into the back of another vehicle which had stopped at a roundabout.
When the other car was hit it was pushed forward into the roundabout and hit
from the side by another vehicle on the roundabout. Fortunately no one was
hurt, but all three vehicles sustained serious damage. Because it was Bazza’s
fault he would be forced to cover the costs, which amount to nearly $6,000. He
was forced to sell his car to pay back the repair costs but the car sold for only
$18,000. After paying back the vehicle repair and using what was left over to pay
back the car loan Bazza was still left with an outstanding debt of $21,800.00 and
no car. Bazza was now in financial debt with nothing to show for it. This debt
would be paid of over the next three years, which put Bazza well and truly
‘behind the eight ball’.
This is an example of how ‘must have now’ without any forethought
for the future can impact your life.
The moral of the story is that short-term decisions can have a long-
term detrimental impact. So… before entering any personal loan
really consider ALL the alternative possibilities. Now I ask you to
read about an alternative. I would like to introduce you to Trevor,
who incidentally is also a trolley boy.
Trevor
Trevor had never found school easy. At seven years of age he was
diagnosed as having a mild form of intellectual disability, which wasn’t significant
enough to get extra assistance through the schooling system. Although Trevor
was exceptionally good at mathematics he was a long way behind in al other
aspects of his curriculum. He was kept down a couple of years in the junior
years but managed to struggle through to lower high school until his parents
realised that the constant bullying and intimidation Trevor endured his entire
school life was having a deep influence on his lack of confidence and poor self-
esteem. When Trevor was 15 years old his parents decided to take him out of
school to find a trade more in line with his capabilities and desires. They also
believed that Trevor needed to have ownership of his own destiny so they asked
him what he would like to do with his life. He told them that he wasn’t sure what
job he wanted but was emphatic about being independent and having his own
place to live in.
Understandably, his parents were somewhat anxious about how this would
be achieved given his disability, but gave their commitment to support him
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nevertheless. After a lot of discussion they set led on a plan that would ensure
Trevor’s wish could be achieved but could also provide long-term financial
security when they were no longer able to look after him.
Trevor was shown a simple graph that demonstrated the process by which
he could get from point A to point B (his goal). The first step involved get ing
some form of employment that provided an income. Of course, Trevor was
entitled to a pension with entitlements, but after he was shown the limitations
this placed on him gaining total independence, he decided he would rather find
his own way from the start with the help of his parents, he filled out registration
of interest for employment at workplaces that promoted their support to people
with disabilities.
Eventually, Trevor gained employment as a trolley boy for a large food chain.
He earned $8.45 per hour and worked 20 hours per week. After tax, he took
home $157.35 per week.
He sometimes earned extra income when he worked after hours, public
holidays or weekends.
Trevor paid his parents $50 per week board and spent $15 per week on bus
fares. He took his lunch to work every day and only spent $10 per week on
incidentals. The rest of his income of $82.35 per week was saved. His parents
showed him how to set up a fix-term deposit account for five years and they
organised for the $82.35 of his wages to be direct-debited each week into that
account. The account accrued more interest than a regular bank account. Trevor
could put extra money in at any time but couldn’t touch it for five years (I.e., not
without being financially penalised).
Any extra income Trevor earned from penalty rates, he would keep and use
for the movies or clothes or gifts.
In the first year Trevor had saved $4,117.50 plus an accrued $205.85 in
interest.
Totals: $4,323.35
In the second year Trevor had saved $8,440.85 plus $422.00 in interest.
Totals $8,862.85
In the third year Trevor had saved $12,980 plus $649.00.
Totals: $13,629.00
By this time, the interest on his fix-term account had risen another 1 percent
and so had Trevor’s income. Trevor was now 18 years old and his wage went up
to $13.74 per hour. He had also saved an extra $2,000 from penalty rates, after
his expenses (which he kept in an access account). Trevor decided to keep
$1,000 in his access account and raise the weekly deposit to $180 per week (his
income was $240 less bus and board) to go into his fixed-term account. With the
extra $1,000 he had saved plus the $9,000 per year he was now saving, he had
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accrued a total of $25,046.75 with interest after the fourth year.
After five years Trevor had saved $37,595.55 and was now working 30 hours
per week.
This was a very exciting time for Trevor because he was now only 20 years
of age and was about to buy his own place to live. With his proud parents, he
went to a mortgage broker to find out whether he could get a loan. As Trevor
had a consistent savings record and had been employed for more than three
months with the same company he was a good candidate. Trevor was now
earning a regular income of $465 per week less tax. His annual income was only
$24,000 per annum, but with his savings and first homeowners’ grant of $7,500
he could borrow as much as $200,000. However, Trevor was a young man who
stuck to his routine and didn’t like change. The initial plan involved buying a
small one-bedroom unit close to work and shops, that was relatively cheap to
pay of and that was what he wanted to do. His mum and dad had encouraged
Trevor to start small and work his way up. They had already found a small unit in
an area that was close to work and fitted Trevor’s needs in the lower end of the
market. The unit was on the market for $110,000 but was sold to Trevor for
$104,00.
With the deposit of $45,000 he had a mortgage of $59,000. (If Trevor had
taken a disability support pension this scenario would be quite different no
mat er how much he had saved). His repayments, including body corporate fees
and rates, were $508 per month. Trevor’s weekly budget included $40 per week
for electricity and phone plus $40 per week for rates and body corporate, which
was conveniently set up for the bank to direct-debit.
The only help Trevor did want was the help of a support person (preferably
around his own age), who could direct him with daily tasks and help with
shopping and cooking a couple of times a week. An agency provided that
regular support and guidance in life skills.
Trevor continued to work diligently and followed his budget to the let er, but
never missed an opportunity to enjoy his leisure activities such as seeing a
concert or going to the movies because he planned for the event in advance and
made sure the money would be there by put ing that bit of money away each
week. Furthermore, he strictly followed the plan by paying his mortgage every
week before the monthly payment was due. So fanatical was he about the
payment that his inflexibility would sometimes annoy his carers. What they didn’t
know was that Trevor was being incredibly conscientious with his future.
Trevor continued to work happily as a trolley boy for the next year and paid
every extra amount of money he earned of his mortgage. After the first year, he
had paid an extra $3,000 of but more importantly had reduced the number of
years on the loan by making weekly payments.
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Just after Trevor’s 21st birthday, the unit next door went on the market. The
unit was the same as his had increased in value some $25,000. He told his
parents that he would like to buy that unit and did.
By now, Trevor had gained a $25,000 capital growth on his own unit and paid
more of the loan which meant he had equity of $68,000. Trevor hadn’t saved
much money in the bank, preferring to pay it of his mortgage, but was able to
get another loan to purchase the unit next door. He bought the unit for $130,000
with equity from his first property. His support worker and family helped him get
a tenant to rent the property at $180 per week. This more than covered the
expenses of the mortgage and other incurred costs. Trevor was still only on a
small income of under $27,000 per year but his assets had now grown to
$265,000. Two years later, there was a boom in the property market and the
prices lifted dramatically. Trevor had bought another property by this stage
around the same price as the second one, but after the boom each property was
valued at over $200,000.
AT 24 years of age, Trevor had accrued assets valued at over $600,000 with
a debt of less than $300,000. Furthermore, he was get ing large sums of money
back on his tax due to the deductions he could make on each investment unit
such as maintenance, agents fees, body corporate and rates. Guess what he did
with his tax cheques?
As mentioned before, Trevor was pret y good with mathematics and decided
to dabble in other investments such as stocks and shares. He had some extra
cash to play with but made sure that the amount he used for the stock market
would not af ect his current investment portfolio.
Trevor went alone to various seminars and forums of ered for free by
consultants and stock market gurus. He listened, studied and researched in
books at his local library. Then he began put ing some of that knowledge into
practice by playing the stock market with pretend money. In other words, he
watched the market, recorded amounts he would like to put into certain stock
(without actually purchasing the stock) and waited for a determined period of
time to see what happened. He tallied his losses and successes and found out
what worked for him before using his own money.
Years passed and Trevor remained a trolley man because he loved his job.
By the time he was 30 he had amassed so much property that he’d paid of
three units and was get ing an income from all the rents he was receiving.
Furthermore, his stocks and shares had returned good dividends over the years
and his wealth was now in the millions.
The fact is while the circumstances may change from person to person, the
formula is the same: Plan, work, save and invest.
Remember, Trevor was always on a very low income and continued to have
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a low working income but what he did with that money was make it grow. This is
very achievable and a whole lot easier than you think.
I retell this story to illustrate how some people can have exactly the
same income as others but through a plan and focus can make that
money grow. Just because you don’t have a high income to start with
doesn’t mean you haven’t got the ability to build wealth and in this case
to get your own home.
Bear in mind, there are many people who are on high income, but
through poor money management do not have their own home. This is
generally because they have put a stranglehold on their income with
accumulated bad debt such as luxury vehicles, numerous credit cards,
and an extravagant lifestyle. I use the term ‘stranglehold’, because once
you are in a situation of accumulating debt, owning items that only
depreciate in value with no income return, it is very, very difficult to get
out of it. Essentially, the debt continues to grow and you have to work
harder and harder in order to make payments, with no relief in sight.
Eventually the debt takes a stranglehold. By not allowing you to grow
financially or to borrow for beneficial debt such as a home.
So… as much as the income from employment might be great, the
downside is that without good money management in place, you’re
forced to live in hope that the income is always there, you never get sick,
you don’t get retrenched and that you’ll always get a raise that keeps up
with the mounting debt.
Too much stress for me!
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Body corporates
What is a body corporate?
A body corporate in Australia is likened to a Maori Trust Board in
New Zealand or a strata corporation in other places whereby there is a
management system for the subdivision of a building or land which is
registered with the state. A body corporate can be created in any
subdivision including retail, industrial, residential or commercial. In this
particular instance its primary role is to manage and administer a legal
structure by which unit owners can benefit from common property
together and therefore manage those common areas on the property. This
may mean the maintenance and upkeep of the surrounding gardens,
rubbish disposal, carport, tennis and pool areas.
Incidentally, if you decide to buy into a Body Corporate situation
there is one question you must ask that many do not.
Question: ‘How much money is in the Sinking Fund?’
This is a question that I always ask the real estate agent, but generally
I get the standard response. “I’ll have to get back to you on that one.”
For novice purchasers (and I am assuming a first home owner is
usually a novice), the sinking fund is a portion of money that is used for
maintenance jobs and future projects that will be required as the property
ages. A forecast is usually made by a conveyancer predicting the kind of
work that will be needed in the future and as such the owners (through
their body corporate instalments) contributes to the sinking fund for
work that is likely to be needed down the track.
While you may think the property is affordable at the time of
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purchase, there could be expenses you haven’t considered that probably
weren’t identified at the point of sale.
One of those expenses could arise from the lack of funds in the
‘Sinking Fund’.
>
Here’s what can go wrong in a body corporate situation if there isn’t
sufficient funds in the sinking fund…
A boundary timber fence
In this case the rather large maintenance problem was a timber fence.
The fence surrounds the perimeter of eight units with bordering fence in
between. The units are approximately 18 years old. The problem with
the fence was that apart from being tired in appearance and consequently
reducing resale value, it had wood not in some parts, termites in other
parts and a large number of pickets were missing. The fence also
contributed to its dilapidated appearance. The body corporate committee
decided that it was time to put up a new fence in part because of the
appearance but also because it was becoming a potential liability to
passersby and owners and/or tenants.
Quotes came back at between $15,000 for a new timber fence to
$18,000 for a Colourbond fence. This was the problem, as the sinking
fund only had $6,000 in it. Now, after 18 years of body corporate
payments, you would think that the monies in the fund would have
accrued to a much higher amount? Not so.
The reason was that the owners in the past didn’t want to increase
their sinking fund levies to stay in line with the forecast. They just
wanted to pay the absolute minimum amount, not even keeping up with
the CPI (consumer price index) year after year.
So, when things went wrong or needed fixing, the sinking fund
money was quickly eaten up with things such as pest treatments and
quick-fix maintenance which due to the age of the building was needed
more and more often. Until - the ‘crunch’ came - a large maintenance
problem arrived and there wasn’t enough money in the sinking fund to
cover it.
So what does this mean? It means that the new owners who bought
into the premises in recent years were forced to incur an added expense
called a ‘special levy’ on top of the usual body corporate fees.
In this case the owners were required to pay an extra $600 per quarter
for the next 18 months.
Were they happy?
No they were not!
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But if they had checked the Sinking Fund amount as opposed to the
age of the building, the number of units and the work that was obviously
Goodbye Renting Page 17