What’s the best way with money?

I had an interesting conversation with someone the other night.  When I say interesting, I mean to say, I had a conversation that got my back up.  And I started to wonder why.   At the heart of it was: what is the best way to ‘manage’ your money?

source: ozgworks.com
source: ozgworks.com

I know the answer is most simple form is ‘whatever is right for you’ – and that is exactly what I feel I’ve done.  But these are some of the questions that come to mind.

Mortgage:

Why did I fix? Because the rate was significantly less than the variable rate.  Because that way I could budget for a fixed period of time (2 years fixed).  Because I couldn’t ‘pay more’ than $5k per annum – which was manageable.

Surely you could see the market would drop and rates would fall? Really, can anyone 100% predict the future – and this doesn’t contradict my other responses above

Shares:

Do I have any? Yes, but ‘not enough’ would probably be the assessment.

My question is: How many’ should I have?  What % of my ‘money’ (between the equity in my mortgage and cash savings and shares?)

Savings:

Why do I have a savings account when it’s effectively ‘negative’? (as you pay tax, and you earn less than inflation.  In an offset to a loan, I could be ‘earning’ better money.) Cause cash buys tickets to far off destinations, and that spontaneity and ‘security’ of the cash makes me happy.  Selling shares takes some time, admittedly not heaps, but still there’s a ‘cost’ for the transaction.  My current loan doesn’t allow redraw or have an offset facility.

Taxes:

Why do you overpay your taxes, wouldn’t you rather the money? No, I prefer lump sums to small amounts every week.  AND I hate having bills, so by overpaying I ensure I’m covering any unexpected taxes I might have missed.

source: theundercoverrecruiter.com
source: theundercoverrecruiter.com

Things people (in real life) don’t ask

How much do you have in your ’emergency’ fund? For when I lose my job, but still have things to pay for.  Cause NO ONE I know in the real world seems to have considered this, or have actually worked out how much 3 or 6 months of expenses would be.  I’m not there yet, but the ‘savings’ is aiming to get there.

How much do you pay to your retirement fund (above the 9% national standard required by employers)? In reality, my employer contributes closer to 12%.  And I put in another $50 per week.  One day I’ll be baby making, and not earning.  Start earn and start small and compound interest in my friend.

What money related questions do you wish you were never asked?  What questions do you think people should be asking?

22 Replies to “What’s the best way with money?”

  1. That's interesting about the tax on the savings accounts outweighing the interest benefits – since I haven't had to pay tax for a few years it's never been an issue for me. I can't remember if I've asked you this, but did you use the government's first home saver account when you were saving to buy your apartment? I'm thinking of looking into it, and that money is tax free.

    And I agree, no one I know seems to have an emergency fund either. If I live cheaply I have enough saved to last me the 13 week waiting period for the dole, and then for a year on the dole, which is a possibility for me next year. And that's not counting any extra money I could make blogging, doing casual work or selling things. And if I get a job before that time is up, I will just roll any extra money into my house deposit 🙂

    1. I did use a FHSA, so I'll draft a post on it for you, as there's a bit of a story (I ranted on Whirlpool!). Emergency funds are a great idea, but only really discussed in the personal finance blogosphere and the occasional article in the money section of the paper. It makes sense, but it's not something that everyone does. 13 weeks is a tidy sum, and smartly matched the centrelink waiting time – I mean, what do people less organised do? Use payday loans and run up a huge debt? I hope you don't end up on the dole next year though!!

  2. I think there’s probably 1,001 answers to the question of how best to manage money. It will just be so different for a low-income earner vrs high-earner, different for different ages…and most of all because everyone has different goals! We’re about to spend a lot on “education”…others think we’re wasting our money moving away from the local school. I think it’s all about working to your own goals and making progress.

    PS. Fixing 2 years ago would still have kept you lower than variable all this time? A 2-year fix was *perfectly* played!

    1. You're right – there are so many ways for so many different situations. I think it's easier to read blogs and think 'I'm not like them', but in real life, you really do start to think you are a homogeneous group!

      On the interest rate question: If I was on a normal variable rate (5.88%) right now with ANZ I'd be paying more than my fixed rate (5.8%). Of course, if I have a package variable rate (5.18%) then I might be worse off. That's no accounting for the fluctuations over the two years, but most times I've checked I've seemed to be ahead. Could just be a perfectly played fixed loan! (Am I naive, have I missed something?)

  3. Hi Sarah, I think you could sum up everyone's questions by talking about risk tolerance. Most people take high risks (sometimes out of necessity) such as spending all their money each pay cheque and not having an emergency fund. Yet they are questioning you about having a savings account rather than more shares! The first truth about shares, mutual funds and ETFs is that you can lose not only earnings but capital when you invest, as the whole market did in 2001 and 2008. Financial advisors will ask about your risk tolerance and will recommend more stocks for younger, long-term investors who have time to bounce back after a crash. More risk-adverse savers will use bonds, term deposits and so on. If anyone asked me why I don't have more stocks, I would ask, "What stocks or funds did you buy? Do you have any tips for me?" 🙂

    1. You're right – it is about risk. We just never think of it like that! I love your retort – cause that's essentially it – for you and I, there's so much choice and it's sometimes scary to make the 'right' choice with shares not to 'lose it all'. Glen seems to have worked it out, but not everyone is so engaged in the market, how it's moving and how different shares are performing.

  4. I can't believe your bank doesn't give you an offset facility. After getting a good interest rate that was the next thing on my must list when it came to getting the right mortgage for me.

    As for percentage shares in the stock market, for me I have about 25% of my wealth in the market, but it has been closer to 50% previously. It all depends on where I see the market moving and where my money will work best for me.

    Question I wish I was never asked – Can I give you money and you invest it for me.
    Seriously, if you can't be bothered managing your own money for your own future then why on Earth would I want to do it for you?

    1. They only offer offset for a 1 year fixed loan, or a non fixed component (ie if I had part variable). It wasn't a high priority when I first got my mortgage – I didn't want to feel like I couldn't spend a dime as it was all paying off my mortgage in offset. Now that I've had two years at it, I'm ready (I think!)

      I can totally see people asking you to invest their money for them – it's not that interesting to some people (ie me) and I can understand people wanting some one else to do all the legwork! As another commenter said, 25 or 50% is scary for people who don't understand the market and hearing of people losing it all!

  5. That's why it's called personal finance, right? Everything about it is so personal – what you want to do with your money is your business . . and I really only worry about my husband and I when we make financial decisions. Otherwise, we'd never move forward because there's too much conflicting information.

    1. Too true – it is PERSONAL. Though like politics and sex, it's exciting to talk about. At least until someone gets their knickers in a knot! It's definitely worth considering alternatives, but in the end, you can't do everything!

  6. Ha, I wish I was never asked if I am struggling and that's why I decided to move to a studio apartment. As for a fixed vs a variable rate on a mortgage, I was taught to always take the fixed,, unless it was a time of high inflation, and then wait to buy a home till it came down. You can always refinance if you feel the savings are worth it later and if the rate drops.So many people live paycheck to paycheck in the US, there is very little if any savings which is why so many are in danger of losing everything.

    1. OH people can be short sighted can't they? You almost need a flashy car to compensate!!

      Good advice re:fixing. I think people love to think they are smarter than the markets! I am certainly not disappointed with my choice to fix!

      It is a shame that people don't learn the value of saving – it can be rewarding, but also reduce stress in times of unexpected costs.

  7. I actually HAVE calculated how much we would need for 3 months, and that's what my EF is. We might be able to stretch it longer if disaster struck, as we would then try to cut costs further.

    Once we get back from travelling home buying is the next goal. I also really need to look into investing (outside of Kiwisaver that is).

    1. OF course you have ee – but then you're a PF blogger, so I think you (and readers of PF blogs like me) are a little more thoughtful about all these things. Recently I sat down and worked out my savings vs expenses if I was to lose my job suddenly. I was surprised how long I'd have getting by on bare bones (but still paying all big bills etc). I need to do it again since I started renting. Good luck saving for your shared home – it can take a while, much like paying off a big debt. I'm sure you'll share your journey with us. Investing, well I know so little there!

  8. The foremost step is to organize your finances in a systematic manner. Streamline the number of bank accounts that you have and take complete charge of credit cards. Use one e-mail address for all e-statements and other financial documents. With Internet banking, you can easily keep constant checks on all the transactions taking place in your bank accounts and be aware of your financial situation.

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