Carnival of Personal Finance #140 - Prison Break Edition

Oops, it appears I totally forgot that the Carnival of Personal Finance #140 went up over at The Financial Blogger

Some of my picks are

Move-to-Portugal is talking about Re-mortgaging

The Great Money Challenge provides the top 10 things to he does to save money

Finance Blog gives a list of 10 Financial products to avoid.

I was fortunate enough for The Financial Blogger to include my update on fixing the home loan interest rate.

Share your support and visit The Financial Blogger for more fantastic PF articles.

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Carnival of Personal Finance, #139 - Valentine's edition
Carnival of Personal Finance, #121

Would you miss a meal to pay your rent?

The Age newspaper reported that some people are forgoing some of life necessities to pay their rent, in some extreme case, missing meals.

Missing meals is pretty extreme, and I am the first person to admit that for some people, the situation is extreme and it does call for sacrifices such as missing meals. I am very fortunate that I am not in that situation.

However, I try to imagine myself in an extreme situation such as that, and imagine what I would do. Firstly, determine if I am actually in trouble.

1. I would draw up a very detail map of where our spending is. Currently, we have a pretty good idea of where our money are going but we don't have a precise knowledge of where they are. By having a very precise view, we are counting the very last cent and accounting for its spending. The tools to accomplish an notebook to take a note of all your spending, and strict discipline to ensure that a log of the spending is kept. Every cent has to be accounted for!
2. From the detail plan, I would classify which of the spending are "must have", "should have" and "nice to have". Food, rental and utility bills falls into "must have". Newspaper and the morning coffee at Gloria Jeans are "nice to have".
3. Evaluate the items in the "must have" to ensure that it is actually a "must have".
4. Work out what income we have to pay for the "must have" expenses.
5. If the income coming in does not cover the expenses, we are in deep trouble.

Once we have establish that we are in trouble, we need a plan. Perhaps the following would work.

1. Inform the creditors that we are having problem paying the bills as early as possible, and attempt to negotiate a better deal. This is a definite must for the creditors providing the "must have" products and services.
2. Inform the family that there are going to be some tough time ahead, and prepare themselves for the tough times. However, tell them that there is a plan in place and I am committed to meeting the plan.
   
3. Looking into supplementing the current income, probably with a second job.
4. Over the recovery period, keep evaluating the items under the "must have". If the items ever get classified as a "should have" or a "nice to have", we are going to stop doing it.
5. The most important part, have a time frame which you can get out of trouble. An open ended plan is difficult to achieve as there isn't any targets to aim for.

At the end of the day, I can not begin to even appreciate the situations some of the families are going through and coming to a decision that they are going to miss a meals here and there.

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If you enjoy this post, you may also enjoy the following post:

What to tell the kids if your family is in financial hardship?

20th Teddy Bear's Picnic

If you from the Frankston area, or are thinking about visiting the Mornington Peninsula this Sunday, consider visiting the 20th annual Teddy Bear's Picnic. It is conducted by the Frankston Toy Library. The library service is something my family uses quite a bit and wholesomely support. It is a great day, and your kids will guarantee to have a great day.

The details of the picnic is

Date: Sunday, 24 February, from 11:00am-4:00pm
Location: Frankston's George Pentland Botanic Gardens, corner Foot and Williams
Cost: Entry is $2.50 each with children under 18 months free
Map: here

If you wish to give some support to the wonderful services that the Frankston Toy Library has provided for over 30 years, consider attending the picnic.

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If you enjoy this post, you may also enjoy the following post:

Frankston Toy Library, a wonderful service

Interest rate fixed

Today was day where a load just came off my shoulders. We made a decision to fix our home loan interest rates for four years.

The way we see it, over that four years, we know exactly what our repayments are going to be and we will also be protected against the any interest rate increases. However, we will also miss out on any interest rate decreases as well, but with the current economic situation, I don't think that interest will be returning to the 5% mark in the short term.

The current interest rate of our current home loan is 8.42% and the fix interest rate what we should be on is 8.54%. This small increase of 0.12% is certain to be smaller than any interest rate increase that the RBA is going to impose.

We also decided to stay with the same bank as changing banks will incurred too much renegotiation fees. By breaking our current mortgage and going to another bank, we are essentially borrowing on another home loan to pay off our current home loan. Some of the major renegotiation fees components are:

1. Mortgage insurance as we will be borrowing more than 80% of the value of the property. - a couple of thousand dollars
2. Establishing fee with the new bank - usually about $700
3. Legals - $200
4. Contract breaking penalty with the old bank - about $700
   

We estimate that it would cost at least $3000 in fees.

By staying with the same bank and switching our home loan from its current terms and conditions to a fix interest home loan, we only had to pay a renegotiation fee of $200. The only part of the loan that change is interest rate. The term of the loan did not change.

I read today that RBA was actually considering that this month's interest rate should be increasing by 50 basis points instead of the 25 basis points. With news like that, I shall sleep a lot better now that our home loan interest rates are fixed.

I have just been rejected by PPP.

After reading how krystalatwork is back on the PPP bandwagon, and how PPP is working out for her. I thought I sign up and give it a go. It seems like a good opportunity to write a couple of articles and earn some money doing it. So I signed up via krystalatwork's referral.

PPP is PayPerPost. I essentially write a sponsored post about the sponsor's product.

Well, my blog was rejected. At first, I was rather disappointed, so I read the reject letter. This is what it had to say.

In order to be accepted to the PPP Marketplace, you blog must be at least 30 days old with 10 pre-existing posts written within those 30 days.

My first article on the blog was on the 16 April 2007. Since then, it has an average of 11 articles per month. Jan and Feb has seen 21 articles so far.

In addition, your posts must be dated and your blog must be written in clear, understandable english with a readily available and easily navigated chronological archives.

All of my post are dated as it is the standard blogger behavior. I believe that the english that I use is clear enough. The archives are also standard blogger behaviour, displayed in an easy manner.

Blogs must be made up primarily of posts that are at least 3-5 sentences of original content. We do not accept blogs with non-original content, blogs that have content primarily reposted from other sources such as recipes, jokes, poems, song lyrics or product reviews , vlogs, listing directories, blogs kept solely for pay, or blogs with mature content or excessive foul language.

My blog could be in breach of this as I do share the link love around, however I doubt if my blog is consistently doing the link or repost of non-original material.

Although your blog isn't eligible for the Marketplace opportunities, you can still receive offers directly from advertisers by installing the PPP Tools and PPP Direct badge on your blog.

I guess I should be grateful for this opportunity.

I get the feeling that because my blog does not have high traffic, they have restricted the marketplace opportunities from me.

In someways, PPP may not be the right direction to go on this anyway as it may show bias on the products, can anyone say "cash for comment?"

photo credit: Martyna Adamczyk

Link building meme....

I just got tagged in a link building meme Diet Debter.

Simple but strangely addictive. I tagged 5 randomly chosen blogs, write an article about it. If you are one of the five that I tagged, I hope that you shall on-tagged five more randomly chosen blogs, writing an article, and so on and so on. I think you get the idea.

However, in your article you have to include all the links here and add to the five blogs that you were part of.

The Strategist Notebook ~ Link Addiction ~ Ardour of the Heart ~ When Life Becomes a Book ~ The Malaysian Life ~ Yogatta.com ~ What goes under the sun ~ Roshidan's Cyber Station ~ Sasha says ~ Arts of Physics ~ And the legend lives ~ My View, My Life ~ A Simple Life ~ Juliana RW ~ Mom Knows Everything ~ Beth & Cory's Mom ~ A Mind Forever Voyaging~ enjoying the ride ~ Jennifer's thoughts ~ Mom of 3 Girls ~ Amanda ~ Don't Make Me Get The Flying Monkeys ~ ExPat Mom ~ Just Jessie ~ Wilson Six ~Krisitn ~ Nuttier Than You ~ Shonnte ~ Summer's Nook ~ Laura Williams Musings ~ Melissa's Idea Garden ~ Confessions of an Everyday Housewife ~ Blah Blah Blog ~ Stop the Ride! ~Soap, Blings & Girly Things ~ It's All for the Best ~ Keeping Feet ~ Junky Love in Freehand ~ Getting Out of Debt ~ Free From Broke ~ Money Matters ~ Arohan's Investing Life ~ My Investing Blog ~ Finance and Fat ~ Iowahippiechick ~ MakingMoneyJournal ~ Cathlawson.com ~ Life Liberty & The Pursuit Of Money ~ Making Cents Of Debt ~ DebtDiet ~ My Journey to Eliminate Debt ~ Ugly Debty ~ Last In Line ~ Give Me Back My Five Bucks ~ Cheap As Chips

I feel like I am part of the chain tag, sort of using something evil for the something good!

All right, I am going to tag the following blogs

• Embedded in Cork
• Lazy Man and Money
  
• ScottBerkun.com
• Plonkee Money
• Poorer Than You

Quick hot Sunday night post

Just a quick sunday night post to give a shout out to Louise at My Journey to Eliminate Debt where she is running a contest to write the winner a kick-ass resume and a job-wining cover letter. (OK, those were my adjectives not Louise's).

So if you are currently looking for a job and have posted on Louise's blog previously, do yourself a favour by reading her excellent Successful Job Application series of articles, and enter her competition.

Don't lock in your rates!

As I was doing research on whether fixing my home interest rate is a good idea or not, (as in this post and this post), I came across this article on www.domain.com.au which has a 5 point attach on the rising interest rates.

I particularly unimpressed with their point #2, which says.

If you are tempted to lock in your rate - don't; it's too late. The time to fix is when rates are on their way up, not when they have already increased 11 times. While rates may go up once or twice more, by the end of the year slowing global growth on the back of the subprime crisis should force them downwards again. What's more, at the very time borrowers might feel panicked into fixing, banks have been quietly putting up these rates such that for the first time in years the average fix is higher than the variable rate. Cynical indeed.

Those whose finances really couldn't cope with one or two additional rises could consider fixing for a maximum of one year - but lock in for longer and you risk being stuck for years paying more than you need to.

I am truly amaze that it is advising people to not fix their interest rate as it is already too late. For some it may be too late, but rather than just give a blanket advice of not fixing the interest rate for more than one year, it should have provide some advice on doing the calculations to determine if fixing the interest rate is going to work out for you.

It is also pure speculation that the interest rates will increase twice more by the end of the year and it is predicting that the interest rates will be going down again in about a year's time. This goes against the forecast by RBA, as reported by this The Age's article.

For me, if after doing the sums, I am able to save some money or remain status quo, then it is worth while for me. Who knows when the interest rate will be decreasing, and more importantly, how many more increases will the interest go up by?

The other four points are worth considering.

Update on fixing the home loan interest rate

We visited our bank today to discuss about fixing our home loan interests, and the discussion brought up some interesting points. These items will have to be taken into consideration when deciding if it is worthwhile to switch our home loan. Some of these points are

1. If we fix all our home loan, we are able to pay extra into our home loan but only up to $5000 per year without being penalised.
2. If we are to just switch our current home loan from its current package to a standard home loan package, the cost is only $200. However, if we have opted for a split loan where a portion of it is fixed and the other is variable, it will be considered as a new loan and all paperwork will have to be re-submitted. This also means that a new set of fees will be applicable as well, including that bug bear mortgage insurance!
3. The point which mortgage insurance is needed is based upon the value of your property and the amount of loan. This is important as the value of your property may have change. This may not be applicable for us as our property value has increased since we moved in.
   
4. The current fix interest rate is 8.54% and 8.44% (depending upon the term of the loan), which is only 0.02% more than our current home loan interest rate. So if we lock it in now, we will probably not notice any affects on our repayments.
5. The actual interest rate on your fixed interest rate home loan is the rate at the time of execution of the loan by the bank. What this means is that if the fixed interest rate changes from when you signed the papers to when bank accept and counter signed your signature, the new interest rate will be applicable to your home loan.
6. Our bank has effectively discontinue our home loan offset account as we need a minimum balance of $5000 for it to be offset against. In some ways, this is like having $5000 earning 8% interest but we don't have $5000 sitting around, so this is not a good option for us. This also caused us to investigate fixing the home loan.
   
7. The banks may not change its fixed interest rates as the RBA changes its interest rates. The fixed interest rates are does not enjoy a high profile a such as their variable counterparts, so we don't hear much about it in the media when it changes.
   

Our next step is to talk to a mortgage broker such as Aussie Home Loans, and see what they have to offer. We have had good service from our current bank in the past, but at this moment and the current economic climate, we have to look at our bottom line and bank loyalty will have to take a back seat. If we have to change bank, we will do it.

In a prequel article to this, Sarah pointed to an article on www.domain.com.au that talks about how the banks plays with the fixed interest rate. Many thanks to Sarah

photo credit: Jan Stastny

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Carnival of Personal Finance, #139 - Valentine's edition

The CoPF #139 is up and having a jolly good time over at My Dollar Plan. The theme of St. Valentine's Day was nicely worked into the list of great articles as well.

I was fortunate enough that my article on interest free period was chosen.

1. One Girl's Quest has a nice spin on setting goals and how to work towards reaching the goals.
2. Chance Favors talks about early termination of mobile phones.
3. Moolanomy has a great article on how to deal when a goal is missed.

These are my top 3 articles from the compilations, but there many more articles available on a variety of money subjects. Go check it out!

Fixing our home loan interest rate.

With the RBA increasing its policy interest rate to 7%, and the flow on effect on the major banks increasing their interest rate by 0.30% ( which is 0.05% more than the RBA's increase), it is time for us seriously investigate fixing our home loan rate. As this table of previous rates shows, it has increased eleven times over the last six years. The article in the The Age also predicts that the interest rates is due for an increase on another four future occasions, so we are really preparing ourselves for the worsening conditions.

With the loan package that we are currently on, we are currently enjoying a 0.6% discount on the normal variable interest rate, which is below the current Fix interest rate. however the beauty of a fix interest rate is that it is fixed and won't increase in line with the predicted RBA's increases.

What factors do I need to make sure that switching over to a fix interest rate is the better way to go.

1. The fee incurred to switch the home loan over to a fix interest rate is smaller than the savings in the interest repayments. I am pretty confident that it will be.
2. The length of the fix interest loan will need to be carefully considered. If the length of the term is too long, we may miss the drop in th interest rate when it falls down, however i don't this is likely within the next six to seven years. If the length of the term is too short, we risk going into a higher interest rate when we exit the fix loan. We will probably be negotiating for a 3 or 4 year term.
3. The current fee structure does not change significantly as we quite like it. We get $0 fee on any of our account at our bank, because of the home loan that we have.
4. We are still able to pay extra into our home loan.

If the interest rate is like to increase another four times, and we are able to stay at the current rate, we are like to save about $200 per month. This is something worth striving/negotiating for.

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My first credit card at 22 years old

I just read a post over at JosephSangl.com about his first credit card. It caused me to think when I got my first credit card. I think it was just when I graduated university at a ripe old age of 22. It was a Visa card issued by the State Bank of Victoria (it shows how old I am!)

When I got it, the bank must thought I was a high credit risk and put a $500 dollar limit on it. Even with $500, I really thought I have hit the big money! Back then, and as now, $500 at my disposal was a great responsibility. At 22, I was very conscious of how much is being spend on the card, and paid it all at the end of each month. This pattern of usage occurred for next 10 years. I think the ability of paying off every month has caused me to become complacent in recent years. My spending habits was not kept under control and have lost its way.

My credit card limit increased from $500 to a massive $20,500 over those years, and the card status kept increasing. I even managed to be a platinum card holder. It finally maxed out at $20,500 one day and I knew that credit cards are a real problem. Through hard savings and careful budgeting, we have just managed to pay off the credit cards. We have also reduced our credit limit to something more manageable. Having a $20,500 of credit card debt is something I don't ever want again.

Now that I have a son, I wonder when he will apply for his first credit card. Should I give him a secondary credit card with either my wife or I as the primary card holder? This way, we can teach him that it is a privilege to have a credit card. It is a card that is very powerful that can either cause many financial headaches if not used properly or become a very good financial tool if used correctly.

Any thoughts?

Update: I just came across a great guest article at The Digerati Life along similar lines.

Making use of the interest free period

A number of years ago, when my wife and I are just starting to settle down, we purchased a central heating system into our house. Mainly because the original heating system broke down and was costing us more to continue to use it. Furthermore, it broke down just the start of winter, so we must get something in quickly.

At the time of the purchase, our cash flow situation did not allow us to make a cash purchase. So we entered into a 12 month interest free purchase agreement. It works by having to pay 30% of it in cash, and the 70% is on credit, interest free for 12 months. Over the 12 months, the only overhead is an monthly administration fee charged by the credit company, a flat fee of $2.00.

Initially, I was particularly nervous about this arrangement as it forced us to be discipline with our repayments and we must ensure that we have the money when the repayments are due. The penalties are quite severe if we miss a monthly minimum payment. For example,

• overdue fee : $27 to $35
• over limit fee: $20 to $30
• interest rate: 28.99%

Yep, the interest rate is 28.99%! Once these are incurred, the interest free period is expired.

Our strategy was this...

1. calculate our monthly repayments by dividing the amount owing by the number of interest free months.
2. setup an automatic transfer form our bank account to the credit company's account
3. monthly review to ensure that it is on track to be paid off before the interest free period expires.

In the end, it worked out well as we paid the amount owing before the expiration of the interest free period.

One thing to look out is the month statement from the credit company. The minimum repayment amount in the statement is the minimum repayment amount, which means that if you are only paying the minimum amount, it is highly unlikely that your debt will be paid in full before the interest free period expires. This is why I calculated my own monthly repayment amount.

We study the terms and conditions quite thoroughly before entering into this agreement so a understanding is gain on the penalties.

photo credit: Andrew Beierle

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top 3 referrals

I have just signed up to Google Analytics, mostly as to see what they are about. My previous way, and very simple way, of analysing any traffic into my blog is via sitemeter, and I initially used sitemeter as a glorify hit counter.

So what has Google Analytics told me. It told me that my top three source of traffic are crazyjimsmith.blogspot.com, eliminate-my-debt.blogspot.com and debtdieter.blogspot.com.

Let's have quick tour of these three sites.

crazyjimsmith.blogspot.com

crazyjimsmith.blogspot.com can best be summed by its by-line on the blog. It quotes...

This blog provides commentary on stocks listed on the ASX, most things to do with investing in the sharemarket, politics, the economy, and anything else that may take my fancy or infuriate me!

This blog has plenty of comment and analysis on various stocks listed on the Australian Stock Exchange. Personally, I am not interested in stocks, only as a casual bystander. However, if I was, I would be very active reader and participation of the blog and its accompanying forum.

eliminate-my-debt.blogspot.com

eliminate-my-debt.blogspot.com is a PF blog. The by-line on the blog reads..

My goal is to pay my $152,377 mortgage in 5 years: 30th June 2012. I started this blog to stay motivated and I would love to hear from other pf bloggers out there!

It is certainly provides an insight into an average Australian family on their day-to-day living, particularly from a personal finance perspective. I especially like her articles on money and relationships. Some of her comments are very enlightening.

debtdieter.blogspot.com

debdieter.blogspot.com is a blog about the reduction of a debt, and the juggles of a hectic city lifestyle. The byline of the blog quotes..

Working hard to eliminate $56,722 of consumer debt and become debt free by May 2010...

The series of articles on her work perks are a fantastic read. It definitely shows what, and how work can be used not only to produce an income, but also use to reduce spending. The recent article on work assisted education is a great article, and instigated some thoughts on how my work can assist in my education.