“Additional saving secrets revealed...how to keep even more money in your pocket”.
Welcome to Edition 8 of the Mr Home Budget newsletter titled “Additional saving secrets revealed... how to keep even more money in your pocket”. This newsletter is brought to you by the same people who authored the book “How to cut your debt to zero in 5 simple steps, the keep it simple stupid home budget”.
Hi everyone. Hope you are now over the end of the year silly season and back on track with life.
As always, if you have any feedback let me know by email on mrhomebudget@gmail.com
Also check out my new blog at
http://mrhomebudget.blogspot.com/
I was on Today Tonight on the 27th of Jan. This was talking a bit about getting out of debt. We are trying to get the video up on the website for you to have a look if you missed it.
Thanks for reading
Adam Goulding
Aka Mr Home Budget
www.mrhomebudget.com.au
“Don’t be a sucker; Stay away from credit”
On January the 28th, a credit agency called Dun and Bradstreet released results of a survey. This survey indicated that 4 in 10 Australians are resorting to credit cards to keep their household budgets moving.
In fact, they found that some households are using credit cards to cover necessities such as groceries.
You have to understand the impact of using credit. According to Canstar Cannex the average credit card interest charged in Sept. 2009 was 16.5%.
Let’s say you have a credit card with a $2500 balance on there. You pay off minimum payments each month until it is paid off. Your interest balance is the average of 16.5%.
It will take you 19 years if you make no more charges and make only the minimum payment on time each month.
Plus you will pay $4,004 in interest charges over that time.
But let’s look at a $5000 credit balance.
It will take you 29 years if you make no more charges and make only the minimum payment on time each month.
Plus you will pay $9,504 in interest charges over that time.
$10,000
It will take you 38 years if you make no more charges and make only the minimum payment on time each month.
Plus you will pay $20,504 in interest charges over that time.
$20,000
It will take you 47 years if you make no more charges and make only the minimum payment on time each month.
Plus you will pay $42,504 in interest charges over that time.
And finally $25,000
It will take you 50 years if you make no more charges and make only the minimum payment on time each month.
Plus you will pay $53,504 in interest charges over that time.
As you can see these plastic cards are close to criminal. They are a money cow for the banks. That is why there is flat out advertising on the cards. The more they can get these little timebombs out there, the more likely someone is going to use them in a stupid way.
Get rid of your cards now. We have an interview with Stephanie Retchless later in the newsletter. She brings up some interesting facts about the cards from a banks’ point of view.
“What car are you driving?”
Recently I met up with an old friend from high school. He asked me to come over and help him with his continuing debt and budget problems. In fact his problems were that bad that he only had around $10 in his bank account.
He was paying all his bills each week but only just!
From sitting down with him and talking over his money problems it was easy to see that he was in trouble.
However when I walked into his house he had a great big 1999 V8 Commodore sitting in the driveway. He explained that he was still paying off the car. In fact the car was worth less than what was owed on his car loan.
My first piece of advice was that he had to sell the car and buy something cheaper. This would allow him to pay off 70% of the car loan. Plus save money on fuel and insurance. And he would be able to keep $1000 cash as a fall back situation.
Now he didn’t like this piece of advice. He gave me many reasons why he couldn’t give up the car. He seemed to be attached to the car (as some people are).
Sure selling the car was not the answer to his money problems. However it was a big piece of the puzzle. It would have gone a long way to completely getting rid of one creditor. Plus it would have given him some buffer room on his cash situation.
I give my friend credit for asking for help which is generally the first step. However trying to change your life does come with big decisions. This was one of them.
Even before calling me I’m sure he knew that the car was part of the problem. However he needed to be told this fact.
I’m working on him to get rid of the car. Next will be to give up the smokes. But one step at a time.
Sometimes the answers to your biggest money problems are staring you in the face every day. Or driving you to work!
 
1. Write a list, write a list and write a list.
It’s funny once you see it. Someone walking aimlessly around a supermarket looking for items. But you’re not one of those people, because you’ve written a list. Yes, a list can save you hundreds if not thousands over the course of a year.
Being organised cuts down on the unnecessary items. Write the list at home where you have access to your fridge and freezer. Know what meals you will have each day of the week.
Stick to the list. There is no use going there if you are going to add costly chocolate bars or an impulse item on the way out.
Write the list and keep it lean and mean. Stick to the list. The dollars will soon add up.
2. Don’t go to the store hungry.
Everything looks better when you’re hungry. You will soon be buying yourself a small snack. Or your eyes will be bigger than your stomach and you will purchase bigger products than you need. Or you will purchase something that you won’t eat.
A good way to test this theory is to become hungry and watch a cooking show. Everything on the show suddenly becomes the nicest thing you have ever seen. Plan to go to the supermarket directly after you have eaten.
3. Take a calculator
A 6, 24 and 30 pack of 365ml cans of Coke will retail at different prices of course. However the cans might be cheaper in the six pack rather than the 30 pack.
For example on a recent shopping trip the cans in the 24 pack were 0.50cents per can. However the cans in the 30 pack were 0.66 cents per can.
The same can be said about cereal. Two boxes of the same cereal might have different prices per gram. And what might surprise you is the smaller box is cheaper per gram than the bigger box. Use your calculator to work it out.
Remember buying in large quantities over smaller quantities doesn’t always save you money.
4. Don’t take bad influences e.g. children.
If you can, shop alone. If you bring kids there will be no doubt that they will be asking for a snack or drink. Plus they will more than likely try and get some bag of chocolates or lollies thrown in the trolley.
Also can anyone say temper tantrums? That is a sure way for kids to influence you buying them something. Sometimes the parents just give in to the child to make them quiet.
It’s easier said than done to not always take the kids. However if you can, leave them at home to help you save some money.
5. Write a 2nd list
Renee and I have a piece of paper sticky taped to our pantry door. Every time we run out of something (e.g. milk) we write it on there. However it can be any household item.
This list is then added to the shopping list we take to the supermarket. This prevents missed items when you go shopping. Thus avoiding you having to drive down to the local service station to pick up items you forgot that you ran out of.
As you know, running out of sugar, butter, milk, toothpaste or any number of items at the wrong time can be really inconvenient. However wasting petrol money driving to the store and then paying inflated service station prices does nothing for your bank balance.
Petrol stations know that after shopping hours end, they are the only place to get these things. That’s why the prices at petrol stations can be 30%, 40% or even 50% higher.
Inspirational Story – Stephanie Retchless
This week’s inspirational story person is Stephanie Retchless. Stephanie’s background is a little bit different to most. Stephanie was employed by banks for some 36 years. This included 10 years as a bank manager.
To give you an idea of what opinion she has concluded from these 36 years, Stephanie has written a book called, “Are all banks bastards?” This book covers tricks and games played by the banks to get more of their customers’ money/business.
Stephanie has become somewhat of an expert on banking matters appearing on ABC radio, Today Tonight, A Current Affair, Mornings with Kerri-Anne and an ABC documentary called – Addicted to Money.
I talked to Stephanie and really tried to get her to open up about some of the banks more interesting ideas to get your money. Plus I asked her some hard questions about the banks.
In your book Stephanie you said that you started at the bank in 1967 and left in 2003. You said that over that time you noticed some big changes. What did you notice?
One of the most damning changes occurred in 1995 when the whole banking system got turned on its rear end. That’s when the sales culture hit. Bank branches went from a customer service oriented culture to a sales oriented culture.
OK so now the branches are operating more like car dealerships. What do you sell in a bank? How do you sell in a branch?
There are two main ways we would sell and our accounts are referred to as ‘products’ just like any other retail outlet.
1. Let’s pretend we sat down with a client to open a garden variety streamline account. The bank would make us do a mini financial needs analysis profile (MINIFINAP). In other words you had to find out what their financial strategies were both currently and into the future. Scripted questions were devised to establish:
If they had a home loan.
If they had a credit card.
If they had a Personal Loan
If they were due to inherit any money
If they didn’t have a home loan, why didn’t they have a home loan?
How much money they had in the bank?
If they had children?
If they had trust accounts for their children? And if not, why not?
If it was a woman in my age group (+50) they would ask if you had grandchildren and if you had trust accounts for them?
All this information was recorded and scrutinised (by management) to ensure every possible financial activity (real or imagined) was given to improve the chances to cross sell other products.
Now the notion for getting this information was you had a range of products that you had to sell that went along with that information.
2.
Somebody comes up to a teller or the like to make a straightforward deposit or withdrawal and you get a totally and utterly unrelated question “have you got a home loan”. This is called a non related tag-on just like Macca’s – will you have fries with that - which is technically a related tag-on because they have already purchased food – I call that McBanking! It is unrelated because it has nothing to do with the current transaction or enquiry being made.
So do the banks have sales targets?
Yes. At the end of every week my staff had to come to me and tell me how many streamline accounts, credit cards, car loans, how many referrals they made in relation to home loans, personal loan etc. etc. that they had sold or were likely to sell. I in turn had to advise upper level management at the end of every week how I either achieved those targets or why they had not been achieved. And there was a dollar component to the targets which was specifically in the area of home loans.
Each staff member had a set sales target each week. If they hit their sales targets over a week, month, quarter, half year or yearly basis it directly affected my bonus as the manager. The main contributor to that bonus was the annual amount of home loans written and the outstanding balances of all my combined home loan balances.
So you directly would be compensated on credit cards if you increased their limit?
No, not really, but we were given targets of selling three credit cards per staff member per week (this depended on the size of the branch). The credit limit on the cards sold didn’t really matter. As long as you sold them one. But it was certainly suggested from head office that the higher credit limits were preferable. YOU COULD NEVER EVER FIND THAT IN WRITING.
What about selling a home loan, would you try and sell them more money than they came in for?
A home loan basically answers itself in terms of the amount required, because if somebody is buying a home for $500,000 and they have a $100,000 deposit ‘blind Freddie’ can tell you they need a $400,000 home loan. But you would still have to try and say maybe you would like an extra $50,000 as a line of credit in case you need to buy a car. Or you wanted to do some investment or refurbishments to the home.
The managers of the branches, and I was one of them, used to hate clients that would pay off their home loans! Because my annual bonus was partly based on the outstanding debt in my ‘book’ of home loans. Managers would often lament on this fact and try to think of ways to keep their balances growing by e.g. introducing car/holiday loans through the equity in a client’s existing home
So if you could sell customers more than they needed for the house e.g. sell them the line of credit, was that seen a as a positive thing by your head office?
Oh yes.
Did banks in your opinion when you were there, ever lend money to people who could not afford it. Or put them on the brink?
Yes.
In the late 60s, 70s and leading into the 80s the criteria for borrowing on a home loan was much, much stricter. For arguments sake I can remember in the 70s that clients wanting a home loan would need to establish a savings pattern for a full year i.e. to show that the average balance per year was $5000. And over a full 12 months you would have to not only save that $5000 but keep it there for one full year before you could even apply for a loan! This savings pattern showed a willingness on behalf of the client to save towards their own home and not rely on the banks to provide the bulk of the purchase price
Of course in the 80s & 90s the criteria changed. They introduced something called commitment levels i.e. if you earned $60,000 per year your total loan repayments could not exceed 30% of your gross annual income. In other words if the repayments for your credit card, personal loan and home loan exceeded $18,000, your loan application was rejected.
However commitment levels blew out the door when non-conforming lenders entered the market and changed the landscape in terms of what could be lent and how. These non conformers had no such constraints, in their attempts to gain market share and therefore mainstream lenders had to change their policy in order to complete OR lose market share. And therefore the attitudes changed from the banks and – enter stage left – low doc lending, no doc lending, 100% lending and the list goes on. Banks now believed (because they had to put away their moral compass i.e. if they ever had one) it was up to the client to tell us if they could afford the repayments or not with the attitude being, they want the money – give it to them.
Is it your opinion when banks offer you a certain amount of money it doesn’t necessarily mean you can afford it?
They will tell you can because their new serviceability calculators are predicated on their in-house criteria not yours. Generally of course most clients rely on their banker to tell them if they can get the loan, not necessarily what the repayments might do to their lifestyle – very rarely would a client ask the question and even rarer for a loans officer to tell them.
House prices have been going up; up and up do you think this might be a direct result of easier credit?
I think there is direct correlation to it yes. It has to be. The more money available, the higher the prices go, you only have to look at the first home owners’ grant to gauge what that did to home prices.
What’s something else that has changed in 30 odd years in banking?
They don’t have time to sit down and explain the products people take out. For example nobody from the bank tells you that if you have a $1000 dollar credit card then walk out the door with the lovely little card in your hand then you max it up by the end of the day and only pay the minimum repayments; it will take you 11 years to repay it.
And that is never discussed?
No and that is one of the most criminal things that goes on in banks nowadays. They don’t explain to people what the ramifications might be if you do X-Y-Z.
Thanks Stephanie Retchless. For more information on Stephanie please go to www.thefinancefairy.com.au
Funny Money
In the spirit of “we all need a laugh”, this list of jokes is doing the rounds in the USA:
The economy is so bad that:
- I got a pre-declined credit card in the mail.
- I ordered a burger at McDonalds and the kid behind the counter asked, “Can you afford fries with that?”
- CEOs are now playing miniature golf.
- If the bank returns your cheque marked “Insufficient Funds,” you call them and ask if they meant you or them.
- Hot Wheels and Matchbox stocks are trading higher than GM.
- McDonalds is selling the 1/4 ouncer.
- Parents in Beverly Hills have fired their nannies and learnt their children’s names.
- A truckload of Americans was caught sneaking into Mexico.
- Dick Cheney took his stockbroker hunting.
- The Mafia is laying off judges.
- Exxon-Mobil layed off 25 Congressmen.
And finally one I don’t agree with, but in the interests of completeness:
- Congress says they are looking into this Bernard Madoff scandal.
- Oh, great!! The guy who made $50 Billion disappear is being investigated by the people who made $1.5 Trillion disappear!
Thanks for reading
Thanks Adam Goulding
(Also known as Mr Home Budget)
www.mrhomebudget.com.au
FEBUARY 2010 “I never looked at the consequences of missing a big shot... when you think about the consequences you always think of a negative result” Michael Jordan
http://en.wikipedia.org/wiki/Michael_jordan
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