Angela Dye points out the dangers of not staying in complete control of your finances, and what you can do if circumstances conspire against you financially...
Many of us don’t give a second thought to this question. We live week to week, going through the motions of paying bills and often feel like we are getting nowhere financially. We are inundated with information on TV and radio that contain jargon filled reports of increasing tax, inflation and budgets. We also hear about the power of the big four banks.
So you would be forgiven for thinking you have no control over your money, but here is a revelation for you — you can take control of your finances. You don’t need a finance degree either, you just need to be aware of several small things that you can easily do to help yourself and get on a path of financial control.
The first tip is to understand your spending versus your income. If you spend less than you earn all’s well and good, but if you spend a lot more than what goes into your bank account, it is imperative you consider where you can reduce your spending.
A good place to start is to write down everything that you spend so you have a clear idea of where your money goes. You can then think about if you really needed to buy lunch when you could have made it, or if you really needed those extra shoes.
Remember, be honest when listing your expenses and don’t leave anything out, even the sneaky coffee you grab before work each morning. You will be surprised at where you can make savings.
A second tip is one that easily falls by the wayside but could possibly be one of the most beneficial tools to help you gain control of your finances — get your mortgage reviewed every two years. Home ownership and investment laws change all the time and you need to make sure that the product you signed up for is still the best one for you.
Consolidate your debt where you can, try making one monthly home loan payment instead of four and keep up to speed on credit card and personal loan rates — using the right ones could save you thousands.
Third, pay your debt down. Don’t be afraid of interest only loans. You can reduce your debt considerably by having a customised flow of money. Use your savings to help decrease the interest on your mortgage and that way your money works harder for you. Your monthly payment will reduce and you still have access to the funds if you need them.
For example, if you have $10,000 in savings sitting in your bank account and you have a $500,000 mortgage that means you are paying interest on the $500,000 balance. If you transferred your $10,000 to your mortgage or offset account and have it sitting there as available redraw, you will only be paying interest on $490,000.
Interest on home loans is charged monthly but is calculated daily so each day your $10,000 sits in your home loan the less your payment will be at the end of the month. Compound interest can work for you the same way it works for the banks.
Another tip is to be careful of getting caught up in the hype and anxiety of increased interest rates; think independently, consider what is outside the square and be a rebel, but an informed one!
Lastly, get a good understanding of the professional roles around you and how the people in these roles can support and help you. You wouldn’t go to the butcher to get a haircut, so why would you take financial advice from someone who is not an expert in their field?
If you'd like to take control of your finances Ask Ang.