There's not much point in applying all the wonderful tips you learn reading PF blogs if you end up a millionaire but die at 50!. Aside from the obvious health tips - don't smoke, drink in moderation, drive carefully, avoid high-risk activities (unsafe sex, drug use, freestyle rock climbing, cave scuba diving etc.) the most important keys to living long (and healthy) enough to enjoy your wealth are getting enough exercise and maintaining a healthy body weight/BMI.

Personally I'm overweight and need to modify my diet to a more healthy one so I can get down to my ideal BMI in a healthy way (no crash dieting!) and then maintain it for the rest of my life. I've read up a bit on CRAN (calorie restriction with adequate nutrition) which basically means reducing the amount of calories you eat while watching out that you are still getting the optimal amounts of vitamins, protein, fat (yes, some IS needed) and carbohydrates. Up to now CRAN has been mostly theoretical, based on observations and experiments with short life-span animals. This research showed that when a test animal's diet was restricted to about 25%-40% less calories than would be eaten in a totally "unrestricted" diet, the average life-span was extended (up to 50%) and a more healthy old age resulted (although there's not much evidence that it increases the maximum possible life-span).

It now appears that longer-term experiments with longer-lived species that are more similar to ourselves are providing more evidence that CRAN is likely to be beneficial to humans wanting to live longer and healthier life-spans. See this article for a very interesting update that shows the very positive effects of CRAN on monkeys.

Personally, applying CRAN means reducing my average daily calorie intake from around 3,200 kcals down to a healthy 2,000 kcals by eliminating junk foods - I tend to snack on icecreams, sweets, chocolate, biscuits etc. which are all totally unnecessary (and expensive!). I'm hoping to reduce my BMI from 31.5 (100 kg) down to 22.1 (70 kg) by the middle of next year. I think I'll add this goal as another bar graph in my blog to help track my progress!

Money can't buy everything, but there are lots of things that can be bought and which will increase your "happiness" level - for example, shelter, food, clothing, education and healthcare. Money is a tool, and it can be used to maximise happiness by spending on the things that are important to you. For example, if your kids getting a good education is important to you, you will be happier knowing that you are regularly saving in a college education fund, than you would be without. Similarly, if you want to provide for your family if anything happens to you, paying for life and disability insurance and having an emergency fund put aside will increase your level of happiness. And many people are happy to be able to afford charitable giving to those less fortunate than themselves.

When people say "money can't buy you happiness" they are generally thinking of people who are unhappy despite being "rich" - but they often forget that their current level of contentment relies on having sufficient money to satisfy their basic needs and some of their aspirations. A recent report issued by the
Pew Research Center found that of those surveyed 49 percent of respondents with an annual family income of more than $100,000 said they were happy, while only 24 percent of respondents with an annual family income of less than $30,000 reported that they were happy. (The findings are drawn from a telephone survey of a nationally representative, randomly-selected sample of 3,014 adults, conducted from Oct. 5 through Nov. 6, 2005.)

Once you have enough income to take care of basic needs, any excess can be used to maximize your happiness. But in order to do this, you have to know what's important to you, and set some realistic goals. It's often best to put these goals down on paper, with dollar amounts required to achieve them, and a realistic time-frame. If you put down some milestones along the way, so much the better.

investing, money, wealth

Well, so far my traffic is slowly building over at blogger.com, but not enough to generate any significant revenue via ad clicks. However, the PayPerPost experiment is going quite well so far - I haven't met the 30 day requirement to actually get paid for any of the sponsored posts so far (first payment due in 16 days, fingers crossed), but there have been enough "opportunities" that were relevant to personal finance and I felt happy to blog about.

So far I have had a total of $30.00 "credit" for 5 posts - 3 approved ($21.00) and 2 still pending the OK. Generally it takes a few business days to get a new post approved.

If anyone would like to give PPP a try, you can use me as a referrer (enoughwealth@yahoo.com) when you sign up, and I'll get a $5.00 referral bonus!

I'll let you know when the first actual payment hits my Paypal account.

PayPerPost

The six things I find most annoying in the realm of Personal Finance*:

1. Paying high fees and trailing commisions for mutual funds and insurance. The commision paid out of your first year's insurance premium is especially high (like up to 50%). And it seems that you generally can't even avoid such fees by buying "direct" from a fund or insurer.

2. That the "standard" fee structure for exotic investments such as Art Funds and Hedge Funds is 2/20 (2% MER plus 20% of any "surplus" performance, say above 6%) - since when does achieving a return of 7% justify a fee of 2.2%?

3. Mutual funds closing down when they perform badly for a few years (so that they can "bury" the bad performance figures). Often I'd like to have kept the investment open, and wait for an expected turn-around in the long-term (example: asian funds during the asian meltdown)

4. Small companies that need additional finance not giving their existing shareholders the opportunity to kick in more funds and retain ownership. eg. the company goes into administration/bankruptcy, sells out to a private investor for almost nothing, or accepts funding from a private investment company at an exhorbitant interest rate (often the interest is capitalised and eventually is paid out via a large issue of new shares to the investment company, which dilutes the existing shareholders stake tremendously).

5. Upper management costs - I've read that up to 10% of the profit of listed companies is spent on remuneration for the top 5 staff! I've nothing against reasonable payments, but there're too many examples of CEOs getting paid huge sums for mediocre performance, and then getting massive "golden handshakes" to terminate their contract "early". And don't get me started on payment of performance bonuses when a company is doing badly.

6. That 90% of what you read and see in the media about money and investments is absolute gibberish - and 90% of the audience has no idea.

* I haven't counted annoying things that were my own stupid fault, or just bad luck, such as investing in a stock that has lost money.

Wow, it's amazing how the "electronic age" has made some hobbies a LOT cheaper to indulge. For example, I bought my first SLR camera kit in the early 80s. Although the cost of the Pentax MX SLR and lenses was quite high, the real expense of this hobby was film and developing, not the mention negative slides, slide mounts, photo albumns etc. Although I enjoyed taking photos on holiday (after all, ten years after an overseas trip, the only thing you really have to show for spending thousands is a collection of photos and/or video) it was a bit too expensive to "practice" photography and experiment.

This has totally changed since digital cameras came out, and, especially now I have a digital Pentax *ist DL SLR (it may not be the best digital SLR, but it can be used with my existing collection of lenses and my telescope adaptor), I can take LOTS of photos, and it costs me practically nothing. In fact, being able to email pics to my relatives means that I'm saving money compared to having to get duplicate prints to mail.

It's also nice to be able to grab the digital SLR and take some quick pics and immediately see what they look like. For example, a frilly lizard has taken up residence in our yard, and is quite photogenic:


saving

One of the fundamental tenants of wealth creation has always been to invest in your education. Latest figures (released Thursday by theUS Census Bureau) confirm this. The figures show that the average bachelor's degree is worth about $23,000 a year - that is the average gap in earnings between adults with bachelor's degrees and those with high school diplomas. College graduates made an average of $51,554 in 2004, compared with $28,645 for adults with a high school diploma, an average of $19,169 for those without a highschool diploma, and an average of $78,093 for those with an advanced college degree.

Of course, this study didn't determine how much of the increased earning power is due to having the intelligence to obtain the qualification, and how much is due to the education/qualification/networking of getting the further education.

The potential effect on your net worth is even greater than the raw salary figures suggest. There is a fixed "overhead" cost of living, so, assuming that you can exert some self-control and limit your spending as your salary increases, an increase in salary has a great effect on your ability to accumulate wealth. For example, if your basic cost of living is $30K pa, then a 50% pay rise from $40K to $60K has the potential to triple your ultimate net worth (saving and investing $30K rather than $10K pa).

personal finance, money, wealth

I had to see the doctor twice last week. The first "long" consultation (about 20 mins) cost $80, and the follow-up visit (a "short" consultation of around 10 mins) cost $50. Because I'd registered my banking details with the practice, my Medicare rebate was paid electronically into my bank account the next business day after I'd paid each bill using my day-to-day credit card. I got $59.70 refund from Medicare for the long consult, and $31.45 back for the short consult - overall a refund of 70% of the total doctor's bill. It's nice to get some of my tax dollars back, but I'd rather not be sick in the first place! The presciption medications cost me a total of $88.50 - each item costing just the $29.50 PBS (Pharmaceutical Benefits Scheme) subsidised price. I'm not sure how much it each item actually costs the government, but I'm sure it's well over twice the PBS price.

Ending up around $130 out-of-pocket for half an hour of a GPs time and several hundred dollars worth of medicine seems like a bargain. While I can see that this would still be a large cost for a "working poor" family, I believe some small co-payment should be required from all patients - say, $5 from the bulk-billed patients for each visit to the doctor. Most doctor's still "bulk-bill" pensioner patients, in which case the patient pays nothing, and the doctor gets a slightly reduced amount from medicare. A small co-payment would discourage overservicing - such as lonely pensioners visiting the doctor just for a chat!

The latest Festival of Stocks (#7) is now available at Gold Stock Bull. It has 11 great posts ranging for individual stocks such as Apple and Microsoft, Sectors like Australian banks, all the way up to how to capitalize on China’s growing consumerism.

The lack of correlation between the stock market and the art market makes Fine Art a possibly attractive asset class to use to diversify a portfolio beyond the traditional stocks, bonds and real estate. However, while art can hedge against some of the movements in the stock market, it has a similar level of risk and, for most individuals, it is too expensive to invest in individual art works. Even funds such as the popular London-based Fine Art Fund require investors to hand over a minimum of $250,000 in order to play the art market. And those investors will have to be willing to wait at least three years before they can cash out of their investment.

How has Fine Art performed as an asset class compared to, say, stocks? The Mei/Moses Fine Art Index, the creation of NYU Stern School of Business finance professors Jiangping Mei and Michael Moses, tracks 9,000 pieces of art that were auctioned by Sotheby's and Christie's since 1950. The index measures the value of the art market by analyzing repeat sales of the different pieces of art that comprise the index. While it is generally considered a fair benchmark for art valuation, it excludes transaction fees, works that fail to sell at auction and certain styles of art, such as photography and prints.

Over the last 50 years, stocks (as represented by the S&P 500) returned 10.9 percent annually, while the art index returned 10.5 percent per annum. As can be seen below, there is a low covariance between the Art Index and the S&P500 index:



One of the problems of consideraing Fine Art as an investment asset class is that in the art market, only about 30% to 50% of the works that change hands in any given year do so on the open market, at auction, where the public can see the prices. In the contemporary market, that figure plunges into the single digits. In addition, access to the market isn't always easy or cheap -- the supply of contemporary works is controlled by dealers, for instance, while hefty auction fees make it hard to compare the art market to any securities market. Therefore, the entry fee and management fees of any Art Fund are likely to be high - similar to that of Hedge Funds, but with performance that has historically been more in line with the stock market.

I just read the Fugal Duchess' "6 Ways I Scam Myself into Saving" and although it's an entertaining post I have to disagree with each one of her 6 ideas - I'll explain why.

1. Hide-don't-Seek: I do this occasional by accident, and any "found" money goes into the kids money box as extra pocket money (My eldest son saves 100% of his pocketmoney anyhow, so it's a good deal). I would NOT do this scam intentionally as a) you risk losing notes if you just stuff bills into your pockets!, and b) how are you going to learn GOOD spending behaviour if you just avoid the effort?

2. Break the Bill: I do the exact opposite - I try to never take out cash (I use my day-to-day credit card for grocery shopping at the supermarket, doctors visits, bill payments etc. so I earn points - an extra 1% or so saving). When I have to take out cash (to make a payment that doesn't take credit cards, or charges a surcharge for payment by CC) I will then keep all the bills unbroken for as long as possible. I've trained myself hate having to hand over a nice whole bill and get a measly handful of "shrapnel" back. Also, having a random mix of small notes and many coins makes it hard to track exactly what you have spent each day and I find the money will magically disappear over a week if I don't keep an eagle-eye on it!

3. The Break-the-Bank trick: I've nothing against using banks or credit unions that have few ATMs or branches so that it is hard to take out funds (although these days you can use electronic payments to pay bills, transfer to savings accounts etc. so this doesn't really impact me as I don't use much cash) but I think selecting a bank where "the rates may be lousy" is just plain stupid - I'm sure you can find an inconvient bank with lousy service and GOOD rates!

4. Duck-the-Flyer: It's almost impossible to avoid getting bombarded with junk mail, so I've trained myself to look through them but never buy anything that I hadn't been already planning on (of course this means that you need to think about your needs and wants in a quiet corner - not when window shopping or reading through catalogues!). If you avoid advertising flyers completely you'll miss out on specials/discounts on the stuff you DID intend to buy - never buy at full price.

5. Cart-the-Check Around or Keep the Check in the Mail: Cash it and transfer the money immediately into your high-yield online savings account. You have to cash it eventually anyway (or lose the money entirely), so what's the point in missing out on interest in the meantime?

And as for her favorite trick:

Eat gourmet ice cream.

If you can only avoid over-spending when you feel "over-indulged" you need both overeaters anonymous and spenders anonymous!.

Over the years I've slowly grown out of the habit of buying "stuff" - mainly because I already have lots of cool "toys" that I don't have time to play with, and also because we really don't have any spare room to put more things. I don't count any of my "toys" in my net worth calculation as I don't intend to sell them, I don't know how much I'd get for any of them, and, if I sold them, I'd probably then have some room to buy new "stuff" so I wouldn't end up keeping any of the cash anyhow...

Some of my toys: [S=bought second hand, N=bought new, R=restored]
Item cost est. value (?= hard to sell)
A hovercraft $ 5,000 [S] $ 2,000
A boat $10,000 [S] $ 8,000
A 100 yr old steam engine* $10,000 [S] $ ? (* don't ask me why!)
Telescope, camera etc. $ 8,000 [N] $ ?
Family car, compact $12,000 [N] $ 5,000
Vintage car, restored $20,000 [R] $10,000
Computers, various $ 8,000 [N] $ 500 (the 1980 ZX80 isn't worth much nowadays)
Sports equipment $17,000 [N] $ 3,000
TOTAL $90,000 $28,500
As you can see, my "stuff" has lost over 2/3 of it's value. If I'd invested the money instead, I'd probably have around $200,000 extra by now! Thus the total cost of my toys is around $171,500 opportunity cost - or around $10,000 per annum... Hmmm - how much fun have I really had with all this "stuff" anyhow? The upside is that I have plenty of activities to do with my kids for the 20 years without buying anything else!.

ps. I'm not really that well-disciplined. After Australia qualified for the 2nd round of the football (soccer) World Cup I got carried away and ordered a team shirt signed by all the team members. When it arrived I found that the display case is so large I don't really have anywhere to hang it - so it's sitting in it's delivery box behind the couch. Meanwhile the "10 easy monthly payments" are appearing on my day-to-day expenses credit card each month.

I feel I am tracking nicely towards achieving a comfortable retirement, and have sufficient insurance in place to cover the usual "worst case" scenarios (death, T&PD, long-term partial disability). I also don't have any short or medium term "wants" or "needs" to use as short-term goals. Therefore the financial "goal" I've set myself is simply to achieve annual target values for my net worth.

I've based my projections of annual net worth targets on my current savings rate (36% of my gross salary), current net worth (should hit AUD$1M sometime in 2007), desired retirement pension (100% of my present salary, inflation adjusted), and what I hope is a realistic rate of return (9% pa) based on my continued use of gearing to a 50% LVR (100% gearing) and "aggressive" asset mix with a 50 year investment time period. I've also assumed that the relatively "low" inflation rate of the past decade (averaging 3% pa) will continue. For interest I've also projected outcomes if I attain a slightly better average rate of return, or inflation averages more than 3%, or I spend more than $80K pa during retirement.

Plugging these figures into an excel spreadsheet I get the following scenarios.
Baseline assumptions for Goal:
avg ROI 9.0%
avg CPI 3.0%
retirement @ 65
pension $80K in '06 $
end balance is at age 94
Model Results:
----model parameters--- RESULT
SCENARIOS earning CPI pension end
rate rate amount balance
9.00% 3.00% $80K $16,575,706
10.00% 3.00% $80K $27,887,622
11.00% 3.00% $80K $45,667,238
12.00% 3.00% $80K $73,398,333
higher 9.00% 4.00% $80K $ 9,143,582
inflation 10.00% 4.00% $80K $16,014,005
11.00% 4.00% $80K $26,875,435
12.00% 4.00% $80K $43,885,456
higher 9.00% 3.00% $90K $15,809,024
pension 9.00% 3.00% $100K $15,042,342
spending 9.00% 3.00% $110K $14,275,660
9.00% 3.00% $120K $13,508,979

ANNUAL GOALS in order to achieve planned outcome:
contribute $30K pa net to savings each year, indexed to CPI
achieve avg total return of 9% (eg. 8.2% ROI with 50% LVR at int rate of 7.4%)
Other assumptions in my planning:
I've assumed a 0% tax rate on my earnings. This is partly to simplify the calculations, but also is a reasonable approximation as my primary residence and superannuation savings have 0% capital gains tax rate under current tax rules. My annual investment income is effectively nil as I use the tax deductible interest on my gearing (margin loans and investment property loans) to effectively "convert" investment income into unrealised capital gains.

I have sufficient medical coverage through the Australian "Medicare" system, which subsidises visits to the doctor, pharmaceuticals and public hospital care. We also have basic private hospital cover in case we require any elective surgery (eg. hip replacements, heart bypass etc.), and because if I didn't have basic private hospital cover I'd have to pay the same (or more) as a tax surcharge.

As I'm currently already funding my own part-time post-graduate studies, I expect to be able to cover the costs of my two sons' education costs up to a first degree at university. It helps that our free public primary and secondary education system is quite good. One or both of my sons might qualify for entry to a selective high-school, or may get an academic part scholarship to a private high school. Our universities currently charge around 50% of the "full cost" - so a basic 3-yr business or science degree costs around $25,000 if you live at home.

OK, I admit this is more technogeek than personal finance, but as lots of pfblog.org blogs appear to be hosted by blogger.com I thought this might be useful to some readers.

Basically, you can register your website (xxx.blogspot.com) with the google Webmaster Tools sitemap service. This will give you useful info about when your site was last spidered, how many pages have been indexed etc. One option is to provide a SITEMAP listing all your pages. This may help with getting all your pages indexed by google asap, and therefore increase your traffic/readership.

While searching for how to save a sitemap.txt file onto my blogspot.com site, I found out that if you have your blog setup to provide atom RSS feeds AND you're using the "old" blogger.com (not the BETA version), then you can simply specify your atom feed as the sitemap file! ie. enter the sitemap URL as http://yourblog.blogspot.com/atom.xml

This ensures all my recent post permlink URLs are being indexed by google after they were published. Before I set up this sitemap URL Google had last spidered my site 9 days previously and had indexed 29 pages. After setting up the atom.xml page as the sitemap file, Google had reindexed my site and found 37 pages.

Lots of PF Blogs devote many posts to announcements of new online savings accounts, rate changes, joining bonuses etc. I'll simply provide a link to a comprehensive comparison of Australian online savings accounts, and provide some links to those that provide joining & referral bonuses:

Get a AUD$20 joining bonus for a new Easy Saver Account if you apply using the following referral details:
1. Apply for an EasySavings account (Australian bank account needed)
2. Answer the question: "How did you hear about EasyStreet?" by selecting "friend, family member or acquaintance"
3. Enter my name "Ralph Morgan" and postcode "2087" as the referrer
(Disclosure: I'll also get $20 for attracting a new customer)

Disclaimer: This information is general in nature and not tailored to your situation. It is not financial advice. More information is available in the Easy Street Savings Product Disclosure Statement (PDS). You should read and consider the PDS before deciding whether to apply for this product.
personal finance
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