16 weeks till Christmas – are you ready?

Christmas day is 16 weeks from Monday (the 4th of September).

Now that this has horrified you, you should be wondering about what you are going to do for Christmas and the spending for it.

Most people tend to overspend at Christmas, on presents and food and usually this goes on credit cards. If you do this, you spend much of the following year paying back the overspend and paying a bunch of interest.

This happens due to lack of planning for Christmas and what you are going to spend.

In the counselling work I do, it tends to dry up in November and December as people don’t want to be told what they can and cannot afford before Christmas.

But in February once the holidays have worn off, I get a lot of people coming in to get help to fix what they did.

Many people will think there is no time to plan for Christmas without borrowing, but there is.

If you get paid this week, you have 8 pay days before Christmas, so have time to save something.

Firstly, work out how much extra you want for food, and for entertainment. If you don’t have the supermarket stamps plan going, then you need to get this in cash. So, let’s assume $200 for extra food etc.

Then let’s look at presents.

Work out who gets a present and what amount each person gets spent on them.

If it’s you, your partner and two kids let’s assume $100 a person, so that’s $400.

Then if we have 8 grandparents, cousins etc, let’s go with $50 each, another $400.

All up this is $1000 needed between now and Christmas.

This equates to $125 a fortnight payday from, this week till Christmas.

Now if you have a smaller or larger family, are travelling or hosting people, your situation will be different.

But whatever it is, sit down and plan it out, work out the total you need and then how much you need to put aside each pay.

If you cannot free up the money to do this, you need to cut the amount you are going to spend, maybe great Auntie Muriel who no one likes and never talks to you anyway, does not get a present?

Then you simply must stick to your limit.

Next year, to make it easier, start this plan in January, you won’t need to save anywhere near as much.

You will find that this makes Christmas much less stressful, and reduces the post-Christmas blues as you realise you overspent.

This is just one step towards taking control of your finances, staying out of debt, and helping yourself to build wealth for the future.

DUX – 7 years on and where we started

7 years ago, DUX was formed.

It was the last Friday of August in 2010 and the place I had worked for 6 years, and assumed I would be working at for another 10+, decided that they did not want me there anymore.
That is a bit of a shock to the system I can tell you and I was in a bit of a daze. My wife was shocked too, but I did not tell her till I got home.

We spent the weekend moving all my stuff out of the office (15 archive boxes of paper files, now all scanned so no more carting paper), and once my head cleared on the Sunday, I sat down to plan what I was going to do.

Once I had a chance to think about it, it became quite exciting. It was still scary, I had never worked by myself before, but I would get to keep all the money I made and make the decisions.

When I looked at all the ideas I had had over the previous years, that had been rejected as they did not fit the company, or the ways of working I wanted to push, I got excited.

I designed DUX to be a full-service advice company, focusing on service in the long term and good advice. I realised that the profession I am in is not great at service and communication and I aimed to fix this. I think we have a way to go, but am proud of the quality of service we provide. We don’t always get it right, but we work to be better tomorrow than we were yesterday.

DUX went from working out of my spare room on my own, to working out of a new office with 2 staff and various contractors, all working to help DUX clients.

I had two choices 7 years ago, cower, go get a job or join another company or chase my vision. 7 years on I am very glad I took the harder choice as the result and where we are going has made it worth it.

What I have learned from this, is that when faced with a difficult choice, it’s not the event itself that’s the key, it’s how you choose to react to it.

I look forward to working with my current and future clients for the next 7 years and many beyond that.

Market impacts of presidential elections

A lot of people are surprised and a bit shocked after last the US election results and while I won’t be discussing the actual results of the election and the fall out (plenty of the media, who were wrong about the election will spend time telling you what will happen), it’s important to know about the market impact.

kiwisaverThe expectation of a Trump presidency would be that the market would react negatively and we are starting to see that (though the DOW was actually up for a bit today, but this could change).

So what does this mean?

Well it means that in the states people are selling shares in companies as they react to the news of the new president and, as more people sell shares, the price drops. This price drop reduces the value of your KiwiSaver units, which results in the cash value of your KiwiSaver (and other managed funds) going down as well.

If you prefer to watch a video on this go here.

The three areas I am going to discuss are:

1. Changing your fund
2. Hedging
3. Historical impact.

Changing your fund:

So should you change your fund to Conservative?

In short no. if you have a longer time period (more than a few years), then you should leave your fund as it is, because markets always recover and the benefits of the drop, will be a positive for you.

If you are about to get your money out of KiwiSaver, then scaling down your fund to a more conservative fund, could be a good idea.

If you have a longer time period, then the benefit of this is that while the funds are down in value, you are buying these shares on a discount. So when they do go up, you will have more units and they will be worth more.

So counter intuitively, it’s the time to buy rather than sell.

To use an analogy, if the housing market drops 20%, would you sell your house or look for bargains to buy more?

Shares and managed funds are no different.

Hedging:

The other thing to think about is that most of the managed fund providers will have been hedging against this (at least one of them we spoke to was planning for this). In very basic terms, downside hedging involves buying a contract that states that at any time until it expires you can sell your shares for a certain value.

So for example, you have some shares worth $10 each, and you take out a contract to be able to still sell them for $10 over the next 90 days. If during this time the share price drops to $8, you can choose to trigger this contract and sell them at $10, rather than $8. And then of course you could use this money to buy them again at the new lower price.

Historical View:

Major events happen all the time, and markets drop all the time. Major events like 9/11, WW2, the dot com crash and many other events will result in the market dropping. But it always rebounds.

On the image below you can see the historical trends of the market overset with the momentous events. As you can see, the market recovers.

graphic-for-investments

So whatever the impact of a Trump presidency, the market will recover, like it always does.

Summary:

If you have any questions on any of this, or want some advice for your KiwiSaver, get in touch with us. And if you know someone not getting advice on their KiwiSaver, get them to give us a call.

By Alan Borthwick

Money Mind-set series – Credit Cards

Money Mind-set is the concept of having the right thoughts about money and setting your mind set accordingly.  It’s about focusing to spending only money you have, not racking up debt, and saving as much as you can for your goals.  A good money mind-set will help you grow wealth better over the years, and remove all the money stress most people have.

 

This entry into Money Mind-set is about Credit cards.financial-planning

 

One of the things that comes up a lot with the debt repayment strategies I help people with are credit cards that have been racked up quite a bit (overdrafts fit into this category as well, but are less common).

 

It’s easy to think of credit cards as only an issue for people who are bad with money, but I am going to go one step further state:

 

NO ONE NEEDS A CREDIT CARD!

 

Credit cards are only for spending money you don’t have.

 

That’s pretty definitive right?  Now you will have a bunch of questions and I will answer some of the key ones (feel free to email with any additional questions you have).

 

My reasoning is this; credit cards are debt, they are about spending money you don’t have, and far too easily allow the risk of you overspending.  If you don’t have a credit card you cannot overspend, but no matter how good you are financially, a credit card increases the risk of you spending what you don’t have.

 

Better to get rid of them and not have the risk.

 

The argument about buying off the internet no longer holds as you can get a Visa Debit card which will do the same job.

 

So, what’s the solution if you don’t have a credit card?

Save!  – have cash for this money, put aside money each pay to cover your expenses, so when an expense comes up you might have used the credit card for in the past, you use this money instead.  It’s a much better feeling to pay for something in cash like an emergency payment or trip, than to borrow money for it and then have to pay it back.

 

So, here are the common questions:

 

What are the downsides to not having a credit card?

For the most part there are none, though you will have to save some money for actual emergencies as you don’t have debt to fall back on.

 

So far the only two annoyances I have found (as I don’t have a credit card) are for hotel and rental car bookings.  They are a bit more of a pain when you ‘only’ have a visa debit card and they want you to pay a deposit.  All that happens is that the hotel so far just takes $100 off you and reimburses it when you check out.  A minor annoyance in the grand scheme of things.

 

When is a good time to have a card?

Never!  Well almost never.  If you run up expenses for work and there is no work card you can use, it might be ok to use a credit card and reimburse it from work, but really eftpos is fine.  You just need to have a bit of a buffer.

 

If you were travelling overseas to a really odd place, maybe having a credit card loaded up with a bunch of cash might help if you get stuck, but again, having enough for your trip will be fine in most cases.

 

What about an emergency fund?

A lot of people justify having a card as an emergency fund in case life hits the wall, the car dies etc.

 

In theory this is okay, if the card sits in a cupboard and has a $0 balance and is only ever used for the 2-3 things that constitute an emergency.

 

But in reality, most of this can be avoided by saving an emergency fund.  Ideally a 2-3 months’ income fund is what we should have, but that’s a longer term goal.  What I am referencing is a $1-$2,000 fund (depending on your family size and need) to cover a few emergency expenses out of the ordinary like medical expenses, car repairs, family emergency or giant power bill.

 

You should really be saving for this.  I will briefly allow a card with $1000 limit on it, with a $0 balance, that once you get to $1000 in savings, the card gets cancelled.  But this card has to be hidden (or with your mum who has rules about when you are allowed it) and never used unless you hit the parameters as above.

 

But I am good with money, and I get points/rewards/cashback, what’s wrong with having a card?

 

It’s a false economy.  Are you really that good with money?  Do you only spend what you need and never spend a little extra and justify it on the points?

 

For the most part those points are rubbish and the credit card companies would not give them out if they did not know you would most likely overspend because of them.

 

If you set a limit on an eftpos card of $250 for a fortnights groceries you can only spend $250.  If you have a credit card with $2,000 available there is a very good chance you will end up spending more than this $250 on multiple occasions, because the points have given you permission.

 

Don’t risk it, dump the card.

 

How do I transition away from the cards?

The first thing to do is to stop using the card.  Cut it up, cancel it if it’s paid off or freeze it if it still owes money, and then just stop.  Get a visa debit card for buying online, and make sure you have a robust budget and set aside money each pay for longer term expenses.

 

Work out a payment plan to pay it off, do a balance transfer for a low rate if you want, but just chip away at it till is gone.

 

Once the card is paid off, never get a new one, build up cash etc. if you have to have a credit emergency fund to start with, cut the limit down to the fund requirement and then cut the limit as the fund grows.

 

What do you think about the concept of Money Mind-set?  Let me know if there are any other areas you want me to cover and I will add it to the list.

 

By Alan Borthwick

Cancer can hit anyone – do you have the right insurance?

Cancer can hit anyone, what would you do if it happened to you?

 

Nikki Kaye is fortunate enough to be a Minister of Parliament (MP) where they can just keep paying her for a while, and on her higher income she will hopefully have built up a decent buffer.

 

But should it progress, she may eventually need to stop working and will have additional costs (even if it’s just getting to and from hospital and the doctor).

 

This is something we assume only ‘old’ people get, or the rare unlucky person, but cancer can hit anyone, and the difference in your financial survival will be the preparation you do well before being diagnosed.

 

For most people, they cannot survive for long without spare funds.Insurance-IP (Custom)

 

This is where good trauma cover comes into the picture and income protection.

 

Trauma cover pays out a lump sum if you are diagnosed with cancer.  All the policies have levels you have to be at before a claim, though the good policies have an early pay-out for a lower level diagnosis.

 

This lump sum can be used to reduce or pay off your mortgage or other debt, cover your additional medical costs, allow another family member to take leave without pay (by replacing their income), and then take a trip when you recover to get over the stress (which will be big, especially on the kids).

 

Income protection replaces your regular income while you cannot work.  Think of ACC but for illness (ACC does not cover illnesses).

 

This will help you to pay your bills and lifestyle while you cannot work.

 

Now there is a huge variance in the quality of products in the market, which the banks typically having the worst of them.  The quality is defined by how easily they will pay out to you, and the ancillary benefits.

 

This is where advice comes in to it.

 

We all think that either we won’t be diagnosed or if we do, we will only have a mild cancer that we recover from immediately and with no flow on effects to family.

 

Having sat across the table from clients who have been diagnosed I can tell you that even the diagnosis is hugely stressful, let alone what the financial impact will be (and this is for clients who have insurance).

 

It will be much better for you and your family if you have the right risk protection.  It may not be as much as you need, but whatever you have will help.

 

Hopefully Nikki Kaye got the right advice and got the right insurances she needs to complement the deal that MPs will have, well before she needed it.  Do you have the right risk plan?

 

By Alan Borthwick

Happy 6th Birthday to DUX Financial Services

Today is the 6th birthday of DUX Financial.  It’s crazy to think it’s been 6 years, but it means I have now been at DUX longer than any other financial company.

 

One day I will give the full history of DUX Financial, but for now, a very short summary.6_5

 

On this day, 6 years ago, I was on my first day as a sole operator of a financial services company.  I did not have a name yet, but by the end of the week I decided on DUX.

 

I had not planned on going out on my own, but the previous Friday that decision was made for me, and it was the best decision for everyone.

 

What I have learned is that sometimes you cannot see the truth right in front of you and you need someone to give you the push.  Someone did, and now 6 years later DUX is a thriving business with great clients, and continuing to grow.

 

Thank you to all DUX clients past and present, some of whom have been with us for most of my career, and followed me to DUX.

 

Without clients there would be no business, and I would have to get a job; so, seriously, thank you.

 

Thank you to all DUX staff past and present, for helping carry my vision of the right levels of service to our clients and making my life easier, most of the time :).

 

The future has changes coming, and I am looking forward to all of them.  We are not going anywhere, other than to new premises at some point.  We are here for the long term, giving common sense advice to all who want it, and growing, and protecting the wealth of New Zealanders.

 

Alan Borthwick

29 August 2016

There are Ethical Options for KiwiSaver

Leaving aside the overblown hyperbole of the journalists in this article (I don’t think any company advertises itself as a cluster bomb company, but whatever), it’s important to know where you are investing and if you have preferences to not invest in certain areas, to see what you can do about it.

 

It’s not enough to just look at the default funds and see where they invest, but all funds.kiwisaver

 

If investing in alcohol, tobacco, firearms, gambling, uranium mining and fossil fuels is something you want to avoid, there are about 4 options in the market (unless you only invest in cash) for you.  2 of those are run by Grosvenor, a fund we do a lot of work with.

 

These two funds are the first two in NZ to be certified by the RIAA, the Responsible Investment Association Australasia.

 

It’s easy to switch these funds if you want access to them, and you can also get advice ongoing from the team at DUX Financial.

 

We can set up your funds to fit all risk appetites from high growth to conservative and will advise you on this.

 

Alan Borthwick of DUX Financial is an Authorised Financial Adviser (AFA) and Certified Financial Planner (CFPCM) who assists his clients with ongoing advice to achieve their goals.

 

There is no fee to switch to an ethical KiwiSaver with DUX Financial or to get ongoing advice about your asset allocation, buying a house with KiwiSaver etc.

 

To arrange a switch to the DUX Financial advice system and Ethical KiwiSaver investing, call us on 0800 000 987 or email us at admin@duxfinancial.co.nz

 

By Alan Borthwick

Building a home – Alan and Katrina’s Journey

Building a home is an exciting, and often fraught experience, and it’s hard to get concrete knowledge on what to do.  Often the builders hold onto information and make it difficult for you to know what your options are.

Mortgage_construction-150x150Alan and Katrina Borthwick are about to build a house.  We will be documenting this through this blog over the coming year, and a bit as the house is built.

The stages of build are likely to be:

  1. What is building, deciding on what strategy to go with?
  2. Finding the land
  3. Buying the land
  4. Initial talks with the builder and draft layout
  5. Builders prep work and initial quote
  6. Reviewing the draft plans, and house layout
  7. Update the quote as needed
  8. Architect does the drawings
  9. Quote updated
  10. Valuation off plans
  11. Finance approval for build
  12. Consent applied for/ approved
  13. Finance fully approved
  14. Build starts
  15. Progress payments
  16. Build completed

Now these steps are not going to be the same for everyone, I may merge or change the stages down the track as needed. and some steps will have elements from other steps as well.

 

Background

Katrina and Alan got married in late 2015 and decided to look for a house with a view to moving in sometime in 2017 or early 2018 when their lease comes up.  They are in no rush as Alan runs DUX Financial from the current flat.

I am now going to switch to first person.

After looking at multiple houses and missing out on a couple at silly prices, we decided to consider building.

Before we started we had to decide if we wanted a House and Land package or Purchase the land and then organise the build.

So what does this mean?

 

House and Land Package

In this option the builder tends to offer the land with the house already suggested.  You may get a couple of choices as to which house you are getting built, but often it’s just the one choice.  You may be able to make some small changes, but it’s often what you use is what you get.

The advantage to this is that most of the work is done, and you don’t need to arrange anything, or check that the house fits etc. the builder/developer will have already done much of the ground work to ensure the house is valid on the site, and can be built.  And you also get a fixed price, for both the land and build done.

You don’t get to pick the builder and you may not save much money as the developer is selling the package as a retail deal.

Often the consents are already done and so the build can be moved on to quite quickly.

Depending on the builder, it’s either a turnkey contract, where you pay the initial deposit and the rest when finished, at which point you own the house and land or a progress build where you pay the build in stages and may own the land early on.

It’s best to think of this like buying an already finished house, but you don’t get it for a year.

 

Land then Build

In this option you find the land and determine the builder, and what to build separately.

The builder may be the same as sold you the land or you can pick your own.

You need to work out the plans to the house, and some builders will have some pre designed houses, or you may need to start from scratch.

You will need to make sure you can actually build on the site the way you want to and what the covenants and other restrictions for the build are.

Usually you will buy the land and the work out the build separately.

The builder almost certainly wants progress payments, unless they are really big and agree on a turnkey.

 

What did we do?

Looking at this we decided that if we found the right land and build package we would go for it, but most likely would end up buying the land and then sorting the build.

So we then extended out Trade Me searches to look at land.

In the next episode I will go through the process of finding and buying the land and the initial steps we did.

By Alan Borthwick

Quality Financial Advice Is Important Not KiwiSaver Provider Choice

It’s adviser bashing time at the New Zealand Herald again as they breathlessly announce that some Financial Advisers only deal with a few KiwiSaver companies.  They never say outright it’s bad, but it’s the impression they are trying to give.

Even the Financial Markets Authority (FMA) says that getting advice is their main concern, not the choice of funds.

Leaving aside the fact that 85% of KiwiSaver funds are sold through banks, and they, funnily enough never mention anyone else’s fund, why is it an issue if an adviser only sells one product?  While there are 600 bank Authorised Financial Advisers (AFA)s, I have never heard of one who sold KiwiSaver.  Most of the KiwiSaver funds are sold through the branch tellers, who can sell it to you but not give you personalised advice on it, or offer any advice on your existing funds.

Advisers have to disclose how many products they sell from each category to their clients.  If an adviser says they only deal with company X, then you have the choice of sticking with them or going to an adviser who deals with more companies (even if they end up recommending company X).

An adviser has to tell you the pros and cons of moving to, or away, from a particular company.

I can tell you that no bank staff member has told my clients when they try to move their KiwiSaver that they are going to lose personal access to an AFA, and that they will be signing up for a scheme that is not even the bank itself but one with their label over it, run by someone else.

I have to disclose, but the bank staff don’t.  That’s left out of the article.kiwisaver

The IFA president is correct that there is not much money in KiwiSaver for advisers.  It’s viable for me, because I have taken a loss on so many clients that now I have enough to cover the costs of advising everyone.  But its hard work.

But let’s look closely at why we don’t deal with all 28 plus companies.

  1. Only 10 deal with advisers – even if I could deal with all 28, 18 of them won’t talk to me anyway, and won’t pay me. And as the consumer won’t pay for KiwiSaver advice, that’s the end of that.
  2. They are mostly interchangeable. There is not a lot of difference between providers. They all offer similar funds, have similar fees, have similar returns over time etc. the differences are between specialist funds such, as the ethical funds that only three providers have, and the vast differences between the quality of the online information offerings are about as good as it gets.  The providers don’t give advice directly anyway, so unless you go to their sales team, you need to talk to an adviser to find out the differences anyway.
  3. Some of them are tiny. Some of the funds out there are very small. So even if I could deal with them, I might want some bigger options.
  4. Some of them are hostile to advisers. One fund that specialises in a particular industry spends a good portion of their value proposition slagging off advisers and the need to get advice. They spend a bunch of time on the fact that we can get commission, but leave out the fact that their sales people are clearly paid for their work and probably get bonuses.  Why would I recommend a fund that does not even think we have a place in the industry?
  5. There is no reason to. If I have a value offering to you that gives you the advice you need, the service, communication etc., does not leave you with any risks from leaving your current fund and you are happy with it, but it’s only with one provider, what’s the problem? The key is disclosure and advice, not the number of choices.

The New Zealand Herald is trying to claim that choice of funds is most important, not advice.  Well, I disagree.

There are 28 plus providers out there, I doubt anyone could name over half of them easily and most are much the same.  They don’t advise, they sign you up and hope you forget to leave.

For me, the key thing is advice.  At DUX Financial Services we work with five KiwiSaver providers, though we don’t use them evenly.  We focus on the initial advice, and ongoing advice, which is the most important focus.

The choice of provider is not as relevant as the quality of the advice.

By Alan Borthwick

Easy Finance Is Not Always Easy

It’s not a surprise to read about people racking up lots of debt on the mobile lenders.  People will always find a way to borrow if they are that way inclined.

What is interesting and relevant is that the lady has no idea what she bought or what it cost.

This is because the focus of the client in these case is to get the item, not what the cost (bar the initial price) is.  They have no interest in the long term price because that’s tomorrow’s problem.

When you only live for today, it’s easy to dump stuff on tomorrow.financial-planning

The way to avoid falling into the (self-inflicted) trap of borrowing for consumer purchases is to be very aware of today and tomorrow.

What I mean is:

  1. Be very clear about what your income is.
  2. Be very clear about what your expenses are – i.e. do a budget.
  3. In this budget have a clear breakdown of what is allowed for discretionary spending.
  4. If an item is over this, you cannot by it.
  5. Only buy things with cash, i.e. you have to save. And if you have to save, you have to budget an amount each pay to save so you can spend this money.
  6. have a goal for the future that is more important than borrowing more, i.e. buying a new car, a house, a holiday etc. it’s easier to save for a goal and not spend than to just ‘not spend’.

Doing this will mean you are less likely to wander into a shop and just borrow money, as you will be aware of the impact on your future if you do.

But let’s also get away from this nonsense of these companies ‘preying’ on people.  They don’t drag you into their truck/shop and you have to sign the dotted line to get the money/loan.

Yes, if they are not fulfilling their legal obligations on disclosure, sale of goods act etc., they need to be dealt with, but offering a loan at 25% is not illegal (its less than GEs standard rate btw), as long as you know its 25% and take it with no pressure or fraud.

as you can see from the article most of the companies have already written off much of what she owes them, which shows why they charge so much, to cover the cost of those who they never get money from (it also shows they need a better assessment process).

High interest lenders are a pain in the ass and I enjoy helping them lose money by cashing them out early, but they are part of the market and there is demand for them, otherwise they would go out of business.

The best way to run these people out of business and to lower their rates is for people to stop borrowing for items they should save for, and to live for today and tomorrow, not just today.

DUX Financial Services can provide some advice in this area if you need it.  Check with your Citizens Advice Bureau (CAB) and budget services as well.

By Alan Borthwick