NZ Herald 4 September 2010

QA piece in the paper recently about the cost of producing coins getting close to their face values got me thinking.

The best deal in terms of metal weight must have been the old pennies. Each penny weighed 9.45g, so a tonne would contain 105,820 pennies or 441 pounds which translates to $882.

From what I can gather, the penny was an alloy of 95 per cent copper, 4 per cent tin and 1 per cent zinc. The weighted average price of the alloy at the moment is $10,992 a tonne.

Thus, if you had converted all your spare cash in 1967 to pennies and stored them under your bed, you would have made a compound return of 6.04 per cent a year in the 43 years since.

The old adage about taking care of the pennies seems to have had some validity to it.

QPartners and budgets — an interesting topic. A lot of people I know had and still have many arguments over discretionary spending.

In my first marriage as our fortunes swirled, we always had two rules:

• The mortgage was on a revolving credit arrangement, and all earnings went into that account. As a result various mortgages over the years were paid off well ahead of time. Debt was always to be managed and reduced as quickly as possible.
• We always gave ourselves “pocket money”. This was our own money to do whatever we wanted with. I saved sometimes to buy that over-priced putter or single malt; she would go to expensive spas for her massages. No questions, no comments, it was one’s private money. For many years it was only $100 a week, now it is $250.

I found that we had far fewer arguments about money than our friends — in reality only one or two over 20-plus years of marriage — because we kept some personal control over a small amount.

Major items e.g overseas holidays, new cars, etc were always financed against the revolving credit, which had targets to be reduced to on a quarterly and annual basis. Credit cards were always paid in full every month.

All common expenses were paid out of the revolving credit account. Revolving credit was the best financial planning system the banks ever provided.

Nowadays I am retired and while my wife still works, we still have our “pocket money”. Why change a working system?

QMy husband and I have been using a system that has worked for us to pay back extra on our mortgage for the last 6 years.

Our concern was that we were spending to the limit of our revolving credit portion of our mortgage, despite good salaries, and weren’t very aware of where our spending was going.

We worked out — after going through three months’ spending — how much we were spending on fixed costs like mortgage repayments, insurances, car WOFs etc and what was discretionary, or day-to-day spend (groceries, petrol, clothing, going out etc).

We then decided on a realistic (but relatively generous) amount as our fortnightly “allowance” for day to day spending — an amount that still leaves us with an overall surplus. This amount gets deposited in a separate account that we have an eftpos card for.

We put the money in fortnightly, not weekly, as this provides for inevitable fluctuations, such as purchasing an expensive piece of clothing one week but just everyday spending the next.

Although this means that the total in our revolving credit is not quite as high as it could be, it has meant that:

• We are tracking our spending better, as we can easily check where we are at for day to day spending by looking at one account balance.
• We can spend without feeling guilty, in fact, our intention is that the allowance money is all for spending. Once that money has gone in a particular fortnight, we are aware that we have overspent and will only spend on essentials (any additional spend goes on our credit card which is paid off through the allowance). BTW, you do have to be able to stomach being told that your eftpos card has declined occasionally!
• We haven’t increased our discretionary budget very often, although we have both had salary raises in the past few years, so we have been able to save more each year.

We do occasionally come unstuck if we have a large purchase on the discretionary account, so we usually agree on large discretionary purchases going through the mortgage account.

This type of system does probably rely on your correspondent doing an initial “spending audit” on her own, and there is still self control required from both parties. But it is a bit less constraining than slicing up a budget into different categories and tracking each from the same account.

This system has helped us be more self aware about the total dollars we are spending on a fortnightly basis, and we have paid off thousands of extra dollars on our revolving mortgage account as the surplus just automatically builds up without us really being aware of it.

Also, you made no mention of moving the mortgage from monthly to fortnightly payments, which will also help a bit in paying off the mortgage quicker.

QA suggestion in reply to your article ” Budgeting a turn-off”, is to use a home version of some financial management software.

We’ve been using Quicken Personal Plus for the last five years. It does exactly as it says — ” an easy home finance and investment organiser”. It produces reports, graphs, piecharts etc to track spending. Fixed outgoings can be entered to appear each month, and it’s easy to see what is left for discretionary spending.

We have found this a great tool. It still requires some discipline with spending though.

QYet another KiwiSaver question…. My partner and I are looking at buying our first house. We are both fortunate to have a considerable amount sitting in our combined KiwiSaver accounts which we would like to withdraw and put towards our first mortgage.

However, given the markets have been somewhat suppressed due to the global financial crisis/recession I believe we would be better off leaving the money in KiwiSaver for another couple of years while markets recover (and fingers crossed — we make some decent gains on our funds). Can we withdraw these funds at any point with our first home, or do we have to do it within an allotted time period?