RumpledElf

Savings strategy

29 posts in this topic

I just spent the last month and a bit being massively underpaid and went into scrooge mode. Now the new pay from our happy little friends at Centrelink (yeah, I know, but I'm sitting at home jiggling a baby half the day and its hard to do anything constructive right now) has kicked in, I redid our budget and we're $3000 a month over and above our bare basic living expenses :shocking:

I can safely say that we do NOT have $3000 a month to put into savings lol

Normally our spare money goes into stuff like paying off surveyors and renovating bathrooms, but we've pretty much done all that (although I do want the side of the house sandblasted) and as predicted, first half of 2010 was really tight for money and second half is going to be ridiculous.

My thought so far is to stick $400 a fortnight into the mortgage in anticipation of the new house we are waiting on, build up a minimum balance of, say $500 in our shiny new transaction account (after switching to the CBA I suddenly don't pay $20 a month in fees at my old bank) just so that there's always enough in there to cover everything without worrying about getting overdrawn, and at the end of each month scrape any money over and above the minimum into a high interest account.

$400 a fortnight is all we *need* to save but somewhere around $14,000 would take us to a 40% deposit on the new house (highly dependant on valuations - the less they decide our land is worth the more $ we need) and eliminate the need to refinance which would save us a LOT of bank fees. New house is around 6 months wait away. I haven't done my tax yet so there's likely to be a fair bit there to kickstart that deposit.

CBA's online savings account is 4.5% and our loan interest rate is 6.85%, but it costs $50 to withdraw from the loan.

I haven't factored in how saving interest on our loan will add to the size of this deposit but I suspect it is not an insignificant amount.

Thoughts on this strategy?

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Thoughts from an unqualified mind:

Paying down the mortgage is equal to ~7% after tax return pa on other investment. Risk-weighted that's pretty easy money IMHO compared to other options.

A bigger issue might be future tax implications, given you've said you plan to buy a new home. If you are to keep the current home as an investment then maintaining a larger mortgage would mean a larger tax deduction in future (if you're the kind who likes to lose money to make money!). You can't redraw money deposited into the mortgage for just any use and still retain the deductibility of interest. The 'use' test or some-such. But I'm sure you're already all over that one. If you plan to sell it doesn't matter.

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We get so much in FTA and now a tax-free pension (which suddenly entitles us to heaps of rebates and discounts) our actual taxable income is really quite low, so tax and the avoiding of isn't really an issue. The welfare system in this country is bizarre. Don't get me started on the different income limits on the different payments.

We plan to keep our current house as an investment property just because it is so damn awkward to sell a house and have it gone the day a new house is built. However, we paid land value for the house with a 100% loan (initial deposit was equity from the other house) and subdivided it into two, so half the initial loan isn't actually tax deductable anyway and really belongs to the new house. From my perspective, the extra money is going to the new house, the regular payments are going to the old one, and any savings on interest are spread between the two.

The new house we only need a loan for the *house* since the land is effectively still tied up in the other loan even though the actual title is mortgage free. If we get a loan with the same bank I suspect we'd be moving money around so the loan for the new house is higher and pays out the land part of the old loan and they magically lower the balance of the old loan to just the deductable portion and we never actually end up redrawing.

I have no idea how an accountant will see it.

This gets even more confusing if I manage to sell my old house in the meantime lol

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I just spent the last month and a bit being massively underpaid and went into scrooge mode. Now the new pay from our happy little friends at Centrelink (yeah, I know, but I'm sitting at home jiggling a baby half the day and its hard to do anything constructive right now) has kicked in, I redid our budget and we're $3000 a month over and above our bare basic living expenses :shocking:

I can safely say that we do NOT have $3000 a month to put into savings lol

Without delving too deeply into your personal affairs RE... but;

Can I ask how you qualified for Centrelink with 2 homes? I thought all payments now were means tested?

What are you actually receiving? Jobstart? FTB?

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One is worth $75k (that's the one I'm having trouble selling), the other is a PPoR so it doesn't count. The land is still unrated so they have to get it valued but it'll probably come up at around $40-50k.

The asset limit is over $200k, so we're well under the asset limit - they deduct anything owing. We'll probably go over the limit when the second house becomes an IP since the amount owing on it is miserably small. The asset limit has stayed loosely the same value for donkey's years, they haven't indexed it to keep up with the property bubble.

Asset and income limits for FTA are stupidly high, you can earn something like $150k a year before it cuts out. Conversely, FTB starts to cut down when one of a couple earns more than $4k - another number that hasn't been indexed for ages.

I've said it before and I'll say it again, the welfare system in this country is bizarre. I have a friend whose sister has 7 kids and she gets given about $70k tax free, and discount housing. And don't quote me on any of those limits, we're well under them so I haven't paid them much heed.

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Thoughts from an unqualified mind:

Paying down the mortgage is equal to ~7% after tax return pa on other investment. Risk-weighted that's pretty easy money IMHO compared to other options.

I was having a conversation with a friend who was struggling to decide among the various education savings plans and options. I mentioned that a perfectly reasonable option was simply to pay down / fund the education through the mortgage. -The fee is easy to understand and the "advantage" is not taxed.

He'd never thought of it that way. Turns out many of the options return less than 7%. Quite regularly. Management fees, too.

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I was having a conversation with a friend who was struggling to decide among the various education savings plans and options. I mentioned that a perfectly reasonable option was simply to pay down / fund the education through the mortgage. -The fee is easy to understand and the "advantage" is not taxed.

He'd never thought of it that way. Turns out many of the options return less than 7%. Quite regularly. Management fees, too.

Uhhh they are all pre tax returns right?

7% post tax is massive, the risk profile is pretty damn impressive too.

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Uhhh they are all pre tax returns right?

7% post tax is massive, the risk profile is pretty damn impressive too.

*DISCLAIMER ALERT* *I AM NO GOOD AT THIS STUFF* *DISCLAIMER ALERT*

The way an accountant explained it to me was ... something like this:

You pay your marginal tax rate on your terms deposits. That's <too much>.

Management fees for funds are ~4%. You need to do 4% better in a managed fund to match a TD.

...Put it against your mortgage. -You save <mortgage rate here> in interest. About the same as you'd earn on a TD. But you pay no tax.

Tor, you said it yourself. Offset account. -Just requires buying a house! Swanny you basterd.

-FWIIW would love to renew this thread. Saving is the new black.

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...

Putting it against your mortgage only works if you have one. If you don't I would not for a second recommend getting one just for the guaranteed return. Effectively that is as dumb as negative gearing.

If you have one and figure the world will continue much as it has over the past 30 years you are stone cold stupid not to put every single cent you have into it, including using credit cards with 30 day interest free periods to cover normal spending, every cent in that offset is helping you. Cash in your wallet is stupid, free debt (CC with 30 day interest free, GST payments etc) are free loans from people that hope you are too dumb to use them.

If you suspect the world might change then things are a little different, you might think weird macro economic stuff will happen in which case a little gold _might_ return better than 7% * tax rate.

You might think that banks might fold in which case cash from offset into actual mortgage is better

You might think residential property will fold in which case least into actual mortgage and most into offset is better as an offset account is close enough to a guaranteed loan which does 7% after tax until you need it.

But if you don't have a mortgage with its massive crushing debt number there are many other smarter things to do. Getting a pay rise of 20% would be the first.

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Dose - your logic, and much of Tor's, works for me. Particularly now I have kids requiring a decent education.

Why people don't work their mortgages, or more specifically their off-set accounts, more heavily I don't understand.

A little gold on the side, maybe a little cash for the day the autoteller doesn't work, but the rest of your money needs to be in there and working it's arse off.

But Tor?

A quiet word, if I may?

Please knock it off with the 20% pay rise thing.

What works for you will not work for most, because they are not your uniquely gifted self. (No, I'm not being snide! - By your own words your situation and skills are highly unusual.) Joe Average has average options, and that isn't anywhere near 20%. It is cruel to imply otherwise.

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But Tor?

A quiet word, if I may?

Please knock it off with the 20% pay rise thing.

Sorry. Went through another bout of a friend (early 30's with no debt, no kids and decent skills) asking where he should invest. He is earning under market rates at a job he doesn't like and he cares where he can get an extra percent or two investing. Got me on my high horse again and when I am forced to be polite to people the anger is extruded online.

Not promising I won't do it again but I will try :)

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Sorry. Went through another bout of a friend (early 30's with no debt, no kids and decent skills) asking where he should invest. He is earning under market rates at a job he doesn't like and he cares where he can get an extra percent or two investing. Got me on my high horse again and when I am forced to be polite to people the anger is extruded online.

Not promising I won't do it again but I will try :)

Some of us are probably interested but in fairness to Claw (who was told to keep his shortage theories to a "special" thread), perhaps you could start a "how to earn 20% more" thread?

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Sorry. Went through another bout of a friend (early 30's with no debt, no kids and decent skills) asking where he should invest. He is earning under market rates at a job he doesn't like and he cares where he can get an extra percent or two investing. Got me on my high horse again and when I am forced to be polite to people the anger is extruded online.

Not promising I won't do it again but I will try :)

That's good enough for me. ^_^

And I have to agree that you are correct in principle - actively investigating every penny/financial opportunity is always smart.

Your friend does not seem to be that sort of smart, unless there are other things that keep him at his post - like maybe crippling insecurity about his own ability, unrivaled harbour views, a 2 minute commute etc, etc. which may offset the financial shortcomings of the job he hates?

Who knows what motivates other people. I certainly don't...

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That's good enough for me. ^_^

Cool

Your friend does not seem to be that sort of smart, unless there are other things that keep him at his post - like maybe crippling insecurity about his own ability, unrivaled harbour views, a 2 minute commute etc, etc. which may offset the financial shortcomings of the job he hates?

His problem, in my opinion, is laziness which focussed wrong. He is willing to put in some work on the investment front but not in his career. despite the obvious payoff differences.

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Some of us are probably interested but in fairness to Claw (who was told to keep his shortage theories to a "special" thread), perhaps you could start a "how to earn 20% more" thread?

Ohhhh, nice dig :)

I will give it a shot, probably when I have slept / am sober.

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His problem, in my opinion, is laziness which focussed wrong. He is willing to put in some work on the investment front but not in his career. despite the obvious payoff differences.

I suspect I am like your friend.

The one thing I really hate investing time in is really the only thing that gives me my income. I guess it is a rhetorical question but; why is that?

I'd rather spend hours betting $10.00 a throw on the dogs and assuming I am actually winning, I still am not winning much...

I suspect I am slowly changing since moving to WA...

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Some of us are probably interested but in fairness to Claw (who was told to keep his shortage theories to a "special" thread), perhaps you could start a "how to earn 20% more" thread?

Yes, good idea - I'd read it.

Those of us in the 'wage slave' category may not be able to implement it all, but hey you never know...

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Meanwhile, we have a chunk of money sitting in a Virgin saver at 6.75% and are just shovelling spare cash into a netbank saver in our regular bank. It really is surprising how much spare cash we have when we have nothing in particular lined up to spend it on.

Didn't see any point putting it on the mortgage. While it saves you money in the extreme longterm, we have a few minor issues to fix with the house to get the HIA order as low as possible before we move out of it and then it is either rented (pays itself and then some) or sold (pays the loan off and then some) and paying down the mortgage actually doesn't reduce your monthly payments unless you renegotiate.

Hoping to be debt free sometime later this year, that'll be a nice feeling. And not debt free as in paying rent, the only accommodation expenses we'll have will be council rates and water. IF we can sell this house of course, didn't work out so well with the last one.

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Meanwhile, we have a chunk of money sitting in a Virgin saver at 6.75% and are just shovelling spare cash into a netbank saver in our regular bank. It really is surprising how much spare cash we have when we have nothing in particular lined up to spend it on.

Didn't see any point putting it on the mortgage. While it saves you money in the extreme longterm, we have a few minor issues to fix with the house to get the HIA order as low as possible before we move out of it and then it is either rented (pays itself and then some) or sold (pays the loan off and then some) and paying down the mortgage actually doesn't reduce your monthly payments unless you renegotiate.

Hoping to be debt free sometime later this year, that'll be a nice feeling. And not debt free as in paying rent, the only accommodation expenses we'll have will be council rates and water. IF we can sell this house of course, didn't work out so well with the last one.

Sorry, what happened with the last one?

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Sorry, what happened with the last one?

It took 18 months to sell.

It eventually went for $75k to an investor, as it was rented and the rent on that house is rather a lot higher than the mortgage repayments.

I had all this response from low income earners looking for a cheap house back when the FHOG was $18k, but they were all scared off by tenants and it went to a freakin INVESTOR.

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As we enter another new year - 2012, I am now also finding myself being a little tight on money! and sometimes being under stress financially (and it seems many other people are too).

I only recognised how crabby I was getting due to the money woes a few days ago, until I woke up to myself (after the missus had a chat to me).

Just a warning to you all out there. Be aware of your money. Try and get on top of it, but make sure that it doesn't enslave you! :starwars:

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As we enter another new year - 2012, I am now also finding myself being a little tight on money! and sometimes being under stress financially (and it seems many other people are too).

I only recognised how crabby I was getting due to the money woes a few days ago, until I woke up to myself (after the missus had a chat to me).

Just a warning to you all out there. Be aware of your money. Try and get on top of it, but make sure that it doesn't enslave you! :starwars:

maybe looking for potential property investments is not really the thing for you right now?

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i started 2012 with a plan to write down all my gambling expenditure. and came to a shocking realization

2012 lotto profit and [loss]

mon/ lotto [11.25]

tue/oz lotto [3.60]

wed/ lotto [16.55] 11.75

thur/ power ball[36.40]

sat/ lotto [11.60]

sat /pools [3.25]

keno [34] 8

scratchers [5] 15

i need to start winning more.

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i started 2012 with a plan to write down all my gambling expenditure. and came to a shocking realization

2012 lotto profit and [loss]

mon/ lotto [11.25]

tue/oz lotto [3.60]

wed/ lotto [16.55] 11.75

thur/ power ball[36.40]

sat/ lotto [11.60]

sat /pools [3.25]

keno [34] 8

scratchers [5] 15

i need to start winning more.

It is easy to see where you are going wrong. Diversification is overrated. You need to take your disposable income and place it on the winning numbers just once.

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i thought you where going to say take my monthly budget , and bet it all on 1 game, covering as many combos as possible.

you know , $1 on heads and $1 on tails cover every combo. either way i get my $2 back, %100 return, the best bet a gambler can ever make

because $1 on heads only could result in losing $1.

yeah i know a lot of gambling theory. i just tend to have my own, i think the most dangerous opinion i have at the mo is that i can win my losses back.

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