Tuesday 26 February 2008

Boredom based budgeting

Last century I used to use Quicken to track my expenses and income down to the cent, but I haven't done so for about ten years (although one of my goals for 2008 is to start doing it again, mainly to make my tax returns a bit easier to complete). That meant that I was able to get an accurate view of a year's income and expenses and make a pretty accurate budget for the following year. However, these days I manage without having any formal budget (at least I haven't written one down on paper for years) as everything is running more or less on autopilot, I have sufficient sources of funds available to manage any peaks and troughs in income or expenses, and I know my overall spending for the year will be won't throw out my savings plan.

How do I know that my spending will be in control, without using any budget? By living a very boring, predictable lifestyle (some would say, contented and stable). I have relatively fixed expenses on rates, utilities, travel etc. and we tend to eat the same things for breakfast and lunch (I bring lunch from home, although DW tends to eat out a bit more often), and randomly cycle through a selection of fairly simple home-cooked meals for dinner. For entertainment I generally watch free-to-air TV, browse the web, or read investment books from the local library (or while browsing in a book store). We also spend some time gardening, or travelling to the local parks and beaches, and I don't have a lot of free time anyhow since I'm busy with the kids and doing some part-time study by distance education. Of course this only works because we don't make any 'spur of the moment' purchases, and we don't spend anything on restaurants, movies etc. and don't do much (any) "entertaining" such as dinner parties. It also helps that I'd previously accumulated a whole lot of "toys" (camera, video, telescope, scuba gear, skis, mountain bike etc.) over many, many years, so that I now have a garage packed full of "stuff" to play with whenever the mood strikes (and I have any spare time!). Since I don't even have any room to store more "stuff" if I did buy it, it's quite easy to just go window shopping and ignore any pangs of temptation to buy a new shiny, plaything.

Copyright Enough Wealth 2007

Saturday 23 February 2008

Using QIF files to record Quicken transactions

I'm trying to use Quicken Personal Plus 2008 to record all my financial transactions this year, but not having a huge amount of success so far. Entering stock and mutual fund transaction details is easy enough, as I can enter them once a month from the statements. The trouble I have is keeping a record of all the miscellaneous daily transactions I make, such as buying lunch or a snack, or picking up some groceries during lunch hour.

Although I keep receipts for these transactions, the receipts tend to just accumulate in my wallet for a couple of weeks until I get around to entering them all into Quicken at home. Some cash transactions don't have a receipt either, so I end up writing these items down on scraps of paper which I take home. Often these odd notes get lost before I can enter it into Quicken, making my cash reconciliation rely on the dreaded "miscellaneous adjustment" item.

What I'd like to do is record these daily transactions on my PC at work, since I usually have some spare time during lunch or tea breaks which I could use to keep these small transactions up to date. But there doesn't seem to be any small utility provided by Quicken for doing this, and I sure don't want to buy and install a second copy of Quicken on my work PC just for these few transactions!

Using an excel spreadsheet would be OK, except that Quicken doesn't import excel files, and I don't want to have to reenter transactions into Quicken at home if I've already done the data entry once. Luckily the old QIF file format Quicken originally developed for sending transaction data to technical support can provide a simple solution.

Older versions of Quicken used QIF to import transaction data from banks, credit providers and the like. But the more recent versions don't support QIF import except for Cash accounts. (It's been replaced by the more comprehensive 'Web Connect' or QFX format, which is based on the open format OFX). However, the QIF format is fine for recording simple transactions, and the way around this limitation is to save transactions in a QIF file and import it into a dummy Cash account setup in Quicken for this purpose. Once the transactions are imported they can then be simply moved to the appropriate account within Quicken, without having to reenter the transaction details.

As QIF files are plain text, you can use a simple text editor such as Notepad to enter the transactions. I just email the file to myself from work, and can import the file into Quicken at home with a couple of keystrokes.

The QIF format is fully explained in wikipedia, but for simple transaction data you just need a header line and a couple of data lines for each individual transaction. For example:

PATM withdrawal

Imported into Quicken this data appears as:

and can be moved to the relevant accounts by highlighting a transaction and using the Edit/Transaction/Move Transaction command to move them to the relevant account.

If I used a PDA I could even enter these transactions as I made them in the shops, eliminating the need to even take the receipts back to the office to do the data entry.

Copyright Enough Wealth 2007


While reading through YoYo's blog I came across a link to the Belief-o-matic online questionaire. You probably already know, more or less, what you "believe" in, but this bit of fun might help you find the appropriate label for your viewpoint.

According to the survey, my views best match the following:
1. Secular Humanism (100%)
2. Unitarian Universalism (97%)
3. Theravada Buddhism (80%)
4. Nontheist (79%)
5. Liberal Quakers (78%)
6. Neo-Pagan (64%)
7. Mainline to Liberal Christian Protestants (58%)
8. Taoism (52%)
9. New Age (48%)
10. Mahayana Buddhism (48%)

Reading the summary on secular humanism I'm happy enough with that label, but I must admit it's surprising to see that Nontheist is only a slightly better match to my views than being a Liberal Quaker would be. Apparently belief in a god might be optional at the more liberal end of the Quaker spectrum.

Copyright Enough Wealth 2007

Wednesday 20 February 2008

Time to buy Straw Hats?

There's an old stock market saying that one should "buy straw hats in Winter" - yet another way of saying it's better to buy low and sell high, than vice versa ;)

With the stock market off last year's highs by more than 15%, some sectors are looking especially "cheap". The banking sector in Australia is one such source of possible bargains. The table below shows that the banks are down by around 30%-40% from the highs last year, and are currently producing dividend yields between 5.2% and 7.3%.

The banking sector comprises 12.5% of the All Ordinaries stock index, but my Australian stock portfolio is relatively underweight banking stocks, at only 6.9% of my portfolio invested in bank stocks. My tax refund arrived by EFT yesterday (less than one week after filing with eTax), so I may use part of this money to increasing my existing bank investments.

Copyright Enough Wealth 2007

Monday 18 February 2008

Another task ticked off the "to do" list

I finally got my 2006/7 tax return finshed using eTax and lodged it online. According to the ATO's software I should get a tax refund of around $13,000 (mainly due to the deductions for self-education expenses and my margin loan interest payments). I also finished off DW's tax return (it needed my taxable income figure to complete it, although it's generally much simpler to complete than mine) and she should get a refund of around $3,400 due to only working for three months that year before going on maternity leave.

DW's refund will be paid electronically into the Joint savings account used to fund our property loan repayments, and I'll transfer in an equal amount (once I know the exact amount).

The next big item on my "to do" list is completing the last few assessment items required for the Diploma in Financial Services course I enrolled in last year. I'm hoping to finish it all off this week. The next semester of my MIT and BTeach courses starts in March, so I need the "clear the decks" asap.

Copyright Enough Wealth 2007

Wednesday 13 February 2008

ESuperfund closing our SMSF's E*Trade account

After initially requiring SMSFs to open a trust bank account and trading settlement account with ANZ, and do any superannuation account share trades via E*Trade, ESuperfund shifted to using Macquarie bank (I think) and Comesec as broker for new SMSFs. Existing SMSFs weren't affected initially, but I doubted that ESuperfund would support the old relationships in the long run. Sure enough, a letter yesterday advised that our SMSF would no longer be able to use E*Trade from next month, and enclosed a batch of paperwork to sign authorising a new brokerage account be established with Comsec, and to transfer existing SMSF stock holdings from E*Trade to Comsec. Fortunately we've only invested in Vanguard Lifestages High-Growth index fund and have no direct stock investments with our SMSF, so there's no need to complete the paperwork to transfer any shares.

I will get DW to counter-sign the paperwork setting up a trading account with Comsec, as we might choose to invest directly in some stocks in the future (or I may do an in specie transfer of some stocks I own individually into my SMSF account, although there would be capital gains tax implications).

There is a small amount of money sitting in the ANZ trading settlement account which will need to be transferred into the main trust bank account, but I'll just log into our E*Trade account and do this manually rather than completing the extra paperwork.

Over the years I've noticed that this is the normal way that financial companies close off unwanted account options - first they make the new provider compulsory for new accounts, but let existing accounts stay with the old provider if they choose not to change services. After six to twelve months they usually make the change compulsory for existing account holders as well. I can only guess that it's done this way so that most existing account holders see the change as "optional", and only those accounts that are still with the old provider after twelve months are forced to change, and may therefore get annoyed.

I can't see that this change of banks and broker services is of any benefit to ESuperfund SMSF account-holders, so it's probably being done for the benefit of ESuperfund (they dress it up as a way to "maintain their low fee structure", which is their main competitve advantage over other self-managed superannuation account administration service providers).

Copyright Enough Wealth 2007

Tuesday 12 February 2008

A bit like reading your own obituary

The market dropped another 2% or so today, so when I logged in to my Comsec online brokerage account I got a bit of a shock to see "Margin Call" in big, red letters.

Of course, I knew it couldn't really be a margin call (since I use fairly modest gearing levels, and know how far the market would have to drop to get me close to a margin call). But it's still an uncomfortable feeling to see the message plastered accross your account! When I checked on the listing of my portfolio securities it turned out that all the prices were incorrectly listed as $0.00 per share. Apparently yet another glitch in the Comsec system. A couple of weeks ago the entire system was inaccessible for half an hour during a period of peak demand, causing a lot of investor angst. This really isn't good enough for the largest online, discount broker in Australia.

Copyright Enough Wealth 2007

Saturday 9 February 2008

Net worth of bloggers: January 2008

Here's the current financial situation of some personal finance bloggers who post their net worth each month. It's interesting to see how those will higher net worths are getting clobbered by the stock market 'correction', while those with a modest (or negative) net worth are generally still making progress as their savings has a relatively large impact on their financial situation.

Monthly Net Worth of some PF Bloggers for January 2008:

Blogger Age Net Worth $ Change % Change
An English Major's Money 24 $21,251.00 $4.00 N/A
Aspire 2 Wealth 2x $25,550.00 $1,121.00 N/A
Blogging Away Debt 2x -$33,137.00 $810.00 N/A
Consumerism Commentary 30 $125,770.00 $3,174.00 2.5%
Debt Free 4 Ever 39 $47,939.00 $70.00 N/A
Enough Wealth 46 $1,066,077.00 -$72,120.00 -6.3%
How I Save Money 27 -$21,221.00 -$5,697.00 N/A
Lazy Man and Money 2x $213,346.00 -$6,021.00 -2.7%
Map Girl 32 N/A N/A N/A
Moomin Valley 42 $434,295.00 -$3,406.00 -0.8%
My Money Blog 28 $218,538.00 $3,457.00 1.6%
Savvy Saver 27 $220,787.00 -$8,234.00 -3.6%

nb. Some ages have been adjusted as follows:
exact age provided = listed as given
"20's" = listed as 2x
"early 20's" = listed as 22
"mid-late 20's" = listed as 27
and so on.

If you have any corrections, let me know as soon as possible after the post and I'll edit immediately. If it's more than a few days after the post, email me and I'll make the change the following month.

Note: Most of these figures are in USD, but some are not (eg. mine are in AUD). Also, some bloggers post combined net worth of a couple, others are single, or, like me, only post their personal net worth.

The N/A figures are either a lack of monthly data, or where I've not included % change data because the net worth is less than +/- $100K.

I've had some appreciative comments about this regular monthly post - if you like it, please link to it from your blog, or add a link to EnoughWealth to your blogroll. ;)

Copyright Enough Wealth 2007

Thursday 7 February 2008

Letter to the PM

I emailed a letter to the Australian Prime Minister, Kevin Rudd, yesterday:

"Dear Prime Minister,

There is lots of media comment about how keeping your election promise regarding tax cuts would be inflationary, at a time when the need to fight inflation appears more urgent that in recent history.

One way to keep the tax cut promise and to avoid inflationary effects and to boost retirement savings is to pay out the tax cuts as a government superannuation contribution. For example, adding a 1% government superannuation contribution to the existing 9% employer SGL.

The payment would be funded via a government superannuation levy of 1%, similar to the existing medicare levy -- which isn't a "tax" ;)

This would reduce the amount of extra cash arriving in employees pay packets, so reduce the inflationary impact of the tax cuts, but would still deliver the balance of the promised tax cut into people's hands, via their superannuation accounts.

This method could also be used in the tax cuts promised (or "aspirational") for the next couple of years, slowly increasing the total compulsory superannuation contribution (SGL plus government levy) from 9% to 12%, which is often quoted as the level required to fund adequate retirement savings over the typical employees working life.

It would also help address the problem of funding the aged pension as the Australian population ages, by using current tax cuts to reduce the cost of the aged pension down the track.


I've no idea who in the PM's department reads the PM's mail, but hopefully the gist of it will trickle through into the budget planning process which is in full swing [I'm probably kidding myself about that].

The concept as outlined is, of course, overly simplistic, and would get a bit more complicated in the detailed implementation - not every taxpayer has been promised a cut in tax rates of 1% or more, as the latest cuts were aimed mainly at the middle income taxpayers, and future promised cuts related to the top tax brackets. So a flat 1% government superannuation contribution wouldn't fit exactly with the promised tax relief. However, it could be used to fulfil the promised cut for those taxpayers that were going to get more than a 1% reduction in their average tax rate, and could either be applied fully to lower income tax payers as an additional benefit (Labor governments are keen on helping the "working poor") or else tailored by applying thresholds (perhaps related to the minimum taxable income threshold) which would target the benefit to lower and middle income taxpayers to match the promised tax relief. Upper income taxpayers could either have the change postponed until the years when the changes to the top marginal tax rates were due to change, or could be filtered out by means testing this new government superannuation contribution, in a similar way to the exising government "co-contribution" (which phased out for incomes between $28,980 and $58,980).

Copyright Enough Wealth 2007

Monday 4 February 2008

Rental property back in the black

Our rental property has finally been repaired. A tree fell over in a severe storm last July and took out part of the roof. Due to the large amount of work the insurance assessors and builders had to get through it took ages for the work to be approved and repairs commence. Then our tenants went overseas on holiday which delayed getting the ceiling patched and painted.

I'd initially proposed reducing the weekly rent from $400 to $350 while the house was being repaired, but the tenant wanted a $100 per week reduction due to the cold wind blowing through the hole in the roof during winter. I agreed to that, but had expected the rent reduction to end once the roof repairs were done (after 18 weeks). The tenant on the other hand thought the reduction was in force until the house was back in it's original condition (26 weeks). In the end we agreed on a compromise figure of 22 weeks at the reduced rent amount, so the tenant has now started paying the full amount. So for the first time in a long while, the rental property will be cash flow positive again.

The current tenants have been in place for over 12 months now, and their original lease had expired after 6 months, so it was time to do an "annual" rent review. Due to the housing slump in Sydney over the past 3-4 years, the rental market is getting very tight, and rents have increased by over 12% in the past year. I mailed the notice of rent increase last week, seeking a rise to $450 per week from 1 April (60 days advance notice is required in writing in NSW).

The tenants emailed me today saying that the rise was "unreasonable" and proposing a smaller rise (to $425 per week) for the next 12 months. I wrote back explaining that the rise was based on the official rental statistics for this region obtained from the department of housing, but suggesting that the rent could be raised to $425 for the next 6 months, and then to $450.

I'm not too fussed about losing $25 per week income for 26 weeks, as it's still much better than having to get new tenants. The real estate agent charges one week's rent to find new tenants, plus the house could be vacant for several weeks before new tenants move in. However, if the rent was fixed at $425 for the next 12 months it would be very hard to increase the rent back up to market levels at that time. On the other hand, if the tenants have been paying $450 per week for 6 months by the time next year's rent review comes around, they'll suffer less "sticker shock" if there's another reasonably large increase in rent next year.

Copyright Enough Wealth 2007

Saturday 2 February 2008

Land Tax 2008

This year's land tax assessment just arrived from the Office of State Revenue. I can either pay $1,401.30 by 10th March (a $21.35 "discount"), or three installments of $474.20 due in March, April and May. I'll probably just pay in one lump sum since I have the cash on hand and the discount is probably about the same as the after-tax value of any interest I'd earn on $948.40 for an extra one and a half months. Fortunately they don't charge a fee for paying via credit card, so I can charge the amount to my CC and earn reward points worth about 0.5% of the transaction amount. That way I'll also get another month before I have to pay off the amount via the CC bill.

The state government keeps changing the rules relating to the calculation of land tax, making it impossible to budget or plan for this tax. For example, our past bills (with no change in the properties we own and pay land tax on) have been:

Year Tax Due Taxable Exempt * Tax Rate
Land Value Land Value Formula
2001 $695.00 $240,000.00 not provided $100 + 1.7c per $1 over $205,000 threshold
2002 $848.00 $264,000.00 not provided $100 + 1.7c per $1 over $220,000 threshold
2003 $814.00 $303,000.00 not provided $100 + 1.7c per $1 over $261,000 threshold
2004 $372.00 $333,000.00 not provided $100 + 1.7c per $1 over $317,000 threshold
2005 $1,332.00 $333,000.00 not provided 0.4c per $1 up to $400K, 0.6c per $1 on next $100K, 1.4c per $1 above $500K
2006 $0.00 $349,000.00 not provided $100 + 1.7c per $1 over $352,000 threshold
2007 $451.30 $372,667.00 $407,000.00 $100 + 1.7c per $1 over $353,000 threshold
2008 $1,401.30 $441,667.00 $407,000.00 $100 + 1.7c per $1 over $359,000 threshold

* Land used for principal place of residence (ie. our home) is tax exempt

Apart from a short lived attempt to remove the tax threshold (which was repealed after one year due to all the "small" landholders who just had a tiny tax bill due on the land associated with a investment apartment), the rate has been fairly constant but the thresholds were adjusted based on average state property values, whereas land values in Sydney tend to change more erratically, and outpace the threshold increase over time.

The government reintroduced the old tax rates and threshold for 2006, but didn't index the threshold in 2006, which has brought our one investment property back over the threshold. The threshold also hasn't increased much in 2007 or 2008, while the valuation of our investment property land value has increased by more than 30%. Because our land value was just under the threshold amount in 2006 this has meant a massive increase in the amount of land tax assessed in the past two years.

Due to sudden jumps in land valuations under the old method of reviewing land values every 3-4 years, a new method was introduced wo years ago that provides a valuation each year, and averages the past three years valuations to smooth out any tax increases.

Last year's calculation:

Year Taxable Property
2005 $333,000.00
2006 $349,000.00
2007 $436,000.00
Avg: $372,667.00

This year's calculation:

Year Taxable Property
2006 $349,000.00
2007 $436,000.00
2008 $540.000.00
Avg: $441,667.00

Est of next year's calculation:

Year Taxable Property
2007 $436,000.00
2008 $540.000.00
2009 $640.000.00
Avg: $538,667.00

At least this allows me to make a rough guess of what the land tax bill will be for the next year, assuming
a) rates stay same and threshold goes up 5%pa to $377,000.00
b) land valuation goes up a similar amount this year as last year

My land tax estimate for 2009 is therefore $2,363. It would be nice if the threshold increased in line with Sydney property prices, but I'm not holding my breath. At least property tax is tax deductible against our rental income from the property.

Copyright Enough Wealth 2007

Friday 1 February 2008

Net Worth Update January 2008

Net Worth Update January 2008

My net worth as at 31 January decreased by -$72,120 (-6.34%) during the month to $1,066,077 (AUD), due to the large losses in my geared equity investments, which was only parially offset by a strong month for our property valuations. Last month's comment that "it wouldn't be surprising to see a gain or loss greater than 6% of my net worth some month" proven uncomfortably prescient. (I'm still waiting for a month where my net worth increases by 6%!) Over the past two months my net worth has decreased by a substantial -9.26%

The estimated valuation of my share of our real estate assets increased by $25,384 (3.18%). The balance of my half of the mortgage increased by -$835 to -$364,804 as we continue to redraw some of our advance payments to cover the interest payments while DW is working part-time (until DS2 starts school in a couple of years). Interest rates are still being increased in Australia, as inflation has broken through the top end of the official 2%-3% "target" band. The RBA is expected to raise rates another 0.25% at next week's monthly meeting, which will flow on to variable home loan interest rates. Fortunately we have around half of our property loans at a fixed rate for the next 3-4 years, so we won't feel the full impact. One positive of higher inflation might be that house prices increase in line with rises in the cost of new home construction, while our home loan debt will remain constant. My parents' generation benefitted from this effect in the 70s and 80s when inflation took off into double digits after the first global "oil shock", causing a boom in house prices at a time when nearly all home loans were for 30-years at a fixed rate around 5%-6%.

My leveraged stock portfolios decreased by a net -$70,106 (-18.35%) this month to $311,922. I think this is the worst monthly result I've recorded. Another 10-15% decline in the stock market would force me to sell off some of my equity investments to avoid getting a margin call, and a further decline of 40% would wipe out the value of my geared stock portfolio entirely, wiping around 30% off my net worth. It's interesting that my hedge fund investments haven't been performing particularly well during this period, despite their alleged ability to profit from short selling during bear markets.

The balance of my retirement account also decreased substantially this month, by -$4,980 (-1.52%) to $322,893, as it's now invested about 98% in the Vanguard Lifestages "High Growth" fund which is allocated mostly to domestic and international equitites. I'm still waiting on an employer contribution of around $4,000 to be processed that has been outstanding since September, which would boost the account balance a bit. There's also the slight miscalculation in the 9% SGL employer contribution for six weeks during Nov/Dec that hasn't been corrected as yet. Yesterday the payroll manager informed me that the missing transactions have been located and the funds should appear in the SMSF bank account next week.

The timing of our move from a retail superannuation fund into our own Self-Managed superannuation fund last year turned out to be less than ideal, with our withdrawal from the retail fund being executed during the mid-year stock market correction, and then reinvested into the Vanguard fund over several months during late 2007 when the markets were hitting new highs. My current retirement account balance is now below what it was at the start of 2007, despite having contributed around $35,000 to my retirement savings during the year. This year I'll be contributing another $50,000 to my retirement fund via a combination of salary sacrifice and the 9% SGL, so if the market takes a while to recover or drops further I'll at least be "averaging down" the entry price.

One good thing is that I still have twenty years to go before reaching "normal" retirement age, so hopefully the current drop in my net worth chart will appear as an insignificant "blip" by that time - similar to the market crash of '87.

Although we're only 1/12th through the year, it appears highly unlikely that I'll achieve my goal of increasing my net worth by $150,000 (13%) in 2008. From the current situation I'd have to gain $222,000 over the next 11 months, or around 20.8% in 11 months!

Copyright Enough Wealth 2007