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ARE YOU HOBBIES COSTING YOU A FORTUNE?

Our passions are what makes us unique, everyone needs some form of outside interests but we have to be aware of how much it is costing us and whether the money spent on them is affecting our financial future. We need to keep a lid on the amount of money we are spending on our recreation as it could cost us in the long term.

Are your hobbies costing you an arm and a leg

By R.A.Stewart

Hobbies can give us a sense of release from our day to day issues; the satisfaction one gets from pursuing a pleasure whether it is collecting stamps, bank notes, beer labels, or any of the stuff which people describe as collectable, boating, sport, car racing, or whatever. 

If you are going to have a hobby you really need to make sure  it is not costing you more than what you can afford and that it is not at the expense of your retirement fund.

There are ways of keeping costs down with your hobby; take whatever it is you collect. You can list your duplicate items on ebay or other auction sites. It will also give you an estimate of the kind of demand there is for your particular kind of collectable. 

It is also important to realise that something is only worth whatever someone else is prepared to pay for. If you cannot find a buyer for whatever your collection is then it is not worth anything.

There are some things that are sentimental however, things which may not have any monetary value but are priceless to family such as old photographs or heirlooms.

These may not have cost you anything to acquire as they may have been handed down through the generations or have been given to you but that is not so with a lot of collectables which are acquired with a passion which can be described as hoarding. 

Unless someone has an unlimited amount of spending money all of this stuff must be at the expensive of something.

People will often go without to finance their hobby such as not owning a car, not contributing to their retirement fund, or not spending money on much needed house repairs.

A collector who owns a huge collection of beer labels, 30,000+ I believe proudly boasts about it to everyone who visits. It is anyone’s guess how much he has spent acquiring this collection but the saddest thing is that he is not contributing to his retirement fund and therefore missing out on the government incentives.

The old excuse of “I might die before retirement and so someone else will get my money,” has been used several times, but then someone else will inherit his beer label collection and if something financial crops up such as a huge medical bill he will not be able to afford it, and it is doubtful if he would be willing to part with his collection even if a lot of money was offered for it.

The same is said for any other activity that is a hobby. The old saying of “Pay yourself first” rings true because sooner or later a person who mismanages their finances will eventually find that it catches up on them.

ABOUT THIS ARTICLE

If you loved this article feel free to post it on your blog or website, share it, include it in your ebook, or even sell it.

Robert Stewart publishes a blog with articles about personal finance. Check it out on www.robertastewart.com

It pays to keep tabs on your discretionary spending

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SAVING FOR WHATEVER

Saving for whatever…

Written by R. A. Stewart

Establish your savings goal. Are you saving for your retirement, a new car, a deposit for a home or whatever. This will be the determining factor when choosing where to invest your money. It is important to note that you can have several different savings/financial goals at the same time with a different type of investment with each goal. 

For example, you may have a short term goal to pay off your TV set, a medium term goal to save for your car, and a long term goal to put away money for your retirement.

Your financial goals should be split up into three categories; short term, medium term, and long term.

The category will determine where it is best to place your money.

  1. SHORT TERM

Oncall-6 months

This is money on standby and used for general household bills such as power, car running expenses rent, and so forth. 

Where to keep this money; Ordinary savings account or bonus bonds

  1. MEDIUM TERM

6 months-3 years

This is money being saved for a car, appliance, overseas trip.

Where to keep your money; Bonus Bonds is a good option but mutual funds is an option but invest conservatively. 

There are a number of managed funds which are cropping up and you do not have to have much to get started with them. A good one for the beginner is sharesies (in NZ). If you are from another country there will be companies similar to Sharesies you are able to invest with.

  1. LONG TERM

3 years+

Saving for a house deposit and building a nest egg for your retirement are examples of long term goals.

Where to keep your money; kiwisaver is an ideal investment to drive you to your savings destination because the incentives will help your savings grow.

Some tips.

Pay off debt first because if you are able to pay off a debt where you’re paying say 10% interest on the debt then the interest saved from the paid off debt is just as if you had been paid the 10%; as the saying goes, “A dollar saved is a dollar made.”

Stuff happens in life where circumstances change therefore you need to be prepared to be flexible.

Take a long term view of your investments. It is time and not timing which is the key to investing. As you gain more experience with investing, your risk profile will improve.

Read all you can about finance and the sharemarket. Knowledge will help you overcome your fears when investing.

PLEASE NOTE; The information in this article is the writer’s opinion based on his experience. If you require financial advice see your bank.

www.robertastewart.com

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WEALTH CREATION DOES NOT JUST HAPPEN

Wealth creation does not just happen….

It is the result of living within your means, saving, and then investing.

Simple isn’t it?

So why are so many people have so little to show for their years of working?

There is no one answer to this question, but…

whatever the reason for their lack of financial success can be summed up in just two words;

Financial illiteracy

People are not broke without a reason and neither are they prosperous without a reason.

If you divided the world’s wealth equally between its citizens, it will not be too long before everyone will return to the same financial position as they were previously because everyone has developed habits of using their money which will either build their wealth or keep them poor.

There is no secret to the financial success of those who build their wealth, and it can be summed up in two words;

Financial literacy

No one is born with financial literacy, just like education of every other kind, it is learned. 

So where do you learn about financial matters?

Start with your local library, there are plenty of books you are able to borrow on financial matters. Your local bookstore, ebay, or Amazon all have books on finance while you may pick up the odd book on the subject from a charity shop.

One good book to keep an eye out for is “Rich Dad Poor Dad,” there are a lot of other books from the same author. 

The author of Rich Dad Poor Dad stresses the importance of developing income producing assets and reducing those or at least eliminating liabilities which cost you money.

I have a free ebook to give away, it is called “Financial Steps.”

All you need to do is join my mailing list on the following link;

https://forms.aweber.com/form/72/892285272.htm

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GETTING THE RIGHT ADVICE

Listening to the right people…

Taking advice from the right people and ignoring comments from the uninformed will help you to become better off financially in the long run. An example I am going to use is my nephew Kyle who had made a bit of money from sports betting. He withdrew all of the money from his betting account and invested the money in a fixed interest account. His goal is to save money for a house deposit but he is almost got the money now. It is some of the advice or rather comments that he has been given that really gets me, with some of it bordering on stupidity.

Myself, I advised him that investing in the New Zealand retirement savings scheme Kiwisaver would be a good bet because he would be able to use part of his kiwisaver for a house deposit providing that he has been in kiwisaver for at least 3 years and that it is for his first home. He would qualify on the latter as he has never owned a home but he has been in kiwisaver for just 6 months and is unwilling to wait another 3 years.

That may be so, but everyone in kiwisaver should at least contribute $1040 into the scheme per annum to take advantage of the full tax credits of $520. This is effectively a return of 50% per annum on your investment, all tax free.

The advice I gave is exactly the same as every other financial expert have been saying, and no, I am not qualified to give financial advice to anyone but then neither are many of those who have been adding their two cents worth. Some of them have little money or assets and have nothing to show for their life’s work.

If you hang around losers, you will be one yourself. What they will do is drag you down to their level because then that it will make them feel better about themselves. Some people have such a low opinion of themselves that they will tear others down because the success of others is giving them an inferiority complex.

To use Kyle as an example, he has prospered since he moved out of his auntie’s flat.

Kyle has more financial sense than any of his siblings; one of whom told their mother that he has a gambling addiction. He withdrew 10k from his betting account and invested the money and when he told his brother that he had nothing left in his account that he had nothing left, he thought he had lost the money.

The pathetic thing about this is that this sibling cannot live a day without alcohol and smokes like a chimney that who knows how much of his income is disappearing every week on booze and smokes. Multiply the weekly amount spent on this and the amount spent annually on his vices is quite substantial, certainly in the 1000s.

It pays to not let others know what you are doing and keep your activities to yourself apart from those who are on the same page.

As for investing money into his retirement fund to save for a house, well that may not be the right option for someone looking to use the money in the short to medium term. A retirement fund is exactly that-a fund for retirement and one has to understand that you have to wait until you are 65 or whatever the retirement age when you reach it. Money for other purposes should be put in appropriate account.

A stupid comment I did hear from someone regarding kiwisaver was, “You may not get it back.”

Kiwisaver will get the money at 65 but what gets my goat is that the person who masde this comment has very little in the way of assets so that whatever she spent the money on she never got it back. It is the same with people who spend x money on a nicotine or alcohol addiction; that is money gone forever, not to mention a shortened life span because of the health consequences of these addictions.

I wrote a post a few weeks ago about using your money as a seed to grow your wealth. Money if it is sown in the right places can reap a nice future harvest.

Happy investing!

www.robertastewart.com

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TURN DEAD MONEY INTO SEED MONEY

Turn dead money into seed money

Financial success is much easier than you think and is often just a matter of prioritizing your spending. The first thing to do is to find out where your money is going and where is disappears into the sunset never to be seen again. Much of this type of spending is dead money because you have nothing to show for it. You need to convince it to stay at home and work for you rather than fill someone Else’s pockets.

There are a number of money leaks which drain your finances so lets take a took at some of the main culprits.

INTEREST

If you have hire purchase loans, credit card loans, or bank or finance company loans then a good deal of your money is being spent servicing the loan. There is a cost to using other people’s money to buy stuff and that is called interest. In order to become debt free and save money, you need to decide on what youer priorities are and MAKE SACRIFICES. As painful as it may sound, you must do an audit in order to work out how much of your money in going in interest payments per annum.

If you are seriously in debt then talking to a budget advisor make sense.

STUFF YOU NO LONGER NEED

Everyone has stuff they no longer need just lying about around the house. This can all be considered “dead money”. Your stuff can be converted into cash and turned into seed money for your future wealth. Selling the stuff on ebay will give you some extra money to invest. You can then put this money to work for you.

HOBBIES AND SPORT

People will spend a fortune on their hobbies and the question of whether the amount you are spending on yours is going to affect your financial plans in the future. We hear of people who spend absurd amounts of money on whatever they are collecting yet when it comes to retirements savings bury their head in the sand. The money spent on this stuff is really dead money because it is not producing any wealth.

Sport is in a separate category altogether because being a participate in sporting activities promotes health and well being but you are able to minimize the amount spent so that what it is costing you does not get out of hand.

MONEY LYING IDLE

Money just lying in a low interest account earning just 2% interest is losing its value because when inflation and tax are both considered, it has lost its value and is worth less than 12 months ago. It all depends on what the purpose of that money is. If it is rainy day money then you may be better off investing it in Bonus Bonds where instead of being paid interest, you go into a draw to win prizes including a million dollar prize. It may be a long shot but at least you have a chance.

It all adds up during the course of a year. $4 or so for one cup of coffee per day does not sound much but if you buy say three cups of coffees per day that is $12 per day you are spending on coffee. That is $60 per week (5 days per week) and during the course of a year, that is $3,000 worth of coffee you are drinking. That could be your retirement savings or an overseas trip, or whatever you may prefer to spend your money on which you can see with your own eyes what your labours have paid for.

Learn to look at your spending on an annual basis because it does not sound like money money when you are paying for something in small amounts but like a dripping tap, leaks like this can add up to a lake. These little money leaks can then be used as your seed money to build your future wealth.

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CAPITAL GAINS TAX

Capital Gains tax and kiwisaver

The talk in New Zealand these past two or three weeks has been the possibility of the introduction of the Capital Gains tax. This is likely to be at 33%. irrespective of which tax rate you are on. So if for example you are on the lower income bracket paying tax of 17.5% then your kiwisaver provider would still pay 33% tax on any capital gains on your kiwisaver. The capital gains tax could be mitigated by new incentives by those in the scheme or at least encourage those who have not joined to do so. All will be revealed in May’s budget but it is likely that the $1000 kickstart will be reinstated and that the annual tax credit will be increased. It was the last National government who scrapped the kickstart in order to balance the books. They also reduced the tax credit from $1040 to $520. Prior to the reduction, you had to deposit at least $1040 to get the full government tax credit so that was in effect the same as making 100% on your investment, tax free. Then National reduced the tax credit to $520 but you still had to deposit $1040 to get this which is like earning 50% on your investment.

As for the $1000 kickstart. If you are a school leaver or have not got around to joining kiwisaver then it may be a good idea to wait until after the budget to see what unfolds. It really depends on timing because Grant Robertson (The finance minister) may decide that they changes will take effect on July 1st which is the start of the kiwisaver year but if the changes take effect immediately after budget night then it would be good sense to join kiwisaver in order to collect the 1k kickstart and deposit at least $1040 into your kiwisaver account by 30th June in order to collect July’s tax credit.

Another change which has been talked about is the scrapping of the tax on employer contributions for those earning less than $48,000. As with the government incentives, the employer contributions will become tax free if your level of income allows it. It was the last National government who placed the tax on employer contributions.

It is interesting to see how any capital gains tax will effect kiwisaver balances in the future because a lot of these funds do have investments in property. It may well affect the supply of housing because would be property developers will think it is just not worth the hassle especially with the new compliance costs which will cost land lords an arm and a leg.

A capital gains tax will not just affect property and shares. It is likely to affect crypto currency as well but it is not clear what the situation is in the event that someone makes a capital loss as can happen when investing for capital gain. Investor’s who lose money in an investment in this way may well be able to claim losses against their wages and salaries but it is best to seek advice from a qualified person in this regard.

www.robertastewart.com