Our friends at financewomen have pulled together some simple but effective ideas for the new financial year:
2. Get a better deal
A small change to some of your bigger expenses can make a huge difference to your cash flow. By checking out better deals on your mortgage (let me do this for you) you might be able to save even a quarter of a percent. On a $400,000 mortgage that saves you $1,000 a year. By knowing what other lenders will offer you can even approach your existing bank and ask them to give you a discount to stop you moving, might save you both money and hassle.
Choice’s new research has estimated that switching your shopping from Woolworths and Coles to Aldi can save you 50% off your grocery bill. A typical family can easily save $100 a week on the grocery bill, a whopping $5,000 a year. As a fairly passionate Aldi shopper for the past couple of years I have been really impressed by quality of the meat and veges, not just the packaged goods. It takes a while to get used to their range and for particular specialty or branded items you might need to duck into a rival to complete the list every now and then, but the range at Aldi is getting better and better and I’m finding much less reason to shop at the big two these days.
For me it’s time to revisit my electricity deals. Since I last did this the Victorian State Government has introduced a couple of really nifty measures. I plan on claiming my $50 bonus when I use the independent comparison tool to find out the best deal for me. Furthermore I’m fairly impressed at their new Default Offering which is mandating a fairer price for those consumers who have been a bit disengaged and may not be getting a good deal on their electricity prices. If you live in Victoria you might like to check out the Victorian State Government’s programs including the $50 rebate and comparison tool.
3. Making the most of your tax refund
If you are lucky enough to get a tax return this year, what are you going to do with it? If you’re like most of us it either goes on a bit of a splurge or disappears into the vacuum of your bank account never to be seen again. How about using it a little more constructively this year? You don’t need to be a complete miser though. How about agreeing now that half is you to enjoy now and half later. When you’ve worked out how much it’s going to be, be disciplined about both the spending and the saving. Make sure you enjoy your ‘now half’ whether it’s the size of a dinner or a new handbag or only stretches to that book you’ve been promising yourself or a ticket to the movies. Then make sure that you deliver on your commitment to enjoying the ‘later half’. You can make an extra contribution to your super or into the part of your mortgage you can’t easily get your hands on.
While your doing you your tax return this year keep one eye on what you could do better for the next year. Is it keeping receipts when you donate money? Or keeping a log bog for your car mileage? What can you do now to make next year’s tax time easier and more rewarding? So you’ll have more money for now and later next year!
by Catherine Thompson - Principal of Volare Home Loans
Many people I talk to aren’t really sure what’s involved in refinancing a home loan. Does it cost a lot? Is it complicated? Is it worth it? Does it really save me money? If you'd like to know more, keep reading. If you don’t like reading, give me a call and I'll talk you through what's involved!
Let’s start with the costs involved
While the costs aren’t significant, they do exist. Most lenders will have a Discharge fee which is typically around $300-$350. Then there are Government fees of around $250.
But that’s not all. There could be application fees (but not always) for the new lender and these generally range from $0-$600. Application fees often cover the valuation, legal fees and settlement fees.
So, in total you need to be better off by at least $600 plus any new application fee amount to make a change worthwhile.
Now for a few more stats, according to the ABS, the average Victorian home loan is around $400k and a typical Australian borrower is likely to change their loan every 3-4 years.
Unfortunately, many lenders increase your interest rates the longer you stay with them. i.e. NEW customers are able to take advantage of ‘special’ rates that you can’t access.
So let’s look at some examples to see at what point it does become worthwhile changing your existing lender:
Repayments on an average $400k loan.
Let's look at monthly repayments for a loan with a 3.5% interest rate as a minimum. I would be horrified to think that anyone is paying 5% (unless extenuating circumstances like a low credit score) so let’s use that as a maximum and go from there.
So, if you are still following me, using this second chart, with a $400k loan, covering at least the costs of $600 (but don’t forget there may be an application fee):
If your loan size is $800k, the savings double so you would be in a better position financially in just one year if the new interest rate was 0.11% lower. I think you may be getting the picture.
In most cases achieving a 0.22% better rate should be possible but of course it depends on your individual situation and lender preference. There are often ‘specials’ running to encourage you to move lenders and as long as you do your figures (or let me run them for you) you could be better off in a very short period of time.
For some of my clients, I have reduced their interest rates by up to 0.8%. With interest rate decreases of that level you could save a whopping $67k on the life of the loan. So in these cases if would be crazy NOT to refinance.
But before you jump on the phone and call me to refinance, give your existing lender a call. Tell them that you are looking at moving and ask them if can they do any better than your current rate? If they can – great you just saved money by making one phone call. If they won’t budge at least you know where you stand. Then give me call. I’m a big believer of “if you don’t ask you don’t get”.
How complicated is it?
Well that depends on many things but very simply if your income, through all sources are more than the loan repayments and expenses combined and you have a good credit record then you should be fine. Before any submission is made to a lender, serviceability is calculated and all evidence is completed reviewed to ensure your loan will be approved before it is submitted to the lender. You don’t want to have any unnecessary credit inquires on your file as every credit inquiry you make impacts your credit score and may not be looked upon favorably by lenders.
What do I need to supply to apply to refinance?
You will also need to be ID’ed and provide some information about yourself, your situation and what your aims are now and in the future. I will then complete the applications and any other paperwork required.
The whole process takes around 4-6 weeks depending on the lender. Some lenders have a process where the refinance can occur faster through paying out the lender you are leaving first before they transfer the Mortgage as some lenders can stretch this process out causing delays and frustration.
So it really isn't as complicated or expensive as you may think. If you have any specific questions don’t hesitate to give me a call. Always happy to have a coffee and a chat and see if I can save you money which is way better in your pocket than the banks!
Catherine Thompson is a credit representative 508141 of BLSSA Pty Ltd ACN 117 651 760 (Australian Credit Licence 391237). The information contained in this blog is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice
The goal is to be rich not look rich. This has come to be one of my favourite sayings. The number one reason why wealthy people are wealthy is because they watch what they spend their money on. Here are some ideas:
1. Live below your means (NOT just within your means)
Just because your friend Jo eats at expensive restaurants every day, buys the lastest iPhone or new car just after it's released, doesn’t mean you have to.
The best way to ensure you are wealthy later on in life is to live below your means now. Be aware of what it costs you to live and stay within those limits. And definitely do not using credit cards or loans to maintain a lifestyle to compete with others.
2. Eliminate unnecessary expenses
Do you buy lunch everyday? get UberEats all the time? catch an Uber instead of public transport or walking? These are all unnecessary expenses that simply require a little planning to not utilise. Your health and wallet will thank you.
3. Do It Yourself (DIY)
Do you really need to get someone to do your gardening, wash your clothes, clean your house, wash your car, wash your pets, deliver your food? The money you spend paying for these services could redirected to saving or investing.
4. Sell the stuff you no longer use
How many things do you have lying around that you could list on eBay, Gumtree or FB Marketplace. Thanks to all these platforms and more, you can sell these items and not only clear out your house, you may be surprised at how much you can make.
5. Find a side gig
With platforms such as AirTasker, Uber and fiveer, consider a part time second job or side hustle for some extra money. Or create your own website/Instagram page and sell your services/products for some extra cash.
It is important to remember that becoming rich is a slow process that requires you to be disciplined, focused and patient. It will be worth it in the end.
Since 2004, Heartland has assisted over 17,000 Australians aged 60 and over release equity from their home, helping them to live a more comfortable retirement, with independence and dignity. However, some misconceptions regarding what a reverse mortgage is, and how they work, persist.
Watch the video below to debunk three common reverse mortgage myths:
Did you know that reverse mortgages are one of the most heavily regulated consumer finance products in Australia? The Heartland Reverse Mortgage has a number of protections to provide you with maximum peace of mind. These include:
As you can see, our reverse mortgage has been developed with customer protection at its heart. Read more about these protections on our Borrower Protection page.
Alternatively, if you'd like to talk to a Accredited Authorised Broker contact me on 0411 849 804. I'd be only too happy to discuss any questions you may have.
Don't pay more than you have to
Make small changes in your home
Autumn is the time to prepare your home so it can keep you warm throughout winter without the bills that come with it.
Just like getting a job in your 50's, getting a home loan can require some planning. Come and have a chat with me and we can put some plans in place so you will be approved at your first choice of lender.
I hope you pick up some useful tips from this article. Catherine
BY ANNE MOLLEGEN SMITH
Becoming someone who’s readily employable in your 50's (and beyond) calls on a skill set you can and should start working on as early as your first few jobs – even when you’re just in your teens or 20's. You can also pick up and start polishing these strengths, even if you’re in your 60's or 70's when you want to find work. Today people can expect to have as many as 11 jobs over a career lifetime. With a tip of the hat to the late Stephen Covey, you might think of the following as the “Seven Habits of Highly Employable People.”
None of the skills we’re recommending should be cultivated in place of competence in your work or loyalty to your tasks; rather, these are the extra things that will make you more hirable on top of your other abilities.
Each general point is paired with age-specific recommendations for when you’re in your 50's, plus some key moves to immediately make if your job search is in high gear or you’re suddenly out of work.
1. Cultivate Friendships, Not Just “Networks”
LIFELONG HABIT: Forget self-conscious networking. Instead, concentrate on making friends and on being a friend. Take an interest in other people, remember their stories, stay in touch, send thank-you notes and celebrate people’s successes. Be the friend you’d like to have – loyal, generous and trustworthy. Take small social risks: Invite people to join you in something, offer a ride home, learn to accept help and be generous with your time.
In your 50's: Include younger people among your friendships as well as the older and more powerful people who can help you now. Like networking, “mentoring” has become a cynical cliché, but inside the phony stuff is something valuable. Make a point of spending some time with younger colleagues and people in your area, but be careful that you listen to their concerns more than you preach to them. As your friends’ children come of age, take an interest in them, too.
Searching in high gear: If you’re still employed but actively looking, now’s the time to contact recruiters and mark what you send to HR departments as confidential. Be sure your resume is up-to-date, not just in terms of your work history and career objective, but also in its format: Is it scannable in an Applicant Tracking System (ATS)? Have you embedded the current buzzwords for the jobs you’d like to get?
Shorten the older items on your resume and delete any job duties that will make you seem too old-school. If nobody uses whizamajigs anymore, then don’t list that you’re good at them. (See 7 Ways Your Resume Dates You for more.) Consider having a personal web page and develop your capsule self-description.
Urgent: Work on a simple explanation of why you’re out of work that is basically true and doesn’t reflect too badly on you, on your ex-boss or on the company. Refine and rehearse it until you can say it without getting upset. This is not the time to have axes to grind.
You may want to vent to close family and a few patient and loyal friends. Until you can get your emotions under some control, though, stay off the phone and watch what you put in the e-mail and what you say in public. When you go out socially, be careful that having a drink or two doesn’t loosen your tongue, release your anger or bring out self-pity. Be ready with small-talk topics so that you can deflect the conversation away from yourself.
You can now send out another round of resumes to say you’re available immediately or a month or two in the future. Update your LinkedIn profile. (See How To Use LinkedIn To Get A Job.)
2. Keep Up Your Looks, Your Spirit And Your Energy'
LIFELONG HABIT: Stay fit – exercise enough to sleep well, have plenty of energy and stay healthy. Control your weight. If stress is a problem in your life or work, make changes. Don’t hover between a rock and a hard place; figure out a better spot and move toward it — even if it’s a lateral move. Avoid unnecessary financial stress, which usually boils down to: Live enough below your means to prevent financial problems, build up an emergency fund and set aside regular savings for future goals and needs.
In your 50s: Periodically evaluate your wardrobe and your overall style. Get rid of clothes that look dated no matter how much you liked them when they were new. Is your hair thinning, graying or receding so that it’s time to change the way it’s cut or styled? Be wary of coloring your hair very dark even if that’s your original color; all-one-tone dark hair can look fake and harsh on older faces. Instead, consider using a shade or two lighter to tone down gray without looking like you applied shoe polish to your head.
Searching in high gear: You may already be a member of a trade association or civic organization; this is the time to seek a leadership role in it – head an important committee, chair an event or take on a challenge that will give you visibility and favorable word of mouth.
Urgent: See if you can negotiate an exit package that not only provides some health coverage, severance and so on but some outplacement perks as well, such as a health or golf club membership, for instance. (See The Layoff Payoff: The Severance Package.) In your professional organization, join an existing committee – any committee – and work your tail off. It’s a good way to boost your reputation as a doer and keep up your self-respect.
3. Have Two Irons in the Fire
LIFELONG HABIT: Unless you are the owner of a new business, do not let one job take all your time and energy: You can have a major career and a minor career. At some point, they may flip. Or you may have a two-tier career: Break jobs into tasks – and turn tasks into secondary careers, possibly very part-time. For example: An interior designer with corporate clients also has a local custom-upholstery business with several part-time employees. Your two career lines may be related or completely independent. Today’s trend is toward “slasher” occupations, often in surprising juxtapositions: accountant/garden designer. Jazz drummer/journalism professor/craft beer brew consultant. Church organist/web designer/computer programmer. In big or little ways, what you observe and learn in one job may help you in the other.
In your 50s: In most families, this time of peak earnings is also a time of high expenditure for children’s college or even secondary school costs, home renovations, parental caretaking and medical expenses. Can you wrest more income from your sideline so that you can keep up your regular retirement savings and keep down overall debt?
Whatever your interests and skills are, consider whether you can share or teach them to others as a paying sideline. The church organist may be able to add more weddings to his schedule and teach a few private pupils as well. The local history expert starts giving walking tours and entertaining illustrated lectures for a fee.
Searching in high gear: As realistically as you can, size up your prospects. Do you need to relocate? Research areas that might have better opportunities for you. (Some of these Top 10 Cities For Grads To Get Jobs may be good for you, too.) Do you need to take classes toward certification in a specialty? Start now. Do you need to switch to a different career? Get serious. Figure out how you can best use the lead time to lay the groundwork for a career transition.
Urgent: Maybe you can rustle up some short-term projects while you finish a degree or hit the ground jogging in the new location by doing some temp work. But don’t be afraid to think long term. The rate of increase in labor force participation by people 65 to 69 continues to grow every year and is expected to reach as much as 36.6 percent by 2026.
4. Make Yourself a Pleasure to Be Around
LIFELONG HABIT: Be gracious, grateful and generous. If you have problems with depression, anger or anxiety, deal with them. Get help, including short-term therapy and/or taking necessary prescribed medication when your demons get the upper hand. Learn to shed your grudges. Remember, chronic anger and anxiety will show in your face as you age, making you easier to read and harder to like. Learn to ask people easy social questions rather than talking about yourself too much, and try to show a sense of humor about yourself. Share news but not unkind gossip. Even if no one’s looking, don’t kick the neighbor’s cat.
In your 50s: You may be facing up to the limitations of your body for the first time, but do not make it a mainstay of your conversation. No need to joke about “senior moments” when you can attribute memory lapses to “multitasking overload.” If you face a health problem, focus on recovery or management of it. In short, don’t get hung up on aging as a problem.
Searching in high gear: Convey open-minded, positive expectations of the next phase along with a readiness to move into it. Show that you’ve enjoyed your work in the past, not just the paychecks. Don’t try to hide or lie about your age – that is, don’t treat it like a dirty secret, just redefine it as if to say, “My age 55 is as full of energy and optimism as age 40, but look how much smarter and wiser I am now.”
Urgent: If you’re getting the interviews but never the job, and if you think your age is holding you back from work you are qualified for, go to a career coach for help in discarding behaviors you may not be aware of that are weighing you down. But face the fact: Prejudice and age-stereotyping exist in the world, and you cannot control everything from your side of the desk when you’re the one sitting in the guest chair. (Read 5 Reasons You Didn’t Get The Job.)
5. Know Your Business Universe
LIFELONG HABIT: Keep up with not only the state of your company but of the industry as a whole. Read the business and trade press; follow the important blogs. Join industry forums and groups online.
In your 50s: Make note of which companies would be the best to work for, who the leaders are, and also who is likely to be one of tomorrow’s stars. Keep bookmarks or a clip file. Go out of your way to get casually acquainted with influential people in your field that you don’t already know.
Searching in high gear: Turn that casual knowledge into an action list. Contact people, suggest having lunch or coffee and out of the corner of your eye, start paying attention to what’s happening in other fields you might transition to if things come up dry in what you’ve been doing.
Urgent: Has someone relevant to your search recently appeared in the trade press? If it’s favorable, you can mention it in a cover note or in person.
6. Keep Learning
LIFELONG HABIT: Read books, go places you’ve never been, expose yourself to different ideas and cultivate additional skills. Be curious and at least a little adventurous about what’s new.
In your 50s: Sign up for a massive open online course (MOOC), take online tutorials, add some digital skills and make use of various life hacks. Listen to TED talks, take voice or yoga classes. Get out of your comfort zone sometimes. Do things you enjoy and challenge yourself with new stuff. Mix socially with people of all ages, but especially arrange to have contact with people 5 to 10 years younger than you or more. Committee work or nonprofit volunteering is one good way. Among other things, this will update your conversation with current references and catchphrases.
Searching in high gear: Embrace the 21st century – use all the digital support you can get. Visit online job-search sites: Check out Indeed.com, Career Builder, ZipRecruiter.com, Glassdoor.com and Freelancer.com. Look at Idealist.org for nonprofits. Which sites fit your needs? Ask other people in your field for suggestions – especially those who’ve recently changed jobs.
Urgent: Sign up to teach a course or just a single class that will give you a good reason to visit people who might be in a position to hire you in the near future. Ask them what your students need to know. Position yourself as someone comfortable in a leadership role whether in a classroom or the workplace. Besides, who isn’t flattered by being interviewed as an industry leader or knowledgeable person?
Now that it’s no secret you’re looking, update your LinkedIn profile with whatever you’re teaching or lecturing about; pull out a couple of points to highlight. Add other recent accomplishments and adjust the setting so your update goes out to your full list of contacts – but don’t do this trick too often or you’ll become a bore.
7. Accept Feedback Without Getting Defensive
LIFELONG HABIT: If this is hard for you, get some practice by taking a few courses outside of work. Or take up a new sport; getting coaching will help you if you need to learn how to learn.
In your 50s: Abandon false pride: If you get passed over for a promotion or a job you thought you were qualified for, try to find out why so you can fix the problem. Be careful not to appear as though you have a chip on your shoulder. As long as you can keep learning and changing, you’ll never be a has-been.
Throughout the job search: Think of this period like staying in training for a sports competition or having your home on the market so you can’t permit personal “stuff” like laundry (or self-pity) to pile up or leave dirty dishes (or disgruntled attitudes) out on display.
The Bottom Line - There are reasons some people seem to float easily from job to job as though jobs come looking for them rather than the other way around. Develop and practice these “Seven Habits of Highly Employable People,” and you'll improve your chances of becoming one of them. Today, being in your 50s is certainly not too late to put new habits into practice because you may have another 10, 15 or 20 years to go in your career – and they may as well be good ones.
A topic that I feel very strongly about, Sharon has written a great article with some very useful information. Give me call when you are ready to start your property investment journey.
You can find the whole article at www.performanceproperty.com.au. Here is an excerpt:
"There are mixed statistics available that cite the number of women that invest in property. Some are as low as 30%, others as high as 47% of all investors. Regardless of this figure, it has become clear that women of all ages should be taking control of their financial futures and taking the steps to empower themselves with relevant knowledge to ensure they have the confidence to make decisions and take action. Of course, the earlier in life that they do that, the better, but it’s never too late!
According to the Australian Institute of Family Studies there has been a 44% increase in the number of older women seeking homelessness services since 2012. Close to 10,000 older women have accessed services this financial year making women over 55 the fastest growing group among the homeless. Government statistics forecast that half a million women will fall into housing stress in the next two decades. Reasons for this can vary because, of course, everyone’s circumstances are individual to their situation. But some common scenarios behind these statistics for women include: a death of their partner, divorce, domestic violence and a lack of superannuation due to the increase in casual and part-time employment and/or time out of the workforce to raise children. This is evident, according to The Workplace Gender Equality Agency which states the average super balances for men are $198,000 as opposed to $112,600 for women.
A survey by Finder found that the number one mistake nominated by women was letting their partner control the finances. According to the ABS there were 46,604 divorces in 2016, of which 50% involve children under 18 years. The median age of women who divorce is 42.2, with most women likely to spend at least a part of the life on their own, because they either never marry, get divorced or become widowed. It stands to reason that women should be looking to empower themselves financially no matter what the age or relationship status and they should be educating theirdaughters of all ages about finance and investing to help improve these statistics for the future. What needs to be done for this to occur?
Kathy Murphy, the President of Personal Investing at Fidelity Investments, has written extensively about the confidence gap that exists for women in the workplace and suggests that this transfers to investing and personal finance. If a lack of confidence can influence the trust one has in one’s ability to try and hence succeed, then this lack of confidence can result in a lack of action. No action, no change.
Education and reliable, unbiased information can be drivers of change and help fill this confidence gap, enabling women to feel empowered to take control of their own finances, regardless of their age or relationship status. The right education can give them the ability to take calculated, well informed risks.
So, what can women do to flex their confidence muscle when it comes to investing in property?
Understand Property Cycles
Every city and town has its own property cycle. Some have experienced exceptional growth in the last five years, others have been stagnant, while others have even gone backwards. Traditionally, if you purchase a property in a market at the top of the cycle it will experience a 4 to 7 year correction period with price stagnation or in some instances negative growth (5 to 10 years for regional centres). If, on the other hand, you purchase a property in a market at the bottom of the cycle, traditionally what you will experience is 7 years of growth (5 to 10 years for regional centres).
By understanding these cycles and investing at the bottom of the market you can potentially take advantage of the short to medium term growth. Otherwise, your chosen asset may see minimal to no capital growth for 4 to 7 years.
Empower Yourself with Knowledge
You don’t know what you don’t know, but you can build an arsenal of knowledge by reading property books and listening to podcasts. Read to understand the different property strategies, from a variety of authors who are property investors themselves. Learn about other peoples’ mistakes, so you know what not to do. Read and listen to as much as possible so you can distinguish between advice from experts and a sales pitch. Feel free to reach out to me for some book and podcast recommendations.
Get Expert Advice
Seek out investment advice that is unbiased, well informed and backed by solid research. Journalists are not qualified property experts, they are qualified journalists and their job is to write. Your well intentioned family and friends may also not be the right place to get advice. And finally, beware the property spruiker and off the plan marketer. They are not offering you advice, they are trying to sell you something.
Only Invest in Quality, In-Demand Assets
Demand will impact capital growth prospects and also the ability to secure the right tenant quickly. When looking at a city or town to invest in, ensure the population is increasing and that fundamental indicators exist to support future growth, such as low unemployment and spending on infrastructure. On a property level, never buy a house and land package or an off the plan apartment as an investment. Consider properties that are scarce, with character and that are in demand by tenants and purchasers alike.
Remove All Emotion from Your Investment Decisions
Buying an investment property is very different to buying a home to live in. Investing should be all about the numbers and whether they stack up to suggest you are making a sound investment decision. The goal of investing in property should be to make money; it’s not about the colour of the walls or whether you like the kitchen.
If your time is best spent focusing on your zone of genius (if for you that is not researching and educating yourself on property markets), then engage a trusted property advisor. One who is a successful investor in their own right, who doesn’t shy away from answering all your questions and who is educated."
Let me help you with the finances for this journey. Give Catherine a call on 0411 849 804.
If you contributed to the $29 billion + accumulated debt spent by Australians on credit cards at Christmas time what can you do?
The first thing to do is not panic. Have a plan of attack and put it into action. Don't just put your head in the sand and think it will all go away.
If you are having problems managing your existing level of debt, speak to the credit provider before it becomes a problem. Most want you to repay the debt so will help in anyway they can.
DO NOT miss or skip the minimum payment as this could impact your credit score and ability to get credit in the future.
Seek specialist professional advice from your Accountant or Financial Planner.
If you have equity in your home and are having trouble repaying credit cards and other higher interest loans (Personal Loans and Lines of Credit) you can consolidate your debt into one home loan repayment which is likely to be at a much lower interest rate than these loans or credit cards.
If you need any help with budgeting or debt consolidation, give Catherine a call on 0411 849 804 and she can help.
by Shane Oliver
I came across this article online that was published in the AFR on Nov 19th 2018. I'm always looking for tips for my customers for managing their finances. While I agree that they are simple, it does no harm to remind you of them so here is a summary, Catherine
1 . Shop around
We often shop around to get the best deal when it comes to consumer items but the same should apply to financial services.
As Governor Lowe points out, "don't be shy to ask for a better deal whether for your mortgage, your electricity contract or your phone plan". The same applies to your insurance, banking, superannuation, etc. It's a highly-competitive world out there and financial companies want to get and keep your business. So when getting a new financial service it makes sense to look around - give Catherine a call and see what she can do for you
2. Don't take on too much debt
Debt is great, up to a point. It helps you have today what you would otherwise have to wait till tomorrow for.
It enables you to spread the costs associated with long term "assets" like a home over the years, you get the benefit of it and it enables you to enhance your underlying investment returns.
But as with everything, you can have too much of it. Someone wise once said, "it's not what you own that will send you bust but what you owe".
So always make sure that you don't take on so much debt that it may force you to sell all your investments just at the time you should be adding to them or, worse still, potentially send you bust.
Or to sell your house when it has fallen in value. A rough guide may be that when debt servicing costs exceed 30 per cent of your income then maybe you have too much debt – but it depends on your income and expenses.
A higher-income person could manage a higher debt servicing to income ratio simply because living expenses take up less of their income.
3. Allow that interest rates can go up as well as down
Yeah, I know that it's a long time since official interest rates were last raised in Australia – in fact it was way back in 2010.
So as Governor Lowe observes "many borrowers have never experienced a rise in official interest rates".
But don't be fooled by the recent history of falling or low rates. My view is that an increase in rates is still a long way off (and they may even fall further first) – but that's just a view and views can be wrong.
History tells us that eventually the interest rate cycle will turn up. So, the key is to make sure you can afford higher interest payments at some point.
4. Allow for rainy days
This is another one raised by Governor Lowe, who said: "Things don't always turn out as we expect. So for most of us having a buffer against the unexpected makes a lot of sense."
The rainy day could come as a result of higher interest rates, job loss or an unexpected expense.
This basically means not taking all the debt offered to you, trying to stay ahead of your payments and making sure that when you draw down your loan you can withstand at least a 2 per cent rise in interest rates.
5. Credit cards are great, but they deserve respect
I love my credit cards. They provide me with free credit for up to around 6-7 weeks and they attract points that can really mount up (just convert the points into gift cards and they make optimal Christmas presents!).
So, it makes sense to put as much of my expenses as I can on them. But they charge usurious interest rates of around 20-21 per cent if I get a cash advance or don't pay the full balance by the due date.
So never get a cash advance unless it's an absolute emergency and always pay by the due date. Sure the 20-21 per cent rate sounds a rip-off, but don't forget that credit card debt is not secured by your house and at least the high rate provides that extra incentive to pay by the due date.
6. Use your mortgage for longer-term debt
Credit cards are not for long-term debt, but your mortgage is. And partly because it's secured by your house, mortgage rates are low compared with other borrowing rates – at about 4-5 per cent for most.
So if you have any debt that may take longer than the due date on your credit card to pay off, then it should be on your mortgage if you have one.
7. Start saving and investing early
If you want to build your wealth to get a deposit for a house or save for retirement, the best way to do that is to take advantage of compound interest – where returns build on returns.
Obviously, this works best with assets that provide high returns on average over long periods. But to make the most of it you have to start as early as possible.
Which is why those piggy banks that banks periodically hand out to children have such merit in getting us into the habit of saving early.
8. Allow that asset prices go up and down
It's well known that the share market goes through rough patches. The volatility seen in the share market is the price we pay for higher returns than most other asset classes over the long term.
But when it comes to property there seems to be an urban myth that it never goes down in value. Of course property prices will always be smoother than share prices because it's not traded daily and so is not subject to daily swings in sentiment.
But history tells home prices do go down as well as up.So the key is to allow that asset prices don't always go up – even when the population and the economy are growing.
9. Try to see big financial events in their long-term context.
Hearing that $50 billion was wiped off the share market in one day sounds scary – but it tells you little about how much the market actually fell and you have only lost something if you actually sell out after the fall.
Scarier was the roughly 20 per cent fall in share markets through 2015-16 and, worse still, the GFC that saw roughly 50 per cent falls. But such events happen every so often in share markets – the 1987 crash saw a 50 per cent fall in a few months and Australian shares fell 59 per cent over 1973-74.
And after each, the market has gone back up. So, we have seen it all before, even though the details may differ.
The trick is to allow for periodic sharp falls in your investment strategy and when they do happen remind yourself that we have seen it all before and the market will find a base and resume its long-term rising trend.
10. Know your risk tolerance
When embarking on investing, it's worth thinking about how you might respond if you found out that market movements had just wiped 20 per cent off the value of your investments.
If your response is likely to be, "I don't like it, but this sometimes happens in markets and history tells me that if I stick to my strategy I will see a recovery in time", then no problem.
But if your response might be, "I can't sleep at night because of this, get me out of here", then maybe you should rethink your strategy as you will just end up selling at market bottoms and buying tops.
So try to match your investment strategy to your risk tolerance.
11. Make the most of the Mum and Dad bank
The housing boom in Australia that got under way in the mid-1990s and reached fever pitch in Sydney and Melbourne last year has left housing unaffordable for many.
This contributed to a huge wealth transfer from Millennials to Baby Boomers and some Gen Xers.
Hopefully the current home price correction under way will help in starting to correct that. But for Millennials in the meantime, if you can it makes sense to make the most of the "Mum and Dad bank". There are two ways to do this.
A year ago Bitcoin was all the rage. Even my dog was asking about it. But piling in at around $US19,000 a coin just when everyone was talking about it back then would not have been wise (it's now below $US6000) even though many saw it as the best thing since sliced bread.
Often when the crowd is dead set on some investment it's best to do the opposite.
13. There is no free lunch
When it comes to borrowing and investing there is no free lunch – if something looks too good to be true (whether it's ultra-low fees or interest rates or investment products claiming ultra-high returns and low risk) then it probably is and it's best to stay away.
Message from CAtherine
Occasionally I come across an interesting article to do with Home Loans. I thought I'd share some of these with you here.