Quick goal update – June

We reached goal again this fortnight, with a bit of sacrifice. We did have a bit of money left in the account at the end of the fortnight, but the bulk ($200) of the remainder needed came from some cash I had sitting in my wallet to buy a piece of furniture we’ve been wanting since before we started this blog. We have a $500 voucher for a furniture store nearby after a purchase that was faulty, so we were aiming to buy something we will always keep. The cash was already set aside, so I thought it might be a nice last hurrah before the hard work started.

But the voucher remains valid for 7 more months so we’ll put that wish on hold for now. It’s more important to hit our goals, especially in these early stages.

So over the past month, we did indeed hit our goal of making mortgage payments totalling $6000! 

So far, so good. It’ll be sooo much fun to update the totals on the top right at the end of the month!

Next post: Grading our fiscal responsibility: Part 2

Tags: Goals

Grading our fiscal responsibility: Part 1

Since we paid off a big chunk of debt a few years ago, I’ve started focusing on the wider range of important measures we need to take to ensure we are looking after ourselves. I recently flagged the importance of life insurance, and I know it deserves a post of it’s own, so that’s not what I’m focusing on today.

I sat down last week with a piece of paper and wrote down all the aspects of personal finance I could think of that were important to building wealth and protecting what we’ve already got.

This is what I came up with (by no means earth-shattering stuff): 

1. Consumer debt

2. Non-deductible debt

3. Retirement contributions

4. Emergency fund

5. Wills and Enduring Power of Attorney

6. House and contents/vehicle insurances

7. Life and disability insurance

8. Investment

Suze Orman ... How're we doing?

I am a bit of a fan of Suze Orman, and though I don’t agree with everything she says, I certainly think she does great things for building awareness about looking after ourselves financially. I particularly like her `How Am I Doing?’ segment, where she looks at where people might be falling down in their personal finance plans.

Under each heading I can definitely expand on where we might be going wrong or right. So here goes:

1. Consumer debt: A

I give us top marks in this area because we worked hard to clear $27K in consumer debt just a couple of years ago. Since then, we have done well to avoid further debt, even saving up $18K to buy a near-new car before buying it (it took a year, and occurred while we were also saving our house deposit). We certainly did live on `beans and rice’, as Dave Ramsey would say, especially given we’d spent the previous year paying off debt. It’s not an A+ because I still use our credit cards for short-term purchases and a few months ago, I miscalculated timings and ended up with a $8.42 interest charge. I don’t want my credit card company to get any more of my money! (Believe me, they’ve had plenty already!)

2. Non-deductible debt: B-

I don’t rank us so well in this area, because this is where our mortgage comes in. We would have been better off waiting longer to buy our home, having less overall debt in the process. I don’t regret our decision because I love our house and we needed to get out of our old situation, but I recognise we could have done a lot better if we’d waited. If we had, we wouldn’t even have a second mortgage to work so hard to get rid of!

3. Retirement contributions: B+

To be completely honest, the average Aussie could probably not fail this area completely, thanks to our involuntary superannuation scheme. As part of this, 9% of our salaries is deposited into a retirement fund and can’t be accessed until age 65. The only way an Aussie could fail is to take the money out under the hardship clause and use the money for non-genuine means. However, I understand it’s pretty hard to access it in this way without a really good reason.

As for us, we are doing pretty well in this regard because since earlier this year, I have been making voluntary extra contributions of $60/fortnight. After 15% contributions tax, this ends up being more like $50, but every little bit helps. I am still young and have plenty of time to boost my retirement, which I think currently sits at about $40,000. I have it in a high-growth plan because of my long timeline until retirement.

As for my partner, he is a little older and has more like $80K. We don’t get an A because he has not been making any voluntary payments. However, as of next week we will be adding $120/week for him, which will add an additional $5K or so a year to his balance. Until that is organised we won’t score higher than a B in this area.

4. Emergency fund: C+

Not really sure how to score ourselves in this area, as it depends on which expert you speak to about how much you need, and where you should have it. Everyone seems to agree it has to be liquid (ie not tied up in stocks or an investment property), but that’s about it. Suze Orman recommends an eight month emergency fund, while Dave Ramsey recommends a 3-6 month fund. Meanwhile, some experts say if you are putting that kind of money in a savings account to earn next-to-no interest, you need your head read. `Put it to work for you,’ they say.

Dave Ramsey advocates a 3-6 month emergency fund.

In our case, we are putting huge excess funds into our mortgage each month (essentially $3K or so). Since this sits in an offset account, it is easily accessible. This acts as our emergency fund. However, when we pay off our second mortgage, we will wipe out that reserve and we only be able to build it back up at the rate of $3K/month or so.

I am ok about doing this for two reasons:

1) We both work in stable government jobs

2) We are insured for death and disability

I’ll expand on these in my next post. As for the emergency fund, some might rank us higher than a C since we have $27K potentially available if we run into trouble. I’ll run with Suze’s definition on this, and therefore give us a C since it represents nowhere near an 8-month expense fund (maybe three months at best).

Tune in for Part 2 in my next post as I continue to grade our progress.

Tags: Net worth

Our lender thinks we can’t do it

So I called up our lender today to ask the hard questions about paying off our debt early. I have to say that the girl I spoke to was very nice, though she clearly thought I was a fruit loop if I was going to pay off the loan by June next year! And  have to say it was quite a revealing conversation …

After I gave her my details, she looked up my account.

HER: “Uh, so it looks like you have a top-up loan with us that’s sitting just under $70K at the moment.” 

(`Top-up loan’, don’t you love it? … it sound so much nicer than `second mortgage’).

HER: “Plus you have the main loan, which is $387K and that is interest-only…”

(Yes, thanks for reminding me that we owe you wads and wads of cash …)

HER: “But then you have a fair bit in your offset account, just about $27K, is that right?”

I was thinking: “Dear God, I hope so.”  What I said was:

ME: “Yes, that all sounds right. I’m calling to find out if it’s possible to pay off that second mor … ur, top-up loan … early. Say, mid-next year? Without incurring fees, of course.”

HER: (Pause.) So you mean the $70K?

ME: “Yes.”

HER: “All of it?”

ME: “Um, yes.”

HER: “Oh … well … (pause)  I’m just looking up the details of the loan … (pause) Well, of course, yes you can as it is a 24-month loan and you can pay it off early without penalty certainly.”

ME: “Oh good, that’s great news.”

HER: “Yes… (pause) … Of course, what most people do is roll it over for a bit longer, say take the loan out to four years. If say, you didn’t manage to pay it off in 24 months, you could extend the loan so the balance would not be due until September 2013.”

ME: “Um, yes well … luckily we plan to get rid of it completely before then.”

(That’s me noting that she seems to be suggesting doing the EXACT opposite of what I rang to tell her we might be doing!)

HER: “Well, (sounding doubtful) it is quite a big goal to try to tackle in …, what … just a year. And you do know you’ll need to pay interest along the way too.”

(Yes, thanks for the update on that. I hadn’t wondered where $2000 or so of our money was going every month! Though our conversation had piqued my interest.)

ME: “So, if you don’t mind me asking, among people who do take out loans structured the way ours are, how many pay the top-up loan off after two years?”

HER: “Oh, not many, maybe 5 per cent. Most people want to kit their homes out in the first few years, buy furniture and the like. I don’t personally remember any clients I’ve dealt with who have paid it out before the 24 months is up. Instead, if they’ve got extra cash, we can often help people with investment plans. Of course, (brightening) I’d be happy to talk to you about that kind of option if you like!”

ME: “Oh no thanks! We’ll keep on our little plan for now!”

I mean, it was quite a pleasant conversation. She didn’t reveal any deep, dark fine print that I’d missed or tell me I’d have to pay for the privilege of paying out early. But I was disturbed by how few people try to get rid of their second mortgages quickly. That was more disturbing because when we got the loan, the lender talked up how smart it was to pay off the second mortgage as quickly as possible, in the full knowledge that almost nobody actually does it.

As for investment, I’d have to be making more than a guaranteed 8% on any investments to do better than the money we’re saving by paying this off quickly, and that doesn’t even factor in the tax payable on any earnings from the investments OR fees payable. And in Australia, there are no ongoing tax breaks to the interest payable on your own home.

No, I’m happy with our plan … and it’s probably all the better if the bank doesn’t think it is achievable!

Tags: Goals, lender, Mortgage

Welcome Carnival readers

Welcome to Carnival readers!

Pop Economics hosted The Carnival of Personal Finance #261: The Pop Art Edition, and my post  So what’s with the crazy-ass goal? was included. Thanks, Pop!

Pop describes his focus as being behavioural finance, and certainly I’ve read through his posts and they are well worth a read. He also took his editing role very seriously, and says he offered constructive criticism where it was warranted.

In his comments about my post, he states  “This Australian couple is trying to pay off their second mortgage in one year. No word on what they’re going to call their blog next year.”

Ha, ha! Luckily we have another mortgage to attack straight after that, Pop! So there’ll be plenty more material for a few years yet.

In all seriousness though, I did think about longevity when I named my blog. I thought about calling it something a bit more general, given that it might really take off and then what would I talk about once my mortgage was gone? (I dream of the day when that will be my problem!)

Ultimately, I stuck with naming this blog Goodbye Mortgage because the main aim of this blog is to motivate US to (you guessed it) get rid of our mortgage, and if I made it too general, the title wouldn’t reflect the whole reason I set this blog up.

On another topic, something Pop wrote made me think a bit about my post content. In his lead-in comments, Pop asks: “When I hit my third hour putting this together, I started to wonder: Is there nothing new under the sun? So many posts submitted this week—and indeed, in the archives of so many of the blogs I was introduced to—delved into the same topics, with the same tone, and the same tendency to exploit SEO opportunities.”

I suppose my little blog doesn’t do enough to cover these types of issues at all. I guess people do want to read about frugality tips, saving advice, retirement etc. And when they do read about it, I expect that they may prefer some fresh material.

But for me, I tend to think that if people want that kind of advice they’ll either seek a professional in the real world or go to one of the well-established general PF blogs, such as Get Rich Slowly. I don’t have a lot of that kind of advice to offer and it’s not really what I want to write about on a daily basis.

For me, the reason I read other people’s blogs is to hear about what’s going on in their lives, how they’re doing with their goals and what they are currently aiming for. I just don’t tend to keep reading the advice-oriented blogs because they don’t seem as personal.

But that’s the beauty of blogs – people can write about what they want and ultimately read about what they want. Different people certainly do look for different things in a blog.

Pop has done a great job of hosting the Carnival this week and I know I’ll be referring back to his blog now and then. Thanks for including me, Pop!

Dodgy gardeners R us

Just a quick post today – we’ve had a busy weekend trying to make home improvements.

Not that you can tell much about how they’ve improved the house – that is, the house doesn’t look much better for all our efforts.

But we did manage to lay some concrete out the front, as advised by the building inspectors we brought in when we bought the house.

They thought that the wall cladding was close to the ground in this area and, without a greater physical barrier  to help protect against termites moving in directly from the soil, our house was susceptible. So we laid a layer of concrete just along the front of one portion of the house. It’s not perfect but it’s done.

This area has been a bit problematic for us, and we have been trying to make plans for it for a while. A fortnight or so ago, I ignored my usual aversion to poisons and used weedkiller on the bindis that had sprung up everywhere. A couple of days ago, I did a second coat to get rid of the remnant prickles. To be truthful, there wasn’t much actual grass left by the time I got around to this, meaning we now have a front lawn that just consists of dead brown weeds!

The next step is to put some gypsum into the clay ground to break up the hardened soil a bit. Then we’ll plant out some beds and lay some turf. We aim to create a garden full of plants that looks good, but are also hardy in the heat and use little water. Someone recommended proteas, so maybe they will create some colour without too much fuss.

Proteas don't use much water and are pretty as cut flowers.

 Anyway, as I said the lawn just looks worse for all our weekend works. Soon though I envision a pretty (but very frugal) oasis of green! Ahhh … one day soon …

Also, I get paid in two days, at which time the fortnight changes over and I need to look at making up the rest of the funds to get to a $3000 mortgage payment. I’m not sure whether it’s going to be easily achieved or not, but we’ll sure give it a good go.

Tags: Frugal gardening

Some astoundingly good news

 

Today, I was chatting to my friends when they told me about some amazing changes related to our jobs. Once I got home, I went online and confirmed what they told me … and it was absolutely fantastic news.

Like a lot of professionals all over the world, I have a student debt … and it’s a reasonable size too.

However, in Australia that’s not the worst news in the world. We have a system where citizens are eligible to complete a degree under what’s called the HECS scheme. Under this scheme, you can defer the entire cost of tuition until you are earning good money (an amount set by the government), at which time you start paying it off as a small percentage of your income. No interest is payable, though the debt is indexed for CPI (meaning the debt stays at current values, so you can’t try to leave it forever and then pay it off when you’re 80 as a miniscule fraction of your savings!). If you die before you pay it off, nobody owes it to the government on your behalf. If you never earn a reasonable income, you never have to pay it back (though that would be a little sad).

Anyway, being a health professional I have a comparatively high debt of about $30,000 (as compared to other jobs). I have also started paying this back through my taxes. When you start a job, you are asked if you have a HECS debt and if so, you are taxed at a slightly higher rate, and the `extra’ goes off your debt.

The great news is that the government has a HECS reimbursement scheme for those in my line of work who decide to work in regional areas. This works as an inducement to people to work in these areas. Previously this scheme had not included my home town, but as of July 1, it does! I think this is fair enough because, though my city is a reasonable size (greater than 100,000 people), it is more than 1600km from the nearest capital city.

If I keep working in this area for the next four years, my whole debt will be repaid for me! Since that is exactly what I planned to do anyway, I am absolutely rapt with the changes!

I have never included my student debt when I’ve paid off my consumer debt, because it is completely interest free and is handled as part of my tax bill. I would never choose to repay it early while I still had any other kind of debt (though people do get a small discount if they do so).

 But now, not only will I not have to repay my student debt, but as soon as it’s gone, I will effectively get a pay rise (because each week my employer will remove a lower amount of `tax’).

I suspect the scheme works so that I keep paying this `higher tax’ each fortnight, then at the end of each year it is applied to the debt. Meanwhile, documentation is submitted to the government about how much my debt was, and this is either applied to the remaining debt or repaid to me if there is no debt remaining. Once the debt is paid off (which will be quick considering I will still be contributing), the remainder must be paid to me directly.

I expected that my HECS debt would be fully repaid after 6-7 years in the workforce. Instead it will be gone in four and I won’t have to be the one to pay it. You simply can’t ask for more than that.

Tags: Student debt

Carnival submission

I submitted my second-ever article of this blog to the Carnival of Personal Finance, so let’s hope it get’s included.

In So what’s with the crazy-ass goal?, I set out the whole gist of this blog, so I hope it is included so carnival readers can give me some feedback. 

For those who are interested, Nicole of Rainy Day Saver is hosting this week’s carnival #260: The Forces of Nature Edition.

I particularly liked a post by Ace, of Ace of Wealth, entitled How to create and achieve financial goals. The distinction between dreams and goals is an important one, and is something a lot of people never transcend. They hope things will happen, but never act to make them happen. Even if they do, often they will quit when the first difficulty arises. I’ll be following Ace’s blog from now on.

Off to work now … six days off from tomorrow!