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.

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

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

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

Changes to KiwiSaver Homebuyer’s withdrawal

mtgeThe government has announced some changes to KiwiSaver withdrawals for 2nd chance first home buyers that will come into place on the 1st of July 2016.

 

I have read a couple of articles and there is some confusion about what it all means, so I thought I would clarify this for everyone.

 

Current situation:

There are two aspects to KiwiSaver assistance for buying a home.

 

First, the KiwiSaver withdrawal, and secondly the Home Start Grant.

 

If you are a first home buyer and have never owned a home before, you get your KiwiSaver provider to confirm you can withdraw your funds, and you apply to Housing New Zealand Corporation for the Home Start Grant.

 

If you are a 2nd chance first home buyer, you have to first apply to Housing NZ for permission to withdraw your KiwiSaver, on the same form you use to apply for the Home Start Grant. Once housing NZ approves you as a 2nd chance buyer, you go back to your KiwiSaver provider with that approval to get your KiwiSaver withdrawal confirmation.

 

So far, all makes sense right?

 

The current rules for both the withdrawal and Home Start Grant are:

 

First home buyer

Withdrawal Home start
No income requirements $80 000 max for 1 borrower, $120 000 for 2 or more
No maximum assets 20% maximum assets compared to the max purchase price (so $90 000 for a $450 000 house).

 

2nd Chance First Home Buyer

Withdrawal Home start
$80 000 max for 1 borrower, $120 000 for 2 or more $80 000 max for 1 borrower, $120 000 for 2 or more
20% maximum assets compared to the max purchase price (so $90 000 for a $450 000 house). 20% maximum assets compared to the max purchase price (so $90 000 for a $450 000 house).

 

So what’s changing?

The bit that is changing is the maximum income for the 2nd chance first home withdrawal is being removed, so it does not matter what you earn, you can get your money out.

 

It’s not changing for the Home Start Grant, but just to get your own money out.  And there are no changes for people who have never owned a home before.

 

What difference will this make?

Well if you have owned a home before, but earn over the cap, you can now get your money out of KiwiSaver to fund your first home.

 

This could well speed up your ability to get into a home, and I can already think of a lot of clients this will help.

 

It won’t help if you already have over the asset cap, so it’s for genuine cases of people in a first home buyer’s situation, but it’s a good boost for those who used to own a home, came out with little to nothing, but have a bunch of money still in KiwiSaver.

 

If you have used KiwiSaver before, you cannot withdraw it twice, and you cannot take out any Australian super or UK pensions that have been transferred in, but other than that, you can withdraw all but the first $1,000 of your fund.

 

The Housing New Zealand Corporation site has an official notice of the change, but if you have any questions on this, let DUX know, and we can provide advice and make it easy for you to get into your (2nd chance) first home.

By Alan Borthwick

DIY Retirement Warning

kiwisaverI am not convinced that the answer to people not planning for retirement, is more Do It Yourself (DIY) focus. Sure, it’s better than nothing, to use the calculators etc., but the problem with these is the placebo like effect of having run the calculator, and then your brain basically deciding you are done, and then you go back to whatever else you are doing, and spending.

Doing this with an Adviser (an Authorised Financial Adviser (AFA) who can advise on long term retirement planning), is better because the calculators are not the point, the calculators are just the overview.

The purpose is to identify the habits to change and where to put money, what to change etc. so that you get the better benefit of compounding interest, and do a bit better with your money each year.

This bit annoys me though:

Retirement planning is not a precise science, and people should ignore the big, scary numbers the money men and women sometimes claim you need for a comfortable retirement.

It is not a precise science, but you should not ignore the big scary numbers, but understand that a good planner will show it in context of what you need to do each year and each week. But, if you ignore the big number, and think “she’ll be right” then you are doomed to failure unless you have a happy accident.

The article mentions wildcards like the Auckland rates increases and Christchurch changes to insurance (though premiums did not double, but media is nothing but there for hyperbole), well that’s what a planner helps you with, a DIY calculator cannot.

The general process for retirement planning is:

1. Determine needed income needed in retirement
2. Determine savings needed to get there
3. Allow for inflation and other expected unexpected expenses
4. Plan for clearing the mortgage
5. Alter the budget and spending habits as needed
6. Sort the KiwiSaver and other products as needed
7. Set up Review plan

It’s easy, but it’s not simple. A good plan with solid advice will make the difference between retirement, and a good retirement.

By Alan Borthwick

In the Market for a House? Don’t go to House Auctions!

mtgeAt least this article is not about the housing market in Auckland this time!

Auctions suck when you don’t have a 20% deposit.

The bank won’t sign off on the property, and short of paying for a valuation before you bid, you have to either just bid or hope, or you have to pay for the valuation, and then might not get the home.

Short answer is – don’t go to auctions.

Seems simple and it may or may not be, depending in where you live, but there are lots of houses for sale, and not all are on auction.

Valuations are risky if the property ends up worth less than you pay, as you may have to scramble for more deposit, because the bank will lend against the value or price, whichever is lower.  So, for example if you have a $30K deposit and want to buy a $300K property, that’s a 90% loan.  But, if the property is only worth $290K, the bank will lend you 90% of $290K (or $271K) so you need to find the missing $9K.  Not good.

That’s bad, but missing a building report could cost you tens of thousands.  Don’t do it.  Always get one, even if you are paying for something that may be worthless if you miss out on the house.

If the vendor provides one, it’s okay, but it won’t have been extended to you (and they probably should not be giving it to you anyway), so you have no protection if something is missed.

It’s still not worth as much as the one you pay for, for your use.

There are other traps as well, about insurance and the age of the house, when it was built and moisture tests, etc.

Get advice!  A good adviser (like the DUX team) knows all these traps and will help you with the property you are looking at buying.

It’s better to walk away from a house that looks like a dream, than buy it without due diligence and risk it turning into a nightmare.

By Alan Borthwick

Student Loans – No Interest, Doesn’t Mean No Cost

financial-planningI am guessing the journalist on this story was not a student in the mid to late 1990s when you could download your entire living allowance money in one go.

That meant that many people used their money to buy cars, travel, stereos (back when CD players cost money) and alcohol of course.  Me, I bought magic the gathering cards with my first loan money (I was 17 and a career in financial advice was a long way away in my own defence).

So, none of this surprises or worries me particularly, students have spent their loan money on whatever they want for a couple decades now.  Sure there is the issues that this money is only for course costs, but that’s minutiae more than anything.

With student loans essentially free now, there are some bits relevant to students to think about.

  1. Just because it has no interest, does not mean no cost. You have to pay this back when you are earning more than $19,000 a year, at 12% of every dollar you earn above that. This is going to take you a few years to repay, and the more you borrow, the longer it will take.  The longer it takes, the longer before you have the money in your pocket to do more fun things.
  2. It’s going to impact your ability to go overseas with no worries. If you go overseas, you need to pay the loan back at a higher rate and so you cannot quite so carefree head off on your overseas experience.
  3. The expense makes it harder to buy a home. The balance of your loan is not taken into account by the bank, but they will take the actual cost into account. For example, if your loan payment is $100 a fortnight, they take that off your available money, which could impact your ability to get the loan you want.
  4. Saving will be harder, as you have less surplus funds left each pay, making saving for goals take longer or require bigger sacrifices.

The government who made student loans interest free stated that no one would borrow more money.  And they were proven to be very wrong, as governments who ignore incentives always are.  Borrowing has gone up, and voluntary extra repayments dropped 99% when the changes came in.

There is a block of young adults, (anyone who was studying in 2005 and past), who has a bigger loan than those before them, and now has to deal with it.

So, before booking that stripper on your student loan, thinking about how long it’s going to take to pay back.  Are they worth it?

By Alan Borthwick