Pick yourself up, dust yourself off

Until recently, we had been making really good progress on reducing our debt, increasing our net wealth and forming some sort of financial security for ourselves. We were ahead on our mortgage payments, had zero credit card debt and the margin loans were under control, despite the financial crisis.

However, we slipped. Usually, we get large commission payments about once a quarter. We try to save a lot of this and spend a little. Then, some of the saved amount is used to cover living expense for the next few months until the next large commission payment is received. Except that this time we decided to put in some nice decking around the house. Nothing too extravagant, just to replace the concrete backyard that we currently have. Also, we had a few plants put in and some seats. Total cost for all this work was $25k (including pulling out a really big old tree). The problem is that we also spent a fair bit on my wifes 40th birthday, had a few other bills and, to cap it all off, received about 2/3rds of the commission we thought we would get. In other words we got carried away, back to our old habits.

This, of course, means that we are now in a little of trouble financially for the next few months. Things are going to be tight. Luckily we have a little cash put aside (the emergency fund), which we could draw on, so we won't go hungry.

Whats the solution? As my grandmother used to say, pick yourself up and dust yourself off. Whats done is done and whats spent is spent. We can only look forward now and remember to SAVE THE NEXT COMMISSION!

Luckily I'm not one for giving others advice. :)

Networth and retirement

Heres an interesting thought, with all the volatility in the financial markets of late, how many of you have actually had a reduction in income from investments (eg dividends, interest etc)? Personally, our investment income (as opposed to networth) has remained roughly the same. There is talk of one or two of the companies we own reducing dividends, but this is offset by those companies raising them (yes, some are still raising dividends). As for interest, well interest rates on just about every instrument except government debt has gone up! So, provided its a good credit risk, there is extra income there. Also, where I live rental income has gone up a lot over the last 6 - 12 months.

This is one thing we all forget in measuring our networth - you can't live on networth. What you can live on is investment income and, historically, this has tended to be pretty stable. My parents are a good example of this. They have a very large investment portfolio, however the monthly income they are getting from it has stayed consistent for most of the last 6 months.

Maybe its time we all stopped focusing so much on how much we are worth and looked at other measures that will allow us to see whether we are winning 'the game' or not. Some examples for other measures can be found HERE.

Some random thoughts

Its been a while since I last wrote on my blog. The credit crunch has been keeping me a little busy (I work in financial services). How have things progressed since the last time I wrote? Well up until a few days ago our financial situation was getting pretty good. We purchased our house with the help of an inheritance, had set aside a couple of thousand in emergency cash, our mortgage rates have come down and my wife is getting a huge commission payment at the end of the month.


On the downside the buffer for one of our margin loans has been breached. I had allowed enough for a 20% fall in our portfolio - obviously not enough! Also, we have having our back garden redone and the cost of that has gotten really silly. While we have budgeted for it (some of my wife's commission will go to pay for it), we have had to draw down on the mortgage in the mean time (several weeks). That's a bit unnerving in the current economic climate. Instead of being a couple of mortgage payments ahead, were now down to one. I guess that this is one reason I am blogging again (helps reduce the stress).


As an aside, I think that this credit crisis will bring about change in the way people consume both their money and their leisure time. If the revolving circus that has been our borrowing / consumption lifestyle ends (which at the moment it has), then this may bring about a fundamental shift in the way we live our lives. An economic shock of the kind never envisaged by Milton Friedman.



This week is going to be interesting. Can the financial world be saved by governments? Will any other countries go bust (and witness the strategic moves Russia is making into the Arctic via Iceland while the rest of the West wasn't watching.). To paraphrase Churchill, this is not the beginning of the end, but merely the end of the beginning.

Another Day, Another Debt

I cleared off my wife's credit card last night. That means we no longer have any credit cards left :), but we still have $14,950 in debt on an amount we rolled into our home loan. I paid $800 off that today. Over the next few months it is going to be harder to pay down debt, as we take up our new home loan in September, but I will endeavour to pay off a few hundred every week or so.

The easy wins are over, its now time to work on the harder amounts.

A New Dawn

Fiery Dawn Over The Rocks
Originally uploaded by brentbat

Today is a GREAT day! A new dawn if you will.

The sun is out, its a warm winters day (yes I live in the southern hemisphere), there is a gentle breeze and I closed my credit card. Yes, after months of waiting around, spinning my wheels and not really getting anywhere, I paid off the last $211.95 owing on the card by walking into my local branch, completing the transaction and closing the account.

How does it feel? It feels great. While this is only a small dint in our total borrowings (refer to networthIQ for the full assessment), its now our second step in the right direction. A week ago we saved up our first $1,000 in our emergency fund and now I've paid off the first credit card. Isn't life great.

The next step

We started following Dave Ramsey's snowballing technique to pay down our debt. The next step is paying off my wife's card (with a balance of $4,800). This should be done in the next few weeks, as we have tax returns and bonuses coming in. After that, we will tackle the credit card loan (of $14,950) and our car loan (of $22,000).

We are on a roll now, after standing still for over a year. Lets keep the momentum going.

Emergency Fund Milestone

Today we reached a milestone. I started using Dave Ramsey's steps (or at least a modified version there of) and the first step is to save $1,000. And today our Emergency fund went over that $1,000 and for the first time in a long time I'm starting to feel that there is a little bit for financial stability in our lives. While we still have a large amount of car and credit card debt to pay down, at least we are now paying all our bills on time and have a buffer for really dire emergencies.

Next step is to pay down the credit cards. Because we are getting tax refunds this month (or August at the latest), we are going to use this cash to pay off our credit card debt. By my estimations we will be credit card debt free by the end of August!

After that, the next steps involve

1. paying off the car loan - $22,000


2. paying off the margin loans for our investments - approx $26,000


3. paying off the investment property loan - approx $350,000


4. paying off our home loan - approx $1.1 million

While the home loan portion seems HUGE (and it is), my wife and I both earn large incomes, and thus we are not that overly concerned about its size. Somewhere in between these steps we need to increase our emergency fund to a couple of months living expenses.

Dangers of trading CFDs

Trading CFDs is hazardous to your wealth

Here is an interesting article from 'The Australian" newspaper (from Australia, obviously!). There are essentially two parts to the story

1. A client of the broking firm CMC got very upset and assaulted staff after losing $28,000 'trading' (read gambling)



2. The owner of CMC has just recently bought a $25million house on Sydney harbour, upgrading from his modest $1.5 million home.

The article says two things to me. Firstly, you will never get rich trading contracts-for-difference (CFD's), a highly leveraged investment product offered in Europe and Australia (though interestingly banned by the SEC in the US). They are offered through companies such as CMC and IG Index and are becoming huge in both volumes and $'s traded. They are also popular because they are tax free in the UK (because they are considered gambling products, not financial instruments - get the hint).

Second, its much better to be selling the shovels to the miners, rather than being the miner during a boom. I feel a bit sorry for the guy in the article, having used these products in the past. Having said that, I hope he learns a lesson from it. Leveraging is extremely dangerous and should only be done in very very very small amounts.

These products are very dangerous to your financial health.