What is Depreciation?

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

Depreciation has slightly different meanings in personal finance, accounting and taxation. Regardless of the context, depreciation refers to the decreasing value of a good over time. It applies to cars, to home appliances and even to clothing.

Personal Finance Depreciation.

Depreciation in personal finance refers to the amount of money you lose through the decline in value of a personal asset. Assets purchased for personal reasons (not investment or business) attract no tax advantages.

The rate at which each good depreciates varies. Some items depreciate more quickly than others. The commonest example of a depreciating personal asset is your car.

In fact, cars are known to lose so much wealth through depreciation, they are often referred to liabilities. If they come with a car repayment plan, even more so.

We have all heard how a new vehicle is worthless as soon as you have driven it out of the showroom. Cars literally destroy wealth if a consumer buys too much, too new and too early.

A $30,000 car that depreciates to 70% of it’s original value over 5 years will have cost you $30,000 x70% = $21,500 over the five years.

That’s on top of fuel, insurance and registration.

Losing $21,500 every 5 years just to car depreciation is not going to help you get ahead.

There is no silver lining to depreciation in personal finance. Depreciation cannot be deducted if the item is for personal use. It is simply a fact of life that your car will be worthless and less each year until it is virtually worthless.

A key strategy to build financial security and wealth is to spend the minimum possible on vehicles until you have acquired assets that will achieve your goals in the desired timeframe.

Property Depreciation

We are more used to hearing that houses go up in value over time. But the building itself, just like cars, depreciates.

A brand new house is worth less if you try and sell it a year on than when you purchased it. Nothing has that shiny new feel to it anymore. The expected lifespan of the roof, air conditioning units, carpets and boiler has been eaten into. All these things will eventually need replacing at a cost.

What often saves your home from falling in value is the appreciation of the land it sits on. This doesn’t depreciate. There are no deteriorating parts of the land (unless you’re on a cliff!) Nothing needs replacing. Over time, as populations expand in an area that is attractive to a large number of people, the price for the land increases.

The other factor that saves your home from falling in value is any renovations and replacements you put in. Depreciation of the home is still occurring, but you are paying to replace things as they go along, helping to maintain value.

Small Goods Depreciation

Most consumer purchases you make depreciate in value significantly after purchase. If you look into selling your Nick Scali lounge second hand, even after a short period of ownership, it is unlikely you will get much of the original value back.

Some items should theoretically depreciate but don’t. Highly desirable collectables can increase in value over the years as they become more scarce. Watches, cards and pokemon cards come to mind.

To be a successful collectables investor, you need to pick collectables that will increase in scarcity and popularity over time. You are best at keeping it in its original packaging and not using it (or barely). Collectables in mint condition tend to be worth a lot more than those that have been used (and loved).

If you have an area in which you are an expert, then it is possible to succeed with collectables.

Appreciating vs Depreciating Purchases as a Predictor of Long term Wealth

There is nothing wrong with buying a depreciating asset you love. That sports car, fancy watch or brand new home are not out of bounds.

But your timing of these purchases will make or break your financial life. Given your finances dictate the options you have to choose from when life throws a curveball.

Money can allow part-time work, unpaid absences, the ability to help family members in crisis and retirement when you want or need to.

Or your finances can require you to keep working completely dependant on a monthly paycheck to pay the bills. No matter what else is going on.

The earlier in life you can money sorted, the earlier you can afford to largely ignore it.

Big financial decisions, such as the home you purchase and the cars you drive will define your future financial life.

How to Minimise the Effect of Depreciation on your Finances

Let’s start with the most powerful strategy. Home buying can create wealth, or prevent you from building any.

Is the house you will buy on appreciating land, in which case your home is an investment as well as a place to live? Be as objective in this decision as you can. What are the long term capital growth stats for the area?

If you do not buy land that is appreciating at an above-average rate, minimizing your spend on a home is a wise financial decision.

Ideally, spend more on the appreciating land than the depreciating house on it.

With cars (ignoring the rare collectable) you can avoid the sharpest dip in value from depreciation by buying a car 3-5 years old. Keep your cars as long as they are reliable.

I suspect what you may make in appreciating value or a collectible car you will likely put back into repairs and maintenance. Collectible cars seem more of a passion project than a profit-making exercise. And you definitely need to know your stuff!

Again, you shouldn’t necessarily sacrifice having that “dream car”. Especially if this is something you value. But your finances will be more supportive in the future if you can delay the purchase until you have accumulated appreciating assets.

With collectables, my impression is that many people use the idea that something is “collectable” as an excuse to buy a luxury item they can’t really afford but very much want.

Be honest with yourself, if the purchase is for your use, make sure you can afford it and accept it will depreciate with use.

Investment, Work Related and Business Depreciation.

These are all less damaging than personal finance depreciation. In fact, these depreciating purposes are likely to be necessary to earn money. They are a cost of doing business. And the good news is, they often come with a tax advantage, unlike with personal finance depreciation.

Tax Depreciation

The most important concept to understand is that depreciation in your tax return is not just a tax benefit. It is partially compensating you for the loss of value that is occurring in real life.

If you purchase an asset in order to make money, you are entitled to claim the depreciation as a tax deduction. You are still losing value through real-life depreciation, but the ability to claim this on tax lessens the blow significantly.

Tax and real-life depreciation aren’t always equal.

If, for example, you had purchased a new vehicle in early 2020 for your business. Your accountant will use a method of calculating depreciation on this vehicle, and claim this depreciation against your income, lowering your tax burden. But with the vehicle shortage brought about by COVID-19, you may actually be able to sell the vehicle for more than you brought it for!

Property Tax Depreciation

The purpose of depreciation is to estimate the difference between what something is worth and how much it’s being sold for.

When purchasing an investment property, the cost of construction or renovating a property can usually be deducted over 25-40 years at 2.5-4%.

This encourages many to purchase new properties, in order to maximise the deductions. But new houses will depreciate quickly in the first few years because buying new means paying the builders margin. Remember to invest for a return first, with any tax advantages kept to an incidental bonus.

Get A Quantity Surveyor Report

When you purchase an investment property, it is important to contact a quantity surveyor and arrange a report. You need to know the costs of capital works to pass on to your accountant in order for them to claim depreciation. This costs a few hundred dollars (I paid ~$600 in Brisbane).

In an older building that hasn’t had significant renovations, there may not be enough depreciation to compensate for the cost of the report.

Capital costs of a building you purchase with a plan to demolish may be able to claim, discuss with a quantity surveyor before calling the bulldozer in!

Home Renovations

If there is any chance you may use your current home as a rental in the future, it is important to keep records of any improvements you have made. It’s hard to predict the future, and circumstances can change quickly. Keep your records just in case.

In the event of renting the home out, talk to your accountant to find out if you can claim any of the costs you have sunk into the home.

Claiming Depreciation for Employee Work Tools

For those of us that are employees, there are limited things you can claim as a tax deduction. Equipment and books that are purchased for work for less than $300 can be claimed as an immediate deduction.

Most of you will have noticed, this is not the case with your laptop. If the item costs more than $300, it is depreciated over the accepted “effective life”. In the case of your laptop, this is two years. There are a few different methods you can use to claim this.

If you use the laptop for personal as well as work purposes, you can only claim a proportionate percentage of the cost.

Work related courses, seminars and conferences, in contrast, including travel and accommodation, can be claimed as an immediate deduction.

Working from Home Depreciation

With the rise in working from home over the past two years, you can claim office equipment, electricity and cleaning costs. You can work these out individually or use the shortcut method. Keep your bills and receipts as well as a record of your hours worked from home.

Small Business Depreciation

Depreciation of business assets is treated as a business expense that spreads the cost of a fixed asset over its useful life. Depreciation is used to account for the decline in value of an asset, and it is considered an expense. This means that depreciation expense can be deducted from revenue when calculating taxable income.

A straight line depreciation method is easy to calculate because it represents the actual loss of value. But there are also accelerated methods to reduce the accounting burden for small businesses.

Conclusion

Depreciation is the term used in Australia for the deduction of the cost of certain assets over their useful life. Depreciation is applied to assets that are used for business, investment or employment purposes, but can also be applied to assets used for personal reasons.

Personal assets that depreciate can cause a lot of damage to your finances. Luckily, there are some steps you can take to avoid depreciation. Buying used items or investing your earnings instead of spending as well as delaying personal spending on luxury items until you have accumulated appreciating assets will help.

Employment, investment and business depreciating assets are usually a cost of doing business, necessary to make money and attract a tax benefit.

What do YOU think? Have any other thoughts about the effects of depreciation on our lives? Let us know in the comments below!

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

Frequent Flyer Australia – Is it Worth The Hassle?

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

Anybody else getting a little overexcited?

On the way to work recently, I was listening to the radio (old skool) when my eyes welled up. The radio had announced the lifting of the international travel ban (well sort of). And I can suddenly see the light at the end of the tunnel.

COVID-19 is not over, in fact for me as a doc in a regional town, it has not even begun. But like many immigrants, the worry that I may never see my parents again has been weighing heavily on my mind. The ability to travel again (sometime in the next few months) has renewed hope.

If you are looking forward to the option of travel as much as me, perhaps you are wondering about Frequent flyer Australia schemes?

What are Frequent Flyer Points

Retailers offer Frequent flyer points to incentivize customers to purchase more, develop brand loyalty and share their data.

There are so many companies offering frequent flyer points, it can become very confusing.

The airlines Qantas and Virgin, as well as the supermarkets’ Coles and Woolies, are the major players with the biggest benefits.

How to Start Collecting Frequent Flyer Points

Frequent flyer schemes can seem excessively complex, and it’s hard to know where to start.

It’s actually simple to get started. If you are flying even occasionally and shopping for food you may as well collect these points. The cost is built into the price of the products you are purchasing!

In around 30 minutes you can sign up for the two major airlines, Qantas and Virgin Australia as well as the two main supermarkets, Coles and Woolworths.

You can sign up for a free Qantas membership and Velocity here.

If you ever shop at Coles, Kmart, Target, Coles express, First choice Liquor market or Liquorland sign up for flybuys here. If you ever shop at Woolworths, Big W, BWS, Caltex sign up for a free Woolworths Everyday Rewards card.

Given all of these can be joined for free, signing up is a no brainer. You can even store the virtual “cards” on your phone. Even if you don’t collect a substantial number of points, you can still collect the odd $10 off your grocery shop.

How do you Earn Points

If you just swipe your card at every shop and pay no more attention, you will collect a few points.

With a tiny bit more effort, you can significantly improve your points collection game. Families, in particular, tend to spend a lot on groceries.

Utilise Offers & Bonuses on Grocery Shops

This has the potential to multiply points earned on grocery shopping. Download the flybuys or Everyday rewards app to your phone, check the app and activate offers before a shop. Don’t be tempted to buy items because of bonus points, or spend more than you would normally.

But you can alter the timing of Longlife purchases because the app is offering a particularly generous bonus if you spend a certain amount.

Get a Grocery Rewards Card for Each Adult and Don’t Link

Those with two adults in the household can apply for a fly buys account each.

The supermarkets will offer you bonus points to incentivize you to spend slightly more than you regularly do.

Having two accounts will mess this up. You can alternate accounts depending on who is shopping or even purposely use the account with the best offers.

Collecting Flybuys

Flybuys offers members offers every week, ranging from a bonus 50 points to buy a particular item, to tens of thousands of points for spending a certain amount in a week.

I ignore the “buy this item for a piddly bonus” offers. You can activate them if it’s an item you were going to purchase anyway but it’s not going to move the needle much.

The offers you don’t want to miss out on are the bonus 10,000 points + for a big shop. If you are doing a big shop anyway, you want to activate these before you go. This just involves checking the flybuys app just before a shop, and activating any relevant offers.

Flybuys points can be converted to cash to discount your grocery shopping, redeemed as “flybuys dollars” for travel or convert to Velocity points. There are a variety of flybuys rewards, but these don’t offer nearly as much value.

Flybuys don’t expire if you earn or redeem points in a 12 month period.

Collecting Everyday Rewards Points

Everyday rewards points can be used to discount groceries or transfered to Qantas for flight redemptions.

You can download the Everyday rewards app to your phone, and recieve boosters. It is worth checking the app prior to your shop. Again, boosters are variable in value offered.

Everyday rewards don’t expire as long as you earn or redeem points within 18 months.

Frequent Flyer Australia: Earning Points through Flying

Just make the effort to enter your frequent flyer numbers when booking flights. Combine efforts using “Family pooling.” Virgin allow families to transfer all points and status credits earned to a single family member. This is a huge bonus for families who don’t fly that often. Family pooling makes it far easier to gain status, and it benefits the whole family when you fly together.

Unfortunately, Qantas don’t offer family pooling.

The ideal points collector would be one that is flying regularly on work funded flights. Locum agencies, I find are happy to add your frequent flyer numbers to flights they book. You can even add your frequent flyer number at check in.

The further you fly, the more points you earn. If you fly overseas regularly, it is worth looking at the airlines that fly your route. Make sure you make use of the those points.

Frequent Flyer Australia & Credit cards

It easier to earn frequent flyer points through credit cards and shopping rewards than flights. Many credit cards offer lucrative sign-up bonuses (up to 150,000 velocity points currently).

Virgin and Qantas advertise credit card offers on their websites.

Obviously, this could be a dangerous game. Scott Pape (The barefoot investor) thinks airline points are a dangerous waste of time.

You don’t need a credit card to use frequent flyer points. If you are not completely on top of your finances, religiously paying off your card in full each month automatically, skip this section and focus on the other methods of points collections.

Those with plenty of surplus cash each month and good financial habits may want to consider using credit cards. Paying off the credit card in full is a non-negotiable requirement. Ironically, credit cards and loans are only a useful tool for those that don’t actually need to borrow money.

Earning Points through Credit Cards

There are two ways to earn points using credit cards. Through sign up bonuses and by points earned on transactions.

Sign up bonuses are often generous and tempting. Travel hackers who make a semi-career out of optimising points will sign up to credit cards for the bonus, meet the minimum spend and close the card. Cards lock you out of the sign up bonus (often for 18 months). These hackers work their way around the different credit card companies to utilise many sign up bonuses within a 18 month – 2 year cycle. Then start again.

This is a lot of hassle. There is a lot of small print. If you don’t follow all the terms and conditions you miss out on the bonus. Some of the credit cards put you through a lot of hassle to approve your card (for others, it seems automatic!). And it can definitely damage your credit score, although not necessarily if you are careful. It is probably the most lucrative way to earn points for those that don’t spend a lot of money on a regular basis.

The alternative is to sign up for a credit card that offers good long-term points rewards for spending. Ideally you want a sign-up bonus, but the focus is on the reward per dollar spent. If you are a high income, high spending household or business owner this may be more lucrative than serial credit card hopping (and a lot less hassle).

Does Travel hacking damage your credit?

It is not a good idea to sign up for a credit card if you are planning to apply for a mortgage in the next year. If you are considering opening a credit card, check your credit score and monitor if you are using credit cards to earn frequent flying points.

My credit score did dip after a credit card application. Over time this recovered and exceeded the original score. Monitoring your credit score gives you an idea of when you are pushing your luck with credit cards!

Frequent Flyer Australia Status

Status credits reward frequent flyers over those collecting points in other ways. Most airlines offer a tiered membership status. The higher up the membership status, the more perks available and points earned per flight.

Gold status gets you lounge access, bonus airline points each time you fly and priority boarding.

I think the appeal to most is the ability to get into the airport lounge. By making the lounge seem exclusive, those that are excluded feel they are missing out. Yes, there is free coffee, wine and snacks. But it is not worth paying extra to get these small benefits.

Both Qantas and Virgin make gold members feel important by allowing them to skip the queue with priority boarding. But realistically, does anyone really need to be on the plane for an extra 10 minutes?

The most practical benefit I have found with gold Velocity membership is priority baggage. Your bags coming out first due to the priority baggage label means you can exit the airport faster (yay!) and sometimes beat the queue to the taxi rank.

Here are the links for Qantas status benefits and Velocity. You need a lot more points to gain status with Qantas so will need to be a regular flyer. With velocity, not as many points are needed and you can family pool status points. This is within reach with a status offer, and a couple of family flights.

Both periodically offer discounted status where you can earn the membership tier with fewer flights. This may be worthwhile if you will be able to maintain your status afterwards.

The airlines offer status to improve brand loyalty. The danger is you find yourself booking more expensive flights to maintain status and enjoy the perks of status with your chosen airline.

Virgin vs Qantas

Most will need to focus on one airline or the other (although certainly collect both). Your ideal frequent flyer membership will depend on

  • Intended use of points (overseas flights with a partner airline, domestic family trips)
  • Usual flight routes and which airline flies these
  • Grocery shopping habits (ideally want aligned with your chosen airline)
  • Flying frequency (Qantas frequent flyers need to be regular flyers)
  • Whether you have a family (Virgin offer family pooling of points and status).

Partner Airlines

Both Qantas and Virgin partner with other airlines. This means you may earn points on these airlines, and redeem points for flights with these airlines. If there is a regular long haul airline you prefer to fly with, it is worth checking whether they partner with Virgin or Qantas. Long haul flights earn the most points and offer the most value for redeeming points (if you can earn enough).

Hassle Factor

Collecting frequent flyer points can become a full-time hobby if you want to get really involved!

But those who are looking to minimise hassle can also get good value with a small-time contribution.
For the low hassle version, sign up for Coles, Woolworths, Velocity and Qantas. Put the shopping apps on your phone and activate boosts and offers just prior to a shop.

When you are ready, sign up for the Point hacks introductory email course to learn about how to use your points.

Frequent Flyer Australia Devaluations

This is the biggest problem with frequent flyer points. Over time, the companies have been devaluing the points. This is likely to continue. That means you probably don’t want to be collecting points without using them for years at a time.

It’s important to set realistic targets, which may be an overseas flight redemption for a single or couple but is likely to have to be domestic for a family of four.

How to Use Points

The best points value is generally redeemed against international business flights, purchased with points. Business domestic flights also offer good value, but unless you are very tall seem of little benefit over economy to me. Economy international and domestic flights offer reasonable value, particularly over peak periods (school holidays) where the cash value of the flight increases.

Travel hacking for families

It is often hard for families to redeem seats together. For international flights that is a lot of points! Virgin Australia is a family-friendly option with family pooling of points and status. They allow pausing of your status whilst on maternity leave. Gold members are guaranteed four reward seats together to any domestic destination as long as you book six months in advance. Check out Velocity family benefits.

Reward seat availability

Not all seats can be booked with points. Airlines offer a limited number of reward seats only. This can make redeeming points challenging.

Flights will need to be booked well in advance (Almost a year for internationals) in order to have a chance of a reward seat being available. It is best to be flexible with which day you will fly to increase the chance of reward seat availability.

Preparing for Travel Again

Are you looking forward to domestic and international borders opening properly? Perhaps it’s time to get preparing now. Check those passports – many will be out of date. It’s probably best to beat the rush and update before everyone is preparing for their overseas flight.

Take the easy steps to collect points, and consider signing up for Point Hacks email course.

How many frequent flyer points do you have already? If you’re like most people, you probably don’t know the answer to that question. You may have points on credit cards, airline memberships and grocery shopping rewards than can be transferred and combined. Check your balances out!


My Experience with Frequent Flyer Australia Strategies

Over the past 5 years, I have been increasing my savings rate and focusing on building investment assets. But I still didn’t want to miss out on travel!

I had heard about frequent flyer points, but they seemed too good to be true.

Perhaps for the person being flown around by their employer, or a business owner charging hundreds of thousands of dollars to a credit card each year. I had also read the system wasn’t as generous in Australia as in the US.

Would collecting frequent flyer points be worthwhile for an Aussie cheapskate like me?

Hearing a couple of my colleagues had scored almost free flights to the US with points pushed me over the edge to check it out.

Learning the Game

At first, I didn’t know where to start. The answer, as usual, was google. I discovered Point hacks who offer a free email introductory course to talk you through the basics.

I decided Velocity points were the goal, to be converted to Krisflyer (Singapore air) and redeemed to pay for a trip to Europe. Our local supermarket is Coles, and their flybuys points can be transferred to Velocity.

I signed up for Qantas points and Woolworths Everyday rewards but have pretty much ignored them.

I signed up for a few credit cards over 18 months for the signup bonuses. Leading up to investment property purchases, I avoided credit card applications. I used Credit Savvy to monitor my credit score and took a long break after a credit application caused my score to drop by 50 points. It rebounded within 6 months.

I checked my bonus offers on flybuys before each shop, and found particularly leading up to Christmas some great offers.

Gaining Status

A status offer came up for Virgin. A few trips for locum work easily made me eligible. With family pooling and a few flights for work and fun, I maintained my status.

Redeeming Points on International Flights

18 months into collecting points, I redeemed them all with Singapore air for two return economy flights to Europe. We are a family of four, and it was clear I couldn’t collect points for all 4 of us fast enough. So it halved the price of our flights. Alternatively, I could have used the points for 1 return business flight to Europe. Unfortunately, I didn’t feel I could pull that off and keep the rest of my family in economy!

Now seems a pretty good time to optimise points balances in anticipation of travel becoming a lot easier. Have you tried travel hacking? Post about your frequent flyer Australia experience

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

Budget Direct Review – My Claim Experience

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

Are you looking for a value for money comprehensive car insurance policy? Budget Direct have been around since 1998 and they have built their reputation on affordable cover.

Owning a vehicle is expensive. Expenses include insurance, registration maintenance, fuel and parking. Depreciation is the sneaky, large expense that comes with car ownership.

Everyone wants to minimize costs on a boring expense such as car insurance. But you only know the true worth of an insurance product when you go through the claims process.

Well I just happened to have a minor accident recently. Whilst annoying and inconvenient, no one was hurt and it has provided me with an experience to base my review.

Who Are Budget Direct?

Budget Direct is a direct-to-consumer car insurance provider with a focus on the Australian market. They provide an alternative to traditional insurance providers, and have been running for 15 years. They are one of Australia’s leading auto insurers, and generally offer very competitive rates.

Budget Direct was founded in 2003 by entrepreneur Andrew Barnes who wanted to make purchasing car insurance easier for Australians who at the time had to go through their local agent or broker for quotes. He built Budget Direct as an internet site where people could enter their details and find out how much it would cost them without having to talk to anyone or leave their home.

Budget Direct are underwritten by Auto & General Insurance Company Limited.

What do Budget Direct Offer?

Budget direct offer car insurance which can be:

  • Comprehensive insurance
  • Third party insurance
  • Third party fire and theft cover

Budget direct education area further explains the differences between the types of insurance here.

The company also offer motorcycle insurance, budget direct home insurance, pet and travel insurance as well as Roadside Assistance.

How does Car Insurance work?

-Agreed Value vs Market Value Insurance Policy

Budget, along with other insurance providers, will generally offer “Market value” cover. If you have a new or valuable vehicle, they may be able to offer an agreed value policy. Agreed value means you have agreed in advance how much the company will pay in case the car is written off. Market value, means the value will be assessed at the time of an accident.

– Budget Direct lets you Set a Higher or Lower Excess?

The excess with budget direct can bet set from $600 to $1200.

A higher excess often results in a reduced premium, it’s worth playing with the quote calculator to work out where your sweet spot is.

I am a big fan of Scott Pape’s advise to insure against catastrophe only. If you can tolerate a larger excess, you may be able to get better value for money insurance.

There may be additional excesses against driver younger than 18, non-listed drivers and drivers with a driving license for under two years.

– When you Have to Pay the Excess

If your vehicle is damaged but you’re not at fault (and the insurer agrees), you don’t have to pay the excess. unless you don’t have the other driver’s details. If you are at fault, or if there is no other driver (eg a tree landed on your car), you will have to pay your excess.

You need to be able to provide the at fault drivers details for Budget Direct to waive the excess. If you cannot do this (for example someone hit your car and drove off) Budget direct require you to pay an excess. They have previously refunded the excess when the driver responsible for an accident was identified.

Checking with several other insurance policies, it seems a normal feature to have to pay your excess if you cannot identify the at fault driver.

I’m not sure if you will find an insurance provider that will waive the excess if an accident isn’t your fault, without and identifiable at fault driver. If you do, the premium is likely to be more expensive.

You should have your excess (and more) available for quick access in your emergency fund.

Budget Direct Comprehensive Policy Features

  • Accidental damage to third party property up to $20 million
  • Damage to a trailer towed by the insured vehicle (but not contents)
  • Transport home or emergency accommodation if necessary
  • Hire car when the car cannot be driven if you are not at fault
  • Brand new car replacement from cars that you have purchased new and have less than 5000km on the clock (small print applies, check the PDS).
  • Damage to other peoples property
  • Loss of car, theft or fire

CTP Insurance

Compulsory third party insurance is a legal requirement for all car owners, and provides cover for injury or death of other drivers, passengers or pedestrians. Find out how it works in the different states and territories here.

As Always, Check the Product Disclosure Statement

As with all insurance policies, conditions and limitations apply. Read the relevant Product Disclosure Statement (PDS) and applicable excesses in detail. Use this to compare your shortlisted insurance quotes.

Payment Options with Budget Direct

You can pay for Budget direct insurance annually for the cheapest rate. You pay a small premium to pay fortnightly, monthly or annually.

If you are overdue for payment by at least 14 days, any claims may be declined.

-How to Renew Car Insurance with Budget Direct?

The company send a renewal offer about 30 days before your policy expires. Remember to shop around (you could always outsource this to your teen, with motivation)!

If your renewal is granted it does not require any action – your policy will automatically renew.

-Getting a Quote

A quote is easily organised via the Budget direct website. You will need to know the year, make and model and whether there are non-standard accessories or modifications.

If you have anything rather than a basic unmodified car, make sure the person with an interest in cars makes the phone call! I found Budget direct very detail oriented around my partners modified Landcruiser. For my basic old vehicle, things were far easier.

The company will also want to know how the vehicle will be used, and where it will be stored at night.

You need to be clear on the reasons you use your car, and there are some business uses that are excluded (such as Uber driving or driving tuition).

It is good to note that Budget offer further discounts for new customers and those driving less than 10,000 km per year.

You will also have to declare your claims history. Any history of claims in the last few years will increase your insurance premium, as you would expect.

You will need comprehensive car insurance to cover accidental damage to your own vehicle

Reducing the Cost of Your Insurance

There are a few ways to get a lower premium. Most of the price variables are fairly fixed, and linked to your statistical risk as an individual driver.

  • Low driving km per year
  • Higher age of youngest driver, and excluding drivers under 21-30 from being insured
  • Home owners are statistically lower risk so benefit from lower premiums
  • Increasing age lowers risk until you reach ~ 70 years.
  • Female drivers are lower risk
  • Holding a driving license for a short period of time increases risk, and premiums
  • Postcode – higher density and higher crime areas cost more
  • Older cars are cheaper to insure (will be lower replacement cost so that makes sense)
  • You will pay more for vehicles used for business
  • Parking in a garage is safer than a car port, which is lower risk than on the street

There are factors you can alter to get better value for money.

  • Minimizing add ons such as windscreen protection, accident hire car, roadside assist and choice or repairer
  • Adjusting your excess (larger excess usually means a cheaper policy)
  • Bundle insurance products for discounts
  • Pay annually
  • Change to 3rd party insurance if you have a lower value vehicle

Minimizing Extras to Save on Costs

It feels good for your insurance company to pay for any little thing that happens to your car. A crack in the windscreen may cost around $100. A replacement windscreen may cost around $500.

The insurance company to sort these small costs out of their own costs, they fund it through the extra premiums you pay for this cover. Obviously, insurance companies exist to make a profit so they must collect more in premiums than it costs them to run the company, employ staff and pay out claims.

Logically, you are far better paying non-catastrophic expenses out of your own pocket rather than contributing more towards an insurance company’s running costs and profit margin. Pop the premium saved into your emergency fund, it is very likely you will be better off.

A hire car after an accident is a nice perk. But hire cars in Australia are pretty cheap, and it is probably faster for you to organise it yourself. Again, I wouldn’t pay extra for a replacement car.

Why is Budget Direct so Cheap?

We’re led to believe in life you get what you pay for. It is not necessarily true. So how can this company offer cheaper insurance products than their competitors?

Budget say they can provide cheaper cover because they only insure low-risk drivers. By asking lots of questions, they can identify and exclude higher-risk drivers. They also can keep premiums to a budget price by minimizing company overheads. Is answering a few more annoying questions (and even getting them to call your partner for further clarification) worth saving a few hundred dollars?

Budget direct does offer lower coverage in some categories. Finder compared Budget direct and AAMI car insurance and found AAMI provided more generous

  • Emergency travel and accommodation costs
  • Personal property cover
  • Emergency repairs (repairs needed before authorization by Budget)

When comparing insurance cover, unless money is of no concern it is important to focus on the cover that is important to you. Try not to get distracted by the “nice to haves”.

How likely is you will be stranded and need emergency accommodation due to an accident? Is it worth paying extra?

Budget Direct Car Insurance Review

My Budget Direct Comprehensive Car Insurance Review

-Choosing Budget Direct Car Insurance

I’m the owner of an old car worth maybe $5,000-6,000. It’s in good mechanical condition, without rust but it’s nothing flash and never gets washed! I don’t feel the need to pay extra on car insurance. My car has had comprehensive cover since I purchased it 10 years ago although it’s getting to the point where we may consider downgrading to third party.

I went with budget direct car insurance because they offered great value for money. I was looking for comprehensive car insurance at the best possible price. The cover appeared adequate for my needs.

-The Accident

I had a low speed collision. It was my fault. I rounded a corner into a queue of traffic and couldn’t stop in time. No-one was hurt, but there was significant crumpling of the front of my car and a dent to the back of the other car.

I have not been in a car accident for years, and I wasn’t quite sure of my obligations legally and for insurance purposes.

My car insurance policy was quickly located in my email account to then contact Budget direct by phone.

-Legal and Insurance Requirements

Budget direct staff answered quickly. They were able to answer my questions.

Did I need to notify the police? No, no-one was injured and the road was not blocked. Could I drive the car home? Yes. But budget direct insurance would cover a taxi if my car was undriveable.

-The Claims Process

Budget direct’s staff would call me back later that morning to submit a formal claim once I was home. I ended up submitting the claim on the online portal, which was easy.

A budget direct employee contacted me that afternoon. I quickly had an appointment booked for the damage to be assessed the next day.

Given it was an at fault accident, I had to pay my excess which was easily sorted on line.

The assessor took a few minutes to assess the damage and I could leave to get back to work. I then had to wait for budget direct to give permission for repairs.

-Waiting for Approval

It took around 10 days of wait time for my claim to be approved. Although it took some time to go through their process, they didn’t try and avoid paying the claim at all. The general insurers code of practice allows companies 10 days to provide an outcome to a claim, or advise you of delay. If there are complications such as medical claims these can take a lot longer.

In this time, Budget direct are checking the details with the other driver and their car insurance details. They may examine photos and dashcams.

After that, I had to book in to get my car repaired. Unfortunately, the panel beaters were booked up for a month so I had a significant wait. The car was still driveable, but the air conditioning was no longer functioning :(. The car looked pretty awful for that period of time.

The Repair

The car took around 10 days to get fixed. The panel beaters did mess me about a bit. I had to call repeatedly as they kept promising the car the next day, then delayed.

The panel beater communication was poor and this was frustrating. I’m not sure that the mess around with the panel beaters can be blamed on Budget direct though.

The car repair was excellent. I certainly can’t tell there was ever an accident, and most importantly, the air conditioning works again. We don’t drive a huge amount and have another car and a bus that leaves for work from close to home. I could have easily paid for a car hire, but it didn’t really seem worth it as we still had a family car functioning. I just would have liked to know how long my car would be out of action, so I could plan around this better.

Would I Insure with Budget Direct Again?

I remain motivated by insurance premium cost primarily. My premium will increase at renewal time (I didn’t have protected no claims). But if they continue to offer an insurance policy that is good value for money, I would renew with Budget. Smashing your car is inconvenient and dangerous so should be avoided. On the rare occasion an accident occurs, it is always inconvenient.

I’m not sure if my car being with another insurer would have sped up repairs at all, but I suspect not. In a regional town, it is likely many insurance companies use the same panel beaters. And the quality of work was excellent, it was just the communication of administration staff on the days that made the experience frustrating.

Other Budget Direct Car Insurance Reviews

Budget car insurance won Money Magazines Insurer of the year for 2017-2021. You can also find car insurance reviews at Product reviews, Word of Mouth and Budget Direct. The time to resolution of claim seems very variable.

There are a mixture of positive and negative car insurance reviews. But looking at other companies car insurance reviews, a spattering of complaints is to be expected.

Are Budget Direct Any Good?

Overall all, I would say my insurance policy provided good and value for money cover.

But if you are heavily dependent on your car or have a “pride and joy” type car and have a choice of car repair and panel beaters in your area, it may be worth doing more research.

If you have a preferred repairer, or want the flexibility to go with the repairer who can get the job done quickly, you could add the preferred repairer option to the policy.

The Budget direct policy states:

“However, if we consider a repairer’s quotation is not competitive, or that the repairs would

not be completed to a satisfactory standard, we may decide not to authorise repairs and

offer you the option of having the car repaired by an alternative repairer chosen by us, or

l paying you the reasonable cost to satisfactorily repair the car”

Summary

If you have a high value car you may prefer to insure with an insurance provider who usually insures higher value cars, and can provide a more streamlined process in case of repairs.

For those of us whose cars are just a convenient mode of transportation, Budget direct provides good comprehensive car insurance, with reasonable customer service and great value for money.

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

Saving Money: Avoiding All or Nothing Approach

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest

If wanting to improve your balance, start a little closer to the ground

Have you noticed many of us tend to behave in extremes?

With finances, there is the YOLO crowd that won’t put any money aside and go into debt for expensive and often showy consumer purchasers. They are living life for today, but often don’t think about what they actually value. They risk trapping themselves working lots of hours, with little flexibility for choice when they really want to make a different choice.

On discovering FIRE (Financial independence retire early), many go to extreme lengths saving 70% of their income. These super savers are often highly motivated by an unhappy work environment. In attempting to escape the situation, they take on lots of overtime, as well as a side hustle whilst practicing extreme frugality. The risk is compounding misery and missing out on all the good stuff in between.

Grant Sabatier is probably the most famous of extreme savers who later regretted going to such extremes. His health suffered and his relationships were neglected.

When we finally reach a huge goal we’ve been working towards for a while there is a risk of “Arrival fallacy”. Our brains tend to fantasise that all of life’s problems will melt away just soon as we…. Lose 10 pounds, Get a promotion, reach financial independence….

Only after reaching these goals do we tend to stop, reflect and realise that life is the journey experienced between goals. It’s good to be striving for something, just don’t sacrifice everything else to get there.

I decided at 16 years of age to try to become a doctor (and a good one too). From that moment I worked towards each goal in my way. At 24 I graduated medical school, but that was just the beginning. After nine years of postgraduate training, I passed the final exams to my specialist qualification. I had reached the end of my plan.

I had fantasised about how good this would feel for months, even years. But especially during the hard grind of study over the prior year. It took just 20 minutes waiting alone post exam for a friend for it to hit me. That pesky feeling of anti-climax.

Now what?

Luckily there was plenty of fun to be had in the days post-exam, and then my first “boss job” to settle into. But I admit I missed having an incredible goal to work towards. Once in my comfort zone at work, I wasn’t striving for anything, and without that, I felt a little lost.

I have found more, smaller goals since then. Parenting, sports, investing, taking up a musical instrument and starting this blog have kept my mind busy. I’m far more aware now that I need to be working towards something to feel happy, appropriately challenged and happy.

Is Saving Money Worth It?

Does anyone really want to be financially forced to work unless they love it until 67 years?

Does anyone think a health forced retirement before you have enough wealth accumulated to enjoy an acceptable lifestyle sound appealing?

What about not being able to take time off because you can’t afford it if someone you love really needs you?

Of course not! These situations all sound like they suck!
The reasons people don’t sort out their finances (and save) include:

  • They don’t think about the what if’s, and would rather bury their head in the sand and deny the possibility of the above happening
  • We have all been brainwashed by consumerist marketing. The worst affected think life isnt worth living if you cant buy every latest consumer product
  • They feel despondent, it feels impossible to save money for retirement or other goals. 🙁

Saving money offers increasing degrees of freedom of choice in our lives. The impact is significant as soon as we move beyond spending every bit of our pay each month. Small incremental improvements make a massive difference to your choices and sense of freedom over time.

  • The ability to pay for a small unexpected expense without stress (car break down)
  • No longer needing to waste money on high interest rates credit cards (designed to drown you in debt)
  • The ability to save more money by buying in bulk, paying in advance for discounts etc
  • Can buy better quality gear that ends up less expensive over the long run
  • Can take extra (unpaid or half pay) time off work in an employee
  • Have some flexibility with requirement for income for self-employed (so can reward themselves with a real break!)
  • Can choose to cut hours at work if it suits
  • Changing jobs to a more enjoyable post can occur without financial stress over small changes in pay
  • Can consider a mid-life career change
  • Can retire early if work becomes a drag

What are Money Saving Tips?

If you are new to the site, and the financial independence movement, it’s easy to wonder where to start. If you work through this list and take action where you can, you’ll likely be amazed at how much financial progress you make over the next 5 years. .

  1. Buying less house and car than you can afford are probably the most impactful financial decisions you can make. Avoiding brand new houses, units or cars seems to generally a great financial move.
  2. Focusing on becoming excellent in your career can pay far more than any of these other items. Save 50% of the pay increases.
  3. Minimise “structural expenses”. These are commitments to regular expenses, such as a cleaner or car payment. They are a far bigger deal than the one-off purchases you make. You can absolutely take these on if they truly add a lot of value to your life. Just think very carefully before you add more structural expenses to your budget.
  4. Start automating saving money into an emergency fund before doing the same with investments. Commit to a small amount each pay and increase it with each pay rise. This is the most painless way to save and does add up quickly, even with small pay rises. I just increased my Pearler* automated investment by $30 a fortnight after reducing an expense. It may seem so tiny, but if you do it every time it soon becomes significant.
  5. If you need to grow an emergency fund quickly (or want to start investing faster), consider selling some of your unused stuff. You will get a lot less than you paid for it but most of us probably have a few hundred dollars worth of “stuff” lying around.
  6. Allocate time to go through your spending at least twice per year. Analyse each line item. Is there anything you are not getting value? An accidental amazon prime subscription? A magazine subscription you don’t read often?
  7. Review your mortgage interest rates or rent every 2-3 years. Make sure you’re getting a decent deal.

Can Saving Money be Addictive?

It’s easy to get into a habit of checking your bank or investment account multiple times a day. Money can start to take over. People can be seduced by the “All or nothing” mentality.

The worst are probably converted consumers, rather like ex-smokers! Saving money can become like a religion.

Dangers in going overboard with saving money is:

  • Missing out on highly valuable experiences in your quest for a high savings rate
  • Sacrificing important relationships as you have no other interests, and refuse to socialise (and spend money)
  • The arrival fallacy. It would be so sad to arrive at financial independence and realise it’s not all that you thought it would be. Without hobbies or relationships you have a lot of time to fill!
  • There is always the risk of illness or death far younger than expected. Unfortunately I see it all the time at work. It is a painful reminder that nothing is guaranteed and your time should never be taken for granted
  • Huge “Fuck it” moments. After a months, or years of delayed gratification it’s easy to start feeling disgruntled if you don’t see a lot of progress. When everyone around you seems to be living a higher quality of life, and your sensible investing is moving too slow, it’s more likely you will blow your investments on a purchase you will regret.

How to Stop Obsessing Over Saving Money

You don’t want to be thinking about money all the time. There is a lot more to life you don’t want to be missing out on. If it’s started to become a habit:

  1. Automate your savings and investments. You have heard of paying yourself first. Take the amount you are putting towards savings and investments out of your account as soon as you’re paid. Automating this will help you gradually stop paying so much attention to it. As your investments grow, the increase each time will seem less significant, it gets a little boring. Over time you should gradually stop checking your account so often.
  2. Practice Mindfulness. We are always trying to multi-task everything. Try and be completely present during non-money activities that you value. If you are watching a movie cuddled on the couch with your partner, remove phones and enjoy the time fully.
  3. Get a hobby! You do need to spend a bit of time learning the basics of how to invest, but index fund ETF investing is really simple and evidence based to outperform far more complex methods. Unless this really interests you, it’s then time to find a new hobby. Get obsessed about becoming mastering a new skill or fitness activity.
  4. Have a fun money account. This is money you get to spend on anything you like. It will help you spend a little regularly on things that you value without guilt. If you find yourself hoarding this money, actively seek a way to put it to use in a way that will provide maximum joy.
  5. It is actually quite useful to cut expenses until it hurts. Most people assume they can’t cut expenses (eg gym membership). It’s worth cutting ruthlessly to work out what you really miss. When you notice you have gone a little too far, restart the spending that provides good value.
  6. If trying to increase income, ensure it never causes you harm. Moonlighting may be frowned upon by your employer, and may damage future career prospects. Taking on overtime when you need to be studying is obviously not wise, and working overtime in a job you don’t enjoy isn’t worth it unless very short-term, saving for a specific goal. Consider very carefully the consequences of side hustles and extra work, make sure you confirm with your employer taking on extra work is ok. Ideally extra work should provide more benefits than just money. You should enjoy the extra work, and perhaps learn skills that you are keen to pick up.

Spend Smarter

Try and find new ways to inject extra value into life whilst minimizing costs. Use frequent flyer points to fund budget friendly holidays. Shop around. Use Cash back.

Saving Money & Maintaining Balance

Many of us spend some years with our heads in the sand about our finances. Working out financial and life goals, and developing a financial plan are challenging. We need to simultaneously invest as if we will live to 90+ whilst also living every year to the full to avoid regrets. It’s easy to become a little obsessed with saving money. This can provide motivation to get over inertia and start making progress. But the road to financial independence is long and windy. Automate everything you can and make sure you focus on the ups, downs, twists and turns along the way. The journey is the best bit.

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

Choose a Mortgage: What is the Comparison Rate?

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

Purchasing a property, and taking on a mortgage, is one of the biggest financial decisions most Australians will make in their lifetime.

Your choice of property will be a large factor in wealth accumulation over your lifetime.

The total price of a property can be doubled (or more) by interest paid over the life of the loan. Luckily we are currently in record-low interest rates, although it is unclear how long this will last.

The interest rate you pay makes a massive difference over 30 years to how much you pay for a property. Should you rely on the comparison rate to make your decision?

No.

Even paying 0.5% extra in interest over 30 years for the above $500,000 property results in an extra $44,000-$65,000 in interest charges over the life of the loan.

But it’s not just the interest rate that’s important. Annual fees act in a similar way to interest and blow out the cost of a loan over the long term. Then there are establishment fees, exit fees, redraw fees, introductory rates and special features such as offset accounts and lenders mortgage waivers.

The result is enormous confusion for first-time buyers and refinancers! A mortgage broker can help you compare like with like, and make recommendations based on your personal circumstances. It is wise to invest some time educating yourself on options given mortgage brokers have a conflict of interest in recommending loans (being paid by the lenders).

Work Out What Kind of Loan You Need First

I find it’s easy to narrow down the options first. Do you need a residential or investment loan?

Need to Borrow More than 80% Loan to Value Ratio?

Do you need to borrow more than 80% of the property’s value (LVR)?

Loan $400,000

Property Value $500,000 = LVR 80%

Deposit Required $100,000 + Borrowing costs ~ 6% property value 30,000 = $130,000

If you work in an occupation considered at super low risk of default, you may be able to get lenders mortgage insurance (LMI) waived.

Different lenders have different eligibility criteria. Accountants, lawyers, judges, doctors, dentists, vets, optometrists, chiropractors and physiotherapists. Nurses may be able to get LMI waived up to 85% loan to value ratio, or discount LMI.

Borrowing over 80% LVR is a higher risk strategy but can suit those trying to get into a rapidly rising property market and investors.

Do you Need a Redraw or Offset?

In these articles, I go through the benefits and downsides of offset accounts and redraw facilities. They are both ways to potentially reduce interest paid. You will have to pay extra in fees (particularly for offset accounts). If you will keep more than ~ $20,000 in savings it is likely worthwhile paying for an offset. The higher interest rates go, the less you need to have in savings to make offsets worthwhile. They are ideal for emergency funds, and as discussed in the articles above.

How Much Will You Borrow?

Please work this out based on the repayments you are happy to make on a monthly basis.

Then check you can borrow that amount with an online calculator.

If you calculate your maximum borrowing capacity first, you will be psychologically anchored to that (usually) higher price.

Mortgage repayments can be significant dampeners of your ideal lifestyle if you over commit yourself. If you want to buy as much house as you can possibly afford as part of a financial plan, make absolutely sure you are buying the right house. And make sure you are happy to make the sacrifices involved in that strategy.

Remember to price in extra insurance needed such as income protection, TPD and life insurance premiums. Unfortunately, these have become far more expensive over the last couple of years, even for those of us with no longer available “level” premiums.

Do You Want Fixed or Variable Rates?

This may come down to the actual rates on offer at the time, so I don’t think this needs to be set in stone before looking at options.

Fixed rates are offered over 1-3 years (and longer, but often at great expense). The bank sets these rates based on all the information available to them. They set these rates to attract customers, whilst obviously maintaining their own profits. Fixed rates are usually a little more expensive than variable rates, although this trend has been reversed recently.

The Reserve Bank of Australia (RBA) review the official cash rate monthly and increase or lower it to manipulate the economy as close to a happy steady state as possible. The banks choose to pass these changes on or not, even increasing rates independently, to maintain profit levels.

Despite this over the long term, variable rates have usually been cheaper than fixed rates. More than half of borrowers who sign up for a fixed rate end up paying more than they would have with variable rates.

People choose fixed rates because they:

  • Believe they can predict interest rate moves (and think they will increase)
  • Have borrowed a lot of money and would struggle to meet repayments if interest rates increased

We were nervous buyers in 2008, on unimpressive salaries at the time. I’m grateful our mortgage broker at the time talked us out of fixing rates then! I think our rate was ~ 8% at the start!

A fixed-rate usually locks you into the loan for a period of 1-3 years, with an exit fee to break the agreement. This provides inflexibility in the case circumstances change, you wish to move or refinance to access equity.

Fixed-rate mortgages also don’t traditionally allow offset accounts. There have recently been mortgages offered with fixed rates and offsets, but to go with these options you will be limited to a handful of loan choices.

It is possible to hedge your bets by fixing part of the loan and keeping another part variable. This can offer the best of both worlds for some. They have more security around repayment amounts but are able to offset emergency savings and future surplus income against the variable portion of the loan.


Our mortgage broker did not talk us out of fixing rates after our most recent investments property purchase. With rates so low, it’s hard to imagine them going much lower. Fixed rates have been offered by lenders at rates lower than variable rates. We ended up going with a mixture of variable and fixed rates for our mortgages.

Comparing Fees

One-off fees are less significant than recurring annual fees. Add the annual fees to the interest payable on the amount borrowed to compare mortgages like with like.

Similarly “cash back” or airline point offers may be lenders trying to distract you from fees and interest payable during the life of the loan. It is the recurring expenses that are most significant.

Compare mortgages over 3-5 years. You should review your lender options 3-5 yearly, and will likely refinance to better options at the time. If you are fixing for a period, compare rates for the fixed period only. You will need to review the loan and compare it with competitors at the end of the fixed rate.

Comparing Interest Rates & the Comparison Rate

I tend to ignore honeymoon low-interest rates, which tend to balloon after 1-2 years. I don’t want to refinance my borrowings after a year. It’s a lot of hassle. I would rather secure a good value loan for 3-5 years (or the fixed-rate term) and not have to worry about it for a while.

What is Mortgage Comparison Rate?

Due to the complexity of loan offerings available, legislation has been introduced to attempt to make it easier. Each loan has to display a “comparison rate” in its advertisement. The idea is that the comparison rate lumps all fees and the interest payable for a loan together so that you can compare like with like.

Unfortunately, I don’t think a comparison rate is that useful for most of us. In fact, they may provide you will very inaccurate information based on your situation.

The comparison rate is based on a standard borrowing scenario – the rates and fees incurrable by a $150,000 loan, repaid over 25 years.

I don’t know anyone who has brought home for $150,000. And most home loans are over 30 years. Most financially savvy households will refinance their loans 3-5 yearly anyway.

A $395 annual package fee is usually the same whether a home loan is for $150,000 or $1,000,000! The interest on the larger loan will be a far more significant part of the equation.

If you are (conveniently) borrowing just $150,000 the comparison rate will be an excellent comparison tool. For the rest of us, we need to do the maths ourselves or ask our mortgage broker for a detailed comparison based on our actual intended borrowings.

Is Flexibility Important?

Life is unpredictable and personal circumstances can change quickly, and dramatically.

It is worth taking some time to consider how important flexibility is in your situation. If you are planning to stay put in a home for 10+ years, with no plans to invest and a low likelihood of needing to move flexibility can be a low priority.

For those with more options on the horizon, avoiding loan discharge fees and prolonged fixed rates are a good idea.

Utilising an offset account instead of a redraw facility will mean extra repayments can be moved to a new home if you end up converting the old one to an investment property. If you pay off the loan (using a redraw) you cannot withdraw to gain access to tax deductibility.

Take your time making the right choice of property and loan. Remember these are some of the biggest financial decisions of your life. Get it right!

Have you recently taken on a new mortgage or refinanced. Comment below to tell us what kind of mortgage you went with and why.

Your wealth accumulation journey starts as soon as you make the first step.

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

Is Installing solar Power Worth it?

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.

Are you wondering whether installing solar power is worth it?

A little internet research provides hundreds of pages of solar power companies reassuring you that it is totally worthwhile. But there is a bit of a conflict of interest there isn’t there?

I thought those considering splashing out may appreciate my consumer’s point of view.

The Aussie Doc household is now on our second set of solar panels. Having just been through the process of replacing our panels, it’s a great time to share our experience.

The Cost of Electricity is Rising

You would have to be living under a rock to fail to notice the headlines complaining about rising power prices. The graph below is data from the ABS on the increase in average household electricity costs since 2009.

In 2011, when we installed our 1st set of solar panels on our 1980 house, the calculations told us it would take around 7 years to break even. We purchased a “cheaper” system at the time, although it certainly didn’t feel cheap! It was a big outlay and we were concerned the calculations provided by the solar power company may prove to be exaggerated.

The significant increase in price since 2011 actually would have shortened the time it took to break even. We were lucky enough to time this well enough to secure a 44c feed-in tariff until 2028 (unfortunately no longer available). We didn’t realise what a huge bonus this was at the time, but feed-in tariffs now are usually 7-16c per KWh.

Initially, we were completely bill-free (or even paid a little from the electricity company!). Over 3-4 years our bills started to creep up, reflecting the increase in prices. The bills were still far lower than our friends until this year when there was a sudden spike in our bill from $300/quarter to $500.

After my brave partner got on the roof to check it out, turns out one of the panels was broken. Discussion with solar companies in the days after revealed that solar panels are far more efficient now than those produced in 2011. Our solar panels were pretty much at the end of their lives after 10 years. But we could replace the system and still take advantage of our old feed-in tariff agreement.

Cost of a Solar Power System

Prices of solar power systems have come down significantly. In 2011, our 4KW system cost around $9000, and this was from a cheaper company. Ten years later, we have had to replace it with a new 4KW system for $5563.

This is a pretty small system to install. We have an advantageous feed-in tariff that we can continue to take advantage of until 2028 as long as we don’t put a bigger system in.

It is also more expensive than many of the prices listed because we chose panels with micro-inverters. Each panel has its own micro-inverter rather than all panels connecting in series to an inverter. The advantage of this is each panel acts independently. If one is broken, the other panels are unaffected. It also means we can monitor the electricity production of each panel, helping to identify and pinpoint malfunction.

Price range online in 2021-

A 6.6KW system will cost $5200-$9000

A 10KW system will cost $8000-12000

Pricing should include panels and installation.

Small-scale technology certificates are rebates offered per panel installed. Your solar panel company will generally organise these and provide a discount on the quoted price. You can work out your STC rebate eligibility here.

The STCs are scheduled to reduce the rebate every year until the rebate completely ceases in 2030. They vary in generosity depending on where you live. These discounts are already included in all the prices above.

Electricity Feed in Tariffs

Feed-in tariffs vary according to your location and energy company. You can review them here. Unfortunately, feed-in tariffs of 40c+ are no longer available.

If you signed up for a fabulous feed-in tariff before 2012, you may be able to continue using this if you have to replace your panels.

For new solar systems, you can find out feed-in tariffs in your area. The price you receive for electricity is now usually less than you pay the same company for electricity. For new installers, it is better to use as much of your own electricity as possible due to this imbalance.

Installation of Solar Power

This should be organised by your solar power professionals. If you need roof repairs, get these sorted before solar power installation day.

We discovered the roof under our old panels had deteriorated. The solar power company we used identified it and gave us time to get it fixed before they completed the installation.

How Many Solar Panels Do You Need?

Look at your electricity bills. What is your daily usage? How large is your roof? What is your budget? Your solar panel company will be able to help you work out the optimally sized system for your situation.

Remember to allow extra if you may purchase an electric car in the future, are getting a pool or spa or have kids that will one day become teenagers!

The Aussie Doc household stuck with a 4KW system to maintain the 44c feed-in tariff. After this runs out in 2028, it is likely we will upgrade our system and add a battery.

Choosing a Solar Power Company

There are a lot of companies selling solar panels. They beat each other down on price, which is great for buying a system at a reasonable price. But it also means many of these companies seem to go broke quite often.

It’s not uncommon for households to realise there is a problem with their solar panels, only to find despite the system still being under warranty the company no longer exists.

For this reason, and the desire to have good quality panels that last as long as possible, look for longstanding solar power companies with a good reputation and customer service reviews.

Find out which solar panels they provide. Are they made by a good manufacturer? How long does the warranty last?

Our solar panels were out of warranty. We brought cheaper panels due to financial constraints at the time but paid in cash. The solar panels provided good value.

We asked for quotes from a couple of local companies. Those that no-shows for the quote can be ruled out immediately.

You can gain an understanding from the solar power company representatives about your options, and cost-benefit. They should be able to provide all this for you. Compare the options available and make your choice.

Is It Worth Borrowing to put in a Solar Power System

With it taking 3-5+ years to make your money back, it is generally not worth going into debt and incurring interest for in my opinion. If you do decide to borrow, Canstar recommends green loans over the other deals the solar power companies offer.

Are Solar Power Batteries Worth It?

There is now a range of solar batteries on the Australian market, including the Tesla solar.

Many households use electricity primarily in the evening when solar panels are not productive. Particularly for those with pathetic feed-in tariffs, the ability to store excess electricity produced during the day to use at night can be powerful in reducing bills.

Others like the idea of being completely off-grid, for environmental reasons.

Many want a battery system as backup during power outages, so they don’t need to annoy their neighbours with a noisy generator.

Solar batteries are still very expensive, and will likely at least double the cost of your solar power system. It is still worth getting quotes with and without a battery, but many will find the expense too great.

Even if you’re not ready to commit to the expense of a battery right now, ask your solar power provider if the solar power system they can install will be “battery ready”. If a drop in battery price occurs similar to the way panel prices have come down, it could soon be very worthwhile installing a solar battery.

Efficient Solar Power Usage

To get the most out of your system (and minimize your bills)

  1. Increase power production – Maintain your solar panels with annual inspection and cleaning to get rid of soot and grime which may reduce efficiency. Position panels to take advantage of maximal sunlight (at the time of day you use more electricity ideally).
  2. Reduce power use – Always to reduce bills. Turn off the LEDs. Fill the dishwasher and washing machine before turning on. Switch everything off standby
  3. Time power use – You will want to use electricity when it is cheaper. For most with solar panels installed in the last few years, that will be using electricity during the day. So time dishwasher and washing machine cycles for daylight hours. For those still enjoying a high feed-in tariff, it’s more efficient to use electricity after dark.
  4. Monitor electricity production. With our 1st solar system, we only realised there was a problem with the panels when we received the quarterly bill. With our new solar system we can monitor electricity production (hourly!) via an app. We have already used this to identify shade that needed to be removed from one of the panels.

I Solar Power Worth It?

With electricity prices continuing to rise, and return on investment often 3-5 years, solar panels are worthwhile for the majority.

Solar batteries are still quite expensive and the cost-benefit will vary. If installing a battery is too expensive at the moment, get a battery ready system.

Solar power is an expensive initial outlay. I don’t think it’s worth going into debt for solar panels. If you do, you are better off with a green loan or borrowing from your mortgage (and paying it back fast).

As well as the financial benefits, it’s pretty awesome environmentally to use solar. Being as self-sufficient as possible means you are less vulnerable to financial shocks and unpredicted price hikes.

Your wealth accumulation journey starts as soon as you make the first step. Subscribe to Aussie doc for a weekly email to keep you up to date on track to your goals.

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

When Should You Upgrade an Old Car?

*This post may contain affiliate links. This mean if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

“I’m not getting old, I’m becoming a classic”

Over the past couple of years, I keep get variations of the question,

“Why is your car so shit?”

Apart from the fact that my friends, family and colleagues have poor manners, I’m not really sure why anyone is that interested in my choice of vehicle. Should I follow their advice or hold on to my old car for a bit longer?

The car is 11 years old, brought as an ex-demo with cash.

It is rarely clean, full of all sorts of things I may need (spare shoes, clothes, kids activities). It has some minor scratches and dents.

In the 10 years I have owned it, I have changed the tyres twice and the battery once. I have serviced it more or less on schedule and never (touch wood) had a mechanical issue.

It’s actually just out of the generous 10 year warranty that encouraged me to buy it in the first place.

The level of interest in the car I drive by in-laws, friends, neighbours and colleagues surprises me.

My Car History

One valuable financial lesson my parents taught me was that cars are just a mode of transportation. They taught that treating a car as a status symbol was silly, and would “keep you poor”.

I was extremely fortunate to have my first vehicle loaned to me by parents for my first year of work, during which I saved up for my first bomb.

It was a 20 year old car, not very reliable and came with plenty of repair bills. I upgraded when it passed onto a better place, to a 15 year old beater. This lasted me a good few years, and when it died I caught the bus for 12 months and saved up cash for my first brand new car.

The personal finance community generally don’t recommend buying a new vehicle.

Vehicles depreciate most in the first few years, making it more efficient to buy a vehicle 3-5 years old.

At the time however, I was wary of buying a “lemon“, and the price difference between the ex-demo and a second hand didn’t seem worth taking a risk.

As a family growing up we always owned old cars. They broke down, and that’s never convenient. But dad had some mechanical knowledge and usually fixed them up himself.

I don’t know a thing about motors. I tolerated two unreliable old cars whilst less financially stable. Now in a strong financial position, I don’t want to deal with an unreliable vehicle.

I bartered hard and refused to add on extras they were trying to flog, despite significant pressure from the salesman. I purchased my new ex-demo car for $20,000 cash as a registrar earning ~$150,000 gross. Which is a touch over Captain FI’s suggestion for a car budget of 2 months net salary. So far so good.

The personal finance community also preaches holding on to vehicles as long as possible. Not every agrees though. Suncorp think exactly the opposite to the finance community, that you should buy a new car every 3-5 years and sell it before it gets “Old”.

Despite the fact my vehicle, according to the comments, looks a bit rough, I’m somewhere in the middle. Once the car becomes unreliable, it’s time to upgrade. I’m hoping to get another 5 years. It’s a Mitsubishi, if it were a Toyota or Honda I would hope for more.

When is a Car Old?

As soon as you drive the car off the dealer’s property, it is no longer new.

When it becomes “Old” is relative. Over $100,000 km is often quoted as a psychological point at which cars are considered old and lose more value. Many people sell their vehicles before this point. Only 31% of car purchasers have owned their previous vehicle for 10 years.

When a car becomes unreliable really depends on the make, regular servicing and vehicle use. A car starts to look old depending on how much you care for the car, wash it and protect it from damage.

Pros of Upgrading Your Old Car

Around a third of people admit to buying a new car because it makes them feel successful. There’s a lot of insecure people around.

People want to display wealth, to imply significance and influence. The wealth doesn’t actually need to be real. Many think they can afford a vehicle if they can afford the monthly payments!

Many of your colleagues, friends, neighbours and family will be impressed with your new purchase, and congratulate you the first time they see it.

Perhaps a better approach is to work on self esteem. Stealth wealth has many advantages.

There are more practical advantages of a new car though.

A brand new car should be reliable, and will be under warranty for a few years.

Even a newer second hand car may be more reliable than an old bomb. It’s easy to buy a lemon though, so get a pre-purchase inspection unless you have great mechanical know how.

A newer car should have better safety features, although the gains in vehicle safety made with new advancements are diminishing. The biggest impact on crash safety came with the introduction of seatbelts.

Some of the newer brands are pure electric, or have hybrid technology. These should lead to lower running costs over the long term, particularly if you drive a lot of kilometres.

Cons of Upgrading Your Old Car

A new car is only new for a day. Even if you love the attention and external validation it brings, these benefits are likely to dissolve in a week or two. As soon as someone you know buys a newer or cooler vehicle, yours won’t look so shiney anymore.

It’s hard to know whether you will enjoy your new vehicle as much as you think you will until you have been driving it for a while. It’s a good idea to rent your potential vehicle to try it out for a bit longer than a test drive. Buyers remorse would be pretty painful after forking out tens of thousands of dollars.

Opportunity cost. By spending $20,000 on a vehicle, you cannot spend it on other things. Invested, that $20,000 can multiply over decades wisely invested. It could slow you down in your acquisition of your first investment property, or in buying a new home. That money could be used to allow you to reduce work hours, and free up your time.

There are extra costs associated with upgrading your car. Insurance tends to be more expensive the newer your car is. There is an extra premium if it is a make commonly involved accidents. If you are looking to keep car insurance costs down, check out my Budget direct Car insurance review.

Your choice of car strategy can make a huge difference to your wealth accumulation over a life time

If you don’t have the money saved to purchase a new vehicle, a loan is necessary. Paying interest on a depreciating asset is making it far more expensive, and increasing the damage it does to your financial situation. Sometimes you are stuck having to take a loan to purchase a vehicle, if you need it to get to work, and there are honestly not viable public transport options available. In this case, a cheap car should be purchased with a minimal loan that is paid off asap. Start saving as soon as the loan is paid off so that you are better prepared when this car needs replacing.

When to Sell your Old Car

Of course this is very individual, based on your own priorities and values.

Someone obsessed with cars is likely to accept the financial sacrifice and trade up more often. Those of us who see a vehicle simply as a mode of transportation will hold on to them far longer.

Personally, I am definitely in the latter camp.

The thought of choosing a new vehicle does not fill me with excitement. In fact, the incredible number of options available is overwhelming. I have simple requirements (air con, reversing camera, wheels…). The choice of vehicle will probably come down to safety features, fuel efficiency and price. If choosing a new vehicle feels like a chore, you are likely to hold on to the old one for longer!

When to Upgrade

This depends on your stage of life and financial security.

If you are on target to hit your goals, and you can save the cash for a nice car that you will enjoy, go for it! But buying your dream car (or even a decent one!) before you have taken steps to secure your financial future will hold you back.

Borrowing to buy a car should be avoided if possible, and minimized if it can’t.

If you are at a stage where money is still really tight, or mechanically knowledgeable you may be willing to put up with a break down here and there. Once the money situation is on track, most won’t want to deal with an unreliable vehicle.

2021 does not seem a good time to upgrade you car. There is a shortage in microchips, and months long waiting lists for new car delivery. Second hand car prices have increased as a result. If you can, avoid purchasing any car within the next 6 months (or more).

Why Do People Care So Much About What I Drive?

Back to the question of why does everyone seem to care so much about my choice to hang on to an ageing vehicle? At work it’s parked in a large car park anonymously. I could probably get away with not owning a car at all, so upgrading seems a bit excessive.

Even Warren Buffett drives a modest car that he brought at a discount!

When people are trying to pressure you into a decision that is completely irrelevant to them, they subconsciously want you to validate their choices in life. I think many feel uncomfortable when others make different choices. It’s more comfortable when everyone follows the same path.

So don’t pester your boss about their ageing car. We all make decisions based on priorities and values, and some of us value almost anything over the car they drive.

Your wealth accumulation journey starts as soon as you make the first step. Subscribe to Aussie doc for a weekly email to keep you up to date on track to your goals.

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

How to Be Frugal Without Being a Cheapskate

The US show “Extreme Cheapskate” features America’s cheapest individuals, and the often cringeworthy tactics they deploy to save a dollar.

No doubt the individuals (presumably paid for the show?) are exaggerating somewhat for entertainment value. Despite the participants seeming pretty proud of their cheapskate habits, a common theme seems to be taking advantage of people.

Perhaps you even have family or friends who you would consider cheapskates, or perhaps you have a reputation yourself?

It is important to set financial goals, and become a top notch money manager, in order to achieve your ideal life in years to come. It is critical to pay off consumer debt, and achieve financial security. But where is the line between frugality and cheapskate? How can you save money and reach your goals, without stepping into cheapskate territory?

Cheapskate vs Frugal – Definitions

Lets start with some formal definitions, from the Merriam-Webster dictionary.

Cheapskate: a miserly or stingy person especiallyone who tries to avoid paying a fair share of costs or expenses

Frugal: characterized by or reflecting economy in the use of resources

Saving the Environment

Using our environmental resources efficiently, by happy accident, is ussually also frugal. Saving water and electricity, reusing and recycling are all simple ways to reduce our impact on the environment, whilst saving money.

By not buying into the grossly consumerist culture around us, we buy less, consume fewer materials and fuel. When re-using second hand goods, we are reusing all the materials and fuels used to create and transport that item.

There is something very satsifying about finding another use for an unwanted material.

Asking a neighbour if you can take the piece of discarded furniture out of their skip to upcycle is a frugal win-win. Your neighbour will likely be glad to have a little more space in that skip!

Stealing your neighbours lemons from an overladen tree probably equates to cheap skate. Just ask, they will likely be glad to see those excess lemons utilised. Bring back a baked good made with lemons and you’ve likely made a friend for life.

If we all got a bit more organised to take turns driving our colleagues to work, there would be a lot less traffic, and savings in fuel and money. As well as helping the environment, we may get to know our colleagues better, which often makes collaborating at work easier.

Our society in Australia has become extremely individualistic. Each household owns one of every item. But a revolution has begun with the “sharing economy”.

Ride sharing, hourly car hire and bicycle hire are the early examples, the world would be more efficient if we all shared more.

If we could have closer, more trusting relationships with our neighbours, we would feel more comfortable sharing lawn mowers, ladders and other seldom used items. Imagine the savings for a street, if they all shared a communal shed.

Check out Sustainable Living for more ideas for improving your environmental and financial efficiency.

Cheapskate Vs Frugal – Quality over Quantity

When trying to save money, it’s easy to fall into the trap of always buying the cheapest option. Sometimes this can be a false economy. You don’t always get what you pay for, but it’s worth considering durability to make the most long-term cost effective purchases.

The cheapest bottle of wine may save you a few extra dollars but, in my experience, punishes you with a far worse headache. Giving up alcohol altogether of course is the far smarter choice, good for your hip pocket, health, productivity and relationships. I’ve not reached that level yet!

Many of use have brought an old bomb of a car in the past, scraping the dollars together, only to be hit with repair bills weeks down the track. Once financially secure, you are unlikely to make this choice again!

Buying a quality (but not flash) second hand car is ussually the most economical choice. Of course, going without a car is going to save you a lot of cash most of the time, and encourage more physical activity on a daily basis.

Social Activities

Socialising with friends, we have all discovered, is really essential to our wellbeing. No-one has ever appreciated the freedom to socialise as much as in the past 12 months. But socialising, depending on your friends, can easily result in hundreds of dollars spent on a flash dinner and copious over priced drinks.

Forgetting your wallet, and letting your friends pay the bill would definitely count as cheapskate behaviour!

Asking your friends to meet up for dinner at your place, or go for a hike with a picnic is a frugal and fun way to socialise.

If there needs to be a big change in your spending habits, it’s probably worth talking to your friends openly about your change in behaviour. If they are good friends, they will support you in this and may be inspired to take a fresh look at their own finances.

Remember to spend money on frivolities sometimes. Many frugal savers just can’t switch off the saving button even after they’ve hit all their goals.

Harder core / deprivation saving should be for short periods of time, whilst working towards a specific goal, or digging yourself out of debt. For the long term, remember to achieve some balance, and use your fun money budget to splurge on something that brings you joy.

CheapSkate vs Frugal – Practicing Generosity

The differentiation between a cheapskate and frugality is how you treat others. A cheap skate will horde their money, refusing to spend anything whenever they can.

A frugal person simply chooses what they spend their income on consciously, and utilises their resources efficiently.

Helping others is often a source of happiness and self worth. Be generous with your money, without being taken advantage. Put some money aside for charitable giving, tips and treating your friends, family or colleagues.

Find a charity who’s values align with your own, and when you see the donation leaving your account, you will experience a little kick of satisfaction.

Be generous with your time. Don’t work so much you can’t help your friend move house, assist at your child’s school or enjoy lazy days with your most special people.

Gift giving can be a joyful experience, although not, in my experience under the pressure of set deadlines. Buy gifts for your loved ones when you see something they will really love. Consider limiting “routine” presents on birthdays and Christmas to avoid swapping meaningless rubbish just because it is expected.

Practice Gratitude

Australia is a wealthy country, and most reading this live in relative prosperity and wealth. I feel so fortunate to live here. But even in Australia, there are those that are struggling. Overseas, of course, poverty is even more extreme.

The trend of the middle class wealthy to show off with superfluous status symbols seems distasteful. Status seems addictive, with many getting themselves into financial strife because their posessions are never enough. There is always someone with more.

Practice gratitude regularly for all you have. Taking the time to reflect on how fortunate you are (even despite challenges) will make you happier.

To be frugal without crossing into cheapskate territory, focus on the efficient use of your resources whilst ensuring you are always paying your fair share, and not taking advantage of others.

What differentiates a cheapskate from a frugal person for you? Share your thoughts in the comment section below.

Aussie Doc Freedom is not a financial adviser and does need offer any advise.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

What to Spend Your Money on: How to be Happy!

This article may contain affiliate links. If there are any in this article they are marked *. An affiliate link means if you click on the link and purchase a product, at no extra cost to yourself, I will receive a small commission.

what to spend your money on

Finally!  Less talking about saving and investing in this post.  More talking about what to spend your money on!  Life shouldn’t all be delayed gratification, there are, after all no guarantees. 

So how will you choose to spend your money?  We all have a limited amount, so you probably want to get the most bang for your buck! 

“Money doesn’t give you happiness” sure… but food, shelter and the ability to pay your bills give you a good night’s sleep.  That’s a pretty good start.  As you gain control over your finances, spending less than you need for all these basics, a world of opportunity opens up. 

Research has tried to find a mathematical answer to the question, how much money do you need to be “Happy”.

Around $159,000 is the optimal income for a single person for life satisfaction.  Interestingly, this is around double the Australian median income.  I suspect it’s highly variable, as we all have different aspirations.  To be happy, we probably need enough income to pay the bills, and fund most of our discretionary desires.      

A big secret to happiness is to desire less than you can afford. 

What to Spend your Money on When You’re Rich

You, presumably, don’t consider yourself “Rich” yet given that you’re reading this post.  That’s ok, this is an imaginary exercise.  Imagine you have endless financial resources.  You won the lottery jackpot, or you’re a Kardashian.   What would you change? 

My vision of this post-lotto win life involves a beautiful house, overlooking the beach, chilling in the pool with my family. 

I work a few shifts as a doctor (not enough to suffer burn out!) and still run the blog.  We would cook less and get a driver to take the kids to school most mornings (and avoid the traffic). 

Our family will take at least 6 weeks holiday every year, visiting far flung family and exploring new places. 

I exercise daily (and have a personal trainer to get the most out of my sessions).

House cleaning, blog editing and marketing are outsourced to someone excellent. 

We have friends and family to the house regularly for drinks and dinners.  I still read a lot, but now from my hammock overlooking the beach. 

The main differences from my current life are more of an abundance of time and freedom, as well as a beach view from my home! 

I have recently read an Australian finance book, “Money School*”, which talks about a “Shit to gold” ratio. 

The author Lacey has really put a name to what we all tend to do with these fantasies. 

If you had endless financial resources, are there “shit” times you would be able to outsource or avoid? 

Hopefully there is a bit of “Gold” in your life you would keep or increase. 

We can often improve our shit to gold ratio without a large financial windfall. 

But the lotto fantasy exercise is a great way to work out what your ideal life even looks like.  

What to Spend Your Money on: The Essentials

If you lost your job, what is the absolute bare minimum you would need to survive on?

A Home

What is the cheapest safe accommodation you could buy or rent? 

This will likely involve a change in suburb, and possibly a longer commute. 

My family could rent a 3-bedroom townhouse for under $18,000 per year, which is actually similar to our mortgage repayments (12 yrs after purchase). 

Food

What is your essential food spending?  Your grocery bills without convenience items, treats, soft drinks, cigarettes and alcohol.

I estimate ours to be around $9000 per year (family of four).

Insurance

What are your essential insurance costs? 

I consider home and car insurances, income protection and life insurance to be essential. Read more on which insurance policies you need, and when to cancel.  

I don’t get a lot of benefit from private health insurance, so this could be cancelled. 

Insurance costs as a sole (high) income earner with small children are pretty shocking. 

Our costs for these policies come to around $11,000 per year.

Transportation

At a push we could run on 1 car for the family and using public transport. 

Our cars are old, so no downgrading required. 

Estimated costs $2,000 per year

Utilities

If we strip our bills back to basics they include electricity, water, gas, landline and 2nd hand phones on pay as you go contracts. 

Estimated costs $3000 per year

Professional Expenses

Doctors have high professional expenses. 

In order to legally work as a doctor I pay around $4,000 in fees and legally required professional insurance per year.

Clothing

Basic, cheap clothing for the year?  Maybe $1000 per year for our family.

Interesting.  This brings our family of fours essential spending for a year at around $48,000.  We spend around $135-140K! 

Plenty of discretionary spending going on in the Aussie Doc Household – but aligned well with our priorities. 

It’s surprised me realising how low we could drop our spending in an emergency. 

Can I really call myself a financial blogger with all this spending?!

I guess this is how bloggers like Strong Money Australia live on under $50,000, by cutting out almost all the discretionary spend, who knew! 

What to Spend Your Money on: Discretionary

Higher income earners can enjoy plenty of discretionary spending. 

They can choose to upgrade to “luxury” in some, but importantly not all categories. 

Everyone makes a trade-off.  You (+/- partner) are 100% responsible for how you choose to allocate your finances if you earn more than the average income ($80,000). 

So, choose carefully and remember to be grateful for the opportunity. 

If your neighbour has made different choices, coveting their jet ski, or part time work schedule is a complete waste of energy!

Home

The difference between the absolute bare bones essential safe shelter for you and your family is discretionary. 

Even in expensive cities, there are relatively cheaper accommodation options.

Remember upgrading is a conscious choice. 

This category has such huge potential for swallowing up all your discretionary spending, you need to consider the sacrifices you will make as a result. 

Think through all the categories and make sure you have your spending priorities aligned with your values.

A home with ocean views is in my post lotto fantasy. 

I love the idea, and it’s not completely out of reach given that I do live and work in an inexpensive town. 

But the sacrifices required in the other categories (mostly time and holidays) make this a luxury I’m willing to do without. 

It’s probably better for me to get a bit more exercise and walk to the beach anyway!

Transport

Again, the difference between the bare bones basics of essential transportation cost and your vehicle of choice could be significant. 

This is another huge consumer of discretionary spending. 

Remember new cars are only new until they’re driven. 

Unlike housing, vehicles really can’t be considered an investment in 99% of cases. 

Vehicles burn cash like fuel.  Consider all the other categories you are sacrificing before making your final choice.

Private School Fees

These can be extremely expensive!  There are plenty of good public-school options.  If you choose private school for your kids (we did) make sure it is worth the sacrifices for you family.   

Holidays

Holidays, of course, are entirely discretionary.  In my opinion life wouldn’t be much fun without them though! 

They can certainly be done on a budget, as camping is a lot of fun with young kids (who tend to appreciate the simpler things).   

Australia is a big country, and much of it can only be seen using a sturdy vehicle and tent. 

Overseas travel may or may not be a priority for yourself.  Work out an average annual holidaying budget based on your priorities.

Eating Out

Are you a foodie?  Do you enjoy eating out regularly, or is it often done for convenience? 

If you have a habit of grabbing food when you’re out because you didn’t get round to organising your own food, I bet the take out is not too good?    

If eating out brings you joy, budget it, but try not to waste money or crap junk food you don’t even enjoy. 

Clothing

Are you a fashionista?  Do you like to buy the latest trends to dump them in landfill the next year? 

Spending less often neatly aligns with being more environmentally friendly. 

Consider better quality classic clothing that you won’t need to replace for many years. 

If you are into designer handbags, watches, shoes or other items, consider the value they bring to you and weigh up against the other categories.   If it’s a priority to you, enjoy.

Alcohol

Alcohol, we all know is a bit of a waste of money and health. 

Again, think about what you really value.  If you really enjoy a decent bottle of wine at the weekend, or drinks out with mates on a Friday, accommodate this by cutting your spending elsewhere. 

Of course, will power and self-control tend to disappear after a few drinks, so if you like to go into town for drinks with mates, you may need other strategies to ensure your not drinking all your discretionary income.

Subscriptions and Memberships

It’s worth reviewing these regularly and cancelling those that are not providing you sufficient value. 

Do you need multiple streaming services?

Do actually use the gym?

Time

Time, the most precious resource and we’re all running out!  Remember, when choosing to upgrade your discretionary spending you are sacrificing time.  Go back to your lotto fantasy, what is your work schedule like? 

I love to work part time, enjoying a reasonable balance between been challenged at work, with plenty of time to spend with our young children.  I value my time at this stage in my life very highly.  In my post lotto fantasy, I would work less hours than I do now, and have more choice over my schedule.  I am lucky enough to be able to take leave at half pay, and so save some discretionary income to fund extra weeks of holiday each year.  “Working” on this blog appeals to me because of the flexibility. And the fact I’m a massive money nerd of course! 

What would your ideal schedule look like?  Is it different to your current situation? 

Is it a high enough priority to direct some discretionary money to achieve something closer to your ideal situation?

Making the World a Better Place

All readers should try giving some of their discretionary budget away. 

Another secret of happiness is to focus on helping others. 

It feels good to donate to those so much less fortunate.  It gives me a buzz every time I see my donation to Give Direct, doubling another (extremely poor) family’s income for a year so they can get ahead. 

Retirement

Last, but probably the biggest goal to achieve: Eventually having enough investment income to support you when you want or need to finish work. 

It’s hard to imagine when you would want to retire when you are young, just setting out on your career. 

But neglecting this can result in financial stress and having to work when you no longer want to. 

Early starters need to sacrifice very little to achieve this goal. 

Late starters need to catch up, and without the benefit of decades of interest compounding, will have to make sacrifices to retire when they want or need to.

Deciding what you spend your money on is a series of important decisions, taking into account opportunity costs.  Start acting like your rich and spend on the categories you truly value, and cut the excess.

Aussie Doc Freedom is not a financial adviser and does need offer any advise.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

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Setting a Christmas Budget and Not Destroying the Planet

This article may contain affiliate links. If there are any in this article they are marked *. An affiliate link means if you click on the link and purchase a product, at no extra cost to yourself, I will receive a small commission.

Do you love the traditions of Christmas, get carried away with gift buying, and never stick to a Christmas budget?   This year, many families are going through a rough time.  There will be more difficulty getting to shopping malls, and unfortunately for many, financial strain.  Perhaps 2020 could be an opportunity to embrace a less commercial, more meaningful Christmas.

On Christmas day as kids, we were spoiled silly. My parents must have saved hard to provide the Christmas they imagined, as they weren’t wealthy.  We would wake on Christmas morning and launch into ripping gift wrap with wild abandon.  I barely stopped to see what each gift was before moving on to the next!

Yet, my warmest memories are of anticipation; decorating the tree and getting excited on Christmas eve.  Once, a reindeer shoe was dropped by the fireplace, another year there were sooty footprints on the hearth.  Now that’s Christmas magic!  I challenge you to think back to Christmas as a child, what gifts can you recall?  What are your fondest memories?

So often the “True meaning” of Christmas is lost in the highly marketed aspect.  For many, Christmas obviously has religious significance, but for our family it is about spending time together and slowing down.  As a parent, I have had to resist the tendency for stress over choosing presents and preparing food to destroy the day.

I have become convinced that family traditions, new and old, are what creates real Christmas magic.

How to Find the Meaning of Christmas Away from Family.

Healthcare professionals are often separated from their families by work over Christmas.  This year, even more families may be stranded apart for the festive season.

For those away from family this year, there are many ways to make sure you don’t miss out.  One trick is rescheduling Christmas for a time we can all spend together.  In 2020, Christmas in July may become more of an event, offering a semi-official chance to enjoy a novel cold Christmas together once COVID travel restrictions have passed.

If you are working this year, arrange a “Second Christmas” with your family.  But don’t worry, celebrating Christmas with your work family is often a lot of fun, and is great team bonding.

Celebrating Christmas At Work

There is a special atmosphere in hospitals at Christmas.

Wards often go to great (and competitive) lengths to decorate festively, with staff decked out in Christmas inspired uniforms.

Everyone generally brings a plate of something delicious, meaning most of us eat too much.  There may be even be bubbles in the form of soft drink!

Unfortunate patients who are stuck in hospital over Christmas appreciate the happy attitude and festive spirit staff bring to work.

The Secret Santa tradition often involves buying a lot of wasteful rubbish, but can help bond you into a new team.  Either opt out of the tradition or buy a consumable gift (coffee) unless you know the recipient well enough to buy something they will want and use.

Outside work, an “Orphans Christmas” is a regular hospital tradition for staff separated from their families.  Find out if anyone has organized it, or plan one yourself.  Ask everyone to bring a dish, meet at the beach, or home (ideally with a pool).

Christmas is a challenging and lonely time for many.  Try and find those going through difficult times, or feeling left out and make sure to include them.

Choosing Christmas Traditions

Traditions are so important at Christmas.  But they don’t need to be the same traditions you have always followed.  As your life situation changes, make new traditions that suit you.

Taking the kids on a Christmas eve decoration tour of our suburb has become an annual tradition in our house (although sometimes Christmas eve has to be rescheduled).

This year, we will start a new tradition of visiting the local Christmas tree farm to choose a real tree.

I used to enjoy a relaxing time decorating our tree to cheesy Christmas tunes and a glass of wine.  The kids now “help” decorate the tree while I enjoy a couple of wines.

The shopping centres are horrendous for the entire month of December.  With no parking, aggressive shoppers it becomes a pretty stressful experience.  I avoid when possible through December, doing my Christmas shopping online in recent years.  I may even get groceries delivered this year, to avoid the chaos.

Shopping malls sum up all the consumerism and waste that is wrong with Christmas (Bah Humbug!)  I hope by avoiding them I can get less sucked in.

Setting a Christmas Budget

No one should go into credit card debt for gifts, but unfortunately many do.  Do you know how much can you afford to spend?  It is easy to start swiping the credit card and worry about it later, but this will delay you reaching your bigger goals.  Are you saving for something more important?  Decide on your priorities, set and write down a budget, then split it between the following categories.  Old fashioned pen and paper, a note on your phone will do but there are also apps available that will keep a running total of your budget.

– Christmas Budget: Food

Are you hosting Christmas or have been invited to a friend or family’s home, what will you contribute?  If working, what will you take in? What about special goodies for home?

Many find spreading the cost over a few weekly shops more manageable, although it is likely this is just hiding how much you are spending.

You could use accumulated supermarket points to reduce the expense (you’re not flying anytime soon anyway).

Booze is probably a big expense category for Aussies.  Alcohol has become a huge part of our culture, dangerously for some.    Maybe splash out on smaller quantities of your favourite beverage and save some money (and your health) by having some alcohol free days.

– Christmas Budget: Decorating

If you don’t yet have a collection of decorations, think before you collect a load of rubbish you will later dump.

Consider going environmentally friendly and saving money at the same time.

Real trees can be brought in pots and kept alive to be reused each year, depending on your climate.

Recycling a plastic tree from an opportunity shop is obviously more environmental than buying new.

Natural decorations such as pine cones can be an alternative to plastic baubles and tinsel.

Rather than stocking up on a huge number of generic ornaments, consider keeping the tree relatively bare initially and adding ornaments collected as you travel.  Being spread far apart, our extended family often exchange small but carefully chosen Christmas ornaments by post in lieu of gifts.

– Christmas Budget: Cards and Wrap

Christmas cards are pretty wasteful.  I still send a handful, but only for my older relatives who do not communicate through the internet.  Whether by email or snail mail, relatives and friends get a personal message wishing them a wonderful Christmas.

Christmas wrapping paper is often not recyclable.  This year, I am adopting the Furoshiki tradition of wrapping gifts with fabric.  It’s a perfect idea for our family gifts, and can be reused every year.  How luxurious!

– Christmas Budget: Gifts

Most people have too much stuff.  The last thing anyone wants to do is to be the giver of an unwanted gift.

Some choose a gift-free Christmas.  If you still want to give a gift, instead of stuff, consider experience-based gifts.  Recent gifts I have enjoyed giving are tickets to an event, a virtual book club subscription , UK gardening Calender including seeds to be planted each month, charity donations and craft beer delivery.

Teaming up with family members often means you can buy a more expensive, but better quality gift.

Starting a family Secret Santa, so everyone buys one decent gift instead of lots of smaller ones can save everyone a lot of money.

Consider whether it’s time to make a “gifts for kids only” agreement with your family.  Or agree on something tokenistic.

Taking the time to choose a used book and writing a personalized message in the cover to me is so much more meaningful than a generic, thoughtless, and far more expensive gift.

– Buying for Kids

Consider buying gently used children’s toys.  Kids get brought SO MANY TOYS.  Most of them are plastic and end up in the landfill.

The four gift rule may be something parents wish to embrace.  It helps prevent us from getting carried away by ruling that kids should receive one gift they want, one they need, one to read, and one they will wear.

Not raising entitled, spoiled kids, take a conscious effort for those on above-average incomes.

With gifts from Santa especially, consider some of your child’s friends families may be going through tough times.  Presents from Santa should be modest and affordable.

If you are an Aunt or an Uncle, wanting to spoil your niece or nephew, consider taking them to a show or sports game (just the two of you!).

If separated by distance, consider a kids magazine or activity subscription, or try and find a gift that will last them beyond their current developmental stage.   These are often “Classic” basic toys such as role play*, classic games such as jenga*, and the all-time favourite, Lego*

To get a reasonable deal, starting early is key.  Research prices early and make a note so you can ensure any “Special deals” are true price reductions.

Sales including Black Friday (27th November), Cyber Monday (3rd December)  may or may not present better value.

Plan ahead and budget for Christmas so the silly season doesn’t delay your progress towards bigger goals

Aussie Doc Freedom is not a financial adviser and does need offer any advise.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

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