By Amanda Morrall
A few years ago, one of my best mates, a single mother of two boys, decided she needed to pull up her socks financially. She's always been pretty good with money but she decided to get super serious and came up with a plan to knock off the mortgage by 55. She's well on her way and I have no doubt she'll meet her target by then, if not sooner.
Being the exploitative journalist that I am, I plugged her for tips (which I'll share in my book). Like other readers who have shared their financial strategies with me, most of it is just common sense. I mocked her when she told me she cuts her own hair now (she also irons it as she refuses to buy a straightening iron.) I expect she'll have the last laugh.
Here's a first person story of another gal who decided to bury the mortgage in three years. She used a variety of methods including a 20 + 20 pay back plan with the bank. Under the terms of her mortgage, she was allowed to increase her mortgage payments by 20% each year as well as paying an additional 20% of the original principle each year. Most banks allow some form of fast-tracking, but try to punish you for it so it's something to negotiate for at the start.
Are you mortgage free or close? If so, I'd love to know how you did it.
2) Debt is bad
I was talking to a financial planner the other day and she was lamenting how despite giving people advice for a living, most of them ignored it. It wasn't because they disagreed with the nature of the advice, only that they couldn't be bothered to implement the necessary changes. This disconnect between knowing what we should do, and taking action, is one of the biggest stumbling blocks in personal finance and why behavioural finance has exploded as a field of research. It's also why systems for managing your money, like diverting savings from pay into an account you can't touch, are so effective.
This blog from thedebthmyth.com looks at some of the weak rationalisations people have for not getting out of debt.
3) Spend less to save
Saving isn't rocket science. You need to spend less than you earn. Simple as that. This blog by exconsumer.com shares 34 ways to find savings each month. Two suggestions I would add and which I have been contemplating myself are getting rid of the landline, if you don't need it and it won't add to your mobile expenses. Also, reviewing your insurances to see whether you can save there, either by increasing the excess you would pay on a claim (if that makes sense for you) or increasing the stand-down period on a potential a pay-out (also if that makes sense for you).
4) Start-up right
Starting your own business? The road to riches is paved with potholes it would seem, but according to business consultants Bruce Gibney and Ken Howery, writing for the Harvard Business Review, there are four things you want to nail right from the start.
They are as follows:
- The founding team
- The core values
- Where the company is located
- The initial investors (and their terms)
Having good mentors is another must. Just in case you haven't found yours here's a hub that you'll want connect with.
5) Love and taxes
Facebook shares, which slid 19% yesterday, undoubtedly have nervous investors wringing their hands with worry (or regret) and analysts who went against the herd saying "I told ya so.'' The personal life of social network wonderkid Mark Zuckerberg is under no less scrutiny. I have to say, of all the post-IPO analysis, I enjoyed this one (speculating on Zuckerberg's choice for a wife) the most. Mostly because it's funny.
To read other Take Fives by Amanda Morrall click here. You can also follow Amanda on Twitter@amandamorrall
19 Comments
A seemingly endless stream of people are prepared to tell you how to start a business. Most of them should push off and eat there own dog food as they say.
To start something from nothing firstly requires a certain blindness of faith in ones self, some might call it misplaced self confidence. Add to that as much of an unfair advantage as you can muster and shower the opportunity with lots of drive and hope for a bit of luck.
Oh and don't get into bed with your banker!
No it isn't.
That kind of thinking is fatal.
Debt is an expectation that the future can supply goods and/or services.
It is issued at a key-stroke, with no guarantee of the physical underwrite in the future. By bankers, going on what has worked so far, not going on what lies ahead. And without consulting physicists.
The underwrite is in overshoot. Permanent overshoot. As always had to happen at some point.
While sort of true, the effect is far from that. Really neo-classical models assume this or the models do not work so you need to move on from that broken assumption. Minsky/Keen is a good place to start
Then there is productive debt and non-productive....one produces a net good for the business/person/NZ economy, this one is severly lacking. The latter at the scale we have is looking disasterious for us....ponzi scheme territory in fact.
If you dont believe me look for a real world example, and that is the Great Depression as that was a credit/debt event as well.........the parallels are frankly frightening and are factors bigger......
regards
I'm getting rid of my landline and believe it or not I'm a woman - with all the other free communication options out there, in reality do you really need one to yak to family and friends? I reckon not as I hardly use mine at all, and it's cancellation will stop the cold-callers dead in their tracks!
Yeah the cold callers are hacking me off......"we'd like to offer you a free insurance assessment" just as Im cooking dinner or eating it....
or the dumbest "this is your ISP support, there is something wrong with your machine we can fix it for you".
like duh.
regards
yep....asset rich, cash poor...if they are lucky....I even know one couple with $30~35k on the CC....mind boggling....
For my landline its locked into a package with my broadband so getting rid of it saves maybe $25 a month and since mobiles dont work here kind of not a good idea.......
regards
I think most people who visit a financial planner are looking for a certain amount of inspiration and magic when it comes to getting rid of debt and saving for the future. Therefore they are disappointed when they hear something they 'actually know already', and consign it to the too hard basket. It's like smoking, unless you really decide you are going to give up and have made that move psychologically then no amount of someone else lamenting on at you (about the right thing to do) is going to make any difference whatsoever.
The light normally comes on in the realms of behavioural finance which there is a significant life event that makes you really think about where you are, where you want to be and what YOU need to do to get there. My "enlightenment" came when my marriage broke up and I knew I was solely responsible for my lifestyle, my children and it was up to me to "make it work" for us. I was also toally fed up with moaning about how hard done by I was, when in reality I was doing absolutely nothing to help myself!
There was nothing as hard as sitting down that first time, really looking at things and planning a course for the future. The adjustments later on to streamline the process were a breeze compared to making myself look at the issues and to seriously address them.
Now the saving/debt free mentality is so heavily engrained I find I have a psychological struggle to spend money on something as frivilous as a holiday. So I have to force myself and reward my good behaviour with a few pleasures :-)
Thats a bit of an oxymoron, "Debt servicing is going to be very very very cheap going forward. Income & jobs are about to become very problematic."
If you dont have a job it matters not how cheap debt is to service....it is impossible to service when you have no or very limited income. Even 15% un-employment is a huge hit on the economy, just look at the USA, Spain, Greece let alone 25% which is quite probable....Not only that it implies firesales and crashing asset ((property) prices....aka the Great Depression...in that situation no one takes on debt to make a capital loss of that magnetude.
regards
I totally agree with you here Ivan, was greeted by a couple of very wholesome looking indiviudals on the weekend along with their toddlers - belted tightly into and squirming in their strollers, the other kids just looked resigned. They came on mass to the neighbourhood in several people movers and when unable to rasie anyone at the front-door wandered through the side gate and peered through the ranchsliders at the back!
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