We all experience times in life when we just can’t wait to get our hands on that shiny new item. But as the old saying goes: good things come to those who wait.
Afterpay is the largest buy now, pay later scheme in Australia.
In fact, Afterpay had more than $1.45 billion pass through its platform in the first three-quarters of last financial year.
It boasts more than 1.8 million customers, who mostly use it for online apparel shopping, and 14,000 retailers under its wing.
The reason for Afterpay’s rapid rise is its interest-free, instant purchase business model.
To qualify, all a customer needs is a debit card, enough money for the first instalment and no proof of income. Customers then pay the final three instalments a fortnight apart.
Interest-free. Instant. Too good to be true?
Here’s the thing. As you can make many purchases with Afterpay without proof of income, before you know it you could adopt bad spending habits and may fall into debt.
Now, late payment penalties are capped at $17. But if you’ve made multiple purchases and you’re defaulting on all of them, the debt and fees rack up.
Here’s the real kicker
Afterpay, and its competitors such as ZipPay, are still credit liabilities and need to be disclosed when applying for a home loan.
And the banks are getting very stringent on who they lend money to these days due to the regulator crackdown.
In the current tightening lending market this could hamper your efforts to obtain a home loan if you’ve racked up quite the Afterpay bill. Especially if it’s obvious that you’re struggling to pay it off.
Additionally, the Terms of Service on the Afterpay website state:
“Afterpay reserves the right to report any negative activity on your Afterpay Account (including late payments, missed payments, defaults or chargebacks) to credit reporting agencies.”
This means that your credit score may be affected if you fail to meet repayments.
And last year alone Afterpay netted $11 million in late payment penalties.
Another way to buy
Financial independence is not about racking up debt for shopping.
It is about saving money for a rainy day, rewarding yourself with purchases when you hit savings targets, and protecting your borrowing capacity for appreciating assets – not depreciating items.
Additionally, you never know when you will need money to pay for an emergency or capitalise on an opportunity.
You or a family member may become sick, or you might want to expand your property portfolio.
For all these things it helps to have extra cash on hand.
So if you can’t afford it, don’t buy it. Sure it’s hard, but short term pain is long term gain.
Need a spotter?
Enforcing good spending habits isn’t something you can just start doing overnight.
Often it takes a guiding hand to help you work out a plan, not to mention someone who can hold you accountable – just like a personal trainer.
If you’d like to know more about how you can start implementing good spending habits that will set you on a path to financial independence, get in touch. We’d love to help out.
Credit card providers love to use all kinds of incentives to get you to put that shiny piece of plastic into your wallet, ripe for usage at your weaker moments. Here’s how to avoid getting snared in credit card debt.
Most humans love to spend. It’s a scientific fact. No joke, going shopping tells your body that it should start producing greater amounts of the feel-good neurotransmitter dopamine.
Credit card providers know this well and have plenty of tricks up their sleeve to get you chasing that high with their high-interest credit.
Here’s how to avoid some of their more common traps.
1. Points and bonuses
You know that dopamine rush we were just talking about?
Well, sometimes people end up spending a lot more on their credit cards than they would otherwise because they’re chasing points and bonuses.
If you’re one of those who likes to collect points through your credit card – and can’t be convinced otherwise – remember to set up a system that will ensure you pay it back straight away.
This could include a direct debit, or an e-calendar reminder, to ensure you avoid high interest and fees which can cancel out any bonuses received.
2. Interest-free periods
There are a lot of credit card providers out there that offer interest-free periods, just hoping you won’t check the fine print.
Some retailers will offer 12-50 months with no interest and no repayments, making it possible for you to walk away with a shiny new product without spending a cent.
However, once the interest-free period ends, interest rates can be up to 30%, and the credit provider is under no obligation to remind you when that period ends.
Additionally, if you purchase anything else on that card other than the original purchase, it probably won’t be covered under the initial interest and repayment free conditions.
A couple of final warnings: interest free doesn’t mean fee-free, and the product you’re buying might be more expensive at the store than elsewhere.
3. Cash advances
Almost everyone has, at some stage, reached a point where they’re a little short of cash.
And while cash advances might seem like a good option to tide you over, they actually accrue a much higher rate of interest straight away (up to 30%), not to mention a cash advance fee which is usually a percentage of the amount withdrawn.
If you want to make the most of your credit card and all the benefits it has to offer without ending up stuck in a tough repayment cycle, be sure you understand the post cash advance interest rates, and make sure that the cash withdrawal is really worth it.
And, if you really need to access a bit of cash, try asking a family member or close friend first. As an absolute last resort, you could purchase their groceries, fuel or pay their bill using your credit, then they could immediately reimburse you in cash.
4. Multiple fees
On top of regular annual or monthly fees, many cards have additional fees that will vary depending on how you use your card.
You can be charged extra fees for failing to meet minimum repayments, for exceeding your credit card limit, and for withdrawing money.
Be sure to understand your card fee structure, and use responsibly.
5. Paying only the minimum
When it comes repayment time, be careful about only paying the minimum amount outlined on your bill.
This amount will leave a balance that will continue to accrue interest, and will end up costing you more in the long run.
You should pay back the maximum you can afford, lessening the time it will take you to pay off your card in full.
Not all debt is bad. We appreciate that better than most. But it’s fair to say that credit card providers don’t have your best financial interests at heart.
If you’re tempted to get a new credit card, get in touch with us first. There’s a whole range of better financing options out there, all of which we’d be happy to run you through.
Want to avoid sinking your entire savings balance into your mortgage? An offset account could be the solution you’ve been looking for.
An offset account is straightforward to set up and easy to understand. It also has the potential to save you thousands of dollars and could shave years off your mortgage.
Got your interest yet?
Yup! But what’s an offset account?
Basically, an offset account is a regular transactional account which is linked to your home loan.
The advantage is that you only pay interest on the difference between the money in the account and the mortgage.
Banks usually offer two types of offset accounts – full offset account, or partial offset account.
A full offset account means that the entire amount in the account is deducted from the principle before you start to pay interest.
In a partial offset account, a reduced interest rate on the mortgage is offered on the equivalent amount in the offset account.
Whichever you choose will depend on the bank and the type of mortgage you have.
How does it work?
Say you owe $350,000 on your mortgage, and have $50,000 in a savings account that you currently use for regular transactions.
If you move that $50,000 into a full offset account, you’ll only pay interest on $300,000 (which is the difference between that amount and the loan principle).
The offset account can then continue to be used for all your daily needs, like receiving your salary and withdrawing cash.
Why else would you consider an offset account?
Well, say for example that you had a savings account with a 3% interest rate and a mortgage with a 5% interest rate.
By allocating money into your full offset account, you’d save more money on interest than you would earn in your savings account.
Additionally, interest on your savings accounts are subject to tax, whereas the interest-saving on your mortgage isn’t.
How much can it save me?
Under the right circumstances, a lot.
Using the example above, if you’re 35 when you take out a home loan, you could shave years off a 30-year loan term just by keeping $50,000 in the offset account.
This means your loan could be done and dusted right in time for your retirement.
Is it right for me?
Of course, there are some additional factors to consider, such as account keeping fees and the minimum amount needed in the account to make it useful.
As everyone’s situation is different, get in touch and we can discuss whether an offset account might be suitable for you.
We’ve all seen the movies where the luckless protagonist borrows money from a remorseless loanshark and is warned that they’ll lose a finger for each day they’re overdue.
Fortunately, us Australians have much more civilized short-notice borrowing options, but that’s not to say there aren’t any risks associated with payday loans.
What’s a payday loan?
Put simply, a payday loan is money lent at short notice at a high rate of interest over a small period of time.
The name is basically derived from the understanding that the money will be paid back as soon as the borrower’s next pay cheque rolls around.
These days, however, the loan can be repaid over the course of one year (larger loans can be taken out over even longer periods, too).
Usually, payday loans are between $200 and $2000, and they tend to be paid back via direct debit on your pay day, or even a deduction from your pay itself.
What are the risks? Are my fingers safe?
Rest assured that ‘Bobby and the boys’ won’t be waiting for you in any empty car parks or down any dimly lit alleyways.
However, that’s not to say payday loans aren’t without their risks.
For starters, while the fee you are charged varies according to who you borrow from and how much your borrow, credit providers can charge you a one-off establishment fee of 20% and a monthly account keeping fee of 4%.
ASIC’s Moneysmart website has got a pretty handy calculator that shows if you borrowed $1500 to pay for unexpected car repairs, you would have to pay back $2040 over four months just to pay off your debt, or $2520 over one year.
Depending on how long it took you to pay back, that’s an extra $540 or $1020 you could have invested or spent elsewhere.
So if you’re relying on payday loans every time trouble strikes, you’ll soon rack up quite the bill.
If your financial situation takes a turn for the worst
Bad: If you default on a payday loan, the lender will likely charge you a default fee until you repay the outstanding amount in full.
Worse: If you do fall into default, the lender can then charge you twice the total amount of the loan.
Worser: If you fail to pay back the loan after falling into default, the lender can claim enforcement expenses, which are the costs of them going to court to recover the money you owe.
Worst: If you’re still unable to meet your debts by this stage, and have exhausted all other repayment options available to you, you may end up having to consider applying for bankruptcy.
Fortunately, other options are available for those in need of short-term cash, including:
– It’s always better to plan ahead rather than waiting until disaster strikes. So create a savings account where you put away 5-10% of each pay cheque for emergency situations. You can start today!
– See if you’re eligible to apply for a no or low interest loan instead. They’re available to people with a Centrelink healthcare or pension card.
– If you absolutely need to buy an essential household item such as whitegoods or a computer, you can see if the store has a 12, 24 or 50 month interest-free repayment option. Just make sure you cut up the credit card so you don’t get tempted to use it for anything else. And make sure you meticulously stick to a repayment plan or you may find yourself in a similar situation to the one outlined above.
You can save a lot of money by simply having an emergency funds buffer to lean back on.
If you’d like more tips or strategies on how to make your money work best for you, make sure you come and pay us a visit – we’re a much friendlier and helpful bunch than those Hollywood loansharks!
You know how it goes. You see that dream property you’ve just got to have, and then next minute, the budget is in smithereens. Well, at least that’s what happens to almost a quarter of home buyers. Here’s how to keep a lid on your emotions and your budget.
Purchasing property is perhaps the most emotional transaction you’ll ever make.
Come crunch time you’re there imagining your kids mucking around in the background while you’re turning snags on the back deck with friends over a few drinks.
Hardly a time to be making the biggest purchase of your life, as many people seem to discover.
A quick look at the stats
In fact, for a whopping 22% of home buyers, the emotions run way too hot and they end up well exceeding their spending limit, according to a new survey by ME bank, which is owned by 29 industry super funds.
Of the people who go over budget:
– Almost half exceed it by $30,000 or more.
– Three in ten exceeded their budget by $50,000 or more.
– One in ten exceed their budget by $150,000 or more.
Some of the more common reasons for exceeding the limit include falling in love with the property (52%), impatience (20%), and getting caught up in a bidding war (12%).
Kerb your enthusiasm
Rest assured that even if you purchase a property at the upper end of your budget, we’ll help you secure a great home loan that will make your repayments more manageable.
In the meantime, however, here are some tips to keep in mind when you’re on the hunt for your dream home:
– Patience is key. Even if you do miss out on what you consider to be your dream home, another one will come along. And it might even be better.
– Keep your emotions neutral. Before acting hastily, always call someone who can be an objective voice of reason.
– Compromise with yourself. If everything you like seems to be just outside your budget, compromise a little on something. That could be the location, the size of the property, or even its style.
We’ve got your back
Now, sure, our primary role is to find you a top notch home loan.
But we pride ourselves on also being a friendly ear with your best interests at heart.
So if in the heat of the moment you ever need to speak to someone who can help put your emotions to the side for a second, then don’t hesitate to call.
We’d be more than happy to provide you with experienced, fair-minded home loan advice.
Without a budget your future financial security could get lost.
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.
4 steps to create your budget
- Work out what I was earning – easy I just looked at my last payslip. It was consistent pay to pay.
- 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.
- What did I owe – what where the debts owing, car loan, credit card and ATO and what the repayments for each were.
- 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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