Alternative Money: The Wooden Dollar.

“Sometimes, money. Just. Stops” said Warren Buffet, billionaire investor, in May at the Berkshire Hathaway Annual Shareholders meeting.   The phrase “money stopping” refers to ceasing of trading of money for goods and services between people.  Effectively the flow of money dries up, much like water in a drought.  This is what happens in recessions and depressions of the economy.   Money.  Just.  Stops.  

This year, nations around the world have been plunged into recession due to the pandemic — but recessions hit some cities and regions harder than others (Day and Jenner 2020).  In countries like Australia and the United States, small towns can be most affected (Lawrence 1982).  I should know, I grew up in a small country town in Australia during the 1990s recession. 

With many people out of work, residents stop spending — putting pressure on local businesses to close (Fishback, Haines, and Kantor 2007 cited in Fishback 2012).  Local businesses are crucial for employment in a small town, especially if the town is relatively isolated (Lawrence 1982).  Consumer spending is a vital part of our economy, typically making up about 55% of the total economy in Australia and 60% in the United States (CEIC Data 2020).  If consumers don’t spend — businesses close — end of story. 

During the Great Depression the federal and state governments in Australia and the US offered relief funds (Fishback 2012), but relief can be difficult for some local governments to access.  What if there was something we could do to prevent “money stopping”?  In the onset of a recession or depression — could a town just print its own money?

During the Great Depression of the 1930s, one town in the United States came up with a novel solution to this problem.  That town was Tenino, Washington: estimated population 1865 (United States Census Bureau 2020).  Small towns like Tenino cannot issue federal currency, that is they can’t issue United States Dollars  —  but there is nothing legally stopping them from issuing their own local currency — and so, in 1931 the “Wooden Dollar” was born. 

Photo: One printed Tenino “wooden” W$25 dollars exchangeable for $25 US (City of Tenino).

Tenino is a relatively isolated town in between Portland and Seattle.  According to the Mayor Wayne Fournier (interviewed on Bloomberg’s Odd Lots 2020) when the 2020 pandemic hit, for about 3 months, people, cars, and traffic disappeared from the local streets.  Shops in town closed their doors, and there was almost no economic activity in the town other than the local supermarket.

Ingeniously, the Mayor decided to bring back the wooden dollar to inject a flow of money into to the town.  Wooden dollars (W$) were circulated by the local government, who gave W$300 to each negatively affected town resident.  Wooden dollars can only be used as currency in participating local businesses, so the benefit of the extra cash stays in the town.  If the local government had just given US $300 to citizens, much of it might have been spent online, and not helped the local economy.  Restrictions on the Tenino dollar mean it can’t be used to pay for alcohol, gambling, cannabis, or lottery tickets. 

The residents of Tenino have taken up the wooden dollar enthusiastically, some Tenino businesses offer twice as many goods for Tenino dollars as they would for US dollars (Fournier 2020).  The mayor believes there may be a future for Tenino dollars in the town post COVID-19 (Fournier 2020).  The city of Tenino is liable for the wooden dollars it prints; however, it will not pay more than US $1 for a wooden dollar (Fournier 2020).    A peg on the exchange rate of the Tenino dollar for US dollars limits the liability and risk on the local authority.

Photo: One printed Tenino “wooden” W$25 dollars exchangeable for $25 US (City of Tenino).

The wooden dollars were printed using the original printing machine from the 1890s, used to print the first wooden dollars in the 1930s (Fournier 2020).  The press had been housed at a local museum for almost a century (Fournier 2020). 

Since the Great depression various forms of wooden dollar have been used around the world both in good times such as the ‘Ithaca Hour’ in New York (Meckley 2015, Rietz 2019), and in times of crisis, such as Argentina in 2001 – 2002 (Colacelli and Blackburn 2009).  My hometown of Maleny created its own local currency called ‘Bunyas’ in 1987.  Community Exchange System (2020) stated there are a total of 38 local exchange groups operating in Australia.  Exchange trading systems are particularly useful for people who are unemployed, underemployed, self-employed, or retired (Sunshine Coast LETS n.d.). 

Australian politician Peter Baldwin, Keating Government Social Security minister, encouraged the use of exchange systems like ‘wooden’ dollars because they allow unemployed people to borrow to make purchases or to start their own businesses (Wilson 2015).  In Argentina alternative currency use was found to increase monthly income by over 15% (Colacelli and Blackburn 2009).  Just like conventional income, taxes apply to income earned through exchange systems (Australian Taxation Office 2020).  As Milton Friedman says, there is no such thing as a free lunch.

References

Australian Taxation Office. 2020. “Bartering and trade exchanges”. Accessed 8 September 2020. https://www.ato.gov.au/Business/GST/In-detail/Rules-for-specific-transactions/Barter-and-trade-exchanges/

CEIC Data. 2020. Australia Private Consumption: % of GDP 1959 – 2020 | Quarterly | % | CEIC Data . Accessed November 17, 2020. https://www.ceicdata.com/en/indicator/australia/private-consumption–of-nominal-gdp.

–  . 2020. United States Private Consumption: % of GDP 1947 – 2020 | Quarterly | % | CEIC Data . Accessed November 17, 2020. https://www.ceicdata.com/en/indicator/united-states/private-consumption–of-nominal-gdp.

Colacelli, Mariana, and David J.H. Blackburn. 2009. “Secondary currency:Anempiricalanalysis.” Journal of Monetary Economics 56 (3): 295-308.

Day, Iris, and Keaton Jenner. 2020. Labour Market Persistence from Recessions. September 17. Accessed November 17, 2020. https://www.rba.gov.au/publications/bulletin/2020/sep/labour-market-persistence-from-recessions.html.

Fishback, Price V. 2012. “Relief During the Great Depression in Australia and America.” Australian Economic History Review 52 (3): 221 – 249.

Fournier, Wayne, interview by Joe Weisenthal and Tracey Alloway. 2020. “Meet The Mayor Who Printed His Own Currency To Fight The Virus.” Odd Lots. Bloomberg Markets, (20 July).

Lawrence, Geoffrey. 1982. “Rural unemployment in Australia: orthodox and radical perspectives.” Journal of Australian Political Economy 11 : 59-72.

Meckley, Faith. 2015. “New local currency offers Ithaca another alternative” The Ithacan, April 15, 2015. Accessed 18 November 2020. https://theithacan.org/news/new-local-currency-offers-ithaca-another-alternative-currency/.

Rietz, Justin. 2019. “Secondary currency acceptance: Experimental evidence with a dual currency search model.” Journal of Economic Behavior and Organization 166: 403–431.

Sunshine Coast LETS. What is LETS. Accessed September 8, 2020. https://sunshinecoastlets.weebly.com/what-is-lets.html.

United States Census Bureau. 2020. “City and Town Population Totals: 2010-2019, Incorporated Places: 2010 to 2019.” United States Census Bureau. May 7. Accessed November 17, 2020. https://www.census.gov/data/tables/time-series/demo/popest/2010s-total-cities-and-towns.html.

Wilson, David. 2015. “A cashless economy? Where’s the catch? .” The Sydney Morning Herald, July 30, 2015. Accessed 3 September 2020. https://www.smh.com.au/money/saving/a-cashless-economy-wheres-the-catch-20150730-gingrc.html.

My experience investing

I’ve had an interesting life with many twists and turns, but I have always been curious about the world and asked questions.  I am passionate about building a better world for all Australians and for a long time seen that this would be best achieved through investment.  I studied three years of civil engineering, had a baby, then went back and  studied science while working and being a parent.  Now I’m completing a Master of Economics, and have never felt it more possible, that in the not so distant future I might help shape and implement ideas make positive change in the world.

 

I have long believed that to grow a strong economy for future generations, to continue to be one of the richest nations per capita in the world, vision of the future and direction for investment is needed.  Future wealth needs to come from the industries and infrastructure that we invest in to make Australia strong, so we have a future — and this is what I am passionate about.

 

I am excited about some of the amazing new industries like renewable energy and solar tech, carbon capture tech, and quantum computing, that could bring huge returns for Australia in the future.  I am passionate about getting the right infrastructure and housing mix, to support our industry, people and cities.  To foster creativity and build future wealth.

 

I love to read about companies, follow markets, and macroeconomic news (read: world, national, business and political current events).  I invest my own money and although I know I have made mistakes, overall, I have made money on my investments and I have learned so much by actually investing some of my own savings.  I am learning about building a resilient and diverse portfolio.  At this point in history, there have been so many challenges. Just in the last few years we have had the US-Sino Trade War, Escalations of tensions around the world, between Russia and Europe, The Middle East, and South America.  There have been wild fires that ravaged the globe, the omnipresent threat of climate change, the coronavirus pandemic, and now internal tensions over police and state treatment of African American people in the United States, that have led to solidarity protests echoed around the world just this last week.

I had thought about investing for several years, probably I first thought about doing it when I was in year 11 or 12 studying economics at high school, but back then I had no idea really how to even make an investment.  There was a stock market game my high school economics teacher, Mr Young, tried to get me involved with but I felt quite overwhelmed by the task with out any additional guidance, even though it wasn’t real money, the whole idea stressed me out!  Finally after many years debating with myself, I took the plunge, the market had been strong for several years, I had watched stocks have returns wildly above what I was earning in bank savings account interest.  I felt I should at least try the stock market, now I had educated my self a little.  The week after I made my first ever investment in the Australian Stock Exchange (ASX), was the last week of September 2018…you might not even remember now, but it was just before the stock market suddenly dived due to trade tensions and tariffs put up between the US and China.  I lost 6 – 10 % in a couple of weeks and was pulling my hair out trying to salvage the situation.  I was thrown into the deep end and I had to pull out everything I had learned to pull my investments out of dire straits.

 

It was both exhilarating and terrifying.  I used everything I knew, listened to the best advice and managed to make back everything I had lost and more.  At one point I was up about 30% but I had to learn the hard lesson of not locking in my gains when the market began to falter.  Although I was ahead, I had losses that diminished my possible gains. During the crisis this year I had learned something from experience and pulled most of my investments as things got ugly, in hindsight I would have pulled them much sooner and done a few things differently.  Presently, my return since I started investing sits approximately 8.12% above XAO, and 8.37% above XJO. If I had invested in an ASX-200 ETF tracker, I would today be 8.37% worse off.  I am proud I have achieved that with the little experience I had going in.

Looking back, we would laugh to think I thought 6– 10 % was a big loss!  The ASX with most markets around the world, fell almost 40 % this year between 24 February and 23 March this year, after it became apparent that coronavirus Covid-19 was unstoppable and would turn into a worldwide pandemic.  The Australian stock market All Ordinaries fell from a peak of around 7230.445 on Monday 24 February, to a low of around 4564.129 by Monday 23 March (Figure 1). This was a loss of 36.89%.  Those numbers ‘7230.445’ and ‘4564.129’ are the index numbers, indicating the relative ‘height’ of the stock market as a total weighted average of al listed companies.

Figure: AXO Australian Stock Market Pandemic Dec 2019 – June 2020, source:  ASX charts (1)

To calculate this stock market loss mathematically, first we divide the ‘new low’ by the ‘old high’ or (4564.129/7230.445) = 0.6312, meaning the market was at 63.12% of its previous height.  This is basically like buying a glorious gelato in a cone, your favourite flavour too,  walking outside the shop, and being immediately bumped by someone passing you in the street.  The gelato scoop falling on the pavement, leaving you holding just the cone.  Well, over those few weeks, the world was left just holding their respective cones, gobsmacked.  Gelato splattered all over the footpath.  The loss is found by taking the size of the ‘gelato cone’ away from the original size of the gelato scoop and the cone, which has been normalised in this case to ‘one’ , so the amount of gelato lost is equal to ‘One gelato minus the Gelato Cone’ = 1 – 0.6312 = 0.3687 =  36.89%.

As you can see in the chart the market has partially recovered from it’s lows, but it is a very uncertain time, and anything can happen, it’s not necessarily a real recovery.  We could be in for a prolonged downturn that could stretch for years, and we just don’t quite see it at this stage.  It took a few years to reach market bottoms in the past after stock crashes, after 2008 and 1929.  It’s likely I think this will again happen this time.  We have seen so many events together that some people wouldn’t see in their entire lifetime.  Or at least once in a lifetime events.  It’s a time to come together (virtually or over the phone of course) with friends and love ones.  Take care of yourself, your family, friends, and show care about your community.  Humans are communal creatures, and we can get through this if we pull together and work in unison, rather than letting our differences divide us.

 

1. ASX Charts, URL: https://www.asx.com.au/prices/charting/index.html?code=XAO&compareCode=&chartType=line&priceMovingAverage1=0&priceMovingAverage2=0&volumeIndicator=Bar&volumeMovingAverage=0&timeframe=, date viewed 7 June, 2020.

How are term deposit and credit card interest calculated? Simple vs Compound Interest

Simple interest is the most basic type of interest.  Simple interest is just the interest rate percentage times the original capital (see diagram below).  Some term deposit accounts are calculated using simple interest. In term deposit accounts the interest is usually calculated at the end of each year.

Under a simple interest loan, if I borrow $1 and the interest rate is 10% p.a. then I will need to repay $1.10 after 1 year.

Total repayment = Principle + Interest

=  $1 + ($1 x 10%)

= $1.10

 

Some term deposit interest rates are instead calculated using compound interest. This also goes for credit card interest, personal and home loan interest or even the interest you get on most regular savings bank accounts. The interest on these types of loans and savings is calculated using compound interest. That is interest that is compounded. With compound interest, you pay interest on not just the principle but on interest you haven’t paid off yet from the previous times interest was calculated.

Another way of saying compounded is two things added together or something made bigger. This means that when compounded the interest is made bigger.

Compound interest is calculated more often than simple interest, sometimes daily. In principle it could be calculated every second! A compounded interest rate will generally be higher than the equivalent quoted interest rate using simple interest. Sometimes a lot higher. Banks usually quote the base interest rate and not the total compounded rate which you actually pay.

I am going to use “powers” in this definition. A power is simply when a number is multiplied by itself by the number of times specified in the power. For example 2 to the power of 3, which can be written as 2 x 2 x 2 (= 8) or in short hand as 2^3, which is the same as 2 x 2 = 4 and then that answer, 4 x 2 = 8. Technically this shorthand is only used in software packages like Microsoft Excel, the formal way to write a power is by writing a small superscript of the “power” to the top right hand side of the the number you are taking to the power, as you can see in the figure drawn below.  When powers are used numbers can get big pretty fast – so when interest is calculated this way it can have quite an effect on the amount you end up paying on your debt or receiving on your savings.

If I borrow $1, and the interest rate is 10% p.a. but this time compounded daily. In the formula for compound interest (see diagram bellow), the interest rate, r = 10% or 0.1, the number of times compounded in the year or period, n = 365 days, the years or period, m = 1 year.

In the formula, n and m can refer to days, years, months, quarters, half-years or really any break down of a year. Interest rate, r is always a percentage.

At the end of one year I now have to pay $1.105.

Total repayment = ( 1 + 0.1/365 ) ^ (365 x 1)

= 1.00027397 ^ (365 x 1)

= $ 1.105

By compounding every day, the 10% interest rate is actually higher than 10% after 1 year. I am actually paying 10.5% interest.

This means the effective annual interest rate of 10% p.a compounded daily, is 10.5%.

If you have a bank account that pays interest, you want it calculated an paid as often as possible to get the highest possible interest on your savings. So you can earn interest on the interest you receive.

Most credit card interest is calculated daily. Interest is often also added to the account balance daily so you are quickly charged interest on your interest. This is why credit card debt can get so big so quickly.

I really wouldn’t recommend getting a credit card unless it’s a low-to-zero annual fee and low interest card. It’s much better to save up for what you need, that way you don’t pay any interest and best of all the bank actually pays you interest on your savings (if you are lucky enough to live in a country where interest rates are not zero that is!). Of course everyone’s circumstances are different, that’s just my own personal preference. Unfortunately sometimes it is difficult to pay for large cost items without a credit card because some retailers don’t like to accept large cash payments or a prevented by law from accepting such payments. For those types of purchases I do use a low interest rate, low fee credit card and pay the money back onto my credit card balance almost right away out of my savings so that I am not in any debt and do not owe large amounts of interest (if any).

How to save money when you’re a fashionista: My guide to not overspending on clothing and accessories.

When you love fashion it is very easy to get swept up in trends and spend a lot of money on clothes that you will no doubt wear only a few times, perhaps only once, after which the dresses and outfits you shelled out big bucks for sit in your wardrobe unworn because they don’t fit into the next season or they were not “wearable” clothing. By not wearable clothing I mean garments that look great but might be uncomfortable to wear for long periods, occasional wear that you can’t wear again easily, or clothes that just don’t go with your other clothes. I’ve fallen into this trap many times in the past, paid a lot of money for a dress only to wear it once and afterwards have it hang in my wardrobe unused. A classic example of this was the Romance was Born Link dress that I purchased, it looked good, had a great colour and movement, a great dress to dance in, but ultimately I only had one occasion I was able to wear it to, a friends wedding reception. I bought it on sale and it was a size 6, and I am probably closer to an 8 so it was really too tight for me to wear comfortably. I have quite a few size 6 dressed I wish were size 8…Sure you could try selling your unwanted clothes on eBay, but what if they don’t sell? Or what if they only sell at such a great loss you wonder if they were worth the money you paid for them?

I’m going to give my advice now on how to build a wardrobe that transcends seasons and years, so you will be able to look fashionable despite whatever the trend might be. The key, and you may have heard this before is building a great basic wardrobe from which you can accessorise and mix and match to get different looks. I have a variation on this basic wardrobe that works for me, and you will no doubt make your own adjustments based on your needs. Make sure the clothes you buy have a great fit, don’t fall into the trap that I and many others have fallen into of buying the size down because it was the “last one and on sale” because you will find something in your size. Always try it on before buying if possible. I’ve tried on a dress and it was great, seen a fault and just picked up another in the same size off the shelf and bought it without trying on, only to realise when I got it home that it pinched in places the other dress didn’t. There can be small variations piece to piece, different items in the same size and style will not always be identical.

Most people recommend having a classic white shirt in your basic wardrobe, but I live in hot and sunny Sydney, Australia where a white shirt is usually a bad choice for any season but winter because they tend to get hot and sweaty and unbreathable in summer months. I find I rarely want to wear or need to wear a white shirt. It is true if you choose a great cut white shirt they can be versatile but if you live in a warm climate like Australia you might find you don’t get much wear out of your cotton shirts. If you do want one, it is probably better to invest in one that is a more breathable material that resists stains like linen.

My secret (well, not so secret) way to save money on quality clothing.
Buy from thrift stores, second hand stores, vintage stores, eBay and save hundreds of dollars on your wardrobe. It is not only savvy to do this, it is also the most sustainable way to dress yourself, you are doing something good for your wallet and the planet but reusing clothing. The best things to buy second hand are vintage coats and jackets, for example woollen winter coats and trench coats which are often in great condition second hand because outerwear does not have the same stresses on it as everyday items like t-shirts. You can buy a woollen coat even if it’s a bit big because it is easy enough to have most coats altered to fit you. One of my best second hand coat purchases was a double breasted vintage cream coloured wool blend coat with wide lapels that cost me about $25, it is of the highest quality, exceedingly warm, and has attracted many compliments. As long as it is kept away from hungry moths and dry-cleaned occasionally it will last for decades. A similar coat bought new would have set me back at least $400, so I have straight up saved $375. The reason why you can buy vintage coats and look amazing is that coats often transcend seasons and years, a classic woollen coat, a trench coat, pea coat and black leather motorcycle style jacket will be wearable for years to come, you will even find if you hold onto them faux fur coats will also come, go and return to fashion every 5-10 years. In my wardrobe I always have a great trench in a neutral colour like black or beige, a woollen coat in black or beige and then a really warm coat for trips and those 5 degree Celsius days we get sometimes in winter, for example a long-line hooded down or synthetic insulated coat or anorak. These three coat types usually keep you covered in from mid-Autumn to Early Spring.

So what do you need to wear under this fabulous coat? A great versatile basic wardrobe. For me, this includes a few different styles of trousers because I do not wear dresses and skirts much. I find that separates make for a far more versatile wardrobe than dresses and one pieces. It is good to have a few nice dresses for summer but in cooler months your better off with tops and bottoms.

My basic cooler month wardrobe includes a pair of great fitting classic straight cut Levis jeans (or your choice) in a mid blue. It is good to also have a darker pair of jeans and a lighter pair of jeans or cotton jeans-look pants, they could be straight or skinny cut but I would avoid boot-cut jeans or flares that will very rarely be in fashion. For the lighter pair you could choose light blue, olive or grey but I wouldn’t choose white because they won’t stay white for long. I also like to have a pair of black jeans and really miss them when I don’t have them. I would also have at least one pair of wide legged black trousers which are nice enough to wear to work, and a pair of fitted suit trousers in black or grey. I keep wide legged trousers in a few colours, like navy and light grey because I mainly wear trousers and wide legged trousers are very comfortable.

For winter I like to have at least one black vintage leather skirt in my wardrobe. I would suggest either a mini skirt or a longer A-line or pencil skirt depending on what your preference is. You can generally get a nice vintage leather skirt for less than $50. If you get a second leather skirt for your wardrobe, get a different style in black or a different colour like brown or burgundy. You can also get great leather handbags second hand, if you shop around, for the same price or less than you would pay for a new synthetic handbag. I was lucky enough to find a genuine Rebecca Minkoff bag for $15 at my local Op-Shop. I have another Rebecca Minkoff bag I got from eBay for $30. The best colour handbags to get for long term use are black and brown. It’s nice to have some coloured bags, especially to brighten up an outfit, but you will find you tire of them faster than back and brown.

I also love having a pair of black leather trousers but it can be very hard to find a nice vintage pair so you might have to look out for them at sample sales or online auctions. I got my leather trousers for $130 at a sample sale, whereas new they sell for $700, that’s a saving of $570. If you live in Australia, then you can sign up to the Missy Confidential email newsletter which gives all the latest major sample sales in your city (for the cities covered). Just to be clear I’m not sponsored by Missy Confidential in any shape or form, I just find the emails useful.

For tops, I have a few well made black long-sleeved blouses and at least one cream or ivory coloured long-sleeved blouse. A well fitted ribbed top in silk or cotton with long or T-shirt length sleeves will also look good in colder months.  You’ll need a few nice jumpers or sweaters, I actually love vintage jumpers but if you want new, go for something that will last for a long time like a wool or mohair blend and buy it on sale (usually the beginning and end of winter). The best advice I have heard for buying a new cardigan or jumper is only to buy one you can see yourself wearing for the next 5 years, otherwise it’s just not worth it. Don’t buy cheap poorly made synthetic crap that will just fall apart after a few months, buy natural fibres like wool, mohair or organic cotton. Natural fibres are also better for the environment and pure wool and mohair are resistant to fire. Blends are not necessarily resistant and may burn hotter than synthetics so don’t go standing too close to any bonfires!

I have 3 pairs of gloves, a pair of black gloves, a pair in lighter beige and a dusty pink leather pair that I got this season from Forever New for about $50. I have invested in leather because a good pair will last you ten years. I also have a pair of beige felted wool gloves and they have also lasted well, they cost me about $15 from a pharmacy store. I got the black pair from a leather goods and formal dress store Chinatown 10 years ago, and it’s only this year they are starting to look tired.

You probably are picking up a trend in the basic wardrobe, the palette is white, cream, grey, denim-blue and black. This is because from this colour base you can co-ordinate with any bright accessory or jewellery you might want to throw in to look more on trend, like a bright handbag, beanie or scarf.

This means, when a new season comes around you will be looking to accessorise with cheaper items like hats, sunglasses, jewellery and scarves. You won’t need to fork out for the more expensive items because your basic wardrobe is always classic and fashionable.

For warmer months you will want a pair of cut off denim shorts or a mini skirt if you prefer skirts, and some feminine dresses and tops, because it doesn’t really matter if colour block is on trend this season, feminine looks are always going to look good year in year out. Whereas that colour block top you bought 5 years ago, doesn’t look so hot now. I am quite thin and have a fairly straight up and down body shape, so for me the best things to buy for summer are floral prints, plain light coloured frills over the chest, broidery anglaise and crochet, and bohemian (Bo-Ho) style blouses, shirts and dresses. I have a mixture of long and shorter dresses, I often prefer a long loose fitting Maxi-dress in summer. The best thing about this is, you probably guessed it, because they are a recurring fixture in fashion you can get great pieces second hand or vintage. If you have a bigger chest you might want to downplay it by wearing darker plain coloured tops which will make your top look smaller. If you have a more pear shape body, you might try wearing darker pants and lighter tops which will make your top look bigger and slim down your bottom half. It is up to you, but the main point is to buy items you can wear for several summers, that won’t look “so last year”. For this reason, I would often avoid prints unless they soft floral prints or are very artistic and can be worn as a statement piece. I would also avoid heavily embellished pieces unless they fit a recurring theme in fashion such as so called “ethnic” needlework and embroidery or tough girl styles like studded moto jackets.

I don’t have a or need many pairs of shoes, I have less than ten pairs of shoes, mostly flat because I prefer flat shoes as I can wear them all day, they include, leather Converse sneakers for weekends and causal days, black ankle boots, black knee-high boots, brogues or “nurse shoes” for wearing to work, a pair of sandals or espadrilles that can be dressed up or down for evening or day, a pair of Australian made Ugg boots for winter slippers and a pair of jogging sneakers. You’ll notice almost all my shoes are in neutral black and can be dressed up or down. If I still lived in the country I would also keep a pair of hard wearing elastic side boots to walk in the paddocks, and I would probably wear more flannelette shirts!

Now for probably the most important bit of advice…don’t go out and buy all of these items in one go. Don’t max out your credit card or use payment schemes like After Pay, Zip Pay and the like. I personally wouldn’t buy any clothes on credit EVER. The thing to know about building a classic wardrobe is it can’t be done well or effectively overnight, and it will take some work looking for pieces and some saving of cash to invest in the pieces you need to buy new. The key to not spending too much money is to slowly build up your wardrobe based on need and what funds you have available to spend on clothes.

For example, if you need a pair of great boots and already have 3 coats, then buy yourself the boots not another coat even if it’s on sale or the sales person says “It really suits you!”. If you hardly ever wear high heels or dresses, don’t buy another dress or high heels because “They would look so pretty on me”. I’m sure they would look pretty on you, but if you’re like me those high-heels and dresses won’t see the outside of your closet! If you can hold out for sales, great but make sure you go into the sale knowing exactly what you need and not buying anything but the item type you set out to buy and you will save money. This takes will power and the ability to block out advertising and pressure from sales staff. Most people will be swayed, but you can’t let yourself be swayed or you will waste your money. Going into a sale or a clothing store to buy clothes but not knowing exactly what you want, is how you will end up with a heap of clothes you won’t wear.

We unfortunately live in an era of mass consumption where most people feel like they are missing out in some way. Remember that you are in control and you don’t HAVE to buy anything if it’s not perfect and doesn’t fit your criteria. In economics we call this separating your needs from your wants which was one of the most important things I learned from my High School Economics teacher. Buy what you need first before you spend on wants. If you need to, make a list or inventory of your basic wardrobe so you know what you already have and from there you can figure out if you need to buy anything new that would make building outfits easier or if you simply need or organise your wardrobe better so it’s easier to find pieces that look good together.

I hope this blog post was helpful to you!

How I saved $10,000 a year, over 4 years.

A few years ago I had very little in savings in my savings account, let’s be honest and say I had nothing in my savings account after having to spend all my savings on child care fees before my son went to school while I was finishing my degree at university. It was a tough time and when I started living pay cheque to pay cheque I had to really evaluate my financial position.

I found that my Big Four bank account was giving me very little interest post financial crisis. Where I used to get about 6.00 % in about 2007 I was now getting less than 3.00 %  in 2013. The bank had also charged ridiculous fees such as a $35 fee for overdrawing my account by $20. I decided that something had to be done to change my financial situation and getting low interest and paying $6/month in bank fees to a Big Four bank (with billion dollar profits) was not going to cut it anymore.

So I started to do my research and looked up savings account interest rates online for local banks, credit unions and international subsidiaries operating in Australia. I found the best rate offered at that time was with ING Direct (now ING). I had banked with ING in the Netherlands so it was more familiar to me than other online high interest bank accounts. I didn’t have any savings so I didn’t really have much to loose anyway.

The positives for me were that there were no bank fees and that I could withdraw from ATMs for free (when I opened the account you had to withdraw $200 or more for the ATM fee to be paid by ING, now it’s any amount) or withdraw as cashout from the supermarket for free. If I deposited more than $1000 a month to my linked transaction account I would get a higher interest rate on my ING Savings Maximiser account which at the time it was about 3.8 % c. 2013, compared with my 3.00 % now it’s 2.8 % which is to the best of my knowledge still higher than all other online savings accounts in Australia, and much higher than the old Big Four bank account which is currently offering only ~0.81 %.

I actually kept my Big Four transaction account so that I could use cheques to pay my rent (by another financial justification because it was the lesser of two evils when it came to paying my rent). However it is only used and kept open for that reason. If I didn’t need cheques or my new bank account had that functionality I would close it in a heartbeat.

When I recently complained about my low interest rate on my online savings account to the Big Four bank they offered me the same interest rate the offer their new customers, which was ~2.30% for 3 months because I was “a long time customer”, which is really crappy considering I get 2.80% in my ING bank account all the time.

I went with ING because they were familiar to me, but there are other banks and credit unions that offer no monthly fees on savings and transaction accounts, online only high interest accounts. Money magazine ranked them highest that year in that category which was another reason I went with them. And I’m Dutch, so I like orange.

I’ve never really looked back since opening up my online no fee bank account. I deposit my salary into it and I save what I can each fortnight. With ING you can have more than one savings account and give them different names. The down side to this is that the secondary savings account does not attract the higher interest rate, the current rate as of January 2018 is 1.35% which is still higher than the Big Four account. However the advantage is you can have different accounts for different things which makes saving easier.

I have one primary Savings Maximiser account that I NEVER touch (as in I never withdraw from it), which is my home deposit savings account, originally it was going to be for a holiday to Europe, but after some deliberation of my priorities I decided purchasing our own home might be more important than a holiday. It receives the higher interest rate and contains the bulk of my savings. I have a secondary savings account where I save up for bills, school fees and other expenses which gets used regularly.

Because I often can’t afford to pay big bills like the electricity bill out of my fortnightly salary, having an account where I can save a bit each week so I have enough to cover all my bills when they come in is really handy. I also use this account to save for trips to Queensland to see my parents or little getaways once in a while or any large purchase, like a new computer or washing machine. I’ve called it “Expenses Rainy Day” account, but it could have easily been called “Bills and Expenses” account.

I said earlier that I kept my Big Four bank account for the cheque functionality, I did also keep the online savings account because it attracts no fees and I wanted to see if the interest rate would improve, but I again don’t touch this account. I kept this account because I am a highly skeptical and somewhat pessimistic person. I don’t place a huge amount of trust in any financial institution. I kept this account basically in the case there is a real emergency, and I need a few thousand dollars. A while ago I worked out the cost of moving house if we were evicted and our landlord refused to give us our bond back and we lost the tribunal would be about $3000. That would cover the cost of paying a new bond and movers to keep a roof over our heads. I decided that $3000 was the baseline savings I had to have for a real emergency.

I kept it in that bank because I wanted to spread my cash investments, like you would if you were investing in the stock market. You wouldn’t just invest all your money in one firm in case that firm failed. I figured in the worst case scenario, if Australia were to have a Greek style collapse of the banking system, I’d want my money to be in more than one bank. I never want to be in a situation where I loose everything because my bank fails and the government fails to bail them out. Luckily the chances of this happening are very low in Australia, but like I said, I’m a skeptical person. The fact that it’s in another institution to my transaction account means I am also less likely to be tempted to dip into this money.

Recently I’ve been looking at my dismal ~0.80% interest on this account and thinking along the lines of John Bull and 2% interest rates, to paraphrase, John Bull can stand many things but he cannot stand 2% and this is less than half that amount. So I have been researching interest rates again to see if I can find a better deal for my $3k that is at least in line with inflation. The best I’ve found so far is Suncorp’s eOptions account, currently offering 1.55% on savings, which is almost twice the rate of my unhappy account. It’s a bricks and mortar bank rather than purely online and it is larger than some of the other “small banks”. This would be a much healthier interest rate for my emergency fund. An account can easily be opened online, but the drawback is the easiest way to withdraw money due to Suncorp’s token and secondary password system is to also open a linked transaction account. The best thing to do is to either not get the card and go to a branch directly to withdraw funds or destroy the card or if you can’t bring yourself to do that put this card somewhere safe where it won’t be stolen and basically forget you have it, for instance if you keep your title deeds or another precious possession in the bank then put the card with that. By using another bank there is less temptation to spend my emergency fund money. The card definitely doesn’t belong in my wallet. Really I don’t even need this card, because I can walk into a Suncorp bank to make my withdrawal if that worst case came to be. However if there was a Greek style collapse, the banks may not open their doors and you may need a card to access the ATM.

I have been saving with my partner who gives me about 65 % – 70 % of his pay cheque to pay our bills, rent, sons school fees etc and keeps some aside for himself to buy groceries and general expenses like pay for his various hobbies or if we have a day out. I use his pay cheque for most of our expenses and cost of living and basically try to save as much of my pay cheque as possible. From saving this way and focusing on saving as much as we can afford I have managed to save with my partner over $40 000 over the past 4 years which is more than I could have hoped for considering our living expenses are fairly high in Sydney but I am still working towards having enough for a home deposit. I try to save regularly and save what we can afford.

My partner pays me as soon as his pay cheque clears and I distribute this money as soon as it enters my account (either paying bills immediately or putting into my cheque account for rent or the bills savings account). I put my money into savings as soon as my pay cheque clears so there is no temptation to spend it. Saved money does not exist in my mind as spending money. I figure out approximately how much my major bills like phone, internet, electricity, gas, ambulance insurance, swimming lessons for my son etc for the year cost add a bit extra for unexpected costs and divide that number by 26 weeks, so I know how much I need to save in my bills savings account each pay. I work out how much I need for rent and set that aside too. Then I figure out how much I need to spend on travel and food and leave that in my transaction account and then I put what I have decided I can afford into my home deposit account. Sometimes I might put some of the money destined for the home deposit account into my bills account just in case other expenses come up like an expensive school camp or new school uniforms or shoes.

I try to be aware about my expenses but I don’t let my self worry about bills because I know I am prepared and I have enough to cover all my bills saved. It’s a nice feeling to have peace of mind, and takes away a lot of stress in your life.

I want to make a disclaimer that you should not take the general advice on my blog as qualified financial advice and that you should make your own decisions or seek advice from an independent qualified financial advisor about your own finances based on your unique circumstances.

I recommend listening to any good financial advice that is offered to you and considering if it is best for your circumstances before following it. Don’t blindly follow what people tell you to do including me, always consider if it’s right for you in your own situation, and if you’re not good with money seek professional advice or go to the government website moneysmart.gov.au

Before I make any major financial decision I always try to remember my friend who in university lost $20 000  that their parents had given them to cover their living expenses on the stock market, thinking they could make a profit and who after loosing all that money was very very poor for the rest of that year. At the time being a poor student myself I could hardly imagine having $20 000 in the bank let alone loosing it on the stock market. Knowing what can happen when you make a poor financial decision made a huge impression on me. 

Last Christmas my mother bought me a book called The barefoot investor by Scott Pape. Scott Pape has formed a very similar savings strategy to mine, he is a good writer with a style that is easy to digest and I recommend the first chapter of the 2017 edition on savings accounts. I didn’t follow his strategy when setting up my savings account strategy, I hadn’t even heard of Scott Pape before my mum gave me the book. Previously to me Barefoot was a film from Germany about a girl with mental illness.