Care to share?

I noticed today my blog has had a crazy number of views! 168 visitors and 868 views when I usually have less than 20 visitors a day. Has a link to my blog been published somewhere I don’t know about or has becoming debt free caused a surge of interest? It’s pretty cool but a little strange so if anyone can shed some light on why this is I’d be grateful!

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I’m still here!

Just to let you know, I haven’t stopped blogging. Just taking a bit of down time while I decide whether to continue with this blog now that I’m debt-free. Initial thoughts are to continue blogging with financial advice and savings tips and tricks since that will be my focus now.

Let me know your thoughts!

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4 April debt update – there is none!

It has been 1 year, 9 months, 3 weeks and 4 days since I made a conscious decision to get out of debt. Today I have achieved that!

I'm debt free!

I started this journey with $49,058 worth of debt. $29,384 of this was my student loan, which was (and still is) being paid back through my tax so my focus for this blog was on the other $19,674. This comprised of 14 different debts including a car loan, bank loan, personal loan, bank overdraft, hire purchase, a neglected phone bill, an equally neglected power bill, a work and income bill, a bill from a budget advisory company, two store cards, one finance card and a pukeko in a ponga tree. In all seriousness though, it was a lot to deal with!

Check out the table below for a breakdown of the debts I started with. Ok so my calculations were $1 out but that’s not bad considering how many debts I was juggling!

 

Debt Total paid
NZCU 3,640
Farmers Card 3,034
DTR 3,028
National bank loan 2,578
National Bank overdraft 2,112
Vodafone 1,675
WINZ 774
Jubilee 718
Flexirent 618
Contact 562
Warehouse Card 521
QCard 258
Southland Times 110
IRD 47
19,675

And just for good measure so I can have the satisfaction of crossing the final debt off the list:

  • National Bank Overdraft: $0
  • Farmers: $0
  • WINZ: $0
  • DTR: $0
  • Jubilee Budget Advisory: $0
  • Credit Union: $0
  • National Bank Loan: $0
  • Vodafone: $0
  • Contact: $0
  • Warehouse Card $0
  • Flexirent $0
  • QCard $0
  • Southland Times $0
  • IRD $0

14 debts down and none to go!

debt free zone

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Last year’s budget changes are here!

It was hard to think about the impact of last year’s zero budget when the changes were announced but now that they have come into effect some people might be feeling the pinch.

My student loan repayment obligation at 10% was $2,941.60 a year or $113.14 a fortnight. With the repayments increasing to 12% my repayment obligation is now $3,529.92 a year or $135.76 a fortnight – $22.62 more each pay.

My Kiwisaver contributions were $37.30 a fortnight but will now go up to $55.96 a fortnight – $18.66 more each pay. The bonus is that my employer’s contributions will also increase from just over $30 a fortnight to around $50.

So I will be paying an extra $41.28 each fortnight, which is manageable but had this happened a year ago it would be another story!

For a quick way to work out the difference in your student loan repayments go to the Treasury’s website.

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Paying back your student loan

The start of a new tax year was marked by the implementatoion of student loan changes announced in last year’s budget. It marked the end of a 10 per cent bonus for voluntary repayments made to your loan balance. The minimum repayment was also raised from 10 cents to 12c in every dollar earned above the $19,000 threshold.

With these changes now in place, an article on Stuff reassesses the smartest method for paying back your student loan:

So what should you do? Nothing at all.

That’s it. You can breathe easy. If you’re a borrower living in New Zealand, the best course of action now is to kick back and let the taxman drag your loan back from your paycheque, cent by measly cent.

The last incentive for making an early repayment has officially gone down the gurgler.

From here on in, it makes sense to repay your loan as slowly as possible. Here’s why.

Inflation is your friend

A $5 note will buy you a lot more right now then it would 10 years down the track.

The Reserve Bank aims to keep inflation running between 1 and 3 per cent, and historical data shows it’s averaged about 2.7 per cent since 2000.

In almost every situation, inflation is your enemy. Each year, it steadily eats away at the true value of the cash in your bank account.

It chips away at your debts too, but that’s negated by the interest that you have to pay.

Student loans are unique, in that they are interest-free for borrowers living in New Zealand.

What this means is that each year, the outstanding balance of your debt shrinks by about 2.7 per cent in “real” terms.

You can use inflation to deliberately eat away at the value of your loan, and turn your spare cash towards much more productive activities.

Let’s say you have a loan of $30,000, and have managed to accumulate the cash to pay it off immediately.

You could pay that back and be debt-free. But 10 years down the track, the same-sized debt would have dwindled to just $24,000 in real terms.

Of course, you’ll be making compulsory repayments along the way. But each year, whatever remains is eroded by an extra few per cent.

Psychological vs Financial

So far we’ve only been considering a purely financial point of view.

Infometrics economist Benje Patterson points out that psychological factors come into play for some people.

“For whatever reason, it makes them feel bad to have it hanging over their head even though its more rational from a financial perspective to actually drag it out.”

He also points out there are three situations where it could make sense to get your loan off your back as fast as possible:

1. If you live overseas, and are therefore accumulating interest.

2. If you intend to travel overseas in the near future, and as such will incur interest.

3. If you’re worried that the Government will reintroduce interest to loans.

Some people in the latter camp might prefer to pay their loan off quick sharp to avoid any risk of getting pinged with interest again.

But Patterson doesn’t expect a u-turn on the interest-free student loan policy from the powers-that-be.

“The Government has ruled it out this term, and I can’t see them going the full hog and reintroducing it any time soon.”

Dunne confirms that the Government has no intentions in that regard. “It probably is politically a no-go area,” he says.

In any case, the best course of action is to put any spare money aside and save it up. That way if the unlikely ever does happen, you can repay your loan instantly.

That is exactly what I planned to do once I’m debt free. I’m going to continue paying my student loan off through my tax at the minimum rate and in the meantime I’m going to start building an emergency fund. Should interest be added to student loans, I would use the amount accumulated in my emergency fund to pay off a lump sum off the student loan because to me, interest being added to my student loan constitutes an emergency!

Student debt

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Financial freedom within reach?

A nasty toothache is threatening to derail my plans to pay off my final debt this week.

It’s a tooth that has had work before (at least I think so, the whole right side of my face is in pain so I can’t pinpoint exactly which tooth is causing it). Just over a year ago I was told I may need another root canal but the dentist put in a filling in the meantime to see if that would do the trick. If it’s the same tooth causing the pain, then it hasn’t done the trick and I may need to get a root canal.

Speaking from experience, root canals are not cheap so I’m dosing up on pain killers and trying my best to avoid the inevitable. If I’m still in this much pain I’ll have to bite the bullet cotton ball and arrange a dentist appointment this week and pay for it with the money I was going to put towards my National Bank overdraft.

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The value of money

In reading the book Money, Money, Money, Ain’t it Funny: How to Wire Your Brain for Wealth by Sheryl Sutherland, I came across a story that made me realise many of us apply different values to money. An amount of money should have the same value no matter where it came from or what its intended use is, but that is not always the case. Case in point, the legend of the man in the green bathrobe:

By the third day of their honeymoon in Las Vegas, the newlyweds had lost their $1,000 gambling allowance. That night the groom noticed a glowing object on the dresser. Upon closer inspection he realised it was a $5 chip they had saved as a souvenir. The number 17 was flashing on the chips face. Taking this as an omen, he put on his green bathrobe and rushed down to the roulette table where he bet on number 17. He let his winnings ride and eventually he was worth $7.5million.

Unfortunately, the floor manager intervened claiming the casino didn’t have the money to pay should 17 win again. Not to be deterred, the groom caught a taxi to another casino where he bet all on 17 again, when it hit it was worth $262 million. With such luck, he bet again, only to lose it all when the ball fell on 18. Broke and dejected, the groom walked the several miles back to his hotel. “Where were you?” asked his wife. “Playing roulette” he replied. “How did you do?” “Not bad, I lost $5”. The groom felt that his winnings were not real money and so the loses were not real loses.

Do you view money you receive from lotto winnings or placing bets as less valuable than your income?

Money

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