I want to buy my next IP but..........

Actually, the way I see it, the 'Credit Cards' are not the villain.

Credit cards perform a very usefull function, and to blame the plastic for our financial woes is a simplistic approach to a more complex problem.

If you don't have a credit card, you have to go to the Bank or the ATM and withdraw money on a frequent basis.

The govt tax on withdrawal / transfer of money is $0.40 for each $100 or part thereof.

For example, if you withdraw $100 once a week (to pay for your lunches!), the tax is $0.40.

However, if you make a number of small withdrawals throughout the week eg use the ATM at the service station to pay for your petrol, that $37.50 withdrawal will also cost you $0.40 tax.

Buy some bread and milk using the ATM at the supermarket, another $0.40 tax.

By the end of the month, you might have made 50 small transactions (plus the lunch money withdrawal), so 50 x $0.40 = $20 tax per month simply on withdrawing the money.

Add to that, that most banks will allow, say, 20 withdrawals from your account 'free' each month, but charge $1.50 for excess transactions, and suddenly you're looking at 30 x $1.50 = $45, plus the $20 tax. Wow! To use the ATM and pay cash for everything just cost you $65 for the month.

However, if you take eg $300 cash out each week, the transactions are 'free' within your usual monthly account keeping fees, and the tax is only $1.20.

But ... there you are, walking around with $300 in your wallet or handbag. That's a security risk that you may not be comfortable with.

So, if you use the card (except for the lunch money 'eeerk') but set your internet banking to pay the balance of the card the day after you get paid, whether that be weekly, monthly or whatever, then you've used the card responsibly and it has certainly cost you a lot less than $65 in fees and taxes.

The problem with cards is where the balance is not paid out regularly, or large ticket items are bought without a payment plan in place.

If you buy a lounge suite for $1,000, set the internet banking to transfer $100 monthly for 12 months to clear that specific part of the card balance (plus interest).

Yes, set the internet banking to transfer a nominated amount each week to a Cash Management or Progress Saver account. My children have had $50 weekly deducted from their pays since they started work. That small savings pattern was what got them their loans at such a young age.

As far as budgets are concerned, we all know our achilles heel. Do you buy cask wine at $20 for 4 litres, or pay $20 for a 750ml bottle? If you like cafe lunches, switch to cask wine at home, or eat a better lunch so your dinner is not so important. Eat six oysters instead of a dozen, or buy them fresh from the supermarket at a third of the price.

The truth of the matter is, if every member of the family buys lunches, has a mobile phone, the house has internet connection, plus cable TV, there are two cars, central heating, and you eat out or entertain friends at least once a month, your discretionary income has just gone into the red. Add to that school fees, a couple of trips to the snow or the beach each season, and a new hot water service in one of your investment properties and factor in a two week vacancy and a reletting fee, and with no savings as a buffer zone, you're in deep water very quickly indeed.

Gordon, the way forward is very simple. No amount of plotting and planning will take the place of simply putting the money aside and then living within your means.

Good luck

Kristine
 
Hi Gordon
Look at your spending and see what you dont need
then stop spending there
eg. I stoped smoking and the money it was costing me
now I take the family for a 2 weeks holiday every year.
just one of many of thinks you dont need
 
Originally posted by Kristine..
As far as budgets are concerned, we all know our achilles heel. Do you buy cask wine at $20 for 4 litres, or pay $20 for a 750ml bottle?

You don't have to go down to cask wine, look for specials in the local papers. eg: I just bought a dozen Matthew Lang Chardonnay at $3.50 each. :)
 
I cant save either (I have expensive tastes) I dont like to have to stick to a budget, it feels too limiting...

So I impose a pseudo style of budget (which doesnt seem to hurt as much)

I simply PAY MY INVESTMENTS/SAVINGS FIRST - ie the only thing I decide is how much I want to invest... I take this amount from my income and spend the rest as I wish... if it lasts a day too bad, I cant spend my investment/saving $$$ - works for me.
 
I used to have problems saving, but I've found a really, really easy solution that I use successfully, and that I've recommended to heaps of friends who it also works for. It's similar to XBenX's method, but involves less work on your part.

Best of all it's a really lazy way to save (ie requires absolutely no on-going effort on your part).

Step 1 - open a new bank account. Preferably something like a joint account - both to sign, and with a different bank, so that it doesn't show up on when you check the internet.

Step 2 - deposit 10% of everything you earn into it. Set this up with your employer to have it direct debitted. If you are self employed, then you will need to be a little be more motivated, but set yourself up a system.

Step 3 - forget about it. Spend whatever comes into you're main bank account. Honestly you won't miss the bit coming out, and you'll have less stress because you won't be watching the penny's in your main account.

This system has worked for me even when I was earning only $7000 per year.

I think it works because most people keep spending until they run out of money, and then they are forced to live frugally for the last few days before the next pay check. This way you kind of trick yourself into thinking that you've run out of money.
 
Maybe this is a silly question (it probably is).

I seem to recall that in one of his earlier posts, that GG indicated to the forum that he had $x in equity in his current PPOR and IP, and he got a reply saying he could borrow $Y, based on a few caveats, of course.

(see below)

http://www.somersoft.com/forums/showthread.php?s=&threadid=10757


Therefore, my silly question is.....

With this equity sitting behind him and a track record of making payments on his PPOR and IP loans, why can't GG just go out and buy IP's - on the proviso that they are either positively geared or positive cash flow?


Obviously, he may have to look a bit further than around Melbourne - but positive CF properties are certainly out there.

MB :confused:
 
I reckon what Puppeteer and Ben x did is the ideal solution..
Many people have incredible difficuly budgeting and this is a good way around it-

Best regards,
 
Hi GG,

Budgeting won't work if it is too hard to administer. If you have to enter every $ spent into a spreadsheet, consolidate every week you probably won't do it.

You have to work out/estimate your monthly expenditure (food, take-away coffee, phone, mobile phone, ISP, power, telephone, gas, petrol, insurance/12, rego/12, entertainment, cloths, mortgage).

Once you have worked your monthly expenditure you can estimate how much you can save each year and estimate what you bank balance should be each month. This is easy to check and will tell you if you are on target each month.

In my budget I try to save at least 10% of my gross take home wage per year. Based on this I can plan what I can do in the year (buy a new car, renovate the kitchen, renovate the bathroom)

Monthly expenses can range from $1.5k - $5k.

This approach works for me because it is simple and after a heavy spending month I know I need a low spending month to bring the savings back up to where they should be.

I will sanitise my spreadsheet and post it shortly.

Hope this helps !
 
Budgeting

Re: your situation

Income - $50k
No Debts
Credit Card - $7k limit (half owing)
No morgage - own our home. ($450k)
36y.o , Married - 3 young kids

1 IP - Value - $260k
Owe $80k
Rent income $830 per month
Positive geared - $300 per month

You're still heading in the right direction though, GG
Just gather your thoughts, Focus on where you want to be and do what needs to be done to get there. I gotta agree with Acey, there's no easy way or someone with a magic wand that'll make it all happen. If that was the case, everyone would be on easy street.
But, hey, I think you already know that.
JIM
 
Gordon. I still think your taking the piss.....But if you want to know how I did it:
My pay goes into three bank accounts. One for the direct debits, loan repayments, and important bills (mortgage, car, wine club) - one for utilities ( phone, electricity, school fees etc) and the last for living (food and spending). Work out the money that needs to go into each account on each payday and get it automatically put in. Disconnect the internet/phone banking and cash card from account 1 and just use account 2 for paying bills. Then use account 3 for living and whatever you like. But, when its gone you cannot touch account 1 or 2. When its gone its time to visit friends and relatives for dinner, and making sandwiches for lunch. After the first month or so of eating with inlaws and taking your lunch to work you suddenly develop a knack of being a little money wise.
Forget about this saving money crap though. Who ever said you can save money these days has not bought a PPOR recently and does not have a family, or alternatively does not have a life. Sometime putting yourself wisely into debt is the best savings plan you can have.
Well thats my opinion.
 
Hi there.

"Lazy, err, busy person's budget"

This is what I do. I work on all of our REGULAR EXPENSES. That is expenses like electricity, mortgage, loans, phone, insurances, school expenses, registration, rates, memberships, an amount for savings, things that occur year in, year out. (I don't work on food or videos or chemist, things I have to spend time guestimating.)

I then get the last 12 month's copies of each of these bills. Using the electricity bill as an example, I add these up to see how much it costs for the year and then divide this by 52 to give me the weekly figure.

Takes no time at all, except what is involved in walking to the filing cabinet, bench, basket, or wherever these items are kept to get them out.

I do this for each of the Regular Expenses. I then add up what the total cost of all of our regular expense are, per week. This figure, plus about $10.00 extra is left in the bank account and NOT TOUCHED. Any other income is fair game.

This way I don't feel deprived. It's an easy budget and allows for all the bills to be paid, as well as spending and a savings plan.

Try this - you might be surprised.
 
Hi GG ,
Two tips for you ...
(1) from student days ...if you really want to spend less , just DON'T go out. If you stay home rather than shop/socialise/venture out, the money stays in the bank.

(2) from an investor. ...consider how much capital it takes to create the income you are spending. To explain ....when you buy the two dollar ice-cream, it costs $2 which is $4 before tax. But how much capital does it take to earn $4. If we say interest rates are 5% , then it takes $80. So , spending $2 of after-tax income on the ice-cream is the same as destroying $80 "worth" of capital. Makes you realise how valuable your income is.

You'll beat it !
LL
 
Mr Gecko

Reality is that it is pretty hard for people to change habits - certainly drastically.

If you are not a budgeter now, you probably will never be.

My husband and I are spenders, tried budgetting - several times , several methods, didn't work. Earned good salaries and spent every dime and then some (bit like yourselves). But like SBE said "we are very good at paying off debt"...

So 3 years ago had 20k deposit and zero properties, by Jan next year we will have over 2m in properties and 800k equity (only 620k is in PPOR rest in IP).

You and your partner first need to work out where you want to be in 1,3,5,10 even 20 years time and what is important to you. For my husband and I , heading towards financial freedom, and less work was important to us...so were great holidays, eating well and a nice car for now. However, our home and furnishings are not going to be on the cover of Vogue that is for sure, and our clothes are not designer stuff, though I do have a weakness for Italian shoes)!! So don't kill yourself with your budget, but work out what you want, and what your prepared to sacrifice/or not, to get there.

Committing to home/IP mortgage payments first is way easier to force savings , and then do what you like with the rest. I am so glad that I did and made a few compromises in other places.


It's all up to you!! anything is possible.

Carolyn:)
 
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