Part 4 – net worth tracking (stop yawning)

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As part of my five part series on family financial management, today’s post is about net worth tracking.

One of the biggest questions that I have turned my mind to over the past eighteen months or so is our family’s net worth – that is – our family balance sheet. It’s a bit like putting a business lens over your family finances and seeing whether the family company is actually growing its asset base.

So net worth tracking – what is it, and how do you do it?

It sounds so fancy, but simply put, your family net worth is calculated by deducting your liabilities from your assets, and bingo – that is your family net worth.

So, why should I go to the trouble of working out what our net worth value is? Five simple reasons:

  1. At any given point in time, you can see whether you are growing your family assets and achieving your financial goals. You can also critically examine composition of your assets, for example and see whether you have any over exposure in terms of risk that you may want to readjust.
  2. You can also see whether you are financially going backwards. For example if property values are falling and you are only making interest only payments on your mortgage (the principal is not reducing) you are going backwards, financially. If you want to change the situation, by tracking your net worth, you will be alerted to this situation and will be able to re-jig your finances accordingly.
  3. Net worth calculations will keep you honest and real about your financial situation if you track it over time. It’s easy to redraw cash on the mortgage to pay for an overseas holiday or put a pool in (we have done this one!) and continue to dip into your redraw facility like it is free cash without any consideration of the long term financial impacts for you and your family. Watching your net worth stagnant over time as a result is an eye opener. We did this for about three years. A combination of seeing our static family balance sheet and a strong urge to spend more quality time with family and less time at work propelled us into action (the Year of Austerity) and beyond.
  4. Net worth calculations are super important in retirement planning. I’ve found that being on this side of 40 has really sharpened my interest in knowing whether I will have enough money to seriously retire and focus on projects that I am actually interested in.
  5. It’s important for estate planning. Perhaps for my generation, intergenerational wealth has not seemed as necessary (I’m a self-starter and have made my own way in this world financially) but for our children, market predictions on employment prospects and economic growth generally are looking a bit bleak. I’d like to think that I will have some $$ to leave all of our five kids as a back-up fund for them and their future families in times of hardship.

For the purposes of being a useful calculation, you want to not include the short term, small assets that can seriously fluctuate at any given point in time. For example, our “trading” account, where our salaries are paid into and our credit card is paid out of, can wildly fluctuate between $12k and $50 depending on what time of the month it is, and whether we have paid our credit card recently. Because this could overstate or understate our net worth position at any time, I leave it out of our calculations.

Similarly, on the liabilities side, we pay off our credit card in full every month and it could have either $2k on it, or $9k, so again, I leave it out of our net worth calculation.

If, on the other hand, the credit card was not being paid off each and every month, and had become core debt – a long standing liability – then I would definitely deduct it off the family asset balance, because by not including it, I would not be viewing the true family financial position.

So, again, in the interests of being open and transparent, for our family, I’ll share our net worth position as at today.

Six monthly I usually do a little bit of my own real estate research to estimate the value of our family home and I use our six monthly superannuation balances to calculate super. I have to say, since the Year of Austerity and paying off our mortgage, we look financially under control and I like that.

Our net worth looks something like this:

Assets

Family home                                                      $700k

Savings account                                                $ 61K

Superannuation                                               $556k

Shares                                                                  $   5k

Total                                                                      $1.322m

Minus Liabilities

Core credit card debt                                     $0

Mortgage                                                            $0

Net worth                                                           $1.322m

 

Now I realise for some this is as boring as bat shit. But for me, it completely motivated me to think about running our family like a business so I could absolutely understand the goal posts of what we needed to save to retire (see next fortnight’s post); what we needed to budget for in the short term and therefore how much I needed to work and most importantly HOW MUCH TIME I COULD ACTUALLY SPEND WITH MY BEAUTIFUL FAMILY and not feel guilty about whether I had planned financially for the future.

I was easily prepared to be very bored to work that all out!

Give it a go, and tell me what you think. For some it will be facing the music but the music won’t go away by ignoring it.  For others, it might be quite surprising and liberating….

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Quick empties update

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You might remember that I blogged here about my obscene ownership of way too many cosmetics…..

I realised that I was making great progress simplifying many areas of my life, but there were still areas of consumption that I was virtually blind to.  I really love this process of simplifying, because the new “normal” is challenged after the passage of time, a bit of adaptation and some furthering thinking about consumption.  It’s a lovely, thoughtful process.

Anyways, I thought I would post an update on my progress. This drawer contains my empties.  As you can see, in six or so weeks a little bit of progress has been made, but man I’ve got a heap to get through.

I’ve realised that in order to get through THE LOT I am going to have to think of some creative ways to use all of my cosmetics and beauty products. One idea I thought of is to use excess moisturiser as conditioner, when my conditioner runs out.

One really interesting challenge is that I have that I have plenty of half used lipsticks…Any ideas? Facial toner?

Part 3 – Where to from here now that our income has been halved

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Where has the time gone! The first three weeks of not working have been really busy – in a productive way. I’ll write about that later.

But for now, I wanted to update you on the family budget now that our income has been halved and I am not working – part 3 of my financial series.

As I mentioned, we have been to see a financial advisor on our superannuation and retirement needs, particularly now that David is nearly 50 and I am nearly 43. It’s important to understand the long game, and to understand how hard we have to work (or not work!) to ensure that we have both a reasonable standard of living now and in our retirement.

Main changes: I have reduced our food budget, and my mobile plan. There is not a lot of wriggle room in this budget – by the time we also get our allowances (which have also reduced) we have about $1000 spare per month. I intend to build this as a bit of a cash flow to help us on the heavier months when we have more expenses.

So our one income budget looks like this:

Expenses   yearly monthly fortnightly
26 2
Car rego $ 2,200.00 $       84.62
Car insurance $ 1,100.00 $       42.31
House ins $ 1,100.00 $       42.31
car services $ 1,000.00 $       38.46
petrol $     120.00
Sundry $     300.00
fernwood $       24.00
internode $   75.00 $       37.50
mobile $   35.00 $       17.50
pocket money $       25.00
cleaning $       65.00
food $     400.00
electricity $ 1,200.00 $       46.15
gas $ 1,782.00 $       68.54
water $ 1,000.00 $       38.46
rates $ 1,300.00 $       50.00
primary school fees $ 100.00 $       50.00
piano $     600.00 $       23.08
netball $     350.00 $       26.00
health insurance $ 1,600.00 $       61.54
girls clothing $ 1,500.00 $       57.69
movies $     100.00
red cross $   25.00 $       12.50
guitar $     600.00 $       23.08
dancing $     400.00 $       15.38
oxfam $   25.00 $       12.50
Boys school fees $ 4,624.00 $     177.85
Girls school fees $ 550.00 $     275.00
Girls mobile $   30.00 $       15.00
foxtel $   50.00 $       25.00
gifts $ 3,000.00 $     115.38
boys expenses $ 200.00 $     100.00
total       $ 2,489.85

The main thing that I will focus on to reduce our food bill is to really cook from scratch. I like the health benefits of this as well, as I am really keen on reducing the amount of processed food that we buy. Things that I already cook from scratch include:

  • Bread – sour dough is may favourite
  • Yoghurt – greek and vanilla
  • Mozzarella
  • Pancetta
  • Biscuits and cakes for the children
  • Hommus (Yotam Ottolenghi’s  recipe is so yummy)
  • Preserves  – I preserve food when it is particularly season and tasty – like mangoes, apricots, peaches, tomatoes

The second way I will reduce the food budget is by buying in bulk from our local Food Co-operative. The food is organic and not packaged, which I really subscribe to. I take in my own jars and produce bags so there is no plastic packaging.

Finally, I will grow up to 50% of our fresh produce. My husband and I have just spent the weekend building three new vegetable beds. This weekend’s outlay has been around $1000 – I have spent all up around $2500 on the veggies beds – but they will pay themselves off in no time.

My job is to keep an eye on the family budget and to make sure that we are on track. Bottom line is if I don’t keep track of it, I am back to work so of course, keeping expenditure within budget is my number 1 priority! I am loving not working and providing really healthy produce for my family.

Part 2 – The year of austerity budget and the new normal

So following on from part 1 Financial Psychology, today’s post is about the actual numbers during the year of austerity and how we determined the family budget.

We did it using a principle called zero-based budgeting. Zero-based budgeting is very different to shaving your existing expenses, like reducing your fortnightly food bill from $500 to $450.

Zero based budgeting works on the principle that every line item in your budget needs to be challenged. Only after every budget line item is challenged with a logical argument, then an appropriate amount can be determined for that line item.

I’ll give you an example of our own home budget. And don’t judge here – I’m openly sharing the budget for the purposes of illustrating an example that works for us. I completely understand that everyone’s financial situation is different and people place different values on certain types of expenditure. This was our budget before we went through our zero-based budgeting exercise nearly a year ago. It was excessive. It was absolutely a budget for the 21st century busy family where things were outsourced for convenience, like cleaning and home delivery shopping, when both parents were busy working. And for many struggling on one income, even our reduced expenditure will seem excessive. But anyways, for the purpose of the example, here was our budget….

Expenses   yearly monthly fortnightly
26 2
Car rego $ 2,200.00 $       84.62
Car insurance $ 1,100.00 $       42.31
House ins $ 1,100.00 $       42.31
Car repairs $ 1,000.00 $       38.46
petrol $       80.00
Sundry $     500.00
Child care $     378.46
fernwood $       24.00
internode $   75.00 $       37.50
mobile $   80.00 $       40.00
pocket money $       25.00
cleaning $     185.00
food $     800.00
electricity $ 1,200.00 $       46.15
gas $ 1,782.00 $       68.54
water $ 1,000.00 $       38.46
rates $ 1,300.00 $       50.00
primary school fees $ 155.00 $       77.50
piano $ 1,200.00 $       46.15
netball $     350.00 $       26.00
health insurance $ 1,600.00 $       61.54
girls clothing $ 1,000.00 $       38.46
movies $     100.00
red cross $   45.00 $       22.50
guitar $ 1,200.00 $       46.15
dancing $     800.00 $       30.77
Fred hollows $   35.00 $       17.50
World vision $   35.00 $       17.50
oxfam $   40.00 $       20.00
newspaper $     568.00 $       21.85
Boys school fees $ 4,624.00 $     177.85
Girls school fees $ 550.00 $     275.00
Girls mobile $   30.00 $       15.00
foxtel $   66.00 $       33.00
gifts $ 3,000.00 $     115.38
mortgage $     923.00
total       $ 4,545.96

And on top of this, my husband and I had amounts of cash deposited direct into our own accounts, for non-accountable spending – haircuts, clothes etc – our sanity allowances.

So as you can see with this budget – there was plenty of room for improvement.

From here, we went line by line and justified each and every expense. The conversation went something like this:

Cars: we still need two, because at times we are ferrying around 5 children and 2 adults, but let’s revisit once children start to get their own licences. Each car is getting on to ten years old, but serving us well. We will use the most economical car for the most amount of travel to reduce our petrol expenditure.

School fees – not negotiable. Not moving the kids from their schools for savings purposes. All kids are settled.

Food: ridiculous expenditure. Still a necessary budget item, but some significant savings can be made here. Resolution: shop only at Aldi and the fresh food markets and reduce to $500 per fortnight. No more home delivery… Savings: $300 per fortnight.

Utilities and rates – all still necessary expenses, but where possible, we will try and reduce our consumption. I’ll write about that later.

Kids extra-curricular activities – all not negotiable, and great for their health. No change.

Cleaner – loved having a great cleaner – and had a fabulous one. But with the risk of public service job cuts, we decided to save as much as possible and do the cleaning ourselves. I now pay the girls to help, we get it done in three hours and once I pay them, I save $120 per fortnight.

Sundry expenses: some sort of vortex going on here – a category for any other expense. Usually the case is money is spent because it is in my wallet. Coffees, the odd lunch out, kids school excursions, odd kid lunch money. Resolution: reduce to $300 per fortnight, savings: $200 per fortnight.

Girls’ clothing; instead of having a $1000 budget, we will only buy what is necessary to replace. No more weekend shopping-is-our-hobby. Anticipated savings: $500 per year.

Newspaper: can get it online. Saving of $568 per year.

Mobile phone; once my contract finishes this month, I will switch to an Aldi plan for $35 per month, savings $45 per month.

Health insurance: grrrr   – it stays.

Gifts: that stays, but we will look for savings.

Mortgage – this is our minimum repayment, and of course we pay four times this amount on our mortgage.

Ok, so for the year of austerity our zero based budget looked like this:

Expenses   yearly monthly fortnightly
26 2
Car rego $ 2,200.00 $       84.62
Car insurance $ 1,100.00 $       42.31
House ins $ 1,100.00 $       42.31
car services $ 1,000.00 $       38.46
childcare $     368.00
petrol $     100.00
Sundry $     300.00
fernwood $       24.00
internode $   75.00 $       37.50
mobile $   20.00 $       10.00
pocket money $       25.00
cleaning $       65.00
food $     350.00
electricity $ 1,200.00 $       46.15
gas $ 1,782.00 $       68.54
water $ 1,000.00 $       38.46
rates $ 1,300.00 $       50.00
primary school fees $ 155.00 $       77.50
piano $ 1,200.00 $       46.15
netball $     350.00 $       26.00
health insurance $ 1,600.00 $       61.54
girls clothing $     500.00 $       19.23
movies $     100.00
red cross $   25.00 $       12.50
guitar $ 1,200.00 $       46.15
dancing $     800.00 $       30.77
oxfam $   25.00 $       12.50
Boys school fees $ 4,624.00 $     177.85
Girls school fees $ 550.00 $     275.00
Girls mobile $   30.00 $       15.00
foxtel $   66.00 $       33.00
gifts $ 2,500.00 $       96.15
mortgage $     923.00
total       $ 3,642.69

Savings – just over $900 per fortnight, or $23,000 per year. Main reductions: cleaner, sundry items and food. We will suspend our Foxtel over the summer when football finishes, which will provide more savings. Another item that might get challenged next time we look at our zero based budgeting process again (it happens annually) is our movie night money, that usually is a cheap dinner out for the two of us and a movie. We might look to more eating at home and just the movie tickets, which is $35.

One of the interesting things that I will point out about this process, is that each stage of adjustment becomes the new “normal”. We had a higher budget that then first one a few years ago, let me tell you. I was easily able to justify our food expenditure at $1000 per fortnight because we have a large family. Our year of austerity for another family could be a year of luxury or a year of hell. It’s all relative.

By cooking with cheaper cuts of meat, using seasonal fruit and vegetables, and by producing my own fruit and vegetables, you can see our food bill has reduced substantially. But this reduction has been over time. As we got used to a new food bill level, we saw more opportunities to reduce it.

So – how do you budget and what do you find the most effective way of keeping control of your expenses?

The family finances – Financial Psychology part 1

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It’s a scary thing putting your family finances out there for all to see, but in the interests of encouraging others, I have developed a five part family finances series.

Part 1 – Financial psychology

Part 2 – The year of austerity budget and the new normal

Part 3 – Where to from here now that our income has been halved

Part 4 – Net worth tracking

Part 5 – Retirement planning

So the starting point for us:

We were both in the public service in middle to senior management levels. I’m not prepared to disclose our family income, but suffice to say that in household surveys we were always ticking the $250 000 and over box – and it was substantially over.

We moved in together with our blended family of seven in 2009, both reeling financially from two divorces with some superannuation and a mortgage of $350k against a house now worth about $700k.

Then we kind of financially dicked around a bit. We put in a new pool (above ground, but with a fancy deck); renovated some rooms, bought a second hand seven seater car and I realised mid-way through 2014 that we were still sitting at $140k on the mortgage some five years later, and had only managed to get through just over $200k, despite our reasonable income earning reality.

So – the year of austerity was born. Just like Greece, we decided to cut back on expenses and knock over the mortgage within a year. I can happily report that we have achieved our goal, which has enabled me to take the next year off work and spend some more time with my children, as well as potentially go back to work after that on a part time basis.

So what was the psychological shift that enabled us to make the transition? I read Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence by Joe Dominguez and Vicki Robin and in a nutshell, I realised that each time I purchased a new item of clothing, something new for the house or bought a convenience meal that I was trading my life hours for money.

The premise is this: everyone only has a certain number of life hours available to them. Each time you purchase something, you are trading some life hours away. EG I could buy this nice $200 shirt that will bring me immediate pleasure, and perhaps the next two to three times that I wear it; but to get that enjoyment, I have to work for four hours (of half a day) to net that kind of cash. You add this up over a whole wardrobe, a new car, brand new kitchen appliances – you get my drift and you realise that you will need to work for most of your life to achieve short-lived consumption happiness.

The other thing I realised is that purchasing new things each pay day is like being on crack cocaine. It feels good at the time, and even the first few times that you use or wear your new thing – but then the “thing” you have purchased becomes a part of your new “normal” and you find yourself still craving for more. This is called hedonic happiness – short lived, but leaves you wanting for more. And it’s insatiable.

So the shift in gears in my mind has been two-fold:

  1. Each time I want to buy something, I think about is it worth the life hours – adding an extra half day/year/five years to my working life; and
  2. Is this purchase just for hedonistic reasons, or is it something that we actually need.

What have you learned about your financial self?

Cosmetics shame and empties challenge

So we went to the States in 2013, the AUD was holding up strong and everything was cheap including make-up and I wasn’t considering minimalism back then.

Oh and I am a GWP junkie. At least I was. A Gift With Purchase offer would have me hovering over a David Jones counter, pronto.

Consequently, in a small cupboard in my bathroom, I confronted a shameful fact today:

  1. I have 23 lipsticks
  2. I have over 50 containers (small/medium/large) of various moisturisers, creams, body lotions, shampoos and conditioners, facemasks, exfoliates, toner, makeup remover AND THEY ARE MY SPARE ONES.

It’s funny – simple living and paring back to the essentials is a process and not a project. Six months ago, I would have been proud of myself that I had organised them into neat little zip lock bags into their little categories.

Now, six months on, I am looking at them in horror. So much consumption. No end in sight in terms of getting to the bottom of the storage bin and just having one of everything, like a real minimalist.

Possibly, if I was hard core, I would think about donating them just to clear my clutter immediately. But I’m not hard core. I know I will use these products at some point in the very near future. So I have set myself an empties challenge. The challenge is:

No more makeup or moisturisers until all of the little bottles are used. I am going to set up a little bucket in my wardrobe to put the empties in, to remind myself of the challenge, and I will post on progress.

Here is some shameful before evidence:

all lipsticks

hair products

What is your shameful hoarding secret? (PS I’m sure I will continue to horrify myself as my expectations are reset with this simple living process).

Root to stalk, suburbia style

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One of the amazing things I am learning as I reap the benefits of my slow growing brassicas and beetroot is that the winter/early spring crop can provide a family like mine an abundance of greens for dinner. I’m almost at an over-supply moment where I am going to have to start blanching and freezing. How exciting.

I’ve learned to cut off the broccoli head and to keep harvesting as smaller off shoots present themselves. This alone is keeping our family of seven every second week well feed. My cauliflower is now being harvested and eaten as well.

But the true gem of the garden, to provide sustenance during the lean late winter/early spring months is all wrapped up in amazing little book called Root to Stalk cooking by Tara Duggan.

I did know about cutting off the outside of broccoli stalks and slicing the inner stalk thinly for a stir fry, but my mind was completely blown when I realised that not only could I utilise the broccoli or beetroot in my suburban paradise, but I could also utilise their leaves. Kaboom. World blown.

Just like the snout to tail philosophy, much more of the vegetables grown organically in the suburban back yard can be eaten, providing essential nourishment.

So now, as I see the tender little leaves of broccoli and cauliflower growing, I harvest them, wash and slice finely for stir-fries. Beetroot leaves are harvest also and used for salads or stir-fries.

My brussel spout plant heads are also harvested (as well as the brussel sprouts of course !)

And my garden has become so much more interesting as a result, as I learn about the parts of the garden that I can harvest for nutritional value) and feed my family. It doesn’t get any better than that.

My sour dough education – still in primary school….

sourdough mark 2 soughdough loaf

Right so I might have underestimated the task and the science behind making sour dough……

Things I have learned as I am finally getting bubbles into my bread (as opposed to dense bricks of flour):

  1. The starter, which should be renamed the slower takes some time to mature.  My early bubbles within the first few days were not the required bacteria and natural yeast to leaven fairy floss. The starter is now three weeks old, smells like a cross between rotting fruit and nail polish remover and is bubbly in the mornings.
  2. Bubbles are your friend.  Because bubbles are your friend (to offset loaf density) your dough needs two periods to rise.  Today, for the second rise, I left mine out in full lounge room sun in the morning and when I got home it was filled with wonderful bubbles. Because of the long periods required to rise, the bread maker just does not cut it.  Bake and rise settings are too short in a machine.
  3. The way you knead counts.  You need to stretch and fold (as opposed to just getting your biceps into it without any precision).  The gluten needs to stretch.
  4. Even though I want to make a rye sour dough, I am not yet enough of a sour dough aficionado. I need to use the lightest possible bread flour with the most amount of gluten to get these babies to rise. Denser flours – you’ll have to wait.
  5. A pan with water also in the fridge provides sufficient moisture in the oven.
  6. The oven needs to be super hot (I crank ours up to the max of 250 degrees centigrade).
  7. Finally – I need to oil the pan a little bit more.  Today – pan remnants, scraped off, slathered with butter received some teenage daughter squeals of “give me more” but my bread today had no bottom (still stuck to the bottom of my loaf tin…….).

So in the interests of not curating a perfect life in a blog – here is today’s improved loaf. Still not high enough, still not enough bubbles, still a little bit moist in the middle – and stuck to the pan – but it’s improving. I am so excited. I am definitely the type of person who starts exciting things and leaves the finishing to others. I am persevering. I WILL learn to be a sour dough expert. I can’t wait to share my (perfected) Canberra north side suburban sour dough starter to someone else, to engender a love of making bread at home.

My Italian lover – Gillio planner

I’ve embraced technology for a long time and use and appreciate it daily. The ability to communicate worldwide on Skype, smartphones, online banking, music downloads   – these are all big things in my life.

But at the end of the day, when it comes to scheduling and planning, I am a paper person. I’m visual and I like to write things down. I’ve used a planner for as long as I can remember, and have been a pretty loyal Filofax user. I’ve strayed to Erin Condren, Kikki K, Van der Spek and even Kate Spade, but I have always come back to Filofaxes, particularly Malden and the Original. Right now I own a black and cream Van der Spek, a cherry Original Filofax, and as of last Monday a beautiful epoca leather grey Gillio Mia Cara, made of Italian leather by a company called Gillio Firenze, out of Belgium.

This is not my first Italian lover. I have tried the large and pocket sized Mia Cara as well as the Campagna but after many permutations and combinations of planners and wallets, I have settled on a personal sized wallet/planner combo.

gillio front

Here it is open flat:Gillio flat

And now here is the magic.  The planner portion on the right can be removed from the wallet section of the Gillio.

Gillio separate

Here is the planner section opened up:

gillio diary open

And here is the second magic trick – the massive pocket at the back that holds a4 papers folded….

Gillio pocket

Now before anyone gets too excited, you might want to wait for the Aussie dollar to appreciate against the Euro. This one set me back nearly $500 which is a pricey purchase for someone who is looking to simplify and slow down. My justification: this planner is not only my Italian lover but it is also my executive assistant, my brain on some days and the thing that keeps our large family functioning.

I’ve ordered some new inserts from Etsy, so I will post about my set up when they arrive.