I read some depressing statistics about cigarette smoking that revealed the poorer you are the more likely you are to smoke. Not only that, but smokers with lower income smoke more cigarettes per day than the average. In other words, those who can least afford to smoke are the people who smoke the most.¹

Why? There are several hypotheses in a study conducted by the World Bank on Poverty and Smoking² including the argument that poorer people tend to be less educated or that smoking is a form of self-medication against the stress of feeling deprived. However, the researchers conclude that none of the hypotheses are adequate at explaining the link between poverty and smoking.

With the link between being poor and smoking in mind, the next finding isn’t very surprising: the number one motivation for quitting is not for health reasons but for financial reasons.³ What is surprising however, is that poorer smokers are less likely to try to quit smoking that their wealthier neighbours.⁴

It’s a no-brainer that smoking is expensive. Your money literally goes up in smoke every time you light up. So how much does smoking cost the average smoker? I did some calculations based on some national averages.

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The last post showed the purge and splurge cycle that can often be the result of trying to reduce your expenses with budgeting. The troughs are the months when you’re determined to beat your budget; the peaks are the “I’ve given up, this is too hard” months.

Tracking your expenses is the first step to getting a handle on your spending habits. The second step is to reduce your spending foibles so that there is more money in the kitty for things that really matter to you. To do this you need a plan of attack.

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It is not unusual in a marriage or relationship for one person to take on the responsibility of the household finances. The job of ensuring that the bills are paid on time, that the savings account grows and debt is paid off more often than not falls on the shoulders of one person, while the other is blissfully unaware. While this can be convenient it can also be problematic as I have recently discovered.

Despite the fact that I take care of all aspects of our household budget, I assumed that DH also knew about the important aspects of our finances. I was wrong.

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It’s the 64 million dollar question, isn’t it? How much superannuation do I need to retire on?

I admit that this is a pretty dry topic. Like many Australians (I presume anyway) I mostly ignore my super, thinking that I will worry about retirement later, hoping that it will be enough to retire on. Doing the research to write this article gave me a bit of a wake up call. 

I was going to show how to calculate your super needs but there are way too many variables and it becomes too complex. For instance, you need to account for:

• average compounding investment return (dependent on your investment mix and ignoring anomalies like the GFC)
• compulsory super contribution (currently 9% of your income. Assuming that you get regular pay rises, this amount isn’t fixed, complicating the calculation)
• voluntary contributions, co-contribution scheme and salary sacrifice
• average inflation
• fees: both fixed fees and admin fees as a percentage of the yearly super balance
• taxes
• insurance
• when you expect to retire and how long you expect to live
• if you plan to have breaks from work, say if you stay at home to raise a family

So scratch that, there is a much easier way to calculate your retirement fund needs and that is to use one or more online calculators. I have listed a few at the end of this article.

However, before consulting an online super calculator, there are a few things to consider. If you haven’t sat down and thought about your superannuation, try this exercise, it won’t take long. If you’re like me, you will get quite a surprise at the outcome.

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I have put together a collection of Australian online resources for managing money. There is a wealth of information (pardon the pun) between these websites: everything from financial counselling, budgeting and saving, to financial planners and investing in the share market.

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Last week I looked at calculating the time cost of discretionary spending. This week, I’ll calculate the savings (according to your real hourly wage) of spending time on “frugal” tasks.

I’ll also look at the time savings that can be made by comparing the opportunity cost of discretionary spending in terms of your mortgage.

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We are used to thinking about spending in terms of money. The opportunity cost of purchasing that new dress is the interest we could be earning on our savings, for example.

But what is the time cost of spending?

Modern western society tends to live on a work to consume cycle. We go to work to earn money to buy goods that we have little time to enjoy because we have to work longer and longer hours to pay for them (and the credit card interest). Often the more important opportunity cost of purchasing unnecessary consumer goods isn’t how much money we could be saving, but how much time we could be saving.

So how much time does your spending cost? And how do you calculate your time cost?

Warning: While it’s good to be financially aware, doing these calculations all the time on everything can get really depressing. Or they could be motivating. Proceed at your own risk.

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Opportunity cost is a fundamental economic concept that affects our everyday lives.

Opportunity cost basically refers to the opportunity that you forgo by making one decision over another. Despite it being an economic concept (and being a ‘cost’), the opportunity cost of a decision doesn’t necessarily have to be financial. In fact, we weigh up opportunity cost (often unconsciously) all the time when making decisions:

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A quick glance at your payslip will tell you what your income is. Quite often we base financial decisions on this gross amount (or even the after tax amount) rather than taking into account the cost of earnings. So what is your real hourly wage and how much does this differ from the amount printed on our pay slip?

Obviously, tax is the first thing to think about when calculating your real hourly wage, but there are also hidden costs to earning income that once taken into account can significantly reduce the amount that you actually earn.

Why is this important? While it may seem pretty obvious, it is easy to make the mistake of basing your spending on gross earnings rather than actual earnings and this leads to debt. Often when people get say a $2,000 pay rise, they spend as if they got a $2,000 pay rise, when in actual fact, the in-the-pocket amount is much less.

When making financial decisions such as calculating how much mortgage you can afford to repay, basing your repayments on your actual wage rather than your gross wage will give you a more realistic picture of what you can and can’t afford.

How to calculate your real wage – an example:

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You’ve probably heard hype surrounding the concept of gearing. Gearing is basically borrowing to invest. More often than not people borrow to invest in property, but you can also borrow to invest in shares in the form of a margin loan. The hype is all about negative gearing, but what is it and what are the other forms of gearing? Below is a quick explanation of gearing.

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