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GUEST ARTICLE: Almost 18 months ago, during the Global Financial Crisis, I wanted to share a bit of optimism so I wrote this post about it being the best time to start a new business and I believe I was right.

“Growth”. photo credit: iChaz

These were my main arguments:

• It Takes Time – to start something from scratch, build it up and make serious profits/sell it
• You Don’t Need A Boom To Start – It may be true that it’s easier to start in a boom, but it’s not required
• Great People For Hire – I’m not trying to treat people as a commodity here, it’s just the facts that supply will outstrip demand for a while and that’s a good thing for founders.
• Slump In What? – “You can still sell stuff”
• There Is Money – Yes, there’s less silly money, less private equity, less from family, friends and fools, but it’s there.
• We’re All Still Here – No start-up is an island. It is born, nurtured, matured and blossomed in a community and network that is a key part of the success
• Less Competition In Innovation – When the economy flies to safety, one of the first budgets of the big boys that get cut is the R&D budget. Why is this good? It means that they are leaving much of the new opportunities to you and your shiny new startup.
• So Get Started – if you’ve got an idea that’s been in your head and you’re thinking “Woah, have to put that on hold for now.” then pick it back up again

A bunch of companies started during the GFC are on a great path right now. “So what about now?”

Well, it’s a great time to grow a business. Much of the business and consumer world are confident and optimistic (except Greece maybe). The first of the growth results are trickling in, so this should continue. It’s not hot right now, but you don’t want it hot, you just want it supportive of growth and expansion. You want sales.

All this points to more money available for investment. I don’t think there is going to be a better time than between now (June, 2010) and the end of 2011 to raise capital for small, private, startup businesses. They won’t invest in ideas or crazy dreams and you won’t get $1m for 1%, but you will get smart people investing smart money in smart teams.

More importantly, it’s the right time to accelerate your business. This is specifically more important for startups. The reason is, if you want to grow, exit and finish your earn out, then you want to do that before the next decline. If we’re ramping up now, then we might be hitting the peak in 4-5 years. If it takes you a year or two to grow, a year or two to sell and a year or two to exit, then you better get moving now.

“But what if didn’t start 18 months ago?”

Well, then things are going to be slightly harder. But that is an awful excuse. To paraphrase Mrs Landingham from West Wing, “If you don’t have any ideas and you don’t have the desire to commit to them and make it happen, then I understand. But if you do have ideas and passion, but just think it’s too hard, then gee, I don’t even want to know you.”

This guest article has been written by Mick Liubinskas. Mick is a partner at Pollenizer, which helps web businesses grow and become successful.

If you’re a blogger or an expert about a topic I cover on this blog I encourage you to contact me and I’ll consider publishing your guest article here including generous attribution and back links back to your website as thanks for your contribution

Visit the Rambling Thoughts Blog regularly to read articles about Technology, Personal Finance, TV Shows, Politics, Environment, Books and more

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So you’ve saved up a deposit for your first house, you want to take advantage of the government’s first home owner grant while you still can, and the bank is actually prepared to lend you money. But how much should you borrow?

photo credit: woodleywonderworks

While Australia has not had the same problems with “sub-prime” borrowers finding themselves too deep in debt for a house which has collapsed in value (house prices can and do go down as well as up), there are certainly still people who have borrowed too much and are struggling to make their mortgage payments.

Once upon a time, many banks had rules of thumb for the maximum size for a home loan. A common rule was to lend no more than three times the borrower’s annual income (before tax). These days, even in the wake of the “global financial crisis”, it is not uncommon to hear of people being offered loans or four or five times their annual income.

Just because a bank is prepared to lend you enough to buy the house of your dreams doesn’t mean that the loan they are offering you isn’t too big! Borrowers have to decide for themselves how much is a safe amount to borrow and how much is too much.

One way to get a sense of a reasonable size for a mortgage is to consider extreme scenarios.

The term “mortgage stress” is used for borrowers whose mortgage payments have become so high that they are having trouble making ends meet. A figure commonly used to define mortgage stress is someone paying 35% or more of their income (before tax) on their mortgage.

At first glance, it may seem strange to use the one figure regardless of how much the home owner earns. But while people on high incomes pay a bigger percentage of their income away in tax, they also tend to spend more on luxuries and less on essentials and so they can afford to pay more of their after-tax earnings into their mortgage.

So, tax and spending patterns balance out and 35% gives a pretty good indication of mortgage stress for most borrowers.

Now, how big would a loan have to be to leave you paying away 35% of your salary? At the moment, home loan rates are around 6.5% to 7%, depending on the lender. When you first start making payments on your mortgage, most of what you are paying is interest (over time you end up paying back more of the loan and the interest component gradually reduces), so a good estimate is 35% divided by 7%, which is 500%.

So, if you were to borrow five times your annual salary, with an interest rate of 7%, you’d be in mortgage stress on day one and that’s not allowing for any increases in your mortgage interest rate in the future! Five times your salary looks like way too much.

The next thing to take into account is that interest rates can go up. Most mortgages in Australia are variable rate mortgages. More precisely they are known as “discretionary variable rate” mortgages, since your lender can change the rate to anything they like.

In practice, mortgage rates move more or less in line with the Reserve Bank’s “target cash rate”, although recently most banks have been raising their lending rates by more than the Reserve Bank target rate.

Over the last twenty years, the Reserve Bank’s rate has moved in a wide range, from 17.5% in the early 1990s to 3% last year. So it is certainly possible for mortgage rates to go up.

In fact, financial market professionals were stunned at the beginning of February 2010 when the Reserve Bank of Australia did not raise rates and with January 2010’s strong growth in job numbers, they are even more convinced that rates will go up in March.

When rates do start going up, they can move quite quickly. From August 1993 when rates started to move, they ended up 2.75% higher in less than 18 months.

What If Mortgage Rates Go Up 3%?

With this in mind, what if we allowed for mortgages to go up, say, 3%? Of course this doesn’t mean they couldn’t go further, after all rates are still at record lows, but it’s a good starting point. With rates at 10%, a mortgage of 3.5 times your income would have you in mortgage stress. That old bank rule of thumb of three times your annual income is starting to make a bit of sense!

Since everyone’s circumstances are different, the “no more than three times your annual income” test will not make sense for everyone. If you are already paying rent without any difficulty, then you should be able to handle mortgage payments of the same amount (another old banking rule of thumb).

Although keep in mind that once you own the house you are responsible for repairs and maintenance, which can throw up unexpected expenses. Also, if you are paying your rent, but not managing to save much on top of that, it’s probably not a good idea to take on a mortgage with payments higher than your rent.

Making Budget of Income & Expenses

To really come up with the best indication of how much you can afford to borrow, there really is no substitute for rolling up your sleeves and working out a budget of how much you earn and how much you spend. Working through your credit card statements and regular bills (phone, gas, electricity, insurance, car, school fees, childcare expenses etc) is the best place to start and then you can split your spending into essentials and things that you could cut back on once you have a mortgage.

Also, don’t forget that there are additional expenses when buying a house, including stamp duty (many people forget how big this can be) and legal fees. Once you have your budget and you know how much of a deposit you have saved up, use an online mortgage calculator to work out how big a loan you can afford.

There are a few other things that are worth keeping in mind when making the decision to take on a mortgage:

Fixed Rate Loans

If you are worried about your interest payments going up, it may be worth taking on a fixed rate for, say, three or five years. Very often fixed rates are higher than the variable rates, and if you do fix the variable rate may not end up going higher.

You should think of Fixed Rate Loans as a form of insurance not a bet on whether or not the Reserve Bank will be hiking rates.

For some people who fix their mortgages it can make all the difference in avoiding mortgage stress. Keep in mind that your interest rate will revert to a variable rate at the end of the fixed term and by then rates may have moved a long way.

Redraw Loans

Most variable rate mortgages allow you to pay down your debt faster than the minimum payments would require and then “redraw” those extra payments in the future if you need them.

Since interest on your own home is not tax deductible, reducing your debt as fast as possible makes a lot of sense and it also means that if interest rates do go up, your payments won’t go up as much and you have a buffer of savings to draw on if necessary.

Since fixed rate mortgages don’t usually allow for redraw, if you are thinking of fixing your interest rate, one option is to fix, say, half or two-thirds of your mortgage and the rest can be a redraw mortgage.

Your Insurance

If you find yourself seriously ill or injured and unable to work, the last thing you want to worry about is keeping up the payments on your mortgage. An insurance policy can make a big difference in this situation.

Likewise, if you are paying off your mortgage jointly with your partner or spouse, and one or other of you is killed, losing your house as well would be a cruel blow.

A life insurance policy with a payout big enough to pay off most or all of the mortgage can prevent this from happening.

Mortgage Insurance

Most lenders will require mortgage insurance for loans that are more than 80% of the value of the property. Although the borrower pays for the mortgage insurance, it is only there to protect the lender so it’s really wasted money for you and it is good to avoid paying it. Of course, there’s a trade-off. If you are only going to borrow 80%, you’ll need to have a bigger deposit saved up or settle for a cheaper house.

There are a lot of things to think about when deciding to buy a house and sometimes the best decision is not to buy at all. But, if you are set on buying your own home, make sure you’ve done your sums and you don’t get yourself into trouble paying off your mortgage further down the track.

This guest article has been written by my friend Sean Carmody (@seancarmody and @stubbornmule on Twitter ). Sean is a Sydney-sider, blogger at Stubbornmule, father of 3, gadget-aficionado and music-lover who works in the financial markets.

If you’re a blogger or an expert about a topic I cover on this blog I encourage you to contact me and I’ll consider publishing your guest article here including generous attribution and back links back to your website as thanks for your contribution

Visit the Rambling Thoughts Blog regularly to read articles about Technology, Personal Finance, TV Shows, Politics, Environment, Books and more

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Compared to most people I don’t buy or own much stuff but I still have too much stuff so I am slowly giving away, selling or throwing away all my excess stuff (clothes, gadgets, shoes, books etc etc etc)

“too much stuff” photo credit: joemad

I need don’t need all this stuff, I don’t even use a lot of this stuff. I think you’ll agree with me when I say that when you have too much stuff you spend more time finding space to store it and make room for yourself then you spend actually using the stuff.

“stuff for sale” photo credit: debaird

The problems with living in an economy where consumption (buying stuff) is a way of life encouraged by governments and corporations are more than you think

Problem: Negative Externalities of Stuff

A lot of the costs of the stuff you buy are “negative externalities” not reflected in the cost you pay at the counter. “Negative externalities” is a terrible phrase which basically means let somebody else deal with the problems (pollution from factories, roads packed with transport trucks, sick overworked sweatshop employees etc)

Story of Stuff – Externalised Costs

Problem: Rental and Housing Costs

Most of us aren’t really thinking when we go shopping to buy stuff like another TV, better speakers, more shoes, another suit, a second car, a new set of dishes, more towels without stopping to consider: is it necessary, can I afford it and the most important: What is this new thing really costing me?

Australian household debt is growing at a fast rate and I think buying stuff using personal loans, credit cards and home loan withdrawals is a contributing factor.

photo credit: stubbornmule

All this stuff is costing us quite a bit in storage alone. We are building new homes with bigger kitchens and more bedrooms, bathrooms and closets than ever before. When you buy a bigger home to accommodate your stuff, you pay higher taxes, higher heating bills, bigger cooling bills, a bigger mortgage, plus whatever the upkeep costs are for the stuff itself.

Problem: Overwhelming Stuff

Comedian George Carlin wonders why we keep so much stuff and describes the problems it creates

In fact he developed a routine around the concept of “stuff”. Carlin’s belief was that we all have a large supply of stuff, possibly too much stuff, but we insist on storing it in smaller and smaller containers of stuff. When our closets become full of too much stuff, we move some of it to drawers. If we need stuff for a vacation, we put some of our original stuff in suitcases. We even buy smaller versions of stuff just to have on hand when we leave our big stuff behind on a trip.

What You Can Do

Looking at all the stuff in your bookshelf, cupboards, garage, floor etc can be scary and you may feel that it will never be organised or gotten rid of.

So I suggest a step by step approach. Every day choose something in your house (it can be big or small) and give it away, sell it or throw it in the recycling/rubbish bin.

And when you’re going to buy new stuff like clothes, electronics etc remember that most of the pleasure gained is from anticipating buying it. As soon as you buy it it will become of less value to you and get pushed aside in favour of new stuff.

“shelves of stuff” photo credit: striatic

Visit the Rambling Thoughts Blog regularly to read articles about Technology, Personal Finance, TV Shows, Politics, Environment, Books and more

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GUEST ARTICLE: “Why give your kids pocket money? Are you using it for discipline or to encourage involvement at home? Do your kids simply need to practice handling money? Keeping up with their friends at school? Perhaps you want to share the family’s income? This article examines some philosophies of pocket money.”

Eventually you are going to be confronted with the great pocket money (aka allowance) question. You may feel fortunate enough to be able to duck, if the children in question are not yours – for the rest of us some thought is required! In any case, the questions of how and why to hand over your hard-earned to kids bear thinking through.

Now to be fair and balanced, we might for a moment contemplate the ‘no pocket money’ position. There is an argument to be made to leave kids to be kids, not to burden them with adult concepts before their time. You may have decided to invest the money directly that would have been given to children. This can be a fantastic way to set your kids up for later in life with a nest egg well under way.

Perhaps “money is too tight to mention” in your family budget? Even very small amounts can provide the first steps towards independence. Others might take the position that children can ask for what they want, or need and on the whole these requests are fulfilled. If that works for you, great!

Do I subscribe to those opinions? No! My feeling is that children are already well aware of our capitalist culture, especially if they’re allowed: TV, to mix with other kids, internet access or even a school canteen. Best we begin to arm them with tools to make smart money choices sooner rather than later.

There is simply no substitute for practice, no way to avoid the universal truth that learning skills comes best from trying and failing, perhaps many times. Wouldn’t you rather your kids make these necessary monetary mistakes with a month of saved pocket money instead of a month of saved wages when they enter the workforce?

When to start with pocket money is an important question to ask. Naturally this depends on the individual child, though a good consensus age to start seems to be between four and six. Once a child understands the ideas of exchanging money for goods and the concept of limited supply (i.e. when the money runs out, no more until next time) – then they are ready to receive pocket money.

Once you have made the decision to allow your kids some money, do they have to earn it, or will it come regularly without (many) strings attached? This decision comes down to personal choice and circumstance. Let’s look at some of the options.

Earning

Where pocket money is given on a reward basis

This is the system seen most often in popular culture, where the kid(s) are assigned a list of age-appropriate chores or jobs around the house. Younger earners may find making their beds, putting dirty clothes into the laundry basket or feeding pets on their list.

Older children may graduate into helping prepare meals, do laundry or mowing the lawns. Always set the system up for your kids to succeed – it will build confidence and it is the point of a pocket money system, after all.

There are variations to earning systems: you may have a set list of jobs to be done, a public record (a whiteboard or list on the fridge perhaps), maybe even an understanding that generally helping out through the week is also required.

It may be that a rigid list is not your style, rather a general attitude of helpfulness and pitching-in is expected. Be careful, though, as kids will often take a position of asking for specific amounts of reward for every little thing they do. That is when you need to describe the difference between sharing the family workload and opportunities to earn extra money!

Ultimately the system you choose comes down to following your own personal style and the values, skills and attitudes you want to give your kids.

Allowing

Where pocket money is given as a gift or sharing family income

The other major system is based upon the gift economy – where things of value are routinely shared or given without strings attached. My family’s income has a strong variable component, which is suited well to this system. As my kids know, when we have a good week they are in line to share in the extra money that comes in, at their agreed weekly rates of course.

Freely sharing aims to encourage similar behaviour in our children. Kids are generous beings by and large, so here we are trying to keep that going.

We don’t want them to become like the finance journalist in this Monty Python sketch about money!

One of the great joys of having kids is to see their faces light up. When pocket money is a gift, you can see that every time. As far as chores go, usually an allowance comes with an understanding that the recipient will freely help out around the house. How strongly this reciprocal arrangement exists is up to you. The Gift Economy has no strings – you’re hoping the kids will then freely pitch in. If that doesn’t sound like you, then an ‘Earning’ system is going to be more your style.

While this pocket money may be freely given, you will probably want to direct how the money is handled – rather than allow a child to ‘freely spend’ all of it! In fact no matter how you decide to provide pocket money, some guidance on how to handle it is very useful. Take a read of the ‘Four money boxes pocket money system‘ for some ideas.

Questions for other situations: when you have more than one child, does that change things? It may – consider a pool of pocket money available in a week. The standard split could be shifted according to the amount of work done or even behaviour towards each other!

Ultimately there no hard and fast rules – be flexible and creative! The important thing to remember is to ensure any pocket money system you use will reflect the values of your family.

This guest technology review has been written by my friend Matthew. Husband, father of 2, Internet generalist, Scout Leader and life hacker who is passionate about learning and sharing ways to save and invest for kids, Matthew is looking for ways to apply old wisdom and new technology in a quest to “help people create their own Golden Goose“.

Smartypig Australia kindly donated a $110 giftcard for me to give to the next guest author who wrote 2 articles about saving money, I will give this card to Matthew.

If you’re a blogger or an expert about a topic I cover on this blog I encourage you to contact me and I’ll consider publishing your guest article here including generous attribution and back links back to your website as thanks for your contribution

Visit the Rambling Thoughts Blog regularly to read articles about Technology, Personal Finance, TV Shows, Politics, Environment, Books and more

Republishing in full not allowed without permission.. Source: bhatt.id.au/blog/

photo credit: thetruthabout

For most people there’s a completely free alternative to withdraw money from your Australian bank transaction account. I’ve used this method for years – which is why I Pay Nothing Nada Zip $0 In Bank ATM Fees

Which is why i’m always surprised when I hear Australian’s complaining about how much bank ATM fees for withdrawing money cost them each year

My Members Equity bank (ME Bank) “Interest Me” transaction account includes 15 free EFTPOS transactions each month and also has no monthly account keeping fee.

Instead of withdrawing small amounts of money regularly at any ATM in sight and incurring eg: $2 in ATM fees each time like most people what I do is quite simple:

1. One or twice a week when I’m walking past a Woolworths, Coles, IGA or other big supermarket I walk in, go straight to the checkout and ask for “cash out no purchase” and tell them how much cash I want eg: $100.

Swipe my Members Equity bank EFTPOS card, get given the money by the checkout person and walk out the door.
RESULT = FREE EFTPOS transaction – $0 bank fee.

2. Or withdraw cash using EFTPOS when I’m already at a Woolworths, Coles, IGA etc making a regular weekly purchase like milk, butter, bread, cereal etc. RESULT = FREE EFTPOS transaction – $0 bank fee.

If everyone did this each Australian adult could easily save at least $100/year in bank ATM fees (assuming $2/ATM withdrawal) and for people used to withdrawing cash 2-3 times per week the savings would be even bigger

Visit the Rambling Thoughts Blog regularly to read articles about Technology, Personal Finance, TV Shows, Politics, Environment, Books and more

Republishing in full not allowed without permission.. Source: bhatt.id.au/blog/

GUEST ARTICLE: “At a loss to begin showing your kids how to handle money? I was too which lead me to this easy system of four money boxes. By dividing their pocket money, my kids understand how to apply their income to multiple goals. Our four money boxes are: invest, save, crazy and give.”

As a kid I remember only bits and pieces about money, that mysterious stuff that seemed to occupy much of the grownups’ attention. There were money boxes from the bank, sturdy tins or plastic figurines that would swallow my money never to be seen again.

Until, that is, I’d take a knife to enlarge the coin slot and spend ages shaking it around to retrieve a few coins for a bag of sweets.

While I had, from time to time, money from birthday presents or doing chores or as a reward for good schoolwork, no time was spent on showing me how to manage it.

I’d be willing to bet that most of us had a similar upbringing. “Easy come, easy go!” or “Money is there to be spent” were some of the sayings I remember from my childhood, perhaps you’ll recognise these (or similar variants) from yours.

Ever since my own kids came along I was certain I would teach them about money from an early age. The only problem was I really didn’t know where to start. Many people who teach personal finance say it all begins with a budget.

Personally I’m not a big fan, possibly for irrational reasons, however a budget is clearly not going to work well with the average six year old just starting at school!

Divide Children’s Pocket Money into 4 Money Boxes

One technique that really caught my eye is the “envelope method” – where you physically set aside envelopes for your outgoings and fill them with your income, ensuring there’s always money available for each expense.

As a flexible system, I feel the envelope method lends itself to easing your way in to managing your money. That then served as inspiration for the four money boxes system : Invest, Save, Crazy, Give. True, ‘Crazy’ isn’t a verb, if you feel strongly enough you can always label it ‘Spend’. How are these four money boxes used?

Invest

Definition: “expend money with the expectation of achieving a profit”

Even if you don’t yet have a good investment system, developing the habit of long-term savings is one of the most valuable lessons you can pass on.

My kids have an online high-interest account that this money goes into, via a student passbook account. Every month or so we visit the branch and they deposit their investing money over the counter, de-mystifying the banking experience.

When that money builds up, they’ll start buying index funds. In the meantime, we sweep the passbook account online into the kids’ high interest account – let them watch (or even click) here as well.

Save

Definition: “keep and store up for future use”

Delayed gratification is an exercise of will – you could brush your teeth with your off hand to improve your will or you can save up money to buy things instead of using credit.

You will have to resist the pester-power that will be applied, however as another critical life skill saving up for things it a biggie. This is the weakest past of or system because we don’t have a strong mechanism for deciding on these goals and sticking to them. Suggestions welcome!

Crazy

Definition: “extremely enthusiastic” (Spend “pay out money in buying goods or services”)

Lest you think this is all work and no fun, the crazy box is for pure spending. On just about anything (we usually say “except knives & drugs!”) In practice this ends up being spent at the school canteen, on trading cards or stickers. What matters is that this money is spent each week, giving the kids real experience at physically handling money, making purchases and counting their change.

Give

Definition: “freely transfer the possession of something to someone”

In the first version of this system the Give box was missing. Somehow I’d left the idea of sharing what we have with others as perhaps too hard for the kids to understand. How silly of me! At our school, which I daresay is typical, every few weeks is an opportunity to give charitably to others.

Whether it be raising money for a child sponsored through World Vision or any of a myriad of other causes, the kids have a chance to dress up for a day, colour their hair, wear jeans, buy a bandanna, a red nose and on it goes. They understand giving to others less fortunate, and when it comes from their own pocket money they really feel that they are helping (rather than just handing over Mum or Dad’s cash!)

So that’s the four money boxes and how I use them at home. The question of how much pocket money is enough for another post, however the ratios of the boxes are worth mentioning.

For example, with $7 pocket money we would put $2.50 into the Invest & Save boxes, $1.50 into Crazy and $0.50 into Give. That means $4 out of $7 is spent now or on something down the track, while putting something towards your long term prospects and having a little to share with others.

The ratios change a little to keep the change sensible, with around 35-38% each into Invest & Save, 20% to Crazy and 6-10% to Give. This works well for the pre-teen. As their spending increases I plan to drop the Invest and Save ratios down to as low as 20%, boosting the Crazy box up to fund a teenage lifestyle.

Perhaps now you have the inspiration to begin teaching your kids about managing their money? Will you start with envelopes or bank money boxes I wonder? Good luck!

This guest technology review has been written by my friend Matthew. Husband, father of 2, Internet generalist, Scout Leader and life hacker who is passionate about learning and sharing ways to save and invest for kids, Matthew is looking for ways to apply old wisdom and new technology in a quest to help people create their own Golden Goose“.

Smartypig Australia kindly donated a $110 giftcard for me to give to the next guest author who wrote 2 articles about saving money, I will give this card to Matthew.

If you’re a blogger or an expert about a topic I cover on this blog I encourage you to contact me and I’ll consider publishing your guest article here including generous attribution and back links back to your website as thanks for your contribution

Visit the Rambling Thoughts Blog regularly to read articles about Technology, Personal Finance, TV Shows, Politics, Environment, Books and more