Turning home into a rental

Let's start with the obvious - turning your home into a rental is hard.

First, there's the moving out - we all know moving is hard, but add into that wanting to leave the place in perfect condition because any tiny smudges are still your problem.



Then there's sprucing the place up - this can start before you move out but some of it just needs to wait until you're out. Before we left we were able to patch up dodgy light switches, cracked walls and damaged door frames that we were used to but the tenants would definitely not tolerate.

Once we moved out we shelled out for a professional clean, painting, new lawn, fresh bark for the front yard and a new smoke alarm. To make things more exciting the cleaners did such a poor job that the rental agency got them back (at no cost thankfully) to have another go...

For the two months between moving out and having tenants move in I was at the property three or four times a week - watering the lawn, weeding the front yard to keep the curb appeal up, letting tradies in and out, flicking lights on and off to make it look like people lived there...

On the 24th of May the tenants finally moved in, putting an end to two months of stressful back-of-my-mind worry. Finally I had rent coming in.

Three days later I received multiple maintenance requests with an estimated cost of three months worth of rent.

Get yourself a good agent

This is my second rental and I cannot stress enough how good a good agent is. I rarely hear from my first rental property - the rent comes in twice a month, and every six months I receive an inspection report stating the property is in good shape. Each year we renew the lease, I offer a quality of life upgrade and then sink back into obscurity.

So far the agent for my new rental has been excellent. They've sent me multiple updates as the tenants settled in, negotiated a higher rent when the tenants requested pets, and organised quotes for the maintenance requests that came in well under the expected amount. Thanks to their actions I'm comfortable with the tenants (so far) and will be receiving a rent payment before the end of the financial year - after paying off all the repairs and upgrades.

Lock away your keys

Once the property handed over, lock away your keys. The agents were kind enough to send me photos of how the tenants have furnished the property, but now that I am comfortable it's in safe hands I want nothing to do with the property. It's not a passive investment if you are actively involved.

I still have a set of keys to the property if anything untoward happens, but unless there is an emergency, I don't want to think about it.

Paperwork and Necessaries

Disconnecting from a property is a pain in the... here's some tips:

• Switch every correspondence you possibly can to email - it will make it easier next time
• Pay for a mail redirection. It's worth it, especially to avoid paying late fees on bills that went astray
• Switch your insurance, and then get more - you need landlords insurance and home insurance. It cost me a couple of weeks worth of rent, and it's definitely better to be safe than sorry.
•  Call the utility company - turns out gas and electricity companies are useless at disconnecting a service. The idea that you might want to be connected for two properties at once is especially baffling to them. Get them on the phone, because their online services wont cut it.
• Make the agent do it - everything you can possibly lump on the agent, do it. You're paying them for it, so make sure you get your moneys worth.

Automate everything, and enjoy

In hindsight, turning our home into a rental wasn't as much of a chore as expected. The hardest part was moving houses - especially since our new house wasn't quite ready on the only weekend we had free.

Once we had moved, the biggest chore was watering the newly installed lawn. If not for that task, I could have visited the house less often while waiting for a tenant to arrive.

Now that we've moved out, and the tenants have moved in, all payments are being funneled through the agent. They manage repairs, they pay my bills, and they collect my rent. Two a month they pay the rent into my offset account, and my mortgage payments are automatically drawn from there.

At the end of the year, the agents will send me a tax report. I already have a depreciation schedule arranged. All of the heavy lifting is now being done for me, and I just get to sit back and watch the money roll in.

For the 2019/2020 tax year, I'm expecting to bring in enough to cover the mortgage, and most of the bills. By the time of my retirement goal (February 2026) this house alone should be paying for itself, and covering 10-15% of my desired retirement income.

Not bad for moving into a nicer house and a couple of months work.

The Holy Trinity of Financial Success

For most people three primary expenses dominate their expenses - housing, transport and food. 

In my case they take up 37.5%, 0% and 6% of my expenses - in that order. Lower expenses are a key path to Financial Independence, which is why finance bloggers spend so much time talking about food.

By keeping my expenses lower, I'm fast-tracking my path to Financial Independence, and I'm doing it on a pretty cushy lifestyle.

According to MoneySMART our the three biggest expenses at any life stage are Housing, Food and Transport. With the exception of single folks under 35 who are spending a little more on recreation - maybe it all the dating they're doing! Maybe they need some more frugal date ideas like these.

While frugality can be used to target any part of your life, slashing the big expenses will have the best outcomes - and you can do it without compromising your happiness.

Cheap house 

While my housing expenses make up 37.5% of my budget at a whopping $15,000 a year, I also bring in $7,800 a year in 'rent'. I started house shopping before Mr. FIRE and I decided we wanted to live together. I planned to have a room-mate to help offset the costs. 

During the house hunt Mr. FIRE pointed at the maybe he could be my housemate. Since the house (and the mortgage!) are entirely in my name, Mr. FIRE pays me rent. As a result the net expense of my house is only $7,200 a year, or a measly $600 a month.

My house isn't quite this small,
but tiny houses are gorgeous!

This cost includes all the bills, repairs, maintenance and upgrades. 

After crunching the numbers I could have bought a much pricier property (even without Mr. FIRE or another room mate!) but by choosing a smaller (but still super comfortable!) home I slashed my housing costs.

Initially, the plan was to put Mr. FIRE's rent payments directly into my mortgage. With an extra $300 a fortnight, I would have cut my mortgage repayment time in half, and saved $88,000 in interest payments.

Instead, I'm choosing to leverage my mortgage and invest instead. Assuming a 7% return, Mr. FIRE's rent will be worth over $200,000 in fifteen years. I'll still owe $150,000 on my mortgage, but I'll be $50,000 better off. 

While some people might prefer to have no debt, my $200,000 in investments will generate more than my mortgage will be costing - winning! All through choosing a smaller house and getting a 'room mate'.

Cheap food

According to MoneySMART the average young couple are spending $200 a week on food. In contrast, I budget $200 a month and I assume Mr. FIRE spends the same. Hopefully one day I'll convince him to track his spending so I can report this accurately!

While I have a love of frugal foods, baking my own sweets, making homemade snacks, and I have learned some great meat-free dishes to keep the cost down, these fancy tricks aren't the core of why I spend so little.

The main reason my food costs are so low is simple - I cook for myself, and we very rarely go out to eat. In my Epic Food Week post I outlined how I stay on top of my food budget, and keep food waste down.

You can make these are home ridiculously easily!
You just need sauce and cheese. Pineapple is also
a brilliant addition, or sun dried tomatoes.

One of our favourite lazy meals is chicken schnitzels and chips. This is a basic pub meal that normally costs around $18 each. In contrast, we make it at home ourselves for less than $3.50 each. We could do it for even cheaper, but we like to top our schnitzels with sweet chilli sauce and melted cheese, delicious!

Plus we don't have to shout over bad pub music to talk to each other, deal with obnoxious Friday night crowds or find parking. Instead we have cheap delicious food in the comfort of our own home.

If we were to go out once a week for schnitzels (rather than eating at home) we would be spending an extra $15 a week each. This small change is worth $800 a year, or over $11,000 in 10 years. 

Of course, not many people could go out for dinner and only spend $18 each. While $18 meals exist,  it's more common to find meals ranging from $20-$30. Add a beer or wine on top of that and you're looking at another $5-$8. It's not unrealistic to spend $30+ on one meal.

On average Australian's go out to eat 2-3 times a week. By learning to cook delicious food at home and dropping your restaurant trips to once or twice a month you can save almost $300 a month and still enjoy fancy date nights.

With such big savings, it's easy to see why Finance Bloggers talk about food so much!

Cheap transport

The final category in the Holy Trinity of Finances is transport. For most people this means cars. A friend of mine working as a second year teacher has just taken out an $8,000 loan for a new car. In a public school teachers salary this is more than 10% of her pre-tax annual income.

On a 5 year loan, the repayments are $42 a week, which means 4% of her take home pay is taken up by her car loan payments, before she even starts driving.

Add in another $600 a year in insurance, $600 for registration, and $50 a week on petrol, her car is costing almost $6,000 a year. 11% of her take home pay is spent on maintaining a car.

This cost isn't including maintenance, regular services, road trips, and any other little expenses that crop up along the way. I don't say this to shame her, this is the normal way that most people manage their transport.

When couples move in together, they tend to both bring a car to the relationship - as Mr. FIRE and I did. However, after living together for four months, my car looked like this:

I haven't owned a car in two and a half years, I just ride a bike everywhere instead. When Mr FIRE and I moved in together I bought a property that was half an hour ride from work, and fifteen minutes from roller derby training. On occasion I need to go further afield, and either I borrow Mr. FIRE's car or get a lift with a friend.

Over two and a half years, my transport costs look something like this:

• First Bike : $600
• Bike accessories : $300 (lights, panniers and a rack)
• Second bike : $550 (Some jerk stole my bike!)
• Replacement bike accessories : $150
• Replacement bike lights ($100 - seriously, my lights were stolen a month after I bought them)
• Bike service : $80
• Various at home maintenance parts : $100
• Total : $1880 in two and a half years - $14 a week

Biking everywhere costs me $14 a week. If my bike hadn't been stolen, it would be a measly $10 a week. In contrast my teacher-friend with her $8,000 car loan is spending ten times as much, at $115 a week!

Let's consider this cost over ten years. Assuming that I have to replace my bike every 3 years for whatever reasons (thieves are the worst!) I'll continue spending $14 a week. In ten years, I'll spend $7,280.

In the same time frame, assuming that my friend replaces her car in five years, and therefore her payments remain constant, she will spend $59,800!!

Considered another way - I save $100 a week compared to her, if I invest this savings, I'll have $75,000 in ten years.

Spend less, cycle more, retire early to cheese and wine!

Or considered yet another way, I like to look at how much I need invested to cover the cost with passive income. To cover the $14 a week cost of owning a bike, I need to invest $18,200. However to cover the $115 a week of car ownership, I would need to invest almost $150,000!

The Holy Trinity of Financial Success

Put together, food, housing and transport form the three biggest expense of our lives. Following the normal path you can easily spend $40,000 a year on these three main expenses. With a few lifestyle changes like a smaller home with a roommate, cooking great food at home (maybe even eating some meatless meals)  and swapping out car trips for walking, or riding, you can save thousands of dollars a year.

Plus, with a smaller house, there is less to clean.

For the love of mortgages

“Word nerds will notice an eerie root word in ‘mortgage’ — ‘mort,’ or ‘death ... The term comes from Old French, and Latin before that, to literally mean ‘death pledge.'” ^ref and yet, despite this roughly 70% of Australians are living with a mortgage.^ref

In the personal finance sphere destroying debt is a common goal. Bloggers celebrate living debt free, and lament every dollar lost to paying back loans. Every dollar in interest repayments is a dollar out of your pocket.

There's more to it than that though, which is why I'm not actively paying down my mortgage.

The house buying story

In 2014 my father passed away. My brother had moved out of the family home a couple of years earlier, leaving just me and my mother in the family home. A couple of months later in June I scored my first proper adult job, 9 till 5 office work. After a few weeks I learned three things about myself - No way in hell was I working in an office till my 60's, winter makes me cranky and while I love my mother I cannot live with her. At least, not without any other people as a buffer.

While I was reading Early Retirement blogs, I hadn't yet stumbled across the concepts of House Hacking and Rent-vesting. I knew I had the money to buy a house rather than rent so I could bring my pets along, and I knew not to buy outside my means.

Fast-forward three years and I own a comfy, dated 2 bedroom home that desperately needs a renovation eventually. I bought this property entirely in my own name, for $60k less than the banks said I could borrow, and my partner pays 'rent' (which all goes straight to the mortgage), While the decor is horrendously outdated it's nothing that desperately needs fixing. We could DIY some renovations and make the value of the property soar by taking it out of the 80s and into the current decade.

The cost of a house

As it stands, we should be poster children for paying down our mortgage quickly. I bought for less than I could afford without accounting for Mr. FIREs contributions, but here's the tricky part I don't want to waste money paying my mortgage early. (tweet this).

I currently invest $500 - $600 a month while I'm trying to hit my $20,000 cash savings goal. If I threw that money at my mortgages instead I could save $107,000 and knock almost 10 years off the life of the loan. As I've posted before, shortening the life of your loan is a really good thing.

There is something even better though. Something worth continuing my death pledge with the big scary bank. Instead of looking at your debts in horror, look at your net worth. Your net worth is simply the value of your assets (cash, stocks, house, etc.) minus your debts (mortgage, credit cards, those kind of things).

You can grow your net worth in two ways - by having more assets, or less debts.

The cool thing about assets though - once you've set them up they grow themselves! If you have $1,000 invested, next year it's going to be $1,070 (assuming a 7% return). Through compounding it grows even faster each year. Paying down your mortgages is great because you pay less in interest every year, but it doesn't compound in the same way that your investments do (although if you aren't paying your loans compounding will very quickly run against you!)

Maths and graphs

Let's say, hypothetically, that I owe $300,000 on a 4% loan (I actually owe a bit more than this across two properties, but lets keep things simple, the rate is right). Over a 30 year loan it costs $515,610 once you factor in the interest, and assuming that you invest and save nothing else and your property value doesn't change, you end up with a net worth of zero.

How utterly thrilling. After 30 years you are worthless, break out the champagne! Well, you have the equity in your house, but you can't use that to buy champagne, or put food on the table so I've left it out of this argument. In every case your equity would be the same, so to simplify maths lets just ignore it.

Trying another tact, let's throw a bit more money at this mortgage. A 30 year, $300,000 loan needs $1,432.25 a month in repayments, but for a nice round number let's make it $2,000. Your mortgage will be paid off in just under 18 years, and you decide now is a good time to invest. Rather than taking that $2,000 a month and living the high life, you just shift it into a nice safe index fund investment with 7% annual returns. Then your graph looks more like this orange line:

Amazing! After 30 years this time you're worth almost half a million! For an extra $570 a month from day one, you've managed to squirrel away a very tidy sum, in fact your investment portfolio is worth 50% more than you bought your house for!

In scenario one you spent $515,610 over 30 years to be worthless. In scenario two you've output $720,000 on paying your mortgage and investing and now you are worth $488,500. That will definitely buy you a bottle of champagne, and a waterfall to drink it from.

But you can still do better without spending a cent more. Your mortgage is costing you 4% per annum and shares are returning 7%. Each year you aren't investing you are missing out on that 3% difference. So instead, you choose to invest from day one. You make the minimum repayments on your mortgage ($1,432.25) and invest the rest ($567.75). Then your graph looks like this grey line:

See that line surging towards the heavens? That's you with no debt and an investment portfolio worth almost $700,000. In fact your investments are so huge that you can safely drawn down $2,300 every month. You are earning more from your investments than you've been putting towards them. Break out the champagne! After 30 years you own your home completely, no more mortgage, no rent and your investments are huge. Many people have retired on less, pat yourself on the back! If you do your maths properly and don't buy into the retirement income myth, you might just be free from the rat race.

Surely you can't be serious?

So why is this possible? Interest rates. Purely and simply, interest rates on mortgages at the moment are crazy low. I'm paying a mere 4% on my mortgages, whereas the share market has been returning an average 7% a year since we started tracking it. While a 3% difference might not sound like much, after 30 years it makes a massive difference.

Many people hate the idea of paying a mortgage and would never ever go back into debt. Others carry a mortgage while holding massive investments because they know that the returns on their investments will well outstrip the costs of the mortgage.

Me? I love my mortgage. I've been given 30 years to pay back this debt, and my lender isn't hovering over my shoulder demanding the money now, now, now! They know that if I pay it back early they lose out on making money from me. Well I lose out too, on all those years of compound interest.

I could be paying back the banks, or I could be setting aside money for my future self. Which would you prefer?

Spend you dollars, on more dollars!

Let's do some maths, baby! I'm going to talk about money, using your money to 'buy' more money, and investing. Plus I get to play with charts and graphs.

We're going to talk about interest, starting with the normal boring kind, then the compounding kind. Most people encounter interest in two ways - banks will pay you for leaving your money in an account. They will also charge you interest on loans.


For example, my bank pays me 3.05% per year. This is calculated daily and paid monthly. So every day I leave $1,000 in the account, they owe me 8cents ($1,000 x 3.05% = $30.50 a year. Divided by 365 = 8cents a day). Once a month they add up what they owe me and deposit into my account (roughly $2.55).

Inversely, my home loan runs at 4.14% p/a. So for every $1,000 I have borrowed, I pay the bank 11cents a day, or $3.46 per month. This is how banks make money, that $1,000 you have sitting in a savings account isn't in a vault somewhere guarded by dragons and goblins. The bank has given it to someone else - they pay you 8cents a day, charge the other guy 11cents and gleefully collect that 3cents for themselves. They aren't doing it in tiny $1,000 amounts, they're working in billions and trillions.

So obviously you win by taking that $1,000 that you have in savings and paying down what you owe on the loan. But when it's only $0.91 a month difference it's easy to see why you wouldn't. It doesn't cost you that much. But on a 30-year, $300,000 loan you end up paying almost $225,000 in interest.

If you're able to find a little extra money and push it into your mortgage, then you can bring those numbers down. (Related post: 3 ways to shorten your mortgage right now)

Okay, that's the unpleasant part about mortgages and costing you money. Let's look at the fun part of Compound Interest working for you.

Compound interest is more fun than regular interest. In the above scenario you only make $2.55 a month from your $1,000 savings. Which isn't even enough for a coffee.When you look at it over time, you probably imagine this graph.

Let's face it that graph isn't very inspiring. If you leave your money alone in a 'high interest' account for 10 years, you get less than $300. Woop de doo. Except that isn't 100% correct.

If you were to withdraw the $2.55 you were paid every month, this is exactly what would happen. But if you leave the $2.55 in the account, it also earns interest, a whole 0.6 cents in a month. Then next month you earn $2.55 point oh six cents. It's only a little tiny bit more, but each month it's a little tiny bit more than the last month. When you include compound interest you get a graph that looks like this.

So you come out $40 further ahead than you thought you would be. Doesn't sound like much, but with compound interest you have 3% more in ten years. Again, not a huge number, but it's free money. Then if you look at it over a longer period you also get this...

There are a few things about this chart that give me a nerdy little thrill. One is that in 30 years, you can get $1,343 of free money with compound interest, more than double what you put aside. Compounding gets you 26% more than if you withdrew your money every month. And that red line isn't straight, it's curving. Every month you don't touch that money, the amount of interest you are paid goes up. In the first month you were making $2.55. By the 30 year mark you are making $5.60 a month. And each month this amount is increasing a noticeable amount, $5.62 at 30 years and one month, then $5.63, then $5.64.

Admittedly these are tiny numbers. You can make it more exciting by moving the decimal point to the right, and working with $10,000 and $23.70 per month, but I thought having $1,000 in savings was a more realistic starting point.

I think most people miss out on compound interest, because we save small amounts of money for a short time. In the grand scheme of things, even saving for a house is a small amount in a short time, say $60k in 4 years. Starting from zero you need to save $1,250 per month. If you consider compound interest you need to save $1,174 per month, and you'll get $3,653 of free money from interest.

You're still doing the heavy lifting yourself and for many people buying a house will be their biggest purchase. For other savings goals like travel or a new car compound interest doesn't play in because the saving time is much shorter.

However, if you are saving for retirement or financial independence then compound interest becomes your best friend. Putting aside $100 a week for one year equals $5,200 + $73 interest. Over 25 years $100 a week becomes $130,000 + $64,626 interest. Again, the graph is a curve. And all this is assuming a measly 3.05% return in a high interest bank account like ING Direct (currently offering $100 sign up bonus with the code EBB062).

To really kick off your investments, have a look at RateSetter (returns over 8% with Peer-to-Peer lending) or Acorns (my personal returns are nearing 10%, long term I expect more like 7%)

If you made it this far, go play with the MoneySmart calculators, particularly the Savings Calculator and Compound Interest Calculator. Using these calculators I can see that at the 16 year mark and 8% investment like RateSetter will have earned more through interest that your have contributed. That is the power of compound interest.

(Related post: Where's my million? - includes a fancy calculator)

Boring disclaimer: If you sign up for ING I also get $100 for introducing you. They are a fantastic bank and I have never been charged a single fee. They also cover the cost of ATM withdrawals, and give you a little money back if you take out more than $200 cash during an EFTPOS transaction. I highly recommend them, not just because they are offering me a little cash as well.

3 ways to shorten your mortgage right now

Buying a house is exciting. Moving in is exhausting and exciting. Decorating is frustrating and exciting. Renovating is terrifying and exciting. Realising you can walk naked around your house is liberating and exci-.. let's leave that one.

You know what's not exciting, staring down that 30 year ball and chain of your mortgage and the insane amount of interest your are going to pay. Here's three ways to knock years and tens of thousands off your mortgage.

But before we start...

Firstly, let's look at the word mortgage, from a couple of latin words it's roughly translates to Death Pledge. Okay it might not be as dramatic as that, but when you took out a mortgage, you took out a 'til death do us part' pledge with your bank. On a 30 year $300,000 loan with a 4% interest rate, you have just promised to not only pay back that $300,000, but another $215,000 in interest.

For the sake of this article I'm going to assume you are already paying your mortgage weekly, rather than monthly. If not, let me break it down really quickly.

12 monthly payments of $1,400 equals $16,800 a year.

If you make fortnightly payments you need to put in half that each fortnight. Except that are 26 fortnights in a year, which means you end up making an extra months worth of repayments. 26 fortnightly payments of $700 equals $18,200 putting you ahead $1,400.

If you make weekly payments you need to put in a quarter of your monthly payment each week. There are 52 weeks in a year, which works out the same as fortnightly payments, but because you sneak the money in earlier you save a little bit more interest over 30 years it really adds up!

The average earning for an Australian in 2016 $78,000. Your mortgage is an agreement to pay six and a half years of your wages to the bank. Egads! Sure $300,000 is for the house, and only $215,000 is the banks profit but still, just imagine working six and a half years and not seeing a cent of it. Every extra dollar you throw towards your mortgage reduces the length of the mortgage, and the amount you pay to the banks so start now!

Sacrifice something small

No need to start sketching up a pentagram, you can knock years off your mortgage with small lifestyle sacrifices and no blood rites. Ditch your $25 a week gym membership and head outside into the sunshine. Not only will you soak up some extra vitamin D, putting that $25 into a mortgage will knock almost 4 years and more than $30,000 off your mortgage.

Call your bank

Yes, I know, it's uncomfortable and awkward, just do it. Check out the current interest rate market and call your bank every three to six months. Let them know that you've been looking online and can see that xyz bank is offering significantly lower rates and you're considering switching. Most banks empower their staff to drop your interest rate on the spot. A drop of 0.05% can knock $2 a week off your repayments. Keep paying at the higher rate and you can knock 4 months and close to $3,000 of your death pledge. All for an uncomfortable five minute phone call. If I told you calling your senile racist auntie once every few months would net you $3,000 would you do it?

Hustle with your house

See, the thing about houses is that people like to live in them. I assume that's why you bought yours anyway. If it happens to be a bit bigger than you and yours need perhaps you have a junk room, or a big back yard that you could put to use?

Renting out your junk room to a lodger could net you $100 a week, $85,000 off your mortgage, and almost 11 years back.

Don't want a stranger underfoot all the time? Rent the room on Airbnb for weekends, even with a few vacant weekends you should be able to pull in an average $30 a week, $35,000 and 4 and a half years.

Don't like people? Are you pro-dog? Pet sitters have been known to charge up to $35 a night. You'll mostly have visitors over weekends, but on average you could be looking at $50+ a week, $53,000 and six years. 

Don't like animals? Consider renting out your junk room as storage space for strangers with too much money. Spacer.com works like Airbnb, but instead of people, you rent out your space to stuff. According to their website you could pull down $4,000 a year! That's $75 a week and knocks $71,000 and 9 years off your mortgage. For putting peoples stuff in a corner.

Conclusion

Look at it this way, increasing your payments by a measly $4 (1%) knocks 8 months off your mortgage and saves over $5,000. Any of the strategies above is far better than that and putting all of them together could knock $100,000 and twelve years off your mortgage. Okay they're a little uncomfortable and take a little leg work, but can you really pass up $100,000?

Not paying a mortgage and want to save that money? Check out my calculator to see what your new savings / income stream could be work after ten years.

Where should I put a windfall? Tell me what you think

I have an unexpected 'windfall' coming my way. I purchased $5,000 worth of bonds that were listed to last until 2074. Given the current low interest rates a lot of companies have been paying out these bonds and opening new ones with much lower interest rates. It's good business for them, but it means they're closing my investment and I'm about to have $5,000 in my pocket. I have some ideas what I want to do with it, but I'd love to hear your opinion.

Option 0: A neeeeeeeeeeeeeeeew car!

Hahaha, kidding. I had to throw this in here. There is no way the money is getting spent on anything but buying back my free time. 

Option 1: Put it towards the savings goal

This is the obvious option, I've got a goal to reach $20,000 in savings by the first of July (check my last update for February) but honestly that feels like cheating. The goal was to save $20,000, not to pull it out of my investments and put it into my savings account.

Option 2: Pay down some of the mortgage

This is an oldie but a goodie. Unexpected money can always be put towards mortgages, and the way mine are set up any excess payments can be withdrawn later free of charge. But it's not the best use of the money, the bonds were earning 5.05% and the mortgage is only costing me 3.99%. It'd be a net loss of 1% interest each year.

Option 3: Invest! But where?

This is where I'm headed! Invest! But where? The money is coming out of bonds with one of the Big 4 banks. Should I put it back into the same place, or somewhere different? The bank is offering reinvestment in their new bonds, but they pay about the same as my mortgage is charging.

I could drop the money into my Acorns account and dramatically decrease the percentage I'm paying in admin fees. My highest performing investment is in peer-to-peer lending (review to come!) but I have more than 20% of my non-real estate investment there already and I think that might be a bit risky, even if the 9.5%+ return is lovely.

I could also use it to balance my Vanguard portfolio, or I could dig in a bit more research and purchase some strong performing dividends shares, or another set of bonds.

If I get the time, I'd love to think about this more. But I'm also super aware of Warren Buffets advice that boils down to "If you don't know what you're doing, toss it in a low cost index fund like Vanguard and leave it there forever".

According to the stats on this blog close to 100 people drop by every day, most of you come from other personal finance blogs. I'd love to hear what you think (and verify that my stats aren't entirely robots!). The money hits my account on the 31st of March - what should I do with it?

Sudden (tiny) windfalls

I just scored a couple of tiny leg-ups towards my $20,000 by July goal. My tax variation went through, and my interest rate on my loan has dropped meaning my required repayments have also dropped. Naturally I'm headed straight to the shops for new shoes!

Ahaha, yeah, definitely joking there. Although I have a rather impressive shoe collection (mostly Converse) and no idea how I ended up with 20+ shoes I would never get excited about buying shoes. Last time I had to replace my shoes I found the exact same pair I had just worn through for $12, so I bought two pairs. That's how I feel about shoes.

But I did hit a couple of windfalls, although I'm using the term quite loosely because I actually had to go chasing these wins. Unlike the Latte Equation, these are ongoing wins from a once off piece of work.

Tax variation

Let me open with the fact that I do not recommend this unless you like swearing at online forms, doing everything twice and using Internet Explorer. This process was a giant pain, but since I've owned my rental for almost six years now I was able to reference old tax returns while working through it. I had a stretch without tenants this year (about 2 months) and I shelled out close to ten grand on renovations and repair work that the previous tenants never bothered to mention. Minor things like the sliding door not rolling smoothly, or the fan being old and rattly. The sort of things that could have been maintained over six years for a small fee that all happened at once. Urgh.

In short I knew my income was down this year, and my expenses up. Rather than waiting for my tax return and getting a lump sum back I decided to fight with some horrendously unfriendly and out-dated forms and request a lower withholding for the year. I had to submit some invoices to confirm I wasn't making up a $10,000 spend, and they lowered my taxable income by almost $8,000.

It's not more money in my pocket, but it means I get pay less tax now and I'll have a smaller return at the end of the year. Since my goal is to have $20,000 before July, I couldn't wait for my tax return.

4 hours work, return $150 a fortnight

Changed to home loan rate

Is your mortgage on a variable interest rate? Stop reading. Right now. Unless it's outside of business hours. Google two or three of the big name banks in your area and have a look at their home loan rates. If it's lower than yours call your bank right now and read this line out loud:

"Hi, I've been looking around online and I can see that Bank Name is offering home loans for interest rate. My current loan with you is higher than that. Anything you can do to help me out?"

Nine times out of ten the person on the phone is empowered to drop your home loan rate right then and there. I strongly recommend repeating this exercise every six months. Banks make an absolute killing on mortgages, it is their number one income stream. They will squeeze you for every dollar they can, so make sure you squeeze back.

I recently had my mortgage rate dropped by .3% which means my minimum repayments have dropped as well. I just received a letter saying they are going to vary their automatic withdrawals from $493 to $477. One less than 15 minute phone call, $16 a fortnight back to me.

If I didn't have savings goals I would probably throw that money straight back at the mortgage. Or into a different investment with a higher return. But as it stands my goal is $5k in a savings account (Done in my December Update) and $15k in my offset account. Overpaying my mortgage or holding the money in the offset account will have the same affect on the amount of interest I'm paying, so I'll take this tiny win and push it towards my savings goal.

15 minutes work, $16 a fortnight

Sudden (tiny) windfalls

I just scored a couple of tiny leg-ups towards my $20,000 by July goal. My tax variation went through, and my interest rate on my loan has dropped meaning my required repayments have also dropped. Naturally I'm headed straight to the shops for new shoes!