Renting

A lot of the articles you read in financial papers/websites talk about the pros and cons of renting versus buying in purely economic terms, focusing on the rate of return on investment, usually assuming that a renter is investing the money they are saving by renting.

As a long term renter I like to read these articles, as they often put the renter out in front. However, I have not been a good saver and investor, only recently getting my act together and still only having a small amount invested. And my partner and I do want to buy property and have been saving a deposit for quite a while now. However, due to crazy Melbourne house prices we have resigned ourselves to buying an investment property rather than a home to live in. We figure that at least we will have a property of some sort paid off by the time we retire, allowing us to live rent-free in retirement.

But I thought I would put together a list of all the good things about renting, not only to make myself feel better, but to make others feel good about their renting situation too:

• Rent is usually well below what you would be paying for a mortgage for the same property, even with interest rates this low. For example, I live in a house that would probably sell for a bit over $1million (even though it's old and run down, it's in inner Melbourne's Northcote which is prime real estate at the moment!) but we only pay $2064 a month in rent. An $800K mortgage would set you back around $3800 a month at the moment with 4% interest rates.
• If you are fortunate enough to find a long-term rental (which we have), rent increases are generally minimal, especially in comparison to market increases. Eg. I estimate our house would rent now for around $2400 a month, probably more given our improvements - see below.
• When things go wrong, you don't have to pay! ie. plumbing issues, hot water service breaking. Not your problem.
• You can move much more easily and cheaply if your situation changes. Around my area it's all about high school zones. When it comes time to choose a high school for my children, we could potentially move houses and even suburbs, to get into the desired school zone, without having to pay the premium house price and all the other associated costs of buying and selling a home.

 And a few other thoughts about long-term renting:

• If you have a nice landlord/agent who is happy for you to make improvements to the property, and you feel confident that you will be there for a while, consider investing a bit of money to improve the property. 
• For example, our house was very run-down and a bit depressing and cold when we moved in. Improvements we have made over the years to the house include: 
• Painting the interior of the main rooms (with the landlord's permission; she agreed to avoid rent inrease for a year, as we did it ourselves and were given the paint from friends);
• Installing gas ducted heating (the landlord agreed to go halves; about $1100 each);
• Changing blinds and lampshades (got on sale at Spotlight so very inexpensive but looks great!);
• Buying and installing a dishwasher (we paid for it ourselves, plus the plumbing, but it was the best $1100 I've ever spent!);
• Painting the interior of the rest of the house (I got the paint cheap from a paint store - mistinted paints but all versions of off-white - enough for 4 rooms for $120!)
• Fake grass for the concrete back garden. I got a large piece for about $600 and have filled the gaps over the last year by picking up off-cuts from hard rubbish and friends. It doesn't look perfect but it means my kids have a soft ground to play on. And I don't have to stare out the back window at concrete!
• A raised veggie box/planter. This can be taken with us if we move, but it makes the back yard look much nicer.
• So even though over the years we have spent a bit of money to spruce the place up, I estimate that what we save in rent has made it well worth it, and renting a cheaper house and fixing it up is a strategy I'll use again when we inevitably have to move. 
• For example, a freshly painted house with heating and a dishwasher in our suburb would be perhaps $130 a week more than what we currently pay, which is $500-600 month more or $6000 a year more! And we have been here for 7 years, so that's about a $42000 'saving' over this period! We will never move if we don't have to - but am sure that day will come. Fingers crossed it's not too soon. And I'd better actually start investing those savings!

Changing utility suppliers: Take 2!

Oh the joys! After deciding to stick with AGL for gas and electricity after they agreed to give me an extra discount off our already okay rates, I was pretty pleased to have saved some money with minimal effort. However, luckily I then checked the fine print when they emailed me the plan details (and next bill). Inexplicably, they had increased the base rate so substantially that I was now MUCH worse off!

I was naturally outraged and called them up.  I was put through to the 'resolutions' team, and the person I spoke to could not explain why the rates had gone up. She agreed to investigate and get back to me. Then nothing!

I called again a few weeks later and spoke to another person in the team, who also could not figure out why it had happened. Again, he agreed to investigate and promised to call back within 10 working days. That was about 4 weeks ago now and I've heard nothing.

So instead of going through the pain of calling them again, I've decided to switch. And it was surprisingly easy! I used the government site called Victorian Energy Compare and picked the cheapest electricity option, then went to the new company's website and signed up within about 5 minutes! All I needed was the metre number from a previous bill, and they then know all your details.  And my rates have dropped from a daily $1 supply charge to 71 cents, and usage from 19 cents to 15.4 cents. Which should all add up, plus there is a pay on time discount.

Now to sort out gas, but I was so excited about how easy it was, that I had to blog about it immediately!

Bread!

This is just a quick post about bread. I made my sourdough for my playgroup friends today and they were very impressed - even two ladies who had recently attended a sourdough workshop!

So here is the link to the recipe, which also includes a helpful video on how to make it. It's on Stonesoup, a very healthy and inspiring food blog.

I pretty much make it as she does, although my starter didn't use yoghurt to start it - just good old flour and water. It's now a year old, and definitely improves (!) with time.

Enjoy!

(PS. I can't seem to post/reply to comments at the moment - my apologies!)

School holiday blow-out!

This is my oldest son's first year in school and thus my first real experience of the school holidays (well, since trying to reign in my spending). And I have to say it's been a bit of a financial disaster! I feel like all the hard work I put in cutting back my spending over the last 4 months has completely gone out the door. These holidays I was a bit like a teenager with their first credit card - I was spending willy-nilly and saying 'stuff it!' and  'I deserve a treat!'.

Our grocery spend for the month of September ended up being about $400 over budget, mostly due to a week away with the extended family (why do kids in groups eat more than when at home?!), plus we threw a dinner party that I hadn't planned for. And the entertainment/food & dining categories were also way out of control. We treated the kids to the movies, and there were many cafe trips, lunches out, a zoo visit... Plus, a much needed date night got a bit extravagant with dinner, drinks and a movie!

Anyway, after spending this evening perusing the damage via my online banking portal, I think I can take away a few lessons.

1. It's very easy to fall back into old habits. But I'm not going to chuck the whole thing in. I'm going to be more vigilant this month and stick to our budget.
2. Next school holidays I'll be more prepared. I know the Simple Savings vault has heaps of tips on how to make the school holidays more affordable, and I'll also ask for tips online. 
3. The monthly shop is a good idea, but it doesn't cater for things that crop up (such as me deciding to host a dinner party), and I had tried to buy extra school holiday supplies/treats, but it just wasn't enough. So I'm going to try to keep more of the budget back to cater for these extra things. (I already set aside money for the weekly fruit and veg top up, so I just need to shop a bit smarter at the start of the month and put extra aside.)
4. It wasn't the kids' fault. It was mine. They would have been happy with home-made treats and a prima from Aldi, but it was me who was using the holidays as an excuse to break my 'limit cafes' rule. I need to plan better (including the kids in the planning) and get baking! I've been totally slack in that department recently.

So, it was a bit of a step backward, but we all had a lot of fun. And hopefully I've learned a few lessons!

Planning

Well, I think I can tick this month's task off the list. We saw our financial planner the other day to see what he thought about our plans to purchase a property. We have a decent deposit saved (or so I thought!) and I had met with a mortgage broker who outlined our borrowing capacity for an investment property or a home to live in. I was starting to get a bit excited, reading finance and property books from the library, spending way too many hours on real estate websites perusing properties for sale, sold and rent and dreaming about what it would be like to finally join the 'I own property' gang.

So I was a little disappointed when our planner suggested waiting and saving for another 18 months. This would give us a bigger deposit, ensure we don't pay mortgage lender's insurance, and cover all those pesky real estate transaction costs. However, he also made me feel quite proud. He said most people need a mortgage in order to force them to save, but we are such good savers we are better off just saving for a bit longer!

My partner and I have agreed that we will continue renting for the foreseeable future, as we love our house and suburb, and could never afford to purchase a house in the area. So in a few years we'll probably purchase an investment property elsewhere, mostly so that we have something to either move into or sell when we retire (we don't want to pay rent in retirement).

The planner was also impressed with my recent dabble into the share market. I think I'll continue to put a little bit into that as well which will hopefully set us up for the future.

We still have a few things to get sorted planning-wise: we still need to finalise our wills, organise power of attorney, and see someone for an income and death insurance review. I'm going to give us a deadline of the end of next month, and will keep you posted!

This month's challenge: getting the finances in order and planning

So this month's focus is on getting control of our finances and planning for our future. I'm quite good at putting together a budget and recently exported all our transactions from the 2015/16 financial year (mostly in handy categories from our online banking). Once I sorted last year's data (and was quietly horrified by our grocery spending - see month 1 challenge!) I put it together with this financial year's predictions and now have a lovely 2016/17 spending plan/budget.

Which is all very well, but I need to get my partner on board. We are pretty hopeless at talking about finances, so I'm blocking out an evening for us to discuss the budget/projected spending to ensure that it's realistic. This will help us work out how much money we need to regularly put into the joint account in order to cover expenses. It will also help us work out how much we can realistically save a year. This will in turn help us when we go and see a financial planner later in the month! (Booked in - good on me!)

We have a bit of money saved and are keen to see what the financial planner recommends in terms of future plans. We don't really know what to do - there are so many options! We could potentially buy an investment property, buy a home to live in, or invest in shares or a managed fund.

I recently did a great online course at 10,000 girl called the 'Online money makeover'. The course taught me the importance of planning for the future, and also for looking at all the options in terms of investing. It demystified the share market for me and I would highly recommend it. I even set up an online broker account with my bank and bought some shares!

So my partner and I need to figure out our priorities. I'm really torn between staying in our fabulous (and very cheap) rental property, and the urge that I have to own our own home. Buying a home to live in would mean moving suburbs (we currently live in Northcote in inner Melbourne, which has crazy property prices) and all things associated with moving: losing our network of friends at school/kinder/playgroup/sporting activities, moving further away from work (my partner currently rides to work and the public transport options here are also fabulous), losing our fabulous neighbours (who are now good friends), and losing our ability to save money/adding financial stress to our lives.

Anyway, each time I try to book in our budget/planning evening, we're derailed by illness or tiredness. So hopefully next week!

Not so frugal after all...

Today I met with a mortgage broker, and the most surprising thing he told me was not that we couldn't afford a house within 10km of our current rental (no surprises there) but that our monthly expenses (excluding rent) were above average. Here I was thinking that we were super frugal, but apparently not!

According to the mortgage broker, the average expenses for a 2 adult, 3 child family is $3,600 month (excluding mortgage/rent). This data comes from HEM - the Household Expenditure Measurement Index, which is quarterly survey conducted by the Melbourne Institute of Applied Economic and Social Research at the University of Melbourne. The HEM is used when estimating expenses when applying for home loans in Australia.

Now, finding information about the HEM online is a bit tricky. To get details and updates it seems you need to subscribe to the official reports. However,  I found this table which has the average figures valid from July 2015. This other Living Expenses Calculator is also helpful and based on the HEM; it calls the HEM average a 'basic' lifestyle, while if you say you live a 'moderate' lifestyle it estimates $4900 a month in expenses. Which is well above what we spend - and it made me feel a lot better. Our monthly average expense is closer to $3900 (excluding rent), which is about $300 a month above the 'average' Australian expenditure.

Now all this talk about average spending got me thinking about lifestyle. Some people live extremely frugal lives. I used to be a member of several savings forums (Simple Savings and Cheapskates as well as various savings-focused Facebook groups) and was often shamed by my usually pathetic attempts to save - particularly given the ample income I was earning at the time. Some people survive on below the minimum wage and would never consider buying cafe coffee. I feel proud when I only buy a latte every few days. It's all about priorities for me, while some people don't have a choice.

Then there is the other extreme; lots of people I know buy one or two coffees a day, often get takeaway and buy their lunch, go out for fancy dinners, fly interstate/overseas on holidays, go skiing, regularly buy expensive clothes, household items, technology etc. A lot of these people earn a lot of money but many also have lots of credit card debt and a stressful mortgage!

Keeping up with the Jones's can make life stressful, as can not keeping up! I often find myself saying no to things due to the expense factor. People don't need to know why I'm saying no, although I do often tell them! But it can be a little embarrassing saying no to things.

The perfect example was a surprise weekend in Sydney for my friend's 40th.  Her mum organised it and her husband even offered to buy my airfare, but I knew it would be an expensive weekend even so, with the shopping, cocktails and fancy meals that my friend is fond of. So I politely declined. My other friend who went reckons she spent $400 on top of the airfare! A lucky escape for me...

Less extravagant examples of ingrained 'pressure' to spend would be meeting friends for dinner or drinks. I sometimes suggest meeting at someone's house instead if I'm trying not to spend, or just going for a drink rather than dinner. But as it's only a small amount of money I think it's difficult for others to see the problem. We are not poor and yes, we can afford it, but I want to save our money so that we can eventually afford to buy a home.

Sometimes I even feel the pressure to spend on small things like activities for the children. One of my good friend loves taking her kids to play centres, the cost of which quickly adds up with 3 kids and a coffee! So now I limit the pricier activities to one per school holidays. And my son wants to do martial arts lessons with his mates, but at $40 a week (!) I've had to say no. I was astounded when all the other mums at school were talking about signing their kids up. This is probably why I didn't get much moral support when I complained to the Principal about the high cost of the school concert tickets...

So I'm tipping that the majority of my friends and the families living in my fairly affluent area spend well above the Australian average on expenses. It does make it quite difficult to reign in the spending when you are surrounded by people who spend a lot and possibly don't question their spending.

It helps to get my savings inspiration elsewhere, and I've been inspired recently by a blog about extreme frugality and early retirement (but with a quality of life focus) called Mr Money Mustache. Even if you don't want to be as frugal as him, he is seriously inspiring. Have a read!