Sometime the pricing for Australian market is really really confusing and to certain extend insulting. Want some example:

• 

  Expect pay more in Australia

  Recently I try to book return flight from Qantas between Jakarta and Sydney. If you book Jakarta-Sydney return (start from Jakarta) it is around US$700 , but if you want Sydney-Jakarta-Sydney (starts from Sydney) it’s gonna be around US$1300 – of course on the same day and the same flight. Can somebody explain this? both type use 2 times each of Sydney airport and Jakarta airport, getting the same baggage allowance and benefit, why one significantly more expensive than the other?
• Ever buy those plastic frame/cover for your mobile phone? I buy one for my old Nokia E71 for AU$5 from Hong Kong including delivery. And found exactly the same product (even the molding on the plastic got the same defect and marking) and here retail for $30 in one big shopping shopping center’s “discount stall”
• Try to buy Ipad2 recently? the 64GB version with Wifi and 3G capability will set you just under AU$1000 while you can buy in Amazon around US$700 mark.
• How about software? Try to upgrade your Photoshop to CS5: the same software, you pay US$199 in the USA and you pay around $300 here in Australia. More expensive just to use it (license). Similar situation can be found for operating system, specialized software, etc.
• And we can go on and on citing almost every single item for sale here to get the same result: (almost) everything here in Australia is more expensive.

So, to give us some kind of reasons on why such thing happen here in Australia all the time, let see some of the factor here:

1. Australia, demographically is a tiny nation. Only around 22 million population country wide. That is even smaller than city of Jakarta, Indonesia who carry 35 million  inhabitant. So, say, if 30% of all population will buy Ipad2, then it is only about 7millions Ipad 2. But if the 30% of USA people (total about 300 million) all buy Ipad2, then that’s a total of 100 million Ipad2.
   You ever wonder why that blockbuster premier hardly choose Australia to screen the first time? That’s because we are just tiny in number.
   So, in general, as every business venture will have an overhead cost, the overhead cost can only be distributed to smaller number of prospective customer, hence it is more expensive.
2. Additionally, Australia geographically is quite isolated in the corner of the world (only really close to New Zealand), hence it’s not in the major hub of good and service. So, the cost to delivery anything to Australia will be more expensive as the ship or the plan can only go to Australia with little choice in between. Compare this if a container ship go to Singapore as major hub of Asia. After Singapore, the ship can go a number of country with ease.
3. The union movement is strong in Australia, preventing more effective operation from most of the big company. Everything in Australia is too “politically correct”. Boss cannot instructed employee to stay back because of some urgent situation, they have to just ask and employee can refuse it. It is not right to say “You are wrong, do it all over again ” here, all is fake toleration. Union will force the company to increase pay at certain level regardless of the strategic move needed by company. So, wages is driven higher and higher more than anybody else in the world. Pay increase become something of compulsory, if not all strike. If a good government to sack people due to their incompetence or simply not needed any more, he or see will be “marked” as anti job security and reducing service. How many those unnecessary public servant that can be made redundant without making any service become less.  And changing a bulb have to be done by 2 people for safety issue (absurb!!)
   This behavior, if continue indefinitely, will make all good company move oversees and Australia become not a good business countries.
4. Property is Australia is so expensive for slightly different reason. Although Australia have very big land per population, most livable area is only limited near the coast line. And the release of land to make it available for residential is too slow to cope with the demand. In Sydney alone, it is predicted there are around 1000 people every week to live in Sydney. With very little availability of housing, supply and demand rules is in force driving the price up. It’s very different with sub prime mortgage problem in USA. Not understanding this fully have made few prominent “forecaster” who predict housing price buble in Australia will burst “soon” have to lick their spit back: red faced, proven to be totally wrong.
5. Being fully developed nation, the lifestyle and living standard also quite high. This is in a way creating high cost niche within already small population that drive the price even higher.
   For example: there are many who will need to change to Iphone 4GS although their Iphone4 is still perfectly okay. Laptop of i7 core rather than i3 core. BMW car instead of Toyota.
   Having this will make the supplier do the reverse dumping: “it’s okay we can sell it higher, the Aussie will still buy it anyway”
6. And in some case, Australia does not have enough competition to naturally drive the price lower. For example: supermarket is mainly only Coles and Woolworth. The other smaller operator has yet to make significant dent. The bank that operates and control market share: mainly only 4 big banks: Commonwealth, Westpact, National and ANZ. Telecommunication: either Telstra or Optus.  Once the smaller patron make significant dent, somebody will buy them out and merge to the make it ever bigger company.

Hence, we will be still paying for long time more expensive stuffs here in Australia.

Related Posts

• Purchase Cheap Online ? Maybe Not: 2 Most Important Tips – No, Not About Security

With Ebay and PayPal getting more and more popular and credibility, dozens other similar sites/services are coming like a rain to get the slice of market share. This is not too mention thousands if not millions of “traditional” e-commerce or shop online that is already there waiting customer.

Theoretically, all of online media should be able to sell any good cheaper compare to their shop-front competitor. And generally it is – as competition is really fierce up there. Especially with website that accumulate all the bargain from their user like ozbargain.com.au – once the shop put a good price, almost guarantee many will crowd it.

But there are 2 most important item that you need to check before to do any online shopping:

Most Important Item #1: Beware Fake

• If you want to buy “fakeable” branded item, such as perfume, bag, fashion label, etc – probably DO NOT buy online except from their official website/retailer.
  Why? First of all, most of us probably will not be able to distinguish the fake and the original
  But second of all, even if we able to know it was a fake, it is very difficult to make a case. The seller can just accuse that you swap your already-own fake with their brand (you buy their brand to match exactly your fake on and claim that their one is the one fake) – So, unless you got lawyer and police as your credible witness from picking up from post office/during delivery until you open it – you will be wasting you time, and energy.
• Some item cannot be faked, for example say buying Canon EOS Digital camera, good luck if someone try to fake it! So, the risk maybe just simply you did not get the brand new one (packaging can be re-done!)
  Not too bad tough if you really got a bargain price.

So in general. if you just buy generic item -or- something that cannot be faked -or- you don’t worry even if it is a fake one, then go ahead .

Most Important Item #2: Beware Price Skimming

•  You MUST know the price first – that’s very important rule.
  Once you decided to purchase an item online, do your homework by researching the prince on the net as well. It is as easy as just type the product name and model on search engine search box, and usually you will get some reference on how much roughly the price it.
  If it is at very bargain price, be alerted, and do the extra mile to check it further – ask the seller why? maybe it is sold as “parts” (meaning it’;s broken and some other people will find it useful as replacement part) – just do another check.
• If you have more patience and not in a hurry, tag an auction item on your “Watch List” (Ebay got this facility or just simply bookmark the URL and check it later) and just wait until the auction finish to know the final price. This is usually a fair price that market want. Do this for several auctions on the same item and you will have better fair pricing for the item. Only then hunt yours now – you have known the exact good price.

I show you a perfect example of this below:

If you are into photography you will know that Canon Flash 580EX is very powerful and wanted by many, only the price is at  easily sold at $700 mark -or- even more at retail shop in the mall. Then you read some forum or magazine saying that a generic Chinese brand called YongNuo YN560 is a good much cheaper alternative. You go to Ebay and found this (click to see bigger pic):

Bargain Price ?

The real bargain...

This is what happen when you do not know the exact fair price of an item – some people outhere just try to skimming the price. They don’t do anything wrong . If it is too expensive, then it is only up to the buyer to buy it or not – they don’t try to scam or cheat you – you don’t like the price (and laughing it if you know the real price) you don’t buy. But this will be impossible if you don’t know the real one. You will think “Oh, the $70 must be fake and I’ll buy the $490 one – it’s expensive it must be the real deal” – Sorry, no! They are both exactly the same item, a Chinese made generic replacement of Canon one.

Final Words.

Don’t get me wrong, I am not anti online shopping. On the contrary, I actually do about 90% of my shopping online (maybe except groceries and petrol), I have done hundreds of transaction from $1 to thousands dollar with no problem – PayPal is my best friend.

I hope you get the point as illustrated above. Beware of Fake and Know your price and you will be happier online shopper.
Take care and happy online shopping !

Related Posts

• Why (almost) Everything In Australia is More Expensive than Overseas ?
• Credit Card For Online Transaction, Is it Safe?
• Collect Your Changes: Handy Little Saving From Your Coins

Australian is living longer than ever. According to AIHW (Australia’s National Agency for Health and Welfare Statistic and Information), Australian are on the top board of live expectancy: 79 for man, 84 for woman.

But until the mystery of death is resolved by scientist, sooner or later we are all will meet the end of the road. That’s mean most of all will have our own funeral.

Of course, depending on who is the Funeral Director/Company, and all the glory details about the arrangement, the cost of funeral will vary from one to another starting from around $3000 to unlimited. For this article, let’s choose $6000 as reference cost – it will buy you a decent funeral service.

Yes, for most of us, $6000 is not little money that can easily just be splashed around, but it’s not actually too bad either.

Looking after this quite significant cost before it actually happen is one wise and smart decision.  Especially if that’s means our love one will not have to worry about the cost of your funeral. Well, the question for this article is whether a Funeral Insurance Plan provides you a good solution or not….

The quote

Here is the quote that I receive a few days ago (all in Australian dollar – date:April 2011) – for $6000 benefit this is the premium that you need to pay:

I am quite sure that’s probably not the cheapest one, but it give you a ball park figure as reference.

Value for money?

Say if you are 40 years old, the annual premium is about 3% ($177/$6000). Let us compare with life insurance. One of our policies is $40 monthly for $250,000 benefit. So, annually it is $480 or just under 0.2% of the benefit. So, for a start, this funeral insurance is roughly about 15 time more expensive than life insurance – it’s expensive insurance.

Let stop here temporarily and see what are there as alternatives:

1. Prepaid Insurance Plan

More and more funeral home are offering prepaid funeral plan. This is the one that you actually go to the local funeral home and discussing what you want to be done on your funeral and they give you the cost that you can prepaid it. It is good if you have just extra cash to pay for it, but even not, they usually have installment plan for you to pay for several years.

Let see… if $6000 cost is spread into 3 years, then the cost that you need to get is $2000 a year -or- $38 per week.

2. Save for it !

Sooner or later....

But how much? With $3.41 a week or $177 a year, you would need 34 years to come up with the $6000. Let’s try to do it in 5 years instead: $6000 / 5 = $1200 a year or $100 a month – if this is too hard do it for 10 years.

Whatever the money you want to commit,since you will put it on saving account that has interest, then we should not be worry with inflation figure. Here is alittle bit fancy way to do it:

1. Open no-account-fee saving account that provide cheque facility. This account is just for this purpose only nothing else.
2. Pay committed money into this account every month (internet banking or auto debet from your main account)
3. In several years, you will reach the amount… but don’t stop there – keep doing it to provide buffer for inflation cost and better service plus something else.
4. Every birthday, write a cheque for your next of kin to the amount that is available on that account already – but don’t give it to him/her. Put it on your “emergency only” folder (you should have one). This is to make sure that if it happen you die on that year, your next of kin can immediately access the money to cover your funeral cost.Every year, tear up the last year’s cheque and write a new one. Not only to update the amount that now available, but also to make sure  the bank will still honor the cheque without many problem as the cheque is fresh (less than 1 year old).
   Do not put this cheque to your lawyer/trustee with your will as it may require too much paperwork before anybody can touch it.
   Alternatively, you can ask your trusted friend / neighbor to hold it and only give it to your next of kin only when you passed away.

The only challenge that you meet on this way is your own discipline. How discipline are you putting some amount of money for it? But it’s really flexible. Even if your time come before it reach the full amount, your saving is still helping your next of kin nevertheless,

So?

Only by taking insurance you will not pay the whole amount that you will need. However, taking insurance means you are betting that the company will still be there up and running business when you need it (this is also true with prepaid plan).

The value of having insurance is getting multiplied if you take the “family plan” – just check the term and conditions to avoid false expectation.

If cash flow is tight and you don’t want to add anymore burden to your bill, try the saving method. It will give you a little project every month and year until it reaches your target.

This insurance is not really essential, but it’s good to have.

So, as always,  decide what best for you and be responsible about it. It’s your life, it’s your decision and your own responsibility. Hopefully the article above can give you a food for thought. As for me, I will shop around for the best funeral insurance – as it gives value for your money – even though it’s expensive insurance..

Hope this helps….

Related Posts

• No Related Post

The Level Premium Pricing

I hope I can easily explain the concept using simplified graph below:

Level Premium Pricing

So, in this Level Premium Pricing, you will pay the same amount of premium each time. It will not go up , it will not go down. So, say you purchased a $50,000 life insurance policy where you pay $20 a month. Then you will be paying $20 a month all the time until you terminate the policy.

As pictured, the benefit (the money that will be paid by the insurance company) is also stay the same. If you die – God forbid – say next year, they will pay you $50k. If you die 20 years from now, they still pay you $50k.

As you suspected, our “frenemy”, inflation, will have much of the say here. Because of inflation, the value of money will be diminished over time. In practical sense, nowadays for example, you can live for a year with $50k…. But how about 20 years later? Yes, it’s hard to imagine. You can do it the other way around: ask your grand father or grand mother how much is the annual living cost 20 years ago, and you will see how little that amount of money can buy in the current year.

So, as pictured, the value of the money becoming les and less every year although you still pay the same amount – thanks to inflation.

Advantages

• Easier to budget, as the premium will not changed

Disadvantages

• The amount of money that you will received may not worth much on the future day. Imagine you have a payout of $5000 insurance for your living cost today – it will not give you much further isn’t it ?

The Stepped Premium Pricing

Stepped Premium Pricing

In this pricing, the premium that you pay will go up every year. But at the same time, the benefit also go up every year. The result is that the value of money that you expect to received when you claim will be approximately maintain at the same level.

For example: if we assumed the inflation is steady at 3%, you will need $70,000 rather than $50,000 for a year of living cost in the next 12 year. So in this case, although the dollar value has increased from $50k to $70k, but the value is maintain at the same level (to cover cost of living for 1 year)

Advantages

• The value of the premium will be maintained (approximately) – so if we can live for 1 year without work with $50k, 20 years in the future, with bigger number of money, say $70,000 for example, it will roughly still good for 1 year living cost.

Disadvantages

• Although we know the benefit will be increased to combat inflation, the premium can actually increase more than that. Say the inflation is 3%, so next year $50000 benefit become $51,500  but you need to pay $22 starting next year ($2/$20 =10% increase). Why? Of course because the insurance company want to make more profit of you. Read this insurance bungle if you want to see actual story.

Conclusion

Although both pricing seems make sense on each own, but since the purpose of the insurance is to cover your pitfall at certain level (enable to cover x number of years living cost, to buy the replacement car, to reimbursed the cost, etc), then this level need to be maintained. If you choose the level pricing and it happen you become very under insure then the function of a insurance is no longer be fulfilled.

So, the clear cut is there: Always choose the stepped insurance premium pricing. Yes, it will go up every year, but so does the benefit – so you will maintain the value. Hopefully with more and more competitor in the market, any insurance company will not be able to price gouge its customer easily as the customer can simply jump to other company.

Take care !

Related Posts

• Pay Off Your Mortgage or Not ?
• Increase Your Credit Limit on Your Credit Card, or not?
• Credit Card: Income Revenue For Issuer
• Offset Account: A Must Have For Your Mortgage
• Inflation Is NOT Price Goes Up: Common Misconception

Pay off Mortgage or Not ?

Emotional Factor: Itch To Have Debt

Yes, a home loan or mortgage is a debt. The decision to pay off your mortgage or not, in my opinion, should not be based on emotional decision. Yes, human is emotional being, but this decision is purely based on financial knowledge. If you have a (limiting) believe that “Debt is bad” (then you need to learn about debt and leverage) or “Not having debt is always better than no having debt” (huge mistake, check all super wealthy people in the world who doesn’t have debt… zero – they are all have massive debt) – then just stop here as no matter what I or other said that will not matter already. Trust me, debt is not always bad (yes, there are bad debts) and Debt is very important tools in getting financial goal.

So, let’s go back to the original question with open mind: should I pay off mortgage or not ?

Home loan and Its Interest Rate Do Not Grow

If you have $500,000 home loan for your property. While your property can grow in value (doesn’t matter how slow or fast) — maybe increase 10% in value within 5 years, i.e: 5 years from now it worth $550,000 — the debt will always be $500,000 and decreasing if you pay the principal and interest, or it will stay the same if you only pay the interest.. Let say in this case we don’t pay the principal of the debt , just the interest.

Then if you can take a fix interest of 5% for 30 years, every year for 30 years you will need to pay 5% x $500,000 = $25,000 per year.

If you take the variable/moving interest rate, then probably it changes from 3% – 10% over times, meaning you will pay maximum of 10% x $500,000 = $50,000 per year when the interest is 10%.

Salary / Income and Inflation

During 30 years of span, inflation will eat up the value of money. That’s why $1000 10 years ago is much more valuable compare to $1000 today. With the same analogy, say if a salary of fresh graduate engineer is now $60,000, 10 years ago, it will not be $60,000 much less as somehow it will greatly determine by inflation rate.

In other words, assuming the same position and responsibility in a stable job market, income (i.e: salary) will generally go up with the proportion of inflation. For example: as Engineer you earn $100k per year. Ten years from now, will you still earn $100k? The chance is you will earn much more than that, not only because inflation adjustment, but also with the promotion in corporate ladder (if you are in business, from the growth of your business as well).

Therefore say the Engineer above buy the above property. So, with $100,000 salary per year, he need to pay $25,000 per year. The proportion is 25%. Ten years from now, say the salary is now $150,000, then with still paying $25,000 per year of interest, the proportion of the mortgage is only 17% then.

Making inflation and time your friend

This is why Robert Kiyosaki, the Rich Dad, make a remark that “Savers are Losers” : if you have debt – especially the large one, time and inflation become your best friends. Over time, thanks to inflation and increasing income, the proportion of the debt become less and less. In other words, over time, the mortgage become easier and easier. In this case: yes, maybe our Engineer a little bit struggle with $100k salary and $25 mortgage, but if it’s become $200k salary and still $25k mortgage per year, I don’t think it’s big matter anymore. It gets easier over time.

And to top it off, at the end you can actually make the bank to finally pay off this mortgage with their money. Isn’t that great?

So, What Then ?

Of course, the best use for your extra money is for investing. Do not ever consider your extra money to be used only for consumption or lifestyle – unless it’s being budgeted before. For example: you just wont $10,000 from lottery. Rather than use the money to buy new LED TV or jewelry, then it’s better to pay off your mortgage. But even better if you use the money to buy some good blue chip stock or new investment property  that can give you return and growth.

The simplest form of “investing” is put the money in high interest saving account, but this “strategy” is not too effective as the return is pretty low.Investing is literally a race between inflation rate and Return of Investment – as long as the ROI is higher significantly than inflation you will be ahead. And this will give you double benefit. Not only the homeloan become easier to service overtime, the passive income from investing will make your wealth come faster.

But before do investing, make sure you read this: Postpone Investing! Do this First ! . After that, there are too many “strategy” to do some investing such share trading and property investing.

So? Happy Investing, then !

Related Posts

• Insurance? 2 Kinds of Premium Pricing You Need to Know
• Inflation Is NOT Price Goes Up: Common Misconception

Interest: Saving higher than mortgage – a trick?

Normally, bank will offer a saving account or term deposit with interest rate less than their homeloan rate. Because this is fundamentally how a bank derive their profit (beside fee from service of course).

For example: a bank get $100 million term deposit and give customer $5million as interest with 5% rate, then they will give $100 million lending (i.e homeloan) with 6% interest and get $6million re-payment from homeloan customer and end-up they book  profit of $1 million.

But you will find sometime – for short period (“Today Only!” or “This Month only”-kind of thing) banks offer very generous interest rate for saving or term deposit account. Is this some kind of trick ? No, they are real…

Remember, for smart people: “If it seems too good to be true, check out first and don’t miss out” – only people with no knowledge and not smart will always say “if it is too good to be true, it usually it is” – do not follow them they are mediocre people that will be just that: mediocre – average.

So, the next question will be? Is it better off I put the extra money in this super high interest, or just keep it on the mortgage’s offset account ?

(btw, the reason bank offer such high interest is to lure people deposit their cash so they can boost their cash reserve/loan ratio.)

High Interest Saving vs Mortgage Offset Account

One tricky factor that need to be considered to make this comparison is the tax. As you know, income from earning interest from deposit or saving is taxable (I heard rumor that it won’t be in the future to encourage saving, but until it becomes law , this kind of interest is taxable)

So, let’s pretend we have $300,000 mortgage with 6.5% interest, and suddenly the bank (could be different bank) offer a high 8% interest online saving or term deposit. As you have $15,000 extra money (emergency cash) – will it better in offset account or in term deposit ? (Assuming your tax rate is 30%)

Offset Acc vs Term Deposit

If you just put money in the offset account, your mortgage is treated as $285,000 instead of $300k and “only” attracts $18,525 interest. Well, at the end still better than taking the high interest saving / term deposit (see table above for more detail comparison)

Of course, if the bank keep increasing the high interest saving account/term deposit, at some stage it will be more beneficial to take that instead of offset account. To calculate that threshold, just use the formula below the table (above).

At this stage the calculation will yield 9.29%. Meaning if the bank offer 9.30%p.a for term deposit/saving account then you will start to be better off taking that offer rather than leaving your extra money in the offset account.

The spreadsheet to use calculate above number (Just right click on the link and select ‘Save As’):
termVSoff.ods (Open Office’s Calc format)
termVSoff.xls (Microsoft Excel format)

Conclusion

If you want to take high interest saving/term deposit for your extra money, make sure the interest offered is higher than the threshold. Otherwise, leave it in your offset account.

Remember, One bad thing about term deposit is that you cannot take your money as you wish. In the case of emergency you will suffer a penalty to access your money.

I always  suggest to put your emergency money in account that do not restrict in when you want take it (such offset account or saving account) – although it quite prudent to have some handful under your pillow as well (not too much, though)!!

Good luck in making inform decision !

Related Posts

• Rule of Ten: The Least You Can Do
• For the Savvy, There is No Junk Mail ?
• Kiyosaki: “Savers are Losers” – A Sad Truth with a Catch
• Offset Account: A Must Have For Your Mortgage

Win-Win Benefit for All

Great Offer?

At first, it seems unreal. Imagine if you sell a TV and only receive payment 3.5 years later, do you want to do that business ? Maybe no. The same answer I would expect from companies, such “Harvey Norman” who regularly conduct this special offer.

So, if they also don’t want to be paid 3.5 year later, how does it work? The answer lies on the “joint venture” between the companies who promote the offer and some financial/credit provider company:

• The company who sell the goods, will be paid immediately by financial/credit provider company, as if it is a credit card purchase. (There will be usual commission for each sales, just like normal credit card purchase)
• The customer who purchase the goods need to open a new credit card account or personal loan account on the spot or online with the financial/credit provider company. This is subject to normal credit/lending criteria including credit check, income information, debt information, etc. Just exactly the same if you want to open/have a new credit card. (That’s why the term is “for approved customer only” and there is minimum amount of the purchase to make sure it’s worth doing).
• The “joint venture” aspect is that the company who sell the goods “introduces” their customer to the financial/credit provider company. The company who sell the good will have more sales, the financial/credit provider company will have new customer. Of course additionally the financial/credit provider will pay some “kickback” or commission as if the company who sell the good were their broker.
• The customer is also happy as they will have more buying power at the earliest time (now!)

For the credit provider, having somebody only pay 4 years later is what they do for business (Remember, mortgages span for 30 years) – so really no big deal for them to provide such credit facility.

The Hidden Temptation For Customer. Beware !

This is not really a trap or “gotcha” from this scheme, but more on “temptation” for the customer. How ?

1. The fact that you have additional buying power the same as you have additional money in your pocket will give you so much temptation not to “upgrade”. You know: want 40 inches plasma TV-  end up buying 52 inches one, want laptop with 120GB Harddisk/2 MB memory – end up with 160GB Harddisk/4MB memory, no plan to buy dishwasher – end up with not only dishwasher but also a small fridge.
   See, the problem is, this is really nobody fault except the customer. Only self-discipline will guard you from this, nothing else. The seller is on the business to sell more to you, that’s given. So, cannot really blame anyone except yourself if you buy more than planned.
2. When you open the new credit card/revolving credit, the company will give you more credit than the amount that you buy. For example: you buy $1000 computer using this scheme, open new credit card account, and the financial/credit card company may give you $5,000 credit. Yes, they block that $1000 no interest,  but you have $4000 credit ready to be used – and of course with that hefty interest at the order of 15%-20%. Yes, the company will explain to you that additional purchase will attract interest (if they did not explain to you then they miss their obligation) but along the way when the temptation come, there will be so much harder to resist that you have immediate $4,000 to spend.
3. Beware of  the “additional offer while you are on it“. For example: the computer you buy has 1 year warranty, how about buying 5 year extended warranty instead (or sometime they ask you as a requirement). Or since you buy this plasma TV, why don’t you add this HD set top box for additional $25?
   This kind of offer will not be limited while you are in store only, but it could be happening during the life of your “no interest” period.
4. At the end of interest free period,  there will be a temptation to keep it under credit (not paying it off) and then you start paying the high interest rate.

And final caution is beware the administrative fee / annual fee that will be imposed to the credit that they provide to you.

My Recommendation.

Remember, never ever buying consumer good with debt. But if you have the money already, and you qualify for this offer and can tolerate some hassles then, why not?! But remember to do the following:

• Put your money on high interest saving account (such online saving account or term deposit – don’t put it on your mortgage offset account as it will not “earn” that much). As example: $1500 purchase where the money can be put into 8% term deposit for 3 years will earn you almost $400. Not bad.
• Do not use the credit card or credit facility at all as you will possibly paying hefty interest from it.
• As soon as the “interest free” period ends, pay off the amount with the money that you have already and close the credit card/credit facility that you use.

Thus, as you can see… you really need self discipline more than anything to get the most of this mouth-watering offer!

Related Posts

• Credit History: An Important Document You Can’t Deny

Saving Money Little By Little

What is Rule of Ten?

Rule of Ten is a plan to make a saving at least 10 percent of your money. Why 10%? It’s small enough for you can manage the “missing money”, but it’s big enough to make significant amount.

For example: if you have a salary of $1500 per fortnight, you need to save at least $150 for that paid period.  What you can get after a year (26 fortnights) will be just under $4000! And managing $150 per fortnight or $75 per week from your budget should be not that challanging if you willing to try the tip below.

Maximize your chance!

To get the best out of this technique, so some of the tips below and you will maximise your chance of success

1. Open a new account separately from your “normal account”.
   “If you cannot see it you will not use it” is the main purpose here. Your saving account should not directly and easily viewable by you. Open a dedicated saving account (maybe those no-fee “online” saving account) that should not be linked to your day to day internet banking or ATM.
2. Pay yourself first.
   Transfer that saving amount (10%) first thing before even touch the money from everything else. Better yet, setup on your internet banking a direct recurring payment scheduled to transfer the amount from your day to day account where  you receive the salary in, to that special “saving” account. Place the date 1 day after the usual day of payment. For example: if your salary always come at Thursday, then setup the transfer to be done by Friday . (Not less, as the crew probably were not ready.
3. Do not over-commit the amount.
   If you can afford to save more than 10%, that’s great.. but you need to do this continuously and should not overburden yourself. The problem if you commit too much is that at one day you will stop and start using the money and it defeats the purpose of the saving. Actually if you really tight, start with 5%. Better smaller but consistent rather than too big but you cannot commit.
4. Separate this “saving account” with other account such mortgage offset account.
   The idea is, if you have extra money, put that extra into mortgage offset account to help you reduce the amount of interest paid every moneth. But of course if you need more money to cover expense you can always get it from this offset account. The reason to separate this “saving” account is that the amount of this saving is never to be touched unless really emergency or  until you achieved the goal.
5. Dont put this saving into term deposit.
   Having some extra money on the bank earning no or little interest will tickle you to put it on the term deposit instead. But this again defeat the purpose. This saving money is supposed to be your emergency fund that you use on rainy day. A simple visit to the bank or ATM card should be all you need to access the money. If you put it on the term deposit, then you will need to wait until the maturiry date to access the money without penalty.

What next?

The first goal of this exercise is to give you the level of Financial Protection first. That is to have in that saving account the amount of money enough for you to live without working for 6 months. Of course the amount will be different from person to person who live in different city/country. Do your budget and determine the amount.

Once the first goal is achieved you can start allocate the extra money to top up your investing account. The investment account can be as simple as term deposit, or account for buying share/stock or other investing purposes. Don’t stop what really already started (regular saving), but from time to time if you calculate that you have more than 6 months worth of living cost money (remember to make sure you incorporate any increased of living cost), then transfer the extra amount to your investment account.

In general, if you have other measures in place (income protection insurance, life insurance, etc) you don’t really need more than 6 months. But of course you can just decide to make the goal changed to have 12 months worth of financial protection instead.

Happy Saving !

Related Posts

• Offset Account, Tax and High Rate Term Deposit/Saving Interest
• For the Savvy, There is No Junk Mail ?
• Kiyosaki: “Savers are Losers” – A Sad Truth with a Catch
• A Sweet Revenge: Let The Banks Pay Your Debt
• Income Protection: Your Salary Cover In Need

1. How Much You Spend For Xmas?

First thing first, you need to know how much you spend just for Christmas related expense: gifts, special donation, decoration, taxi for party, extra tip, etc. No need to be exact number, just roughly.. $500? $1000? or massive $5000 or more? I guess most of us, as long as we don’t leave the city will spend around $500 – $1000 for all those extra festivity expense.

Small Piggy Bank for Christmas

2. Little Help From Bank

Thanks to a little bit competition among banks, let us now open a new saving account – the one without monthly account keeping fee. No need ATM access, no need internet banking and not even need interest, if that help – as long as we can transfer (electronically via internet for convenience) from our existing account. It doesn’t have to be your normal bank, any bank or credit union that offer no-fee account. We will open a dedicated “XMAS account“.

The idea is old: piggy bank. But we make it more modern and fancy: a special bank account just for all Christmas related expenses. And since it does not have account keeping fee, it will not cost you a cent.

3. Contribute Throughout The Year.

If you have your salary weekly, how hard to contribute only $25 each time? Or make it $50 fortnightly? With this amount, suddenly you have extra $1300 cash for Christmas every year. Of course, you can add more if you can, but do not make it too high as it will come a burden and then make you stop. Even as little as $20 fortnightly will give you a handy cash just over $500 for Christmas shopping.

The trick is to make it automatic. Set up a periodical transfer with your internet banking  exactly the day you usually receive your salary. For example if you received your salary on your account every Wednesday fortnightly, set to auto pay every Wednesday fortnightly the amount that you want. Why exactly on the day? This is to do an illusion to the brain to not realizing that the amount has been deducted from your salary. After a while you will get used to it and maybe forget about it, only to find that extra $1000 on Christmas. Isn’t that nice ? (Note: just make sure your account does not go into negative if the transfer from your employer got a day delay or so – leave some buffer)

Again, don’t set the amount too high so that your budget will severely affected. This is just a little squeeze, if it is too much, you will alter it.

No Christmas Debt Next Year

So, yes, this year you may still have those xmas debts, but this year will be the last. Next year, you can be sure that there will be no debt anymore as your little piggy bank has started accumulating little by little – automatically.

Have a good new year, then !

Related Posts

• No Related Post

(If there is a mortgage product that allow you to fix  the interest rate for long period: 20 or even 30 years with very competitive fixed rate – go for it. Unfortunately not every country have that great product, they have to juggle between lower variable rate or higher fixed rate with fixed short term – before revert back to variable rate
Note= variable rate = flexible rate = adjustable rate)

Let The Number Talks

For our discussion let’s say that we have $350,000 mortgage and we are considering between a Fixed Rate mortgage (7.59% interest, $8 per month account fee) and a Variable Rate mortgage (5.91% interest with $300 per year account fee). And the bank charge $300 to switch between the fixed and variable product. We also know that usually reserved bank increase by 0.25%. (All number are real as per December 2009). This can be summarized in table below:

Just by simple calculation, the difference between the fixed rate and variable rate can be seen below:

Yes, if the rate stay where it is now for a year, if you stay in variable rate, it will save you just under $6000 for a year -or- around $490 a month. And if the rate is going down, you can save even more. But, of course no body knows for sure whether the rate will go up or down next month. The movement of interest rate is simply impossible to predict accurately. Furthermore, the bank can just raise the interest without even waiting for the reserve bank.

So, for our analysis, we will do the worst case scenario. The worst case scenario is when the reserve bank increase the interest rate every single month. On the table below, we will see what happen if the interest rate go up for consecutive 24 months, each time with 0.25% considering all the fee and upfront cost. This is what will happen:

The “saving” shown on the table is accumulative from the first month. That’s why even the monthly repayment for variable rate is already higher than the fixed rate on 8th month, since you have previous saving, it only become break even on 15th month.

In other words, basically, based on the simulation above,  you will still in advanced should you stay on your variable rate until 14 consecutive months of increases. On the 15th month you can start laughing that “Lucky, I choose the fixed interest rate!”. But before that 15 months, the variable rate still more superior.

Well, maybe you said that increase every one is a bit too harsh. OK, how about an increase every 2nd month?  Here it is:

Fix or Variable ?

You can see that the break even between Fixed Rate and Variable Rate is even further away (28 months – inserting 1 month for every increase)

The SpreadSheet

I have prepared the downloadable spreadsheet shown above that can run on your computer (No macro, no virus – I promised ). Once you downloaded it you can generate your own simulation based on your own condition. This is just a simple spreadsheet but an eye opener.

If you have Microsoft Excel, you can download the XLS file, otherwise you can have the Open Office version: ODS file. (You can download Open Office for free from the internet)

To download, right click your mouse on icon below and select “Save Link As”

Note: any cell with black background and white font indicate that you should change the value to customized to your own number. You can change all the parameter to check your specific “what-if” situation. What if the bank increase by 0.50% instead of 0.25%,what if the “gap” between fixed and variable is not that much , etc.

Conclusion

If the gap rate between fixed rate and variable is too wide, then the answer of “should I fixed my rate or keep it variable” will be “no”. The simulation will prove it to you. But your own circumstances will dictate what’s best for you, so consult with your financial planner if you are not sure. But as I always encourage people to take charge of their own financial matter, you cannot be in state of limbo and unsure of everything. Get the solution and understand it first. Maybe it will take more time, but be it. Your life, your money, your responsibility!

Have a good mortgage shopping and have fun with the simulation !

Related Posts

• Your Homeloan Also Depends On Your Credit Card!