Looking after the Pennies (Cents)

There's an old saying "Look after the pennies and the pounds will look after themselves" [ref - I find it funny that this is attributed to J.Paul Getty when I'm sure it was a common saying in English way earlier than that.] which is still one of the more useful money truisms. There are many ways to save small amounts day-to-day the overall add up to "fine tune" our investment performance, maximise income and minimise expenses.

We've moved our superannuation from the default provider (BT/Westpac) used by our employed into a self-managed superannuation fund. This should save around 1%pa in administration and management fees over the long term, which is quite a lot now that our combined retirement funds are heading towards $400,000. We were a bit unlucky in the timing of the move from the BT account into our SMSF - it was done during a period of considerable market volatility which resulted in our existing investment being cashed out when the market was down in August, and the funds not being invested until a couple of weeks later, by which time the market had recovered most of it's recent decline. I attempted to minimise the risk of reinvesting during a temporary "bounce" by using dollar cost averaging (DCA) over a couple of months, but the market continued to rise during this period and is now declining again - the worst possible trend when using DCA. We should still end up ahead by using a SMSF in the longer term, but this "timing risk" has reduced the benefit. Not all good ideas work out as planned.

On a smaller scale I recently opened a "Dragon Direct" online savings account which I can use to invest surplus funds from our home loan payment account. The idea is that the monthly rent payments from our tenant are often not needed for the mortgage payments for a couple of weeks, so we can earn some extra interest by transferring the "surplus" funds into the online savings account where it will earn around 6% (the normal savings account used to cover mortgage payments only pays around 1% interest). So far it hasn't worked out as well as I'd hoped - I forgot about an interest payment for my portfolio loan that was due to come on the 8th of the month, so the bank charged us a $38 overdraft fee to cover the interest payment out of the normal savings account. Since I had more than this amount sitting in the Direct Savings account at the time it was most annoying (and won't happen again!). This one fee has cost as much as we'll earn in extra interest using the online savings account for two months.

I will be opening up new BankWest kids savings accounts for the boys (DS1 and DS2) in a couple of weeks (as soon as a new BankWest branch opens nearby). These accounts will pay a whopping 10% interest on the kids savings, provided they deposit between $25-$250 each month and make no withdrawal during the month. Both kids already have money sitting in St George "Happy Dragon" savings account which pays a low interest rate, and DS1 has a "Dragon Direct" account earning 6.5% which holds the proceeds from his paper round earnings. So, moving $250 each month into the new BankWest accounts will earn them at least 3% pa more on the money in the BankWest account. After one year this would be $3,000 for each boy, meaning they're earning an extra $90 pa in interest. Of course there will be a few minutes spent filling in paper work to open the accounts, and setting up automatic transfers of funds between accounts each month, but every little bit extra helps.

And, of course, the usual things like brown-bagging lunch to work, buying petrol on the day of the week when it's usually cheapest, doing the shopping on the way home when I stop to collect mail from the post box, rather than making extra trips in the car, and so on.

ps. Looking up the origin of the idiom I found an interesting list of money expressions.
Copyright Enough Wealth 2007

Best Saving Account for Children

I'm always keeping and eye out for what savings and investments are best for DS1 and DS2. I recently learned that the BankWest Kid's Bonus Saver Account is paying 10% interest on the entire balance, provided they make a deposit in the month of between $25 and $250 and no withdrawals. The Kid's Bonus Saver Account has to be linked to a BankWest Children's Saving Account, but this account has no fees and no minimum balance. The account is designed for the specific benefit of the child but it must be opened and operated by an adult. These accounts are only available for children up to the age of 15 - when they reach 15 they'll be automatically converted to the Teen Scheme account. The Children's Saving Account provides online access, and you can make Direct Credits into the account. The interest rate on the Children's account is still a reasonable 3.25% on balances between $0 and $5000, but you'd want to keep most of the money in the kid's account and just accumulate enough in the Children's Saving Account to be able to make a $25 deposit in the linked Kid's Bonus Saver Account each month.

Copyright Enough Wealth 2007

A Nice Opportunity for Beginning Investors

It's a pity that I already have several online savings accounts and mututal fund investments, because the new offering from rabobank looks very attractive. They offer an online savings account with no fees or minimum balance with an interest rate of 6.6%, and from this account you can invest in wholesale mutual funds for a low entry fee of only 0.75% (compared with up to 5% entry for retail funds going direct or via a planner, or 0% for a retail fund investment via a discount broker). They are offering 0% entry fee, but only until the end of July. But the 0.75% fee is still good value as it gives access to wholesale funds (which usually charge lower management fees than their retail fund equivalents) with a minimum investment of only $250.

I'd try out this account and fund investment option if I didn't already have more accounts than I know what to do with. They do offer the account for use with a DIY Superannuation account (SMSF), but I'll have to check carefully how their costs and range of available funds compares with accessing mutual fund investments via e*Trade (I already have an e*Trade account setup for use with our SMSF). One benefit of making out SMSF mutual fund investments via e*Trade is that eSuperFund (which administers our SMSF) has access to transaction data from our e*Trade account. If we invested for our SMSF via Raboplus we'd have to send copies of all the relevant financial info to eSuperFund each year.

I was also thinking about opening a Raboplus account for DS1 and/or DS2, but unfortunately you can't open a raboplus account if you're under 12, so the kids will have to make do with their St George bank accounts and Commonwealth Bank 'dollarmite' savings accounts. It's funny how some banks and Superannuation funds have no problem with opening accounts for a minor (with an adult having authority to operate the account), while others either don't handle accounts for minors at all, or insist on the account being opened in the name of the adult trustee(s).

Copyright Enough Wealth 2007