Friday, 16 November 2007

Looking after the Pennies (Cents)

There's an old saying "Look after the pennies and the pounds will look after themselves" [ref - I find it funny that this is attributed to J.Paul Getty when I'm sure it was a common saying in English way earlier than that.] which is still one of the more useful money truisms. There are many ways to save small amounts day-to-day the overall add up to "fine tune" our investment performance, maximise income and minimise expenses.

We've moved our superannuation from the default provider (BT/Westpac) used by our employed into a self-managed superannuation fund. This should save around 1%pa in administration and management fees over the long term, which is quite a lot now that our combined retirement funds are heading towards $400,000. We were a bit unlucky in the timing of the move from the BT account into our SMSF - it was done during a period of considerable market volatility which resulted in our existing investment being cashed out when the market was down in August, and the funds not being invested until a couple of weeks later, by which time the market had recovered most of it's recent decline. I attempted to minimise the risk of reinvesting during a temporary "bounce" by using dollar cost averaging (DCA) over a couple of months, but the market continued to rise during this period and is now declining again - the worst possible trend when using DCA. We should still end up ahead by using a SMSF in the longer term, but this "timing risk" has reduced the benefit. Not all good ideas work out as planned.

On a smaller scale I recently opened a "Dragon Direct" online savings account which I can use to invest surplus funds from our home loan payment account. The idea is that the monthly rent payments from our tenant are often not needed for the mortgage payments for a couple of weeks, so we can earn some extra interest by transferring the "surplus" funds into the online savings account where it will earn around 6% (the normal savings account used to cover mortgage payments only pays around 1% interest). So far it hasn't worked out as well as I'd hoped - I forgot about an interest payment for my portfolio loan that was due to come on the 8th of the month, so the bank charged us a $38 overdraft fee to cover the interest payment out of the normal savings account. Since I had more than this amount sitting in the Direct Savings account at the time it was most annoying (and won't happen again!). This one fee has cost as much as we'll earn in extra interest using the online savings account for two months.

I will be opening up new BankWest kids savings accounts for the boys (DS1 and DS2) in a couple of weeks (as soon as a new BankWest branch opens nearby). These accounts will pay a whopping 10% interest on the kids savings, provided they deposit between $25-$250 each month and make no withdrawal during the month. Both kids already have money sitting in St George "Happy Dragon" savings account which pays a low interest rate, and DS1 has a "Dragon Direct" account earning 6.5% which holds the proceeds from his paper round earnings. So, moving $250 each month into the new BankWest accounts will earn them at least 3% pa more on the money in the BankWest account. After one year this would be $3,000 for each boy, meaning they're earning an extra $90 pa in interest. Of course there will be a few minutes spent filling in paper work to open the accounts, and setting up automatic transfers of funds between accounts each month, but every little bit extra helps.

And, of course, the usual things like brown-bagging lunch to work, buying petrol on the day of the week when it's usually cheapest, doing the shopping on the way home when I stop to collect mail from the post box, rather than making extra trips in the car, and so on.

ps. Looking up the origin of the idiom I found an interesting list of money expressions.
Copyright Enough Wealth 2007


Anonymous said...

About the bnakwest accounts - read the fine print. Yes, you can accumulate $250/month during the year at 10%, but at 12 months, the entire balance gets transferred to a standard account, earning a pittance of interest. In other words, you can never have a balance of more than $3k in this account.

Anonymous said...

Sealing even the smallest leakages can certainly make great accumulation. I've never heard the old saying before, but sure am glad I found it in this article.

J.C. Carvill