When Coins Breed Babies

Hi folks

One of the most powerful personal money tips I have ever embraced is to ensure every single coin (Dollar, Pound, Euro, Yen etc) has a job and a home.  Loose coins get lost. Spare coins become untraceable. Extra coins get used accidentally-on-purpose. Homeless coins get lost into the mists of time and coins without a job are lifeless and dull.

When we allocate our coins out after we get paid, always ensure each coin has a specific job and a specific home. Coins are our personal servants and servants need to be working.

One of the easiest coins to lose are coins for the future. Providing for our future selves is serious business and this must be first priority in our allocation of coins each time we get paid. Coins for the future have a clear purpose and they need a home were they can breed happily and have lots of new baby coins without being disturbed. Coins for the future need a home where they can breed multiple generations of new coins without every being robbed or pilfered.

Did you know that ......

• Just like the washing, coins when left alone will breed and multiply
• Coins can have grand baby coins and great grand baby coins and great, great grand baby coins
• Coins breed and multiply best when totally undisturbed
• Some coins are clever enough to have babies twice a year no matter what their state of health
• If coins are not allowed to breed and multiply then they shrink a bit every year
• Coins are immortal, they never die.
• Coins can breed from the instant they are born and they never are too old to breed.
• A coin that has been prevented from breeding (even for decades) will start breeding again instantly if allowed.
• Coins are breeders not readers
• Disturbing breeding coins is just like disturbing egg-producing hens - it puts them off the lay.

Just like baby kittens and puppies are cute, so brand new baby coins are cute too. The problem is that not many people have ever seen or experienced the birth of a baby coin.  I have several coins that are about to have babies and it is so exciting. I feel very proud every time my coins have baby coins. I get notified of the birth of my baby coins via SMS, then I proudly peek through the coin nursery internet window but I never disturb them.

Sometimes you just have to make money fun ..... fun enough to make you smile.  My baby coin story is just one such way.

Take care folks - stay nice.

Mr HM (Phil)

I Answer Kim's Investment Question

Hi folks

In our last post, Kim from Sydney left me a question:

..... could you please elaborate on where the personal post tax investments were placed to earn such a large amount? The best I can find in term investments is not much more than 2.5% - less than inflation. thanks.. Kim from Sydney :)

I thought this question was worth doing a post on -  so here goes.

There are several parts to this astute question from Kim that I need to quickly dissect then answer.  Kim has rightly identified that:

1. Banks rarely currently pay much more than 2.5% interest
2. Kim is referring to investments OUTSIDE of super - implied in this is the negative affect of tax on investment earnings and capital gains tax
3. Where investment should be placed to get such large earnings
4. That there ARE large earnings 

If you look at the last post and reverse engineer the maths you will see that the rate of return that I have used is 7%.  You may say that this is impossible seeing as banks rarely pay more than 2.5% interest on savings and that this also seems to be dropping - this is certainly correct. Money in the bank is not a true investment for this very reason.  Once banks start paying 5% interest or above will be when cash in the bank will be once again considered a low level investment. So, where does the 7% come from?

The 7 % comes from investing in the share market - both Australian shares and international shares. This may make you stop reading straight away, but please hang in there.  Every Australian's superannuations are invested in shares in various ways, thus most Australians are invested in the share market without even knowing it, the difference is that their Super fund is managing it and often for a sneakily delicious fee.

However, shares certainly scare people. Everyone can quote the big share market crashes with people loosing fortunes etc, etc and this (along with zero knowledge of even the simplest workings of shares) is why people give shares a miss. Some people dabble in shares and due to lack of basic good advice end up just gambling and losing money.  Thus many folks favour property.  Property investing can certainly return good results, but for the average investor, once stamp duty is paid, inflation factored out, landlord insurance is paid, maintenance on the property is paid, interest on the investment mortgage is paid, land tax paid, real estate management fees paid, accountant's fees paid, repairs and damage paid for and vacancy is absorbed there is little real profit to speak of and many people end up selling their investment property because it simply is not real money in the bank. Besides that, it is so hard to save up the huge deposit required to enter into property, the growth in the house value cannot be accessed easily without selling the whole property (you can't knock a brick out and go and swap it for a loaf of bread!) and the obvious fact that there is zero diversification when all our money is in property makes it a problematic investment - often you'll go backwards for many years unless you are very canny.

So back to shares - here are some facts:

Shares

• The share market as a whole (not individual shares) conservatively over long periods returns 7% on average. (Some years it returns 20% and some years it is in the negative)
• Shares can be bought into with as little as $500
• Shares can be purchased regularly
• Shares can be bundled together to create excellent diversification via purchasing ETF's (Exchange Traded Funds)
• Shares can pay income - this income is know as dividends (yield)
• Shares can increase in value - this is call growth or capital gains
• Shares can both grow and yield
• Shares are very easy to buy and hold
• Tax time is NOT difficult when you hold shares
• Many Australian share dividends have 30% tax paid on them already (100% franked dividends)
• Fully franked shares (30% tax paid) is a wonderful tax saving strategy
• International shares often have much higher growth than Australian shares - (Australian shares are less than 4% of the world's entire share market)
• Share growth (Capital Gains) is only taxed if the share is sold and the CGT (Capital Gains Tax) is halved if the share is held personally for 12 months or more.
• A buy-and-hold-forever share strategy will rarely if ever attract CGT
• Shares dividends can often be automatically reinvested if you enter into a DRP (dividend reinvestment plan) with the company or share provider - this is automatic compounding
• When the share market 'crashes', wise investors will buy up big on quality shares. Shares are at their cheapest in a 'crash' (or correction)
• The share market 'crashes' (corrects) often. It is normal and expected and nothing to be feared. It is when you buy up shares because they are on special! Uneducated people panic and sell.
• Quality dividend yielding shares will continue to pay dividends right through down turns and corrections - quality dividend paying shares are truly 'all weather' stocks
• Shares can easily be divided up for estate planning purposes
• LIC's (Licensed Investment Companies) are worth considering as they buy up big bundles of quality shares  over many decades -  thus owning one of their shares gives you part ownership of many businesses. Quality LIC's pay fully franked dividends and also realise share growth too ..... the best of both worlds
• ETF's simply mimic the market. ETF also are bundles of many different shares (bundled according to the ETF sector, theme or purpose) and by buying one ETF you are part owner in many businesses. Quality ETF's also pay dividends and realise growth (yield and growth)
• Conglomerates are similar to LIC's in that they own shares in many business. Often conglomerates will own very large percentages of quality businesses and pay excellent fully franked dividends

With shares it is important to look at a minimum 7-10 year investment period or longer. Conservatively, I choose to use 7% return (a combination of growth and yield) even though in many years the return is much greater than this. Erring on the side of conservative is far more prudent, especially when making long term calculations like in my previous post.


Time

The other vitally important factor when investing is time. The 8th wonder of the world most certainly is compound interest across time and when using the conservative 7% approach this means that every ten years you can pretty much double your money.

Time in the share market means a long term commitment to buy and hold - not to sell. By buying and holding the following can occur:

• Share dividends can be reinvested and snowball over time
• Share growth can accumulate over time
• DRP means more shares are bought automatically without any emotional decision-making required
• Dollar Cost Averaging (DCA) will occur if you are regularly investing meaning that some share parcels you will buy when the price is high and some you will buy when the price is low, thus over time a pure average cost is paid for your shares.
• Time allows a few stock market 'crashes' to occur which give wonderful opportunity to buy up quality shares very cheaply
• Time in the market means that you will always see the share market bounce back - and it always does bounce back
• People who panic when share prices drop never benefit from share bounce-back nor the opportunity to buy quality shares cheaply - in fact, they stupidly make a loss by selling up instead of simply allowing time to pass and sticking with it. (You would not sell a house when the housing market crashed -  then why do it with shares for goodness sake??!!)
• Ensuring you buy good quality dividend paying shares will mean that earnings from dividends occur even in market downturns and when these dividends are reinvested they are buying extra shares at their cheapest.  When the share market bounces back, these reinvested dividends bought during a downturn increase their intrinsic value dramatically.

Wise investing

Investing wisely is even more important outside of superannuation than it is inside superannuation. So the following is important to ensure your investments outside of super and bought with post-tax dollars are the best they can be.  The following will ensure the best bang for your buck outside of super.

• Investments outside of superannuation allows you to retire or semi-retire well before preservation age.  This is because you can access these investments at any time as there are no access restriction like with Superannuation. The younger you are the truer this is.
• As these investments will be taxed ON TOP of your current earnings it is important that the shares purchased are the wisest for taxation considerations. Shares that hold or increase their growth but also pay good dividends are the best. Not only that, dividends that are fully franked (already have 30% tax paid on them) will potentially save you significant amounts of tax. Depending on your top tax bracket you may either get a tax refund or only have to pay the difference between the 30% already paid by the share company and your tax bracket.  Once you are eventually living off these investments the 30% tax may even cover most of your tax responsibilities depending on your circumstances.

Conclusion:

So very simply, investing wisely in shares that pay good regular fully franked dividends is essential. Also, making sure that your investment strategy is buy-and-hold is essential to create long term wealth, avoiding unnecessary CGT, taking advantage of buying up when the stock market 'corrects'  and committing to reinvesting every penny earned until you are ready to retire or semi-retire is key. Understanding that the stock market as a whole, will, on average, over the long term return 7% as a combination of growth and yield. Never being tempted to use higher rates when doing your calculations otherwise disappointment will be certain.

At their current interest rates, banks are nowhere near being adequate investments compared to the stock market, nor are bank interest rates fully franked or have any such tax benefits. When bank interest rates settle at 5% I will begin to be a little interested and if they increase to 10% then I will certainly apportion some money to them ..... but usually if banks are paying 10% interest (or above) then the economy is usually running at wild inflation rates which is another set of worries entirely!

In my personal unqualified opinion only (and despite the scaremongering) shares are potentially the wisest long term investment with the best tax advantages for normal folk who have no special market skills elsewhere. For the record, I hold shares in AFIC, Argo, Milton, Washington H Soul Pattinson, Vanguard VGS and Vanguard VGAD - click on each for links to info on each. As you can see I go for 'wise old owl' companies that share the same thoughts and goals as this post. I will not get rich quick, but I will get rich quietly and certainly. I now need to ensure my future monetary wealth is matched with equal amounts of wisdom, personal integrity, humility and generousity.

Kim, I hope this post gave you and indeed all our readers here at Mr Home Maker the detail needed ..... or at least a kindly 'shove' in the right direction. I'm not a qualified financial adviser so please do your own research.

Take care folks and stay nice.

Mr HM (Phil)

Little Miss Piggy Bank

Hi folks

Well, I have been systematically taking opportunities to chat to my daughters about investing.  The eldest and the youngest are VERY keen learners and the middle three daughters are surreptitiously  hovering around and quietly listening in (I notice out of the corner of my eye).

I have been showing them practical examples (and using online calculators etc) to show them the astounding power of investing 20% of their net incomes as well as prudently managing their employer-funded retirement funds.

Seeing as three of our daughters are finishing their nursing and teaching degrees soon, I have been using an average wage for a nurse in NSW Australia to demonstrate the numbers to them.

I'll share it with you all now too.


Little Miss Piggy Bank

• 20 years old
• Registered shift nurse in Emergency Department
• Gross annual wage = $63,500
• After tax annual wage = $50,000
• Live and save off 80%  = $40,000
• Invest 20% = $10,000 ($833.33 monthly)
• Employer Retirement Guarantee 9.5% of gross wage = $6032.50 ($502.71 monthly)

So .....

Little Miss Piggy Bank @ 20 years old

• Retirement Employee Investment = Nothing. Zilch. Zip, hand-outs from Dad
• Personal post tax investment = Nowt. Penniless, Zero, hand outs from Mother Dearest

Little Miss Piggy Bank @ 30 years old

• Retirement Employer Investment = $87,042 producing $5,601 annual return (reinvested)
• Personal post tax investment = $144,270 producing $9,283 annual return (reinvested)

Little Miss Piggy Bank @ 40 years old

• Retirement Employer Investment = $260,238 producing $17,168 annual return (reinvested)
• Personal post tax investment = $431,339 producing $28,370 annual return (reinvested)

Little Miss Piggy Bank @ 50 years old

• Retirement Employer Investment = $604, 862 producing $40,030 annual return (reinvested)
• Personal post tax investment = $1,002,545 producing $66,350 annual return (reinvested)

Little Miss Piggy Bank @ 60 years old

• Retirement Employer Investment = $1,290,590 producing $85,624 annual return 
• Personal post tax investment = $2,139,125 producing $141,920 annual return 

In reality,  just shy of her 40th birthday, Little Miss Piggy Bank's investments will be earning her enough to fully cover her $40,000 yearly living and saving expenses. At this point, she will be therefore be FINANCIALLY INDEPENDENT.  Astounding ..... but true.

Show your children, nieces, nephews and their friends.  Wealth on a normal wage is utterly achievable. 

Be encouraged, stay nice and take care.

Mr HM (Phil)

Tortoise & Hare Finances

Hi folks

So, I am pretty sure we all know the fable about the tortoise and the hare and how that slow and steady tortoise won that fabled race ..... yep.

You know, some days it feels like our incomes are like the tortoise and our expenses are like the hare.  On other days, it is our savings and investments that feel like the tortoise and our incomes are the hare.  For some of us, our partners are the hare and we are the tortoise (or vice versa) when it comes to household money. Some of  us have a hare income and a matching hare spending habits, others of us however have a tortoise income and tortoise spending. At any rate, there is lots of tortoise and hare habits going on when it comes to personal finances.

To be truthful, the hare was just an idiot. He could have easily won that race. He could also have saved the whole community of forest folk from death the very next week when the forest council elected the tortoise to go and warn all the forest folks of the approaching forest fire - all because the tortoise was the winner (!). Needless to say that forest burned as did many of the forest folk because the tortoise was the wrong choice.

Lessons for Hares:

• Stay focussed.
• Don't get distracted.
• Leverage your natural abilities.
• Reach the finish line quickly, then rest.
• Slow reliable plodders have lots of fans.

Lessons for Tortoises:

•   You got lucky competing against an unfocused hare.
•   Stick to water - tortoises move much faster in water.
•   Hares can't hold their breath under water nor can they swim efficiently.
•   You should have declined the job of warning the others of the forest fire - ego.

OK, enough musings....

Tortoise & Hare Finances

1. I've been a tortoise earner and I've also been a hare earner - having a hare income wins hands down.
2. I've been a hare spender  - fun at the time but devastating at the finish line.
3. I've been a tortoise spender - very powerful, very boring but definitely a winner.
4. Save and invest like a hare.
5. Increase your income like a hare.
6. Minimise your spending rate like a tortoise.
7. Invest like both the hare and the tortoise  - 50% yield & 50% growth

The moral of the story is, that the tortoise and the hare should be friends, partners even. The tortoise could keep the hare focused and the hare could carry the tortoise when necessary. Competition is rarely useful.

Take care and stay nice folks.

Mr HM

How To Have No Bill Stress in December 2018

Hi folks


Just think about how nice it would be to have zero bills leading up to and over Christmas - amazing.

No pre-Christmas money stress, no post Christmas bill stress - bliss.

(How's your credit card balance going right about now?!)


How To Have No Bill Stress in December 2018 

To have no bill stress in December we will have to start immediately  - today actually.

Sweet baked potatoes.
Lower glycemic index than normal potatoes too.

Step 1:
Working out how much each of your bills cost you each 12 months.

To do this you will have to look back over your last 12 months worth of bills or bank statements and add up each bill payment so you have a yearly figure.  For example, electricity may have cost you $500 in March, $600 in June, $700 in September and $800 in December which equals $2600 over 12 months. Another example  - Car insurance which might be a direct debit of $100 per month, so the 12 monthly figure would be $1200.....and so on and so forth for all your bills in turn.

Step 2:
Working out your total yearly bill cost.

Simply add up all the 12 monthly figures that you have calculated in Step 1.

Step 3:
Divide the total yearly bill figure from step 2 by 48, then, multiply this figure by 1.1.  Write down this number - it will be your magic number.

For example:  yearly bills equal $30500.00. So, 30500.00 divided by 48 equals 677.08333 then multiply this by 1.1 equals 744.72 (rounded up to two decimal places).  744.72 is therefore my magic number.

Step 4: 
Set up a dedicated bank account for these bills.

This bank account must ONLY be used for all bills figured out in Step 1.  No cheating or dipping into it for other things or this whole system will fail.

Step 5:
Deposit your magic number (worked out in Step 3) every week into your dedicated bill account.

Step 6:
Pay your bills as they arise out of the bank account set up in step 4.

Step 7: 
Come December, you will have a full month's worth of bill money sitting waiting in your account. Any bills that come in during December can be blissfully paid from this money.

Fried chicken. Some Southern fried and
some fried with a dukkah coating.

ACTION ITEM:

URGENT

As today is the last day of the first week in January we need to put our magic number into our bills bank account TODAY  ..... at latest, first thing Monday morning.

Glasses up (ching!) to having zero bill stress come December 2018.  We'll all be sitting back relaxed whilst the world around is heating up their credit cards.


Take care folks and stay nice.

Mr HM

An Unpopular Topic

Hi folks

I have been given a fair bit of flack on forums and other frugality/simple living sites about my views on what-I-call inevitable future world events.

As a keen history buff I see history repeating itself over and over, albeit in different eras and contexts, but still repeating nonetheless. I also see highly civilised societies copping the brunt of these unsavoury repetitions in human behaviour.

Being ready for what I firmly believe to be some 'tough' times around the corner is part of our plan and awareness here at our place. Not only are we financially sorting our future, we are also beginning to prepare for some form of international conflict and all the stern realities that this brings.

OK, so I can see eyes rolling and readers clicking away from this post right about now, however, being reasonable and realistic means being prudent about inevitable maverick-style human behaviour at a global scale.  No, I am not a classic prepper with a fortress, dug-out and artillery, but we are quietly starting to prepare for history to repeat itself.  I refuse to be caught on the hop.

Who can deny the deliciousness of a baked potato?

Instead of putting our head in the sand and squealing about "negativity" and "scaremongering", there are much better ways to channel our emotional responses to the subject. Let me be quite clear about that subject - I am talking about another world conflict in whatever form it takes.

Would it be so hard to quietly, discretely and prudently do the following list?

•   Stockpile some fresh water
•   Stockpile some canned food
•   Stockpile some dry goods
•   Organise some alternate forms of heating and lighting
•   Organise some alternate form of cooking
•   Buy a bicycle
•   Start growing some basic fresh salads, herbs and vegetables
•   Expand a first aid kit
•   Have some actual cash put aside
•   Get to know neighbours and community a little better (we'll need each other)

I'm not talking about going nuts - just simply being prudent and more prepared.  Is that so offensive?

I trow not.

Take care and stay nice folks.

Mr HM (Phil)

Little Frugal Tips

Hi folks

Here is a list of little frugal tips that will certainly save you money.  No one will even notice you doing these frugal things. Stealth is the key.

They don't sound much in themselves, but it all adds up.

•   Place bottles of water in the spare spaces in your fridge. Water holds the cold so your fridge will not have to turn on as often or for as long each time you open the door.
•   Use bathroom and kitchen exhaust fans to draw up hot air out of the house on a warm day
•   Dilute laundry liquid with water - it works just as well. 
•   If you are baking, then bake lots at once instead of on separate baking days. Once an oven is hot it is at its most efficient.
•   Only place enough water in the kettle to boil as you need.  Boiling a full jug each time you want a cuppa wastes electricity/gas.
•   Use half the amount of sugar in recipes - seriously.
•   Place a couple of drops of essential oil on a tissue  and suck it up as you vacuum (hoover) to make the house smell lovely.
•   Dilute hair conditioner with water - again, not even noticeable.
•   Have a 3 lights-on-only policy in the house. People can read and study just as effectively under one light as they can under a light on in each room.
•   Go to bed earlier - this saves all the electricity from lights and appliances and it is great for your health.
•   Stop eating sugar.  Your medical bills will reduce and you will feel so much better in the long run. (The first three days off sugar are diabolical however!)
•   Use the shortest cold wash cycle on your washing machine - it works just as well for ordinary day wear and saves water and power.
•  Sun-dry your clothes. Your electric clothes dryer is a massive power sucker.
•   Look at what you toss out after a meal - adjust meal sizes accordingly so there is zero waste.
•   Stop drinking fruit juice - it is no better than drinking coke.
•   Eat eggs. One of the purest forms of protein and a fraction of the price of meat.
•   Make your own kitchen surface spray (use the empty spray bottle and fill with warm water and then add one teaspoon of washing soda and one tablespoon of dishwashing liquid). This works as good if not better and for just mere pennies.

Home made food is many times cheaper than processed foods
or eating out.  Cooking from scratch saves you serious money.

I have loads more tips but this should do for now.

Guaranteed money back in your pocket if you do this list ..... and no one will even notice the difference. (smug smile)

Take care folks and stay nice.

Mr HM (Phil)