It is reasonable to suggest that, these days, most people live with a degree of financial debt, whether it be a mortgage, personal loan, credit card or a combination of two or three of these. Many people are also involved in investment properties, shares, stock and the like. All this can be complicated, and without the benefit of a financial advisor at our immediate disposal, the issues involved in maintaining a credit/investment portfolio can be daunting.
The pressures of unemployment, declining share value, mortgage fluctuations, superannuation concerns and the general unease surrounding any financial outlay, make many people feel uneasy about the future. So, this month, I’m going to focus on helping to make sure that you, and your family, are as well prepared for your journey as possible. Let’s look at some measures that you can take to organise your lives in preparation for the coming year.
Gaining control of your procedures and understanding your financial situation is a must at this time. Consider the following:
- Firstly, gather together all of the relevant financial information that you can. This includes bank statements regarding your mortgage, credit cards, personal loans, share and investment portfolios and so forth. In the constant endeavour to be organised, we cannot overstate the idea of keeping your records clearly marked in your filing cabinet, dates circled, and in the appropriate order, to make retrieval simple.
- Have a good, long hard look at your debt. If appropriate, consider consolidating your personal and credit card loans into your mortgage, if possible, because there has never been a better time to repay the lowest rates of mortgage we may see for a long time. Credit cards come in at around 12% or more, whereas home loans are dropping all the time – hopefully yours is around 7% or lower, and still dropping, as I write this. Somehow, even although home loans have decreased, I still haven’t received notice that my credit card has fallen also!
- If you do take this option up, don’t use it as an excuse to spend up big on your credit card again, just because you have cleared the debt! Leave your cards at home, and organise a debit card for your savings account.
- Organise to have your paycheck paid directly into your home loan account. Any money resting in there doesn’t attract interest, and can be redrawn at any time. Set up internet banking for this service, and although it attracts a small fee for each transaction (i.e.: home loan into savings account, or credit account) it’s worth it if you minimise these transactions.
- Avoid the temptation to increase your credit limit. I came across a situation recently where I was presented with the opportunity, with the click of one button, to increase my credit limit over the internet – no questions asked! Although this appeals to the ego, be careful! You may find yourself spending up to your new limit!
- ‘In the good old days’ people didn’t buy something until they could afford it. Well times have changed, but the principle remains the same – if you can’t pay cash, well, beware- buy now, pay later – literally.
- Find out if you can pay your mortgage weekly instead of monthly. One of my consultants discovered that she could save, wait for it, $49,000 over the life of a 20 year loan, just by organising weekly payments with the bank! That’s incredible! Or, the overpayments meant that about 3 times a year she could ‘miss’ her usual payments – useful at Christmas, perhaps? Be aware, though, you can’t have both. Personally the savings, overall, would be my choice.
- Consolidate your superannuation into one fund, if you can, as you will end up paying multiple fees for administration if you don’t. Find out if you have any ‘lost’ superannuation by contacting http://www.ato.gov.au, then roll it over into one fund. Makes sense, and it’s easier manage for you, and your family, in the event of being left with a financial tangle if, well, the unfortunate happens. Often these funds have life insurance policies attached to them so, do your research, and find out which one suits you best.
- Make sure that you have an ‘Important Papers’ file, a ‘Superannuation’ file, ‘Insurance’ file, ‘Banking’ files’ and so on, to contain all of your relevant papers and, of course, your will. You can keep copies of your vital documents here (such as passports, birth certificates, wills etc), and the rest off-site at the bank in a safety deposit box, in case of fire. Alternatively, invest in a fire-proof safe and keep them at home. You could consider leaving a document advising your family about what to do, in the event of your death, to point them in the right direction at a difficult time. Advise your partner how to file, and retrieve, these documents correctly.
- Consult a financial advisor for accurate, up-to-date investment information regarding what they now (somewhat enticingly) call ‘wealth creation’. Don’t be put off by the term, or the price (get a recommendation if you can,) because the correct information may earn you dividends. It may make more financial sense to keep your money in your mortgage account than in a term deposit, for example, and that kind of advice is best gleaned from professionals.
- Credit card companies make a killing out of clients who hold several different credit cards, charging annual fees for each account. So, if you can perhaps pay one or two off, increase your credit limit on one of them (if you must...) and save some annual fees, consider it.
- Seriously consider organising a direct debit for your regular payments (i.e. for phone, power, rates etc.) so that you create a true representation of your ‘disposable income’. You have to pay them anyway, and you may as well do it on a regular basis – it will take the sting out of it!
So, some food for thought in these uncertain times. Take the time to evaluate and organise your true situation, get advice where necessary, and above all, be honest with your true situation, and be careful; you will be as prepared as possible to face the coming uncertain times.
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