Why you should have a budget!

Why you should have a budget!

Without a budget your future financial security could get lost.

Brendan Barker - Home Financing Specialist - Home Loans - Car Loans - Personal Loans

I still remember the joys of my first job.  It was the mid 90’s and I had just started as a graduate mining engineer in Broken Hill.

I had spent the previous 6 years at university between undergraduate and post graduate studies.  Having a regular income, of was that wonderful.

I could afford to enjoy life.  Enjoy it I did, while I was never a party animal, I enjoyed going out with the mates each weekend.

Bought myself a new car, a red Ford Futura.  Plus, one or two new gadgets, TV, computer etc.

Throw in a holiday or two. Not having to worry about money because I was earning a good income.

Life was good.

Or so I thought.

It was a Christmas a couple of years after I started my working career.  I was in Melbourne having a holiday.  Trying to work out how I had ended up in financial difficulty.

I wasn’t helping things with the holiday itself going on to the credit card.

I had a car loan I was paying off.

A credit card with a steadily growing balance.

A debt with the ATO, my employer had taken out the wrong amount of tax.  Not that it was their problem.

Here I was earning great money (for someone who was only starting their career) and I had nothing to show for it.  I was living pay cheque to pay cheque.

Something had to change.  But first I had to admit to myself what I was doing wrong.

I didn’t have a budget.  I had no plan for my future.  I was earning money and spending money and hoping that everything would be wonderful at the end of the day.

I had to change.

By the end of the Christmas holiday I had a plan in place.  A budget which would allow me to have some financial security.

Competition

4 steps to create your budget

  1. Work out what I was earning – easy I just looked at my last payslip. It was consistent pay to pay.
  2. Work out my living expenses – no this wasn’t what I was spending each week, but what I had to spend each week. Fuel for the car, electricity, phone, food, rent, insurances etc.  All the stuff that must be paid for each week.
  3. What did I owe – what where the debts owing, car loan, credit card and ATO and what the repayments for each were.
  4. Put the plan together – this was the fun bit
Putting the plan together

First step was to take my monthly income and subtract my living expenses and my debt repayments.

What was left was the money I had available to create the future I wanted.

The second step was to allocate this money to work for me.  I allocated some to reducing my debt, some to saving for the future and what was left I could spend as I pleased.

I can’t remember what the actual numbers, but for illustrative purposes let say I was earning $4,000 per month.  My monthly living expenses were $2,000 and I had $750 per month in repayments on my debts.

That meant I had $1,250 I could allocate at step 2.  I may have put $500 a month into savings, paid an additional $250 a month off my debts and that would have left me with $500 to do with as I pleased each month.

No guilt or restrictions on what I spent that money on.  If I didn’t spend it, I either added it to my savings or spent it the next month.

I just had a simple plan I followed each month.  When I got paid, I would put my money for living expenses aside in one account, my savings into another and pay off some debts.  I knew how much and where it was going.  The rest I got to spend.

It was simple and straight forward.

A budget doesn’t have to be complex and it does not have to be a rigid document which doesn’t allow you to enjoy life.  It must be a plan which will allow you to get ahead in life.

Uncertain whether you should have a budget?  Don’t know where to start?  Click here to get your free budget planner to help you get under way.

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How $5 can change your life!

How $5 can change your life!

Can you afford to save $5 a day?

Brendan Barker - Home Financing Specialist - Home Loans - Car Loans - Personal Loans

How much do you spend on a daily basis? The morning coffee, a sandwich at lunch time, a coke mid-afternoon or a snack while doing the shopping, all these little things add up very quickly.

What if you decided not to purchase one of those indulgences and instead saved $5 each day.  Instead of picking up a coffee from the local café, make one a home before leave the house.

Instead of buying a sandwich at lunch, make a little bit more for dinner each night and bring leftovers for lunch.  Drink water instead of getting that coke, which is a much healthier option anyway.

There is so many little things we can do which would save us $5 just on the little luxuries.

What I hear you say, $5, that’s not going to change my life.

Read on and see how the simple $5 note is going to make the world of difference.

What if you saved $5 a day for a month?

You would have saved $150.  While it is a great achievement (whether you saved $10 or $1,000 it is a great result), is having $150 going to change your life?

Well if you bought a new bike and started riding it everywhere, it could have a significant difference on your health and your life.  If you went and bought a new outfit, while enjoyable not so much a difference on your life.

You could have a romantic dinner with your partner or you could spend it on the children.  While saving could make a change in your life, it most likely won’t be significant.

What if you kept on saving, say for 3 or 6 months?

Competition

What if you saved $5 a day for 6 months?

You would have saved $900.  Congratulations this is starting to look like some serious savings, but will $900 change your life?

That would be a great weekend getaway for the away for the family. That start of an emergency fund so you don’t have to reach for a credit card each time something from left field crops up.

For only the cost of a cup a coffee a day, this is starting to look like it could change your life…

What if you kept saving for a year?

What if you saved $5 a day for a year?

You would have saved $1,800.  Now if your partner had joined in on the challenge, so you both were saving $5 a day, $10 in total.  Yep, $3,600.

Now we are starting to talk about some serious money.  If you had $3,600 saved come the end of the year, what could you do?

Take the family on an overseas holiday? How about a cruise? Pay off the credit card once and for all (wouldn’t that be a great feeling).

What if $3,600 is not enough for you to reach your dream?  Nothing stopping you from continuing to save.  5 years and you would have $18,000, yep more than enough for a deposit on a new home or to buy a second car outright.

What if you don’t want to spend 5 years to get to $18,000 in savings.  There is nothing stopping you from saving a little more each day.  Instead of $5 a day or $35 a week, you could aim to save $50 per week each or you might go for $10 per day.

All it takes is looking at the little luxuries we enjoy each day and cutting one or two out.  You don’t have to cut them all out, just enough so that you can save for the future.

Uncertain how $5 a day can change your life?  Don’t know where to start?  Click here to get your free budget planner here to help you get under way.

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How to get rid of credit card debt

How to get rid of credit card debt

How consolidating your credit card debt can save you money.

Brendan Barker - Home Financing Specialist - Home Loans - Car Loans - Personal Loans

$32,000,000,000. Yes Thirty Two Billion Dollars.  That is the credit card debt currently owed by Australians, that’s an average of around $4,300 per card holder.

With interest rates on credit cards typically running at 15% to 24% the average credit card owner would be paying $650 to $1,000 per year in interest.

This doesn’t include any fee’s and charges the credit card provider may charge.

Add in a second credit card or a personal loan or two, and it is not difficult to see why it is so easy to get yourself into financial strife with debt.

How do you get on top and manage your credit card debt?  Read on to find out…..

Top Three Tips for Managing Credit Card Debt

Your individual situation will most likely be very different to the national averages.  You may have significantly more credit card debt or you may have none.

Regardless of how much or little credit card debt you may have, the following 3 tips are worth following (at least the first two if you have no debt).

  • Have a budget – if you don’t know what your income and expenditure looks like each month, there is no way to know if you can afford that new dress, latest iPhone or that cruise you have been dying to take.
  • Set up a regular savings – savings form an important part of your household finances, allowing you to afford the bigger ticket items or pay for those unexpected expenses.
  • Consolidate your debts – This simplifies your repayments and means you only have to deal with one interest rate. Typically you will end up paying a lower amount of interest which will save you money.

Competition

How to get on top of your finances with Debt Consolidation

What exactly is “Debt Consolidation” – it means refinancing your debt onto the lowest interest rate possible – and setting up a realistic repayment plan to get it paid off!

The key here is having the plan to pay off the debt.  If you don’t budget to pay off the debt, all that will happen is that you will keep on getting further and further into debt.

So what are the 3 Main Options for Consolidating Credit Card Debt?

  • Transfer your Credit Card Debt onto another Credit Card offering Balance Transfer Rates

This can be a great option, as there are many Credit Card providers offering 0% on balance transfers for 6 or 12 months.  However, this only works if you can pay off the debt within that time period.

While you can continue to transfer the debt from card to card, this will start impacting your credit score and could impact on what lenders will give you in the future.

  • Consolidate your Credit Card Debt with a personal loan

Using a personal loan for debt consolidation has the significant benefit of the personal loan having a defined lifespan.  The repayments will have been calculated so you pay off the loan over a certain timeframe (3 to 7 years).

This will save you a significant amount of money in interest, but you may end up having to repay more each month on the personal loan than you currently paying off the credit cards.

  • Incorporate your Credit Card Debt into your Home Loan

Provided you actual have a mortgage and equity in your home that can be used for debt consolidation.

By incorporating your credit card / personal loan debt into the home loan, and increasing your home loan repayments accordingly will not only save you on interest but will allow you to pay off the home loan sooner.

Of course these strategies will only work if you stop adding to your current credit card debt.  If you cannot control your spending habits the best option is to cut up the credit card.  If you can commit to controlling your spending, then debt consolidation can save you a lot of money.

Would you like some help to save money while getting rid of unwanted credit card debt?  Don’t know where to start?  Give me a call on 07 3423 8730 or fill in the enquiry form here to set up a free and no-obligation chat to see how I can help you get rid of your unwanted debt and to save money.

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To fix or not to fix?  Should I go with a fixed rate home loan?

To fix or not to fix? Should I go with a fixed rate home loan?

A common question I get when working with my clients is “should I go with a fixed rate home loan”?

Brendan Barker - Home Financing Specialist - Home Loans - Car Loans - Personal Loans

Before we answer that question lets first have a quick look at the differences between a variable rate home loan and a fixed rate home loan.

VARIABLE RATE LOANS

This is the most common loan offered by lenders and is used by many people to buy their homes. These loans have repayment periods usually of either 25 or 30 years.

Often lending institutions will offer a Honeymoon period with lower (discounted) interest rates to motivate you to choose their loan over the competition. The benefits of this discount (or honeymoon period) are short-lived as the remaining years on your loan are charged at a higher standard variable rate.

ADVANTAGES
  • Discipline of making regular repayments
  • Ability to make extra repayments without penalty
  • Offset accounts and redraw are a common feature
  • Discounts available for most variable loans
  • If the RBA cuts rates then the variable rate will follow (but not all ways)
DISADVANTAGES
  • Interest rate fluctuations.
  • When the RBA raises rates the lenders are usually quick to pass it along.
  • Not all variable loans are the same
  • May have a large jump in interest rate after the honeymoon period ends.

FIXED RATE LOANS

This loan has a set interest rate for a set period of time. This means you know exactly what your repayments will be for the term of the fixed rate loan and in a market with rising interest rates this could save you thousands of dollars over the loan term.

ADVANTAGES
  • Fixing the interest rate for a period of time insures against future interest rate rises.
  • It is easy to budget for the same regular repayment each month.
DISADVANTAGES
  • Do not get the benefit of falling interest rates.
  • Most lenders limit the amount of extra repayments that can be made each year.
  • You cannot access the extra repayments until the end of the fixed term.
  • You may be penalised if you pay off your home loan before the due date.

That is all good I hear you say, but should I fix my home loan?

The simple answer is there is no simple answer.  It all depends on how those advantages and disadvantages mentioned above fit with your financial needs and requirements.

Let’s take Matt for example, Matt is looking to buy a house to live in with a friend.  They are both sick of paying rent and want a place to call their own.  Matt already has a loan on an investment property.  Fixing the interest rate on the investment property would provide Matt the comfort of knowing what the repayments would be each month.  Thus allowing him to focus on paying down the loan on the new property.

On the other had we’ve got Jeff.  He is a high-flying professional, who regularly receives large bonuses from his employer.  His priority is to pay off the home loan as quickly as possible.  A variable rate loan, which allows him to make additional deposits is best suited to his needs.

That is why I invest the time with my clients so that I get to understand their financial situation, needs and requirements. So, that I can help them structure their finances so that they can achieve their goals and dreams.

In the current market, with interest rates starting to rise.  Fixing the home loan may be a good strategy, but is it the right strategy for you?  Give me a call today on 0428 162 602 or fill in the enquiry form here, to receive a free and no-obligation strategy session to find out if fixing is the right option for you.

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Do you suffer from one of these budgeting misconceptions?

Do you suffer from one of these budgeting misconceptions?

stencil-facebook-postA 2007 government study found that only 52% of Australians budget regularly for their day to day finances. There are a number of common misconceptions around budgeting which lead people to not have a budget. Some of the common misconceptions around budgeting:

  1. I’m not good at math so I can’t manage my money
  2. I don’t want anything big so I don’t need to save
  3. I hold a secure job and see no reason to save
  4. I pay my bills promptly and don’t need budget
  5. Getting my personal finances under control can wait

We have previously discussed the first misconception on how through the use of the tools available today it does not matter if you are good at math or not to manage your money. Lets have a look at the other misconceptions.

The common theme for the other 4 misconceptions is that nothing is wrong, I have enough money to live off, why do I need a budget now. There is no sense of urgency.  Why is because you don’t know what is going to happen tomorrow.

Why these misconceptions are wrong and you do need a budget

My own personal experience was a couple of months ago. I was involved in a minor traffic accident (my fault, and yes I am still kicking myself over it). We have insurance on the car and the damage didn’t look too bad…. oh how I was wrong.

The car ended up being off the road for 4 weeks, between the insurance excess and paying for a hire car (so I could continue to earn a living) we ended up being out of pocket $2,000.

How would your finances look if you had an unexpected $2,000 bill? Were made redundant tomorrow? Your landlord puts your rent up by $50 a week? The banks put the interest rate up by 1% on your home loan?

This is why you should have a budget, to understand what your current expense are and to know if you can afford your next purchase. If your rent is put up by $50 a week, can you cut back somewhere else to balance it all out?

The main reason to have a budget is so that you can make informed decisions about your spending and to plan for the unknown events in our lives.  When we know and understand our spending (expenses) we can then plan for the future.

Whether that is putting some money aside for a rainy day, saving for our kids university education (yeah that is not getting any cheaper), putting the deposit together for your dream home or planning a family vacation at Christmas. Having a budget lets you make these decisions.

Next time we will have a look at the 4 elements which make up the budget; Income, Expenses, Debts (or Liabilities) and Savings.

If you are suffering from one of these budgeting misconceptions here is a link to a budget template so that you can start thinking about the elements which will make up your budget.

Math and Money

Math and Money

You don’t have to be good at math to budget

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I remember in the early ’80s my family was living in Blackall, every 3 months mum and dad would pack up our family for the 8 hour trek across to Rockhampton to do the grocery shopping. We would visit Jack the Slashers discount grocery store, my parents would walk up and down the isles collecting the groceries we needed, calculator in hand keeping track of the cost of the purchases. You don’t need to be good a math to manage your money, you just need to use the tools available.

Last week I mentioned some of the misconceptions or beliefs that people have which stops them from putting a personal budget in place. A common one I hear is

I’m not good at math so I can’t manage my money

As my story above shows, it is not about being good at math. It is about understanding what you want to achieve and using the correct tools to help you get there. The tools don’t have to be anything fancy, pen and paper will work, a spreadsheet or there are a range of apps for your computer or smartphone.
There are 4 main components to the budget
  • Income
  • Expenses
  • Debts or Liabilities
  • Savings
The primary aim of your budget is to control you expenses so that your debts can be repaid and you can start saving for the future. In the next post we will finish discussing the misconceptions around budgeting and continue looking at the components of the budget.

 

In the meantime if you would like to get a headstart, here is a link to a budget template you can have a look at.