine, but where to start. I guess you could enroll into a cooking school, but that may not be suitable and may cost quite a bit, so I have a few suggestions.

1. Have a cook out with friends - Invite a group of friends around for a cook out. This will encourage you and your friends to cook as it is a more enjoyable activity, your friends share cooking ips with you so that the meal will have a better chance of turning out.
2. Visit your local library - Your local library will have a good selection of cook books available. Borrow some books to get some ideas on what is possible. Pay particular attention on the basics which you can build upon. For example, understand the basic of asian stir fry cooking and you can almost turn left over vegetable in the fridge into a great meal. Be sure to borrow books that are applicable in your area as recipes from other areas may call for not readily ingredients available in your area, (read expensive).
   
3. Use only in-season fruits and vegetables - Using out of season ingredients will just make your learning path that more difficult. Plus it will be much more cheaper to use in-season fruits and vegetables.
4. Experimentation - once you get the basics of the cooking style that you are learning. To best way to gain some form of expertise is to experiment. You never know what you will get!
5. Watch cooking show - this may sound rather strange, but watching cooking shows on TV will actually give you a sense of what cooking is all about. They are abundance of cooking shows on the TV at the moment. At the moment, my favourite is Iron Chef, although some of the ingredients are hard to find, and the techniques are even harder to master.
   

I suggest to start off with, learn to cook pasta. The ingredients are cheap and readily available from your supermarket. There are many, many different recipes available which are simple to prepare, to cook and, best of all, they are very tasty.

Trent over at The Simple Dollar has a great article on the financial benefits on cooking skills.

Good eating!

To buy or not to buy in the city...

The other day, I was in a conversation with a friend about how pricing of certain category seems to be always more expensive, in particular items for weddings and babies. At this stage, our son has just reached 20 months old so we recount our experiences for baby item purchases.

Before our son was born, we always thought that the major ticket items for a baby are the cot, the change table and the pram. Most baby shops will do a package deal for you if all the items are purchased in one hit. This is a fair enough deal. Where we live, suburban Melbourne, there are an abundance of baby shops around. After doing the rounds of shops and deciding which brands we want, we started to negotiate a price, but never able to get a good price of the package. On the surface, the shops appear to be working together to sustain a high price ;-)

On trip to visit the my wife's family in Ballarat, we thought a visit to the Ballarat only baby store would be wise. To our surprise, the Ballarat shop was not only competitive, they were significantly cheaper than the Melbourne stores. In the end, we purchased the package from the Ballarat store. Ballarat is a country city about 1 hour drive away from Melbourne.

The pricing of the baby goods in Ballarat certainly goes against logic. Normally, you would assume that because Melbourne's population (about 3.5 million) is much larger than that of Ballarat (about 90 thousand), the pricing in Melbourne would be better as the market base is also bigger. I also assumed that competition among the baby shops in Melbourne would also reduce the pricing as well.

Perhaps, the market base per baby shop is much higher in Ballarat than it is for Melbourne stores. The Ballarat store has a customer base of the whole town as it is the only baby store in town, and the turn over of goods is also much higher. This may not be the case for Melbourne baby stores.

The lesson that I learned was when shopping for items, in particular, high price items, it may be worthwhile looking at shops that are in the country rather than just to concentrate on the city shops.

What are you really saving for?

When I think about personal finance, I always come back to one of the corner stones, savings. But what are we really saving for? Sometimes, it is much easier to kick start a savings plan and keep it going if the motivation of it is strong. I have my top 5 reasons for savings.

1. An emergency fund - This has to be the number one reason for starting to save. The emergency fund is used for servicing the unexpected, some would view the emergency fund as an insurance policy funded and managed by you. An emergency could be as simple as having to do an unexpected major house repair work or medical bills for your kid's broken leg. It is harder to decide when the emergency fund has enough money in it so that we can start to concentrate on saving for other things. However, the emergency fund is one that requires regular review to ensure that it's level is adequate as your situation changes.
2. Retirement - You are only able to work for so long until your body or mind gives up on being income bearing, so you will need to save for the day when you stop working. For many of us that would be in our 60s, some may be fortunate enough to retire in their 50s. Saving for your retirement could be as simple as contributing extra into your Superannuation. Relying on the government pension for your retirement is probably not a good idea if you wish to sustain a similar level of lifestyle as you have now. Saving for your retirement is going to be one of your longer saving plans, and would be easy to just set and forget. This would be a mistake. As this plan is long term, the compounding effect of various investments could be exploited. For me, retirement is not viewed as retirement for myself, retirement is setting up for me and my wife, and also to lessen the financial burden of the parents on their kids.
   
3. Your kids - Your kids are totally dependent on you for their future. It makes sense to give them every opportunity and the best opportunity possible. Without a decent saving plan for your kids, it makes it difficult to provide them with these opportunities. I wrote a review of the book "How to give your kids $1 million each" that specifically deals with this topic.
   
4. Family - Among other obvious disadvantages, it is not a good living for your family if you don't give them confidence that you can provide for them. By showing that you are able to save, it provides them with a sense of security and a solid foundation to build a family. This is very different to saving for your kids. Saving for your family would also include your extended family such as your siblings, parents and in-laws.
   
5. Good character building - To establish a regular saving habit takes strong discipline, and once this good habit has been acquired, it will have a positive affect on your whole character. It shows that you can follow a plan through, exercise good control of your will. The other side effect is that your kids will follow your example of saving money and pick this habit as well.

These are strong motivation for starting and maintaining a savings plan. What are some of yours?

Carnival of Personal Finance #104 - minimalist list

The 104th edition of the carnival is up over at Getting Green. Our fantastic host has gone for a minimalist approach and listed all the fantastic articles up for reading as one big list.

I was lucky enough to include my article about land transfer duty among the other fine articles.

There are more than 50 great personal finance articles on the list, there is definitely something everybody. My 3 most favourites articles are

1. Beacon Financial Tips has an article on the fastest way to pay off a debt with some simple but effective advice.
   
2. The Writers Wallet has an article on the philosophy of giving, to emphasize why is it that we want to save money.
   
3. My money and my life has a break even challenge for those to start their way onto financial security.

Get in the carnival spirit and head over to Getting Green and check out the festival.

Giving yourself a 50% discount

I was reading the usenet newsgroup misc.consumers.frugal-living the other day and came across a post that suggest that we can increase our saving by cutting our spending by half. Hmm, I thought that is an intriguing concept and how it would work in real life.

Among other things, the post suggest that instead of buying $40 pair of jeans, go for the $20 pair; instead of doing the $7 lunch, buy the $3.50 instead.

In someways, this is giving yourself a 50% discount on your purchases.

I experimented with this idea over the last few days and came upon the three major drawbacks.

1. Not for everything. This 50% rule is not applicable for all things that you purchased. It is usually only applicable for items that provide many choices across a wide price range.
   
2. Don't really like the options. Sometimes, I just don't like 50% cheaper option, usually for personal reasons. For example, my lunch usually cost me about $5. The $2.50 option is a couple of potato cakes and a drink. This just does not feel me up, and I end up purchasing my later on in the afternoon. At the end of the day, I end up spending the same amount for lunch.
3. Big ticker items. For items that would cost large amount of money such as insurance, housing, holidays, you are not going to get a 50% discount for the same product no matter how hard you look or how long you spend looking. I tried to use this strategy for some of the items that need to purchase in our house migration adventures.
   

Perhaps, aiming to give yourself a 50% discount may not that achievable. Perhaps, a 20% - 25% discount may be more realistic.

By using this strategy to save money, it creates a different mindset when purchasing items. Typically, I would draw up a list of item's characteristics, then I would shop around to get the best deal for it. With this strategy, you have to determine how much you have to spend initially, then pick an item to fit that that budget. This strategy would mostly work for incidental items.

Where's the deposit?

As we go through the process of buying our next house, I realised that some may have a lot of their cash tied up in their current home. In today's low housing affordability climate, it would not be that difficult to spent up to 50% of your monthly salary on your mortgage. I follow my thoughts with my current bank and found that they have a product for such a situation. However, it appears on three out of the big four banks have similar products. I was not able to find any similar on Westpac's website.

• ANZ - Deposit Bond
• NAB - Deposit Guarantee
• CBA - Deposit Guarantee
  

Be sure to double check the terms and conditions of these products as they are significantly different. Typical conditions are a time limit of 3 months and a value limit of 10% of the property value.

Is this better than a bridging finance? Well, a deposit bond or guarantee is used in a slightly situation. The folks at the ANZ gives a good explanation of the differences

Bridging finance is a loan that lets you bridge the gap between the sale of one property and the purchase of another. Bridging finance is often used when the sale proceeds are insufficient to cover the purchase price of the new property, or when there is a time gap between the purchase of the new property and the sale of the old one. This form of finance is short term and is generally cleared from the sale proceeds of the existing property.

A deposit bond is a convenient and inexpensive way to place a deposit on a new home. The deposit bond represents all or part of the deposit on your home or investment property, saving you having to arrange your own funds in time to sign contracts.

Bridging finance also has higher premiums. The ANZ FAQ on deposit bonds has some figures. I am not really sure why the ANZ consider this as insurance.

What other ways of they to raise a deposit for a house if you are asset rich but cash poor?

My other articles on our house migration adventure are here.

Carnival of personal finance, #103

Guess what, the Carnival of Personal Finance is up at Cleverdude. There are plenty of personal finance resources and articles to read and think about.

Some of my favourites are

1. Our Family's Money Savers. - Some relevant tips for a young family, actually for any family that is serious about saving money.
   
2. The cost of not doing yard work. - This goes deeper than just having to worry about the creepy creatures in an unkept yard.
   
3. The Joint Account - Some relevant advice on when to open a joint account with your significant other
4. Lessons from “Think Like a Kid, Make Millions...” has some good advice on grabbing an opportunity and running with it.
   

Mike is kind enough to also include my entry on discount fuel vouchers. Get over to there and check out the 103rd edition of the Carnival, there is an enormous amount of personal financial information there, and the story is also quite a good read as well.

Good work, Mike!

One asshole rule

This is a book that was brought to my attention while reading Guy Kawasaki's Blog , a few months ago. I think that Guy got a copy of the book before it was released as a pre-preview. His review gives it a positive feeling.

Having sighted it at the bookshop the other day, I purchased a copy of the book to perhaps better myself and drive the asshole out of me, and perhaps influence other to do the same.

The book is written by Robert Sutton, a Professor of Management Science and Engineering at Stanford University. I have only read the book over the last few days, in between my other things, and have come across quite a interesting ideas from Robert.

The best one, so far, is the idea of a token asshole. Robert's book mainly deals with workplace situation, but the concepts that he writes about are just as applicable in other situations. Robert's suggests that having a token asshole in the environment will help shape up the ship. It appears that it uses the fright emotion in us. Robert calls this the "one asshole rule". It uses the token asshole to reminder us that we will become one of them if we don't actively stop our asshole behaviours.

Robert says

Because people follow rules and norms better when there are rare or occasional examples of bad behaviour, no asshole rules might be most closely followed in organisations that permit one or two token jerks to hang around. These "reverse role models" remind everyone else of the wrong behaviour.

It scares me to think that it takes something like the "one asshole rule" to keep a workplace nice and enjoyable to work in. I wonder if this is an American centric behaviour?

I shall post more insights from this book as I read more of it.

By the way, the book is "No Asshole Rules", published by Warner Business Books. Its ISBN 978-0446526562

The curse of land transfer duty

We are now actively looking for our next house to purchase and to live in. As we haven't been in the market for a house for a while, we are not too sure what to expect. The area that we are interested in parts of Carrum Downs and Skye because of its handy location to my office.

Our first port of call was to visit realestate.com.au as most, if not all, the real estate agents list their properties here. Most of the houses that fit our criteria are in the region of $330K. My initial reaction is that "Wow, this is a lot of money". Analysing it further, we need to add more items such as legal fees, bank fees, insurance and, the most dreaded of all, stamp duty. (btw, domain.com.au has a nice calculator to work some of these out).

Stamp duty is the old term for duty payable for the transfer of a property, and is payable to your state government, and as such, the conditions will vary from state to state. The Victorian State Revenue Office (SRO) has a good explanation of what land transfer duty is.

For the state of Victoria, its SRO has a handy calculator to work out the amount you are liable for. Bear in mind that the duty rate is depending on whether the property is a principal place of residence or an investment property.

On the $330K property,

• Residence - $13,310, or about 4.0%
• Investment - $15,460 or about 4.6%
  

The percentages are calculate based on the property value.

Apart from the actual property, the land transfer duty is one of the larger component of the total cost. With the house affordability of Australia sky rocketing, this stamp duty does not help at all.

What can you do the avoid the large stamp duty. Let's see....

1. Build the house - The duty is only payable on the transfer of property. For something to be transferred, it needs to be exist to begin with. So building a house does not attract a land transfer duty. The duty is only applicable on the land purchase.
   
2. First home purchase - If this is your first home purchases, then the state government has some concessions to help you out. Depending upon your circumstances, you may be able to get up to $12K.
3. Use the house as a residence instead of an investment - You will need to do the maths to determine if it is worthwhile as the reasons on purchasing a house for investment are totally different to a house for residence. However, as the calculation shows above, it does save you some money.
   

Until the state government abolishes stamp duty, it is an unavoidable evil. So just be sure to include it as part of your house purchasing budget.