With most economists predicting inflationary pressures to continue into 2011 and 2012 – largely due to China’s obsession with our local resources – many are forecasting at least two more rate rises from the Reserve Bank this year and some are even suggesting an increase of 1% by the beginning of 2012.
With this in mind, it’s timely to discuss effective money management to keep you out of the red as mortgage repayments start to creep up, along with the cost of essentials like food, petrol and yes, even the humble light – what is with electricity bills of late?
Everything we rely on to live the way we do in this country is going to cost us more – a lot more – so how do we account for these growing daily expenses and manage to keep our heads above water? Well, they don’t talk about the “good ol’ days” for nothing and when it comes to managing the household budget, no one was more frugal than our grandparent’s generation…because they had to be!
So here are eight of “Nanna’s tips” to get your financial coffers under control.
- Do it NOW!
Nanna might have said – don’t put off until tomorrow what you can do today. In other words, review your finances, create a realistic budget and most importantly, set yourself some goals. Without goals to keep you motivated, you will most certainly stray from the path. - Make time work for you
We all know that when it comes to saving and investing money, the sooner you start the better. The principle of compounding is an important one – with interest accumulating and then more interest being paid on that interest – your money can increase substantially if you get it working for you. The longer you delay, the less effective compounding will be. So start now! - Be prepared!
There’s no use crying poor if you over-commit to a home loan you can’t afford. A lot of people did this when interest rates were at their lowest in 2009, taking on repayments that were manageable at the time, but that have become a proverbial noose around the neck as rates have risen. Always take into account the worse case scenario when making a financial commitment – by doing so you will be prepared for anything and manage your money more effectively. - If it ain’t broke, don’t fix it!
While a lot of people chose to fix their rates last year as interest rates rose, some would probably have been better off sticking with their variable mortgages. The key to making a fixed rate loan work is to get in while they are still low enough to be worthwhile and by the time most borrowers act, it’s simply too late to make them effective. Generally speaking, most people are better off sticking with variable rate loans in the long term, so always do your sums before jumping in feet first. - Start saving for those rainy days
Whether you own investments or not, having some money squirreled away for a rainy day is an absolute necessity. A cash buffer will tide you over when life throws those inevitable curve balls, like loss of employment, illness or other financial hardship. Having some money set aside – it’s recommended that this be at least three to four months worth of wages – will give you peace of mind and a bit of extra financial security. - If you can’t afford it, you don’t need it!
So many people get themselves into trouble with “easy credit”. These days, credit and store cards, no deposit offers from the big retailers and personal and car loans are just too easy to come by. Before you commit to a purchase that entails anything other than cash you can afford to part with, ask yourself if you really need it and if the debt you’ll be taking on is worth it. - Get a move on!
A lot of Australians have excessive credit card debt – some owe thousands of dollars and can never see themselves paying it off. The problem is, if you only make the minimum repayment each month, you probably won’t ever pay it off! According to InfoChoice, if you owe $5000 on a credit card that charges 20% interest and a $150 annual fee, it would take six years and seven months to clear that debt if you only paid the minimum required each month. Scary? Well consider this – it would have cost you a whopping $4062 in interest over that period, on top of what you already owe! By paying only $100 extra a month, the debt would be cleared four years sooner and with $2600 less interest. - Don’t skimp on the big stuff!
One of the worst things you can do as a home owner with a family is neglect to have insurance…income protection, life, health and even car insurance need to be a part of your financial strategy for staying in the black. Insurance is not something you should be stingy with – select a policy that will give you maximum benefit for your situation, not simply because it’s cheap. Whatever you decide to go for, make sure you always read the fine print and fully understand exactly what you are and are not covered for.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).