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Do Not Allow Lifestyle Debts To Destroy Your Future

By on April 23, 2013 in Credit Cards, Debt, Professional Posts

wipe off your debtNot all debts are the same. While some debts actually help develop your asset base and can make you wealthy over time, other debts are like a cancer, growing slowly but surely to ultimately destroy everything that you work so hard to build.

Replacing bad debt with good debt can take many years of concentrated effort. It is much easier to make correct debt decisions from the outset.

Debt habits form and early age

We learn spending and saving habits from our parents. If we have come from a family that did not believe in investment, a family that was always struggling with debt, always short on money, it makes it far more difficult for us to make wise financial decisions in our early 20s. Everyone needs to have a role model when it comes to money management.

Too many young Australians borrow to pay for holidays, jewellery, weddings and the like. We regularly witness the fallout of unwise debt decisions made in their early 20’s still haunting people in their late 30s.

Our banking system encourages people to live beyond their means. We are offered credit to enjoy things today and pay for them later. Borrowing for a wedding leaves you with a great photo album and a video, and a crippling debt problem to grapple with for years to come. Unfortunately some wedding loans have a longer life-span than do the marriages they financed.

Budget before spending

Any successful investor knows the importance of budgeting. Unless you come from a very wealthy family where access to funding is pretty much unlimited, choices need to be made and money needs to be assigned to “essentials” and the “nice-to-have”.

A budget is a financial plan of how you intend to spend the money that you earn. If you are left short after you have assigned money to your expenditure categories, you clearly need to either find ways to increase your income or reduce your expenses.

It is indeed that simple. If you would like to buy a house by the time that you are 30, a deposit will not magically appear in your account when you turn 29. If you do not put a budget together that allows for you to put some money away towards a deposit every year, it will not happen.

Budgeting helps to make sure that the money that you need to pay for rent, utilities, food and entertainment is set aside and available. Budgeting helps highlight if you are running out of money and assists one to plan for upcoming larger expenses such as a holiday or a wedding.

Effective use of credit cards

Credit cards are a great money management tool. They offer borrowers access to free money for up to 50 days. That means anything you buy on credit, will cost you no interest if you pay the card off in full every month.  Anyone who does not pay out their credit cards in full at end of the month is either living beyond their means today or did so some time in the recent past.

If you use credit cards but pay them out at the end of the month in full, then you are demonstrating that you are in control of your money.

If your credit card balance is not being paid out but is in fact increasing, then you are the kind of credit card customer that card providers love. They can count on you contributing lots of money to their bottom line.

The rules with credit cards are simple, if you can not pay it off by end of month, do not buy it!

Borrow to invest

An investment is any asset purchase that you expect to grow in value over time. Most people think of shares or real estate as an investment. However an investment can also be a piece of art or antiques.

The rule with borrowing to invest is clearly the increase in asset value plus any income that the asset is expected to generate over time should exceed the costs associated with its finance.

There is nothing wrong with investment debt. Because this is the debt that helps you grow your asset base and your wealth.

However even with investment debt one needs to be very prudent.

Borrowing with a small deposit can leave you trapped in your current mortgage, unable to refinance to a different lender for a better deal. This is the situation currently facing many Aussie homeowners who bought their homes on 5% deposit during 2008 and 2009. Most of these properties are today worth less than the mortgage debt secured against them.

Those unlucky enough to lose their job while living in a house with negative equity can quickly see their debt problems multiply. If you need to sell the house because you can no longer afford to cover your mortgage payments, there is very likely to be a significant shortfall.

We speak to people who have gone from being homeowners to having no home and being in debt to the bank to the tune of $30,000 after their property was sold. This can be a very hard debt to repay and can push families into bankruptcy.

 Debt Problems?

If you have hit hard times and are finding it difficult to keep up with debt obligations, speak to your credit providers and seek special hardship consideration to help you catch up and recover. Credit providers have a legal obligation to do what they can to assist borrowers experiencing financial hardship.

Looking for assistance from debt consolidation professionals to help you get out of a difficult situation? Please give us a call on 1300 Debt Solutions or visit our website at www.debtsolutions.com.au
photo credit: Images_of_Money via photopin cc

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Why Choose Car Finance?

By on March 25, 2013 in Debt, Professional Posts, Quick Money Saving Tips

While many of us would love to be able to save up enough money to buy a car upfront, in reality, it’s not an easy thing to manage. Finding an extra few thousand dollars in your budget can be tough enough, never mind finding $20,000 to pay for a new car.

When you need a new car, you need a new car. Your old car may not wait around long enough for you to save up thousands of dollars to replace it. So, what are your other options?

Many people opt for a car loan to finance the purchase of a new car. A car loan allows you to borrow the money to purchase the car, and then pay off the purchase in installments over a certain period of time.

When you are choosing a car loan, you will need to decide how long you want the loan to last for. This will normally be determined by what you can afford to pay back each month. Loan terms range from 1-5 years, although some can last longer.

It’s worth bearing in mind that although a loan over a longer time period will mean lower monthly repayments, you really don’t want to be stuck paying off your car loan long after the car itself is dead.

In order to work out the most affordable car loan option, it can be a good idea to use a car loan calculator. A car loan calculator can allow you to compare car loans so you can work out how much each loan will cost you overall.

It can also help you to work out how much you can afford to repay each month, and how long you will need to pay off the loan.

While taking out a car loan will mean you have to pay interest, the interest you pay can be kept to a minimum. One of the main things that will affect the amount you pay in interest will be your credit score.

When you apply for a car loan, the lender will look at your credit file to evaluate how much of a risk you are. If you have bad credit or no credit, then you will be seen as a higher risk.

This is one of the main reasons to check your credit file before you apply for a loan. You can apply for a copy of your credit file online for free from a credit reporting agency such as Dun & Bradstreet or Veda Advantage. If you notice any errors on your credit file, ask to have them corrected.

When you are looking for car loans, shop around and compare the market to find the best option. Read the small print and find out what the lender charges in loan fees. Use the information from the car loan calculator to choose the best loan option for your budget.

Applying for a car loan is usually a quick process, and you can often receive a reply within minutes. Which means you could be on the road in your new car within days, not years!

This is a post from Car Loan World - Australia

photo credit: ndrwfgg via photopin cc

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How To Save On Credit Card Interest?

By on March 11, 2013 in Credit Cards, Debt, Professional Posts

How To Save On Credit Card DebtASIC estimates Australia’s credit card debt currently stands at $37.5 billion, which means around $6.4 billion is paid out each year in interest on that debt. That also means the average credit card holder is in debt to the tune of $4857, and is paying out $832 each year just in interest.

Having a credit card doesn’t mean you have to pay out hundreds in interest each year. Being smart about the way you use your credit card could mean you pay no interest at all – and you could keep those extra hundreds in your pocket, where they belong.

Balance Transfer Credit Cards

If you have credit card debt, then the first thing to think about is how you’re going to pay it off. One way to get a head start on paying off credit card debt is with a balance transfer credit card. By transferring the balance of your existing credit card onto a balance transfer card, you will pay less interest, and can start paying off more of your debt. Try to choose a card that offers the lowest interest rate for the longest period of time, and always know what happens when the offer ends.

Introductory Offers

There is a wide range of introductory offers available on new credit cards – not just balance transfer offers. If you want to save on interest, check out cards with intro offers on purchases. With this type of card, you will pay low or no interest on purchases for a certain period of time. As with balance transfer offers, be sure to pay off your debt before the offer ends, and know exactly what happens when it does.

Low Interest Credit Cards

Once you have paid off your credit card debt, it can be a good idea to keep a low interest credit card. They don’t always have the bells and whistles – such as rewards points and complimentary insurances – but they are usually a cheaper way of getting credit. Especially if you tend to carry a balance month-to-month.

Interest Free Periods

Some credit cards offer interest free periods on purchases. This may mean you can benefit from up to 44 or 55 days interest free on purchases, depending on the card. This can be a great way of saving money on interest if you are buying a large purchase. Be sure to read the terms and conditions, as you do not receive the full interest free period on all purchases – the interest free period will usually start on the first day of the new billing period.

Pay Off Your Balance

If you want to save money on credit card interest, one of the most important things to remember is to pay off your balance in full at the end of each month. While it can be tempting to only pay the minimum payment, you will usually only be paying off the interest and not putting a dent in your actual debt. Pay off your balance, and you won’t have to worry about interest accruing – and your credit card will be all the more healthy for it!

photo credit: _Dinkel_ via photopin cc

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From First Paycheck To Financial Security

By on February 19, 2013 in Credit Cards, Debt, Professional Posts, Quick Money Saving Tips

Financial Security At A Young AgeJust out of university and making some real money for the first time in your life?  Everyone at work is talking about mortgages and investments. What is all this stuff?

This is how I felt when I first started working. Completely overwhelmed by the idea of being financially responsible. In the 8 years since, I’ve figured a few things out and have set myself up with a solid financial base. Enough so I can now afford to take a risk and work on my own tech start-up Pocketbook salary free.

At the same time, I completely understand the temptation of the first paycheck. When it hits, it’s pretty hard not to spend it all on beer and fun. But before you do, I implore you to listen to some of my tips to make sure you’ll on your way to your financial freedom.

Make your saving a disciplined process 

Recent studies have found that one in five Aussies struggle to find $1,000 in an emergency (News – Aussies Have No Emergency Funds). So saving for a rainy day isn’t easy.

The best way to do this is literally set your money aside. Start a savings account with another bank that offers high interest, and set up a regular direct debit to draw money away – “hide it and forget it”. Before you know it, there’ll be a pool of money for emergency situations or a down-payment for a place of your own.

I personally started with an ING account, and ultimately purchased an investment property as a disciplined way to save – mortgage payment equals deposit – as long as the property holds value.

There’s no such thing as a quick buck 

It’s true, there’s no such thing as a quick buck. I remember working on many a lottery syndicate or blackjack schemes while in university. None of these amounted to very much. The reality is that even if you’ve got a great business idea, it’s going to be a five to ten year slog to really make it – even if you’re the one-in-a-million Zuckerberg type.

So work hard, build skills and relationships to be more employable; meanwhile saving and investing wisely to build a good base. My personal philosophy is to focus on low-risk things first (ie cash savings and property) and high-risk things later (branching out to your own business).

Don’t overextend beyond your means 

Next is not letting your “wants” overwhelm you. It’s so easy to flaunt it when suddenly you jump from a student-level poverty to being able to buy brand name clothing, big televisions and flash cars. Many get into situations where they accumulate way too much debt.

In fact, another recent study by CBA says that Australians owe their friends 1.8 billion in total across our country (News – What Friends Owe ) – this doesn’t include credit cards! Two in five don’t even get any of that money back.

So the lesson here is really understand the difference between your “wants” and your “needs”. Spend wisely and spend in moderation on non-essentials.

Pay off debts early and often 

Another rule of thumb is keeping your debt balance as small as possible. Whenever you can, pay credit cards off first and don’t ever get a personal loan just to “make ends meet”.

There are so many young people that pay off one credit card with another and get into this continuous cycle of high interest debt. If you think you’ll be one of those people, try to avoid credit cards altogether. There are plenty of debit cards on the market today to cater for your online shopping needs.

My tip would be to get statements in the email, make a special folder for them and put some reminders into your phone’s diary for the due dates.. This way you will limit the chance of being charged interest and overdue fees.

Tracking tracking tracking

Finally, the best way to building for your future is to understand your past. Understanding what you spend week-to-week and month-to-month means that you can get smarter with cutting back and be creative about how you build that all important pool of money.

There are plenty of online tools available to help you do this too – some require really little work. Pocketbook (the tool I’m building) is one such example. So there’s no excuse.

About Bosco Tan

Bosco Tan is a Co-Founder of Pocketbook, a new Australian company seeking to make personal finance, budgeting and managing money ridiculously simple. He has years of experience working with big corporates to achieve their strategic and budgeting goals. He is now hoping to use these same principles to help individuals. Bosco is also a keen property and angel investor. You can connect with him at http://www.linkedin.com/in/boscotan.

 
photo credit: stuartpilbrow via photopin cc

 

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Should You Buy Property In A Trust? Quick Guide

By on October 31, 2012 in Debt, Divorce, Professional Posts, Property, Quick Money Saving Tips

Quick Guide To Buying Property In A TrustSetting up a trust to manage your property can have certain advantages depending on your circumstances. These can include:

  • Tax benefits: Tax payable can be reduced by distributing income to family members with lower taxable income.
  • Protecting your asset: As trusts allow you to control and receive income from assets without having them in your name, this structure may protect these assets in the event of divorce or litigation.
  • Estate planning: Some trusts may allow you to pass assets on to future generations with less tax payable and can minimise legal issues.

Some common types of trusts include:

  • Discretionary Trusts: The trustee determines which beneficiaries receive the trust funds and how much they receive.
  • Unit Trust: The trustee divides the trust funds between unit holders, according to the number of units that they have.
  • Self Managed Super Funds (SMSF): This is a trust that is established by people who want to take greater control of their own superannuation funds. A SMSF has become very popular here in Australia with many people selecting to add property to their investment portfolio.

*It is recommended you seek specialist legal, accounting and financial advice to see if a trust is suitable for you.

This article from  Aimee Hadley  of  Piccadilly Financial Group

 

This is a professional post – If you are a professional adviser and you would like to see your blog posts published at humble savers, please review our Professional Posts page – Thank you.

General Advice Warning

The Information on this page has not taken into account your financial situation, needs or objectives. Before acting upon any advice, you should consider whether it is appropriate for you.

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