And the following interview conducted by the BBC,  of a UK Govt minister talking about how the UK Govt. is going to pay back the 606Bn UKP debt it’s due to rack up in the next couple of years. As I can’t find the link anymore you’re have to forgive the slight paraphrasing.  The interview really did go something like this;

BBC Interviewer — How will you pay it back?

MP — by having a plan!

BBC — and what’s the plan?

MP — The plan is to pay it back!

BBC- Yes, and what is the plan?

MP — The plan involves passing legislation saying that we’re going to do this, it’ll have targets!

BBC — Yes, and we have targets for everything including NHS waiting lists, University education etc. and none of them have been met.

MP — No they haven’t, and that’s because of the 18 years of Conservative Govt ruining the economy, but this is different.

BBC — How?

MP — Because we’re the Govt, we say we’re going to do it and we have a plan.

BBC — Yes, with respect minister, having a piece of legislation doesn’t tell any of us how you are going to find 606Bn pounds over the next four years (assuming you win the election), to pay back this debt. How can you possibly pay back this much money without making savage cuts to public spending?

MP — Well, it’s quite simple — we have a plan. To pass legislation. Which will have targets. And we wont need to cut any public spending, because public spending is what will drive the economic growth to bring us out of recession.

BBC — So lets be clear, you’re not going to cut spending, you’re not going to raise taxes significantly, where is the money going to come from?

MP — As I said, it’s really quite simple, we’re going to have a plan.

BBC — And the plan.. — oh forget it.

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Fixed rates in New Zealand are currently way too high. Floating rates are at about 5.75% with fixed rates running at about 6% for 6 months upto a whopping 8.5% for 5 years.

Usually although in theory you would need to pay a fee for re-fixing a mortgage, but this is waived. Now it seems the banks are being a lot less keen on waiving that fee.

An ASB Bank document obtained by the Herald on Sunday said it introduced the new fee schedule to “reflect the time and complexity in providing the best in customer service”.

The fees would now apply from a series of dates between March and May.

While the document shows that the cost of the fees is reducing in some cases – from $250 to $50 – brokers say the customers will have a tougher time getting fees waived.

This is something we have had with ASB for about 2 years now. They wont waive bank charges, though they are still not charging us for new loans as we re-structure our lending. But to be honest – the cost of banking with them is going up, and the service is going down. I am certainly not getting “the best in customer service”. In fact – I’m getting lousy service – I just have to pay for it now.

So you do need to be careful. And you do need to shop around. Loyalty to a bank is frankly silly – they just do not deserve it – so if you are coming up to renewal time on your mortgages – shop around and go with whoever sweetens your life the best. Bear in mind that here in New Zealand one mortgages can splint up into several parts. That can add up if you get charged the full $250 to re-fix each part of a loan.

The only customers not having to pay fees for refixing a mortgage were those referred to as a “high value clients”.

The bank said in the document that fees were required by law to be “fair” and represent the cost of handling a loan. It said the fees were changing to “fairly reflect the time and resources we allocate to client interactions”.

The document also showed the ASB Bank was wiping a $500 contribution previously given to customers to help pay for legal fees.

Well, I’m certainly a “High Value Client” at ASB, but they still don’t give a damn. I have however managed to get them to reimburse us some legal fees that we have incurred because their loans department keeps stuffing up. So much for paying for service huh?

So be careful. Shop around, and make sure that paying off your mortgage is a high priority. That’s the one thing that will give you leeway to make your own choices and switch banks. Although the recession is basically over – the fallout from it could last years. The place we see that most is in the cost of mortgages and the unwillingness of banks to lend money to people who need it. Having small mortgages means the banks love you because you are a low risk to them. That’s a good position to be in!

Thanks to Christine for the heads-up!

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But I was gobsmacked when my friend told me that while talking to a Kiwi, she was told that New Zealand had in fact actually INVENTED the banking system.

So, who did invent the banking system? I always thought it was the Templars, with their vast sums of money and preceptories throughout Europe and the Middle east, which allowed people to deposit money in one country, and withdraw it in another using a promissory note – sort of like a Mediaeval Travellers cheque.

Well, according to Wikipedia – that fount of a million things you never knew you needed to know – banking has been around in its simplest form since about 3000 BC. Ancient Babylon developed loans and the Greeks had a system for allowing deposits in one city to be removed in another city. The first individual banker recorded in history is a guy called Pythius, at the beginning of the 5th century B.C In the Aegean, the island of Delos became a centre for banking in the region in 300 BC.

It all went horribly wrong with the Romans: they did well with the administration of banking, and improved the charging and payment of interest, but they liked Cash too much, so banking didn’t work out so well for them.

Banking didn’t come back to Europe till the Crusades, in about 1100 AD. And yes – the Templars did help out a bit J. In the 13th and 14th century – it gets a bit messy – with the papal banks and Italian merchants fighting it out as to who had the best banks at the time, and an English King or two defaulting on loans!

(See its not just the Hoi Polloi who have money worries and can’t pay their debts – the whole downfall of the Templars was due to the king of France running out of money to fund a new war. How about that for a Financial Crisis! “I need some money – I know – let’s torture some Knights for a few years, burn em at the stake and nick their treasury!”)

Essentially at this point – the Italian merchants get into Banking, and in the 15th century in Florence it becomes legal to charge interest (prior to this it was illegal and called Usury).

In the UK funnily enough, banking seems to have started in coffee houses, with the royal exchange opening in 1565.

So there you have it. Whether or not you love or loath the New Zealand banks – they defiantly cannot claim to have invented banking.

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So – we played Cashflow. This is a board game based around the Rich Dad, Poor Dad books by Robert Kiyosaki. In it, you are given a profession, with an income after expenses, and with that – you invest in order to get out of the rat race and fulfil your dream.

The four of us picked our profession cards: I ended up as an airline pilot with a Cashflow of $2,600. One of my friends picked the Janitor Card, with a Cashflow of just $650 a month. This is the lowest earning card in the pack. I predicted that the mild mannered Janitor would win the game: and he did.

In fact – no only did he win the game, the rest of us hadn’t even got out of the Rat Race and onto the Fast Track when he did it.

So – why is that predictable? Why do you not have to have a high income to be wealthy?

Because you do not need a high passive income to live on if your expenses are low! The Janitor may have a low income, but he has low expenses: a small mortgage, not many other debts, and when he has a child, the expenses for the child are relatively low (that game seems to assume that the high income earners clothe their children in Baby Gap and send then to private prep schools).

The janitor needed to get a passive income of just $950 to get out of the Rat Race. I needed a passive income of $6,900 to cover my expenses. So basically – if you can cut your expenses; you can retire on your investments quicker.

Not only does the game show that a High Income is not necessary in order to become wealthy – it also shows you how cutting your expenses can affect your outcome. Some expenses in the game – you cannot alter, but you can choose to pay down things like car loans, credit cards and retail debt. Doing that increases your monthly Cashflow and can have quite a positive impact on your game. It also means of course, that you do not need such a high passive income.

If you are thinking of going into investing in any way seriously – I really recommend playing this game. It’s obviously a highly simplified version of real life, but it does teach you a lot about how things work. You can buy and sell shares, property and businesses; you can get downsized; you can have (expensive) children; you get to waste money on Doodads (Rich Dad’s name for anything that wastes your money – like coffee). It is a fun way to learn the basics and to get your head round what you look for in an investment.

Cashflow is a pretty expensive game, so look around for people running games nights in your area. If you can’t find one – contact me and ill see if I can put your in touch with someone running a game.

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Now – just so you know – the survey is commissioned by Expedia – so bear that in mind. They claim that about 45% of Kiwis do not take their full holiday entitlement. I find that quite bizarre, as New Zealand employers aren’t exactly generous with their holiday allowances at the best of times. It’s only recently that Kiwis have been able to take 4 weeks holiday a year as of right – until then it was a measly 2 weeks for most people. When you bear in mind that Hubby used to get 5 weeks minimum in the UK with an extra 2 days a year because he had worked for the same company for 10 years – you can see that it is still not exactly generous now.

Only workers in Australia, Canada, Japan and the US got fewer holidays than us Kiwis. I’m guessing it wont be a surprise to many people that France got the most!

Worryingly, the survey also says that 35% of Kiwi workers were changing their holiday plans because of the state of the economy. It is not clear from the report whether this is simply a case of taking a cheaper holiday, or “cashing in” their unused holiday.

What worries me most is that a third of kiwis surveyed said they were not taking all their holidays because work commitments were to great. Many of us migrate to New Zealand to work less and spend more time at home with the family. It appears that it actually may not be the Kiwi thing to do.

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The headline at the moment is that property investors don’t pay tax, and in fact rort the system by getting tax refunds. This is because if you make any losses in your rental properties (and most of us do because rents in New Zealand are kept artificially low) then you can offset these against your income from a job and therefore pay less Income tax.It is blatantly ignored that you can do this with any business. Property investors (like us) are thought of as greedy “rich pricks” (a term coined by the typically potty-mouthed ex-finance minister Michael Cullen).

Of course, we personally are considered even more evil and greedy because Hubby has a well-paid job. It escapes most people that we worked our arses off to get qualified in order to earn that money. It’s not fair!

So – why do people think it’s unfair that we use a system to allow us to pay less tax?

Because most people have been conned into thinking that Tax is inevitable. Like death. Only it isn’t.

The fact is you do not have to be in anyway rich to legally cut your taxes. You just have to be smart. You also need to get your head round the fact that paying money you earn to someone else is not actually fair, and that the richer you are – the more you pay – is even less fair.

Let’s put it this way:

• If someone comes into your house and steals your TV – you go to the police and make a report. You make a claim against your insurance and get the money back to replace the TV.
• You don’t for one minute consider it fair that someone has come into your home and taken something that they may not be able to afford, and therefore have a right to steal it from you, because it’s not fair that you had the money to buy it and they didn’t.
• And yet – the government takes say 30% of the money you earn, and gives it to someone else. And you think this is OK because it’s called tax.

Here is something else to think about:

• While there is no “tax-free limit” to earnings for low income people the way there is in the UK, the bottom 40% of households pay no income tax because they get benefits to compensate.
• Yet the top 10% of earners in New Zealand pay 42% of the total income tax take.
• If you take out the 40% of people that effectively pay no tax because they get refunds distributed from higher tax payers, we are then responsible for a whopping 76% of the income tax take.

And yet we are the greedy ones for not wanting to pay so much of what we work our butts off to earn. Hell alone knows how much we would collectively pay if we didn’t have a way of offsetting tax.

It’s also worth noting that the HUGE tax benefit that property investors fleece off the government in Tax Refunds accounts for just 1.6% of the entire tax take.

Yep – we are about to get nailed to a cross then burned alive for a whopping 1.6% of the total tax budget – which will then be given to other people. I personally don’t think any of this is going to make that 40% who want our blood any richer.

But I could be wrong.

Over the next week or so we will be going over the recommendations (and they are just that – recommendations) and highlighting what they mean – good and bad.

If you want to see a good and funny illustration of why “tax cuts for the rich” are so wrongly maligned – have a look at this blog post: How tax cuts work.

And for some interesting facts about just how many evil greedy property investors there are in New Zealand – read Are Kiwis really obsessed with property?

And for a light hearted look at just what we personally think of the Inland Revenue (in any country) – take a look at Inland Revenue Humour.

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This UK based program follows 2 teams of budding property dealers who get given a rather lovely £300k to get started and have one year to make as much profit as they can out of doing up and reselling property. All under the watchful Gary McCausland – who has been doing this for years and runs his own successful property empire.

While one of the teams (The women) are doing really well, and have so far made over £60k profit, and churn out one good deal after another – it is just sheer agony to watch the blokes lose money on deal after deal.

I have made my family promise to shoot me if I start behaving in such a tosser-ish way as these two. I’m all for investing in property – I have three already and plan on buying many more, but for crying out loud – there is a hell of a lot of work to do. These guys seem to think it’s all about saying you want to make money and that’s it. And while I am the first to admit that I think one of the joys of the property business is sitting around drinking vast amounts of coffee – I also understand that this does not let you off the hours upon hours of trawling websites, dealing with agents, viewing anything from sheds to palaces, and getting to grips with making offers. And maybe getting your hands dirty with some hard labour now and then. One of the guys seems to stop at the coffee bit! The other one seems to dream a lot and talk about how it’s all a matter of getting this bit or that bit right – he just doesn’t seem to do much of it.

Something that does annoy me with the program, is that although the presenter does swoop in to offer his opinion – he doesn’t seem to be actually mentoring the teams, rather just telling them what they should do once they have bought the place. With the girls that works out OK, as they tend to do their homework before they buy. The guys team however just keep buying lemons, and they need to be taught how to spot one! What is worse –is that when the presenter does tell them what they should do with the property they just bought – the blokes completely ignore him, and the girls tend to at least listen and do as he suggests most of the time.

I’m pretty sure either of the two property mentors I have had, Trev and Steve, would have taken me aside and told me to stop being such a plonker before I actually paid money over for a property that was no good. (Steve has a more colourful turn of phrase – but gets the message across!). I thought it was especially important to get help from a mentor as I was a migrant and I needed help to really understand how the property market works over here. It is very different from the UK way of doing things, and when you are buying to invest rather than buying a house to live in it is even more vitally important to understand exactly what you will be dealing with. While there is certainly money to be made in property – if nothing else the guys team show that it is all to easy to lose a lot of money if you don’t understand what you are doing.

I dread to think what kind of mess we would be in if we had tried to go it alone and buy investment properties. As it is, one of ours isn’t doing too well, though the other two turned out to be really good buys. I read today on Property Talk that everyone buys a lemon from time to time, so it’s nice to know I got mine out the way early. Funnily enough, while there are people out there who will abuse the position of being a mentor, and persuade investors to art with cash for any deal, both Trev and Steve have actually advised me against buying many properties because they either knew something I didn’t, or just through sheer experience could tell me what was a bum deal. I actually listen when they tell me this!

Hopefully it won’t be too long before I can buy my next Investment Property.

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