Sunday, June 2, 2019

Four top tips for managing money: how I live the Barefoot Investor life

I'll be honest...I've never been that flash with managing money. And life hasn't helped my cause, what with moving around the world, bringing up kids which is a very expensive process, and hubby being in low paid jobs at times.

It absolutely goes without saying that there are a hell of a lot of people in this world who are way, way worse off than I have ever been and to them, I am a millionaire. It is in that context that I acknowledge I am writing this post for people who live in resouce-rich countries and even then,
for those of us who are privileged to be employed, own property, have good health etc.  

All that being said, none of what I am about to say hasn't already been said time and time again, not least by people like Scott Pape, the Barefoot Investor. I read his book last year and it has really impacted on me, and led to my hubby and me making changes to our finance management. I do not necessarily agree with everything he says or even understand it, but the main principles he espouses hold true. Obviously, readers outside of Australia have different issues and may not have systems such as our mandatory superannuation scheme. Nevertheless, I hope there is still content here that you can relate to.

1. Move your operational and savings money to low/zero cost bank accounts 
I was doing all my banking with one of the big four which was costing me $400 a year. This included fees for an off-set account which was marketed to me as a way of managing my mortgage. But to be honest, because my money was going in and out, my off-set was making no impact on my mortgage payments. I am better off having a no-frills, no cost operational account, and paying all my mortgage payments straight into my mortgage. 

If you are not sure if it is worth having an off-set account, have a look at the calculators that are around the place to do some financial working out, like this one from ING:

I have moved my banking to HSBC who offer no-cost accounts. Their banking app is rubbish and it took ages to set up online banking, but hubby enjoys having physical banking offices where he can go and speak to someone face-to-face.  The ING Orange account also is no-cost, and I believe is an account that Scott Pape recommends.  

It goes without saying that you must always check terms and conditions, and it is worth doing a comparison of accounts and check for hidden costs.  

2. Review your need for a credit card
The Barefoot Investor advises that you get rid of your credit card all together because, put simply, it traps you into debt. The rewards you receive are not worth the interest you pay if you do not wipe your balance every month. 

I know there are some people out there who are real wizards at managing their credit cards to get free travel, but you've really got to know your stuff to do this, and be really disciplined. And you have to be mindful that in Australia since the banking commission, mortgage lenders are really cracking down on any sort of credit when deciding to give you a mortgage. I had to go through all sorts of hoops recently to show that I had closed down a credit card when re-financing our mortgage, and this was even though we had more than enough capacity to service a credit card on top of our mortgage.   

We have now got rid of our credit card which was more accidental than a conscious decision - we closed it because our bank were charging excessive fees, but that's another story. I do not entirely agree with Scott Pape about not having a credit card, because I think having one is useful for coping with emergencies. We have elderly parents in the UK and we never know when we will have to literally drop everything and fly back, which has already happened to us this year. Scott's strategy for coping with emergencies is to have emergency savings.  But I don't want to have heaps of money in a saving's account not earning much interest, when it could be on our mortgage. A credit card is also useful when traveling because some hotels will not accept a debit card for bonds/deposits - I got into real strife over this issue the last time I was in Bangkok.

For the time being, we're going to try to manage without a credit card and see how we go. If we need one, we'll apply for a no-frills, low interest card with as low a limit as possible. 

3. Make sure you are getting the best interest rate possible for your mortgage
Needless to say, The Barefoot Investor has some very strong views on how to manage your mortgage. The key things I have taken from what he says and recently enacted are:
  • have a no-frills mortgage which reduces cost
  • pay additional payments to pay the mortgage back sooner and thus reduce interest 
  • move from fixed to flexible rate mortgage which not only is cheaper than fixed rates, but also allows me to make extra payments.
By moving from our bank to an online mortgage supplier, Mortgage House and to a variable rate, we have saved ourselves nearly 0.5% in interest. I have to admit that moving across was a bit of a rigmarole, and moving away from one of the Big 4 to an online supplier who I had never heard of before is a bit of a step of faith. However, I am confident in the research we did before we moved, and my faith in the big banks' has hardly been reinforced during the Royal Commission.

4. Manage your superannuation 
I have to say that my understanding of the superannuation system in Australia has been woeful since moving here in 2012. And it's only in the last year that I have really understood how it works. This is a real worry because I am 57 now with potentially only 10-13 years left to work full time (god willing), and it is very clear that I have to be a self-funded retiree.

The Barefoot Investor spends a lot of time talking about maximizing superannuation.  This is probably the area of financial management that I feel least confident with. The actions he recommends that I have taken are:
I know there are high preforming superannuation schemes with very low fees that I should consider moving to, but I am just not confident to make that move. I know I should also move to a lower level of risk investment because of my age (being near to retirement) but again, I haven't got around to doing that either.

And despite being happy about the life insurance I have at the moment, I am conscious that it ends when I am 75 years old. I do not want to take out additional life insurance with an insurance company because it will be expensive - my hubby is paying way more than I am with an insurance company because he wasn't able to increase his insurance through his super scheme. But his life insurance continues until he dies, whatever age that is. So I am dithering about the issue of life insurance.

Resources that I have found useful 
  • MoneySmart which has all sorts of resources such as superannuation calculators, and reiterates all the principles that the Barefoot Investor talks about
  • The Joyful Frugalista - Selina gives great practical advice on her blog and has recently published a book - it was she who put me onto Mortgage House.
  • Barefoot Investor Australia Group for Over 50s - there are various communities on Facebook for people interested in BI
How are you doing with your financial management?  What tips would you like to pass on that I haven't talked about here?

Sunday, May 26, 2019

Tips for preparing for death

Death is not something we like to think about but the sooner you start to get yourself organised for death, the better it is for you and your family.

I have recently found this out the hard way. A family member passed away a few months ago. This person was well into their 80s, and what we'd call 'old school' which included a considerable reluctance to talk to family about death, funeral arrangements and financial matters. I understand this may be a generational issue, but boy, did it make things difficult when the person passed. We didn't even know what sort of funeral the person wanted which was very distressing to us, as we had no way of knowing if we were doing the right thing. In the end, our decisions were driven by finance, which was a horrible position to be in, and not one I want to inflict on my family.

Being the wrong side of 55, this experience has got me thinking about how well prepared I am for old age, sickness and death, especially in relation to the responsibilities it brings to my own family. I have spoken to my kids about what sort of funeral service I want. And I keep talking about updating my Will, but that's about all I have done. 

So, based on my experiences of the last few months, here are a couple of tips that I suggest you start to think about and do to prepare for your own death. This will make life so much easier for your family at a time that they will be particularly stressed and upset.

1. Have an up to date Will
This is not rocket science and there really is no excuse not to have one in place, even if you are in your 20s/30s. If you cannot afford to get a solicitor to put one together, you will find your state Office of the Public Advocate will be able to help, or you can write a home made Will

Your Will will include financial matters, and gives you the opportunity to make specific requests, for example, what you want done to your body (gifted to the local medical school?) and funeral arrangements. Leaving clear instructions is a favour to your family because, let's face it, you won't be any the wiser on the day! 

2. Have your affairs organised and up to date
One of the things that I found very time consuming following death of our family member was trying to work out their financial affairs. For example, what bank accounts were current....what insurance policies were in place...where birth and marriage certificates were kept...and so on. 

I think the big favour you can do for your loved ones is to keep all your documentation up together and up to date so that family know where to find stuff, and your executor/s can carry out their duties with the least amount of hassle as possible after your death.

I have put all my documentation in a file and printed out a master document with all the details I can think of, from the password to my lap top (which I'll have to remember to keep updated) to my log-ins to my bank account. So if the worse comes to the worse and I get knocked off my bicycle this afternoon, my kids will know exactly what accounts/insurance/mortgage/superannuation/property contracts etc I have, and how to access them. I have even listed all my bills and utilities. 

The other thing I have on my list of to-dos is set up my enduring power of attorney.    

3. Talk to your family about your death
The problem with many of the older generation is that talking about death is not the done thing. I have tried to talk to my parents about their deaths and funeral arrangement etc, which sounds very cold I know. But to this day, I don't know what they want, or how I'll need to manage their financial affairs. This is particularly tricky if one parent dies, and the other parent is not capable of organising their affairs. 

My kids know how I want to die and what sort of funeral I want because we talk about death fairly regularly, especially as I have got older, and I will document request in my Will which I am about to update. The other thing I have just done is gone through my master document with all my personal details on with the kids. They are not keen on the conversation at the moment but one day, they'll be grateful that I am as organised as I am.

There are heaps of resources online and in the community that will help you ask the right questions about death and how to prepare including:
 How are you preparing for death?