Where does all the money go?

MY credit card provider has designed a frightening new website which reveals a pie chart of where all my money goes.

Let's just say, if my spending was a pie, it'd be more sugary jam doughnut than protein-packed meat pie.

If you don't keep a proper track of your spending, it's easy for it to get out of control.

It's the same with government spending. How can we as citizens make informed decisions about where we think our tax money should be spent, if we have no idea where it actually spent?

So go on. Have a guess. What do you think is the number one biggest area of Federal Government spending? Health? Education?

Sorry, nil points. By far the biggest item in the federal budget next Tuesday is social security and welfare.

Of the $376 billion the government will spend this financial year (according to the latest estimates provided last December) more than a third, or 35 per cent, will be spent on welfare.

Far and away the biggest function of the federal budget is to raise money from those who have it to give over to those who need it.

Does that sound alarmingly socialist to you? It might help to know that all the major developed countries of the world have redistributive tax systems.

Providing a social safety net is the biggest cost of government in most advanced economies.

So where does all this welfare money go? To those welfare cheats and dole bludgers?

Again, you might be surprised. By far the biggest cost in the welfare budget is the cost of the aged pension.

The aged pension is predicted to cost $37 billion this year rising rapidly to $45 billion by 2015-16.

It is estimated another 220,000 older Australians will start drawing down an aged pension in the coming four years.

As the hairs keep turning grey and our population ages, this is only going to get more expensive.

The second biggest welfare spend is on family benefits, of which $20 billion is distributed to families a year.

About 60 per cent of Australian families receive a family benefit from the government. It all adds up.

And then we finally come some of the poorest and neediest members of society. Providing a pension to people with disabilities costs a further $15 billion a year, followed by the dole at $9 billion and money for carers at $6 billion.

After welfare, the second biggest chunk of the federal budget is healthcare.

Again, our greying hairs are a drag not just for us, but the budget too. The Medicare system ($18 billion) and pharmaceutical benefit scheme ($10 billion) are some of the biggest and fastest rising costs in the budget.

All up, the Federal Government pays $61 billion a year on health. This is set to escalate to $71 billion by 2015-16.

As countries become richer it is common to spend more on health as new technologies become available. Health spending is what economists call a "luxury good"  we spend more on it as our incomes rise.

After all, if you don't have your health, what do you have?

In third place in the budget comes education spending at almost $30 billion a year, including funding for universities, non-government schools and some funding for public schools (although states still pick up most of the tab for public schools).

Next comes the amorphous sounding "general public services", includes the cost of running parliament, the Governor-General, collecting taxes, managing public funds and the foreign affairs service.

In fifth place comes defence spending at $21.5 billion.

By now, we have accounted for two thirds of government spending.

It's important to know that another $50 billion of government "spending" is just the Federal Government handing over the revenue raised by the GST to the states to spend.

Other expenses of note include $12 billion in interest payments on the government's debts and $2.3 billion managing immigration. Yep, it all adds up.

Where does the money come from? The Federal Government gets revenue from a number of sources.

Top of the list is you and me, and the taxes we pay on our personal income.Of the $369 billion in revenue the government expected to raise this financial year about 35 per cent, or $160 billion, will come from individuals.

So interestingly, almost every dollar of income tax collected from Australian citizens eventually finds its way back into the pockets of other Australians.

In fact, thanks to some inefficient "churn" in our tax and welfare system, some of the tax you pay come tax time will be paid back to you as benefits.

Another third of government revenue is raised by the two other biggest revenue raisers: the 30 per cent tax on company profits ($73 billion) and the goods and services tax ($48 billion) which, of course, you and I pay too.

Together these three big taxes  personal income tax, company tax and the GST  pull in more than three quarters of all the money flowing in Treasury's coffers.

The final quarter is raised through a grab bag of taxes and excises, including $6 billion in excise on petrol, $6 billion from ciggies and $2 billion from beer.

The much-discussed carbon and mining taxes were only ever expected to pull in $4 billion and $3 billion a year respectively. And that money has all but disappeared.

So that's about the size of it. Some things to keep in mind when the Treasurer delivers his budget next Tuesday. See you next week, if I survive the budget lock-up. Where does it all go?

The Top 10 biggest Federal Government spending items:

$376 billion
Total spending in 2012-13, as forecast last December

$37 billion
Aged pension

$20 billion
Family tax benefits

$18 billion
Medicare services

$15 billion
Disability support pension

$10 billion
Pharmaceutical benefits scheme

$9 billion
The dole

$8 billion
Money for private schools

$8 billion
Residential aged care

$7 billion
Funding for universities

$7 billion
Public sector superannuation

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Real-life money lessons from Monopoly

Phillip Orbanes is the world's leading authority on Monopoly. Picture: Stephen Cooper Source: news.com.au

THE goal in Monopoly is to cause total financial destruction to everyone around you.

The world's leading expert in the game concedes that that's a little harsh. But Monopoly man Philip Orbanes also says there are a lot of parts to the game's strategy that can help people make money in real life.

Mr Orbanes, who has served as chief judge of world Monopoly tournaments for more than 30 years and is the author of the recently released Monopoly, Money and You, has picked up on many tricks world champions use to win the game, and says they are just as useful for building long-term wealth.

"Most of us really don't get good financial training during our schooling, we have to learn as we go and that means we make financial mistakes, especially in investing," said Mr Orbanes, who worked as a senior vice present at Parker Brothers, the company that released Monopoly.

"If you know what works in Monopoly you can use your experience to ground your decisions."

Spread your wealth

Monopoly teaches people the importance of diversifying their assets, says Mr Orbanes.

"You start the game with only cash, but you cannot win Monopoly if you stay in cash," he said.

"It's the same in real life, if you just have your money sitting in a bank at some paltry rate of interest, you're not going to make much money."

In Monopoly, you need a colour group of properties in order to accomplish anything in the game.

"But you also need some income production assets, like three or four train stations," he said.

"They provide the income you need to build up your investment group."

Mr Orbanes said in real life, you have to spread your money across a number of things – such as stocks, bonds and real estate - to build real wealth.

"You need to have a balanced approach for the long-term game because if you put everything into the best or hottest investment you could lose everything."

Don't buy into fashionable investments

Mr Orbanes said one of the great fallacies in Monopoly is that the two dark blue properties, Park Lane and Mayfair, are the best properties because they are expensive and prestigious.

"In reality the best to own are the three oranges - the oranges lie the ideal distance from jail and players go to jail frequently throughout the game so they land on them all the time," he said.

With investments - Monopoly or otherwise - you have to think about location, value for money and how it will perform in the long-term.

"Just look at the stock price of Apple, a year or so ago everyone was so enamoured with the stock, wondering when it was going to hit $US1000," he said.

"Now it's just $US420 and not much has changed in the company but it went out of fashion very quickly."

Don't sell your investments short

Mr Orbanes said every investment has an ideal amount of money you should put into it.

"In Monopoly the ideal investment once you have a colour group is three houses on each square," he said.

"If you look at the deeds for any property in the game there's an incredibly big increase in rent between two houses and three houses.

"If you were going to stay on just two you would be really underutilising the rent potential."

Mr Orbanes says this teaches an important lesson about return on investment – you need to make sure you invest enough in your assets so you get the maximum pay off long-term.

"You have to get more money for what you're investing if you want to grow your nest egg and reach your goals," he said.

Don't be ostentatious about your wealth

In every game of Monopoly there comes a time when you've got to make deals in order to get the properties you want. This is when your relationships with the other players become very important.

"You need to present yourself as the type of player that your opponents won't mind losing to," Mr Orbanes said.

"You don't want to lose to someone who is arrogant or who treats you with disrespect - that's a player you want to keep from winning at all costs."

Mr Orbanes says in order to be a good negotiator you need to understand what the other person wants and not let your ego get in the way. This will make people want to help you.

"Don't go to lengths to brag about what you accomplished or make people feel inferior because then people won't come to you with opportunities like a job offer or an investment tip," he said.

"You shut down those opportunities if you don't present yourself as someone who is thinking about others."

Don't get complacent

Mr Orbanes points to the 2009 Monopoly World Championship as a cautionary tale about what can happen when you don't watch the market.

Players from the US, Russia and New Zealand had just made a three way trade and they each ended up with a very good colour group; one orange, one green, one yellow.

Norway, who had been shut out of negotiations, then offered what seemed like an outstandingly bad trade. He gave Russia a red property in return for a less valuable a light blue square which meant Russia owned two colour sets on the board.

"It seemed like a waste, but it was the game winning trade," Mr Orbanes said.

"Even though other groups were far more valuable and powerful, it was all about timing and location.

"He noticed all the tokens were coming up on the light blues, and he had a lot of cash because he'd been locked out of the negotiations."

The Norwegian player built up houses and sucked the other players' spare cash so they couldn't develop their investments - a move that won him the game.

Lesson: If you're a good financial position, it doesn't mean you can stop paying attention to the conditions around you.

"Complacency is dangerous, that's usually when something expected hits you," Mr Orbanes said.

Like having to go to jail. Without collecting $200.

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The top must have apps to save you money

Phone and iPad apps can not only save your money but show you how to be wiser about spending it. Picture: File Source: Supplied

AskMen has delved into the iTunes store to dig out the best apps to help with your personal finance.

While not all are directly related to personal finance management, they will help you find savings in everyday life situations and, as a result, manage your money more successfully.

Staying true to a money-saving spirit, all but one of the apps are free to download and none require a subscription.

Zillow, Free
Zillow has established itself as a great starting point for anyone interested in buying or selling a home. You can search by city or postcode, find all homes for sale in the area of your interest, as well as comparable home sales. Once you’ve found a home you’re interested in, you can check out what that home sold for in the past and its estimated value, or “Zestimate.” Why does it make a great mobile app? Because it enables you to take your home search on the road with you: Once you hunt down homes you are interested in, you can see them in person, and then take a peak at photos taken from inside the home.

Epicurious, Free
The iPad app from Epicurious.com includes over 28,000 tested recipes from magazines (such as Bon Appétit and Gourmet), popular cookbooks, top chefs, and leading restaurants. And the iPad size makes it a great fit as a digital cookbook. What makes it a great personal finance app? Cooking at home is a much cheaper and healthier alternative to dining out.

Grocery IQ, Free
Grocery IQ is a mobile app that allows you to make grocery lists, sync and share them with others (so both you and your significant other don’t come home with a gallon of sauerkraut on the same night), scan bar codes, and even find and send coupons right to your loyalty card. Having a consistent grocery list for each store you shop at is a fail-safe way to keep your grocery expenses down.

Bloomberg, Free
If you like keeping up with your portfolio and business news throughout the day, Bloomberg offers a great iPad app to help you do so. The app offers customised news, stock quotes, company descriptions, market leaders/laggers, price charts, market trends analysis, and more.

Trapster, Free
Trapster has over seven million users who provide information on speed traps, camera enforced speed zones and police check points. Now, we’re not saying you should recklessly speed around with your Trapster app spitting warnings at you. However, most of us have been caught slightly over the speed limit at times, just because we weren’t familiar enough with a given area to be on our guard. Just don’t get caught paying too much attention to Trapster while you’re driving around (that kind of defeats the purpose of the app).

Kayak, Free
The Kayak iPad app, in itself, doesn’t offer any groundbreaking new functionality above the iPhone app or Kayak website. However, Kayak offers such a great airfare comparison interface and with the vibrant large-screen iPad display, it packs even more punch onto one screen.

Compoundee HD (compound interest calculator), $2.20
Compoundee HD is a basic, easy-to-use financial calculator that is able to calculate five different investment variables on compound interest calculations at a daily, weekly, quarterly, semiannual, or annual level. You can find out how much an investment will be worth over a period of time. This app could be extremely useful for real-estate agents, brokers, bankers, and mortgage brokers.

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How to get money back on fake goods

IF you have bought "genuine" designer goods online but they turned out to be fake, don't write them off as money down the drain.

You can get your money back even if you are the one who made the bad judgement call by ordering from a shonky website.

Websites that sell counterfeit goods are often impossible to contact once they've secured your cash, so getting a refund from the seller can be difficult.

But Internet Fraud Watchdog chairman Ken Gamble said customers can get their lost money back from their bank or from the service that processed the payment.

Customers can dispute their transaction with the bank under credit card regulations regarding counterfeit products.

"A customer can file a dispute over a payment and some of the banks will actually refund money once it's investigated - if it's found the consumer genuinely has lost their money because of something that was out of their control," Mr Gamble said.

"The Commonwealth Bank is one of them."

Mr Gamble said the police and the Department of Fair Trading can't do much to help consumers who have bought fake goods from overseas.

"It certainly will get investigated but as soon as they find out it's an overseas website there's really nothing they can do," he said.

Michaela Bryan bought a pair of what she thought were Christian Louboutin shoes online after first emailing the seller to check they were real.

"From my perspective it seemed like it was genuine," Ms Bryan said.

But when the shoes arrived they were obviously fake.

"There were crap quality, they smelled funny and the [Christian Louboutin signature] red sole looked like it was painted on."

She asked for a refund and when the site would not give it to her she was able to file a dispute resolution claim with Paypal – the service she used to pay for the shoes.

The process "took a while" and she had to send photos and destroy the shoes, but she was given a full refund.

"I think it's quite generous [for Paypal] to actually assist with that. If you look at it logically there's a reason why it's cheap – it's not real," Ms Bryan said.

Paypal spokesman Adrian Christie said if shoppers receive items that are "significantly not as described" by the seller they can get money back from PayPal.

"And that stretches across to counterfeit goods," Mr Christie said.

"It always depends on the item and sometimes we will ask for documentation from qualified third party to confirm its fake.

"Sometimes we ask you to destroy the item and provide evidence, because it might be illegal to possess the item and selling is illegal so we want to take the buyer out of that equation."

Customers have 45 days from the day of purchase to lodge a claim with Paypal, Mr Christie said. If the dispute is resolved in their favour, Paypal will reimburse the customer before chasing the seller of counterfeit goods for the money.

"It helps us clean up and make sure our payments network is very healthy, and gives customers knowledge that you'll be secure in your purchase should something go wrong in the transaction," he said.

A Commonwealth Bank spokesman said it investigates all claims made by customers against transactions processed to their credit cards under regulations issued by MasterCard, Visa and American Express.

"While we follow the above codes and regulations, when a claim is initiated we ask the customer a series of questions about the claim and may in certain circumstances require documentation to support the claim such as receipts, emails from the merchant or copies of any agreement entered into with the merchant," he said.

View the original article here

How to get money back on fake goods

IF you have bought "genuine" designer goods online but they turned out to be fake, don't write them off as money down the drain.

You can get your money back even if you are the one who made the bad judgement call by ordering from a shonky website.

Websites that sell counterfeit goods are often impossible to contact once they've secured your cash, so getting a refund from the seller can be difficult.

But Internet Fraud Watchdog chairman Ken Gamble said customers can get their lost money back from their bank or from the service that processed the payment.

Customers can dispute their transaction with the bank under credit card regulations regarding counterfeit products.

"A customer can file a dispute over a payment and some of the banks will actually refund money once it's investigated - if it's found the consumer genuinely has lost their money because of something that was out of their control," Mr Gamble said.

"The Commonwealth Bank is one of them."

Mr Gamble said the police and the Department of Fair Trading can't do much to help consumers who have bought fake goods from overseas.

"It certainly will get investigated but as soon as they find out it's an overseas website there's really nothing they can do," he said.

Michaela Bryan bought a pair of what she thought were Christian Louboutin shoes online after first emailing the seller to check they were real.

"From my perspective it seemed like it was genuine," Ms Bryan said.

But when the shoes arrived they were obviously fake.

"There were crap quality, they smelled funny and the [Christian Louboutin signature] red sole looked like it was painted on."

She asked for a refund and when the site would not give it to her she was able to file a dispute resolution claim with Paypal – the service she used to pay for the shoes.

The process "took a while" and she had to send photos and destroy the shoes, but she was given a full refund.

"I think it's quite generous [for Paypal] to actually assist with that. If you look at it logically there's a reason why it's cheap – it's not real," Ms Bryan said.

Paypal spokesman Adrian Christie said if shoppers receive items that are "significantly not as described" by the seller they can get money back from PayPal.

"And that stretches across to counterfeit goods," Mr Christie said.

"It always depends on the item and sometimes we will ask for documentation from qualified third party to confirm its fake.

"Sometimes we ask you to destroy the item and provide evidence, because it might be illegal to possess the item and selling is illegal so we want to take the buyer out of that equation."

Customers have 45 days from the day of purchase to lodge a claim with Paypal, Mr Christie said. If the dispute is resolved in their favour, Paypal will reimburse the customer before chasing the seller of counterfeit goods for the money.

"It helps us clean up and make sure our payments network is very healthy, and gives customers knowledge that you'll be secure in your purchase should something go wrong in the transaction," he said.

A Commonwealth Bank spokesman said it investigates all claims made by customers against transactions processed to their credit cards under regulations issued by MasterCard, Visa and American Express.

"While we follow the above codes and regulations, when a claim is initiated we ask the customer a series of questions about the claim and may in certain circumstances require documentation to support the claim such as receipts, emails from the merchant or copies of any agreement entered into with the merchant," he said.

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Generations: Top money lessons

Our four Generations columnists. Source: Supplied

WHAT is the most important thing about money that you wish you had learnt sooner?

Gen Y - Justine Davies

EASY: the power of compounding! I really, really wish that I'd understood it properly right from the time that I left school.

In fact, I think it should be a compulsory part of the school curriculum every year from Prep to Year 12! Why? Because the enormous differences that small actions can have on your financial wellbeing are amazing.

So what's compounding? It is the ability of your earnings, if reinvested, to earn more earnings, and your savings to earn more savings. I'll give you an example.

Let's say that, at age 40, you decide that you'll put an extra $100 per month into your super fund. By time you hit retirement at 60, you'll have put in a total of $24,000 and could expect that to have made around $45,194 difference to your super fund balance. Not bad, although not quite double what you put in.

If you had started making that payment of $100 a month at age 30 though, through to age 60, you'd be making a total of $36,000 in extra contributions and could expect your super fund balance to be about $96,000 higher more than 2 1/2 times your contributions.

Now, if you started making that $100 a month contribution at age 20, it would equate to $48,000 of contributions by age 60 but you could expect it to add a healthy $189,000 to your super fund, which is almost four times the amount that you put in.

Four times more is much better than not-quite-double, or 2 1/2 times, and it's due to the power of compounding. The sooner you start investing money, the sooner it earns interest and the sooner than interest earns interest and so on. I didn't understand that when I left school, but I really wish I had!

Justine Davies is finance editor and commentator with financial research and ratings firm Canstar.

Gen X - Bruce Brammall

JUST one? That's like asking me to pick my favourite Friends cast member, my favourite child, or my favourite beer. So hard it's nasty!

The rules of money are so interwoven. In Debt Man Walking I outlined the five global money rules: delayed gratification; compounding; diversification; risk versus reward; and the power of leverage.

If I had to pick one I wish I'd learned harder and earlier ... perhaps delayed gratification. It's the first rule of money. If you want to have more money later in life, you have to consistently spend less than you earn.

Like the famous "marshmallow experiment" run on Gen X children in the late 60s by "evil" scientist Professor Walter Mischel. The professor locked the kids in a room with a marshmallow on the table. If the marshmallow was still there when he got back that is, they could delay their gratification the child could have two marshmallows. But if they ate the one on the table, that was it.

If you can't delay gratification, you can forget about real wealth. You're a financial goose. And you're cooked.

You'll never buy a house. Compounding returns will mean nothing. Who cares about risk versus reward if you don't have two brass razoos to rub together?

And benefiting from the power of leverage? Forget it. You've got to have something to leverage to benefit here.

While I got the delayed gratification thing early in life, you just know where you wasted money and how much better, easier, brighter, life would be looking now if you'd saved more of it and invested in more quality assets.

Bruce Brammall is the author of Debt Man Walking (debtman.com.au) and principal adviser with Castellan Financial Consulting.

Boomers - Mark Bouris

WELL, my answer isn't very sexy, but it's true, and I think most boomers will probably agree with it. It's about savings.

I have to be honest. I did learn a lot about being a saver early on. My mum used to take a third of what my siblings and I made in our part-time jobs (mine was working in a factory) and put it away for us.

She knew we'd probably just spend it on crap anyway, and of course she was right. So when my kids were growing up and working part-time over school holidays and such, I did the same for them.

The thing with developing a savings habit is that while it is great in concept, it's a tough habit to form. I remember when I was in my 20s and started making good money. I wanted to have things to show for it. So I started spending, probably more than I should have.

Luckily, I learned a lot from that experience and sorted it out, but I know a lot of people who kept on that way and have very little to show for it today.

Most Boomers out there are looking down the barrel of retirement and thinking "if only I had saved more when I had the chance". Now they are doing everything they can to make up for it, with perhaps only five or 10 working years left.

What I'd say to readers of all generations is this: Do you best to save what you can and make it a habit. It's important to enjoy your life, but the last thing any of us want is to work for 40 or 50 years and then have to struggle for the 20 years when we should be enjoying life the most.

Plan, save and talk to someone who can help. That's the best advice I can offer.

Mark Bouris is executive chairman of wealth management and advice firm Yellow Brick Road.

Retirees - Kerrin Falconer

MANY retirees will agree that many of life's crises have their root in money or rather the lack of money-managing skills.

It is not the amount of money involved. I've known people who have earned six-figure salaries for many years, who have ended up with few assets and considerable debt. On the other hand, I've known people earning average incomes who have accumulated property and shares and are well on their way to becoming independently wealthy.

And this is exactly what I wished I had learnt earlier. Not the money-managing thing, although I have probably indulged in a couple too many pairs of shoes over the years. Not just the independently wealthy thing either, but the patience to get there.

You see, most of the time you get rich slowly and the key factor is patience. Patience is needed to build a growing portfolio that will produce an income stream that will provide you with the means to lead the life you have become addicted to once there is no income stream from a salary or wage.

Shares are my first and most enduring love investment-wise. I've flirted with other assets, such as property, but I keep coming back.

There are many reasons for this but foremost is the potential tax-effective nature of the income of some shares. Some of the best income-yielding shares may seem boring but they are predictable, even when markets turn down, such as when the GFC hit.

The capital value can fluctuate and the income may hit a slight blip at such times, but the good ones can provide a growing income stream and have growth potential as well.

My middle name is now patience, but I wish it had been so a lot earlier in life.

Kerrin Falconer is a finance writer with 15 years financial planning experience.

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