PLANNING ARTICLES

1. A MESSAGE FROM THE MONEY BUCKETS FOUNDER

A Life Message by an old bloke. (not too Old) To those starting out on their own.

Things I have found Satisfying

Alan Williams: Founder Money Buckets

As you progress through Life, there are Experiences, Milestones and Achievements that you will look back on with satisfaction. There are some things you may regret not doing or would have done earlier.

Here is a few of the Things I have found to be True.

Travel

Traveling when young is a real personality and confidence developer. (Or old) Your mind will become more creative and open as you see what others may be doing or have accomplished. You can be inspired by others, see that people can think differently, live differently and have different priorities to you, without conflict. Learn that there are Good and Bad people everywhere and not necessarily where you expect. Learn that there is always opportunity, if you look with an open mind and eyes. Budget to save to travel early. By learning good savings techniques you can travel without debt. The same techniques can be used for a home deposit savings plan. This is a Life-Long Skill.

Having a Life Partner

If you and your partner have the same priorities it tends to work out better. You can have many differences, but the big things need to be on the same page. Wanting to work together to build a family of your choice, how they will be raised and how hard you are prepared to work to get what you want. These things need to align.

If they don’t, the load falls on one pair of shoulders and that seldom works. These days one Average wage will not support a family or buy a home, especially if you live in a Capital City. Life will be a major struggle if both don’t agree on the way forward.

At some time, you will want to move forward financially, the party will need to be tempered and the Budget set. Just because you have reined in the Budget to save a deposit, or pay off a house, doesn’t mean you don’t have a life. Find friends or couples with similar goals. A good time can still be had in the company of others of similar mind and there is a lot of satisfaction in making your family home.

Buying Your Own Home

Owning your own place is something special. Put things where you want. Paint it how you want. Change it into your place. But don’t get too carried away with Debt on fitting out your own home, because you are probably going to need room for:

Children

A little piece of you and your partner. Very exciting, very, very tiring, but a whole lot of satisfaction watching them grow.

Frustrating that they will actually copy what you do and not listen to what you say. Your actions will speak way louder than your words.

Keep a good budget, so you are not too stressed about finances. Financial Stress can really spoil this time for you. Coming into this situation with only a home loan is ideal, or perhaps a car loan as well. Not that you might get much choice on timing sometimes. Keep credit cards or loans for emergency only.

Take the time to enjoy the moment. Don’t Fret that you seem to have lost your old life. Embrace the new life with all its chaos and effort required. Many have regretted not relaxing a bit and having more fun with the kids while they were young. Because soon enough they will be:

Teenagers

Ok so now they don’t want to know you and they want to grow up too fast. They do even less of what you say and even more of what you do. Yes they will be following your example and not your advice, sorry about that.

But also know that providing them with a solid home and environment, a place they can be themselves (Yes relax, they tend to sort themselves out with a bit of space. Yes Really) will give them the confidence to go out and achieve things. Nothing like having a home base to fall back on.

It can be surprising how unsettled even Adult Children can be if there isn’t a family home there as a backstop.

Owning a family home is a big advantage for your children’s confidence.

Sorry, don’t have a lot of tips getting them to leave if they stay too long.

Maybe a good budget to get them their own place. Enforce a savings plan, equivalent to the rent they would have to pay outside of the home. You can put that away for them, only available to them when they leave.

You don’t want them to get used to living on unrealistically low living costs and not be able to leave.

Buying an Investment Property

Pretty exciting when you get your first investment property. You have now entered the world of wealth creation. Most of the people I know who are Financially Free , have made most of their money through the increase of property prices. In the long term, it can run much more than wages.

Keep your Budget affordable, with a bit of a backup plan if there is no tenants for a while. Most look back with satisfaction at the decision they made. Many look back with a “you know I should have bought that property when it was only….”

Long Term this is going to help with your desire for Financial Independence.

Going into Business

With Good Equity in your Home and a burning desire to do your own thing, many will launch into their own business. Many will not have done a Budget or added up the realistic cost and reward for what they are about to do. Whatever you do, throw some realistic numbers into our Money Buckets Business Budget. Look at the cash flow requirement plus or minus and the money available to draw. Set up your finances to fund this before you need it and start.

30% of all new starts in small business or as Sole traders (The numbers are similar for both) will fail in the first year. This will rise to over 60% in three years and over two thirds in 5 years.

Many will lose all equity in their home and have to start again. Many will lose their Super starting a small business after they retire.

If you go ahead it is imperative you budget and review your position at least every month. We see that No Provision for Tax on Drawings as a common mistake. At the 2 and 3 year mark you pay the price and are in trouble. Need help call Money Buckets on 1800 825 010 at any stage of the Business.

Get it right and it’s extremely satisfying.

Approaching Retirement

Ideally, if all has gone well you will own your own home or be close. If you have an investment property or two and have been taking advantage of the Tax breaks in topping up your Super, you are going to be in a really good position. If this is the case you can comfortably back off a bit, choose what you do and don’t do.

But if not, you may still need to use the same Budget system, to get into the best possible situation before retiring. It may mean you are working up to 70 years old and beyond. We have helped a lot of people in this very situation. There are still options open. (Have a look at our Blog “Are you 50 Something Now”.)

If you have had a major setback, it still may not be too late to buy property, especially if its investment related. It’s worth a look at your situation. You can generally move things along a bit quicker the second time around . The kids may have grown up and not be financially dependent on you. You generally will earn more money than when you just started out. You know more about life and generally are not spending as much.

If you have lost everything or perhaps done nothing to invest in the future, even a 10 or 15 year plan can build a better retirement, with a lot more Financial Freedom than you may have had. If you do nothing, nothing will change.

You can Contact Money Buckets on 1800 825 010 if you wish to discuss options or go to MoneyBuckets.com.au to see more articles and get an idea of what we do.

Grandchildren

There’s something special about Grand Children. If you are in a position to have more time to spend with them you will consider yourself blessed. Being in a position to help your Children raise their Children is indeed Satisfying. And seeing them start on their journey and build their own family base is something you strive to achieve.

To those who have come from overseas with nothing and worked themselves well into old age to give their children the chance to take this journey, I take my hat off to you. We have helped many who have sacrificed their lifestyle so their Children and Grand Children could take this journey. Many have had to try and support their parents left at home, while they gave their kids a chance. Please make them proud.

And for those of us who have been here for many generations, Don’t take the opportunity for granted. Have a life you can look back on with satisfaction and don’t forget to have some fun with the kids on the way.

2. WHY HAVE A BUDGET?

Most people don’t realise just how much they spend.

It’s really easy to blow a couple of hundred dollars on a night out.

Couple of hundred dollars on cigarettes and alcohol per week (if not more)

Spend money on Lotto, the TAB and footy on line gambling.

Even a couple of coffees a day and a breakfast out could be one hundred dollars a week.

Or if lash out on an expensive new car that can really take all your money.

People who do all of this would probably spend enough over 10 years to buy a small house in a country town outright.

It has been estimated the lifestyles of the rich and famous that you might see in the media, jet setting, eating out, expensive cars, homes and holidays would cost about $35 million dollars a year. Easy to spend … you bet.

We all enjoy some of these things, so it’s not about never doing these things but allocating an amount of money we can actually afford to spend on them and still stay within our budget.

A budget is just a plan to get to where you want to go.

Many peoples plan is to buy a family home. Some peoples plan is to travel, others to support family overseas.

On an average income, you can’t do it all at once. People come to us thinking that they would like to buy a home. But they are not in a position to save for a deposit or pay a home loan because they have run up so much debt.

They will have to clear cars loans, personal loans, and credit cards before they can even look like saving for a deposit. That may put them 10 years behind in being able to buy a home.

If you are serious about wanting to own your own home you need to have a Budget.

If you think you can afford a home loan try this.

Just say you wanted to buy a house or unit worth $700,000. You are going to need a Deposit and legal fees of say $70,000. The loan repayments, water rates, and home maintenance are going to be around $850 a week. (2017 rates)

Say you are paying $450 a week rent, that means you are going to have to live on $400 a week less than you are now. So let’s do your budget so that you put that extra $400 a week into savings. If you cannot live on the balance of your pay for 3 or 4 years, you cannot afford to make the payments on a home loan. But! If you can, you will have your deposit together in under 4 years.

This is the exact thing that a bank will look at when assessing your eligibility for a Home loan. Have you demonstrated the ability to do this? They call this sort of savings, genuine savings.

If a couple has a good credit rating, no other Debt they would only need a combined income of around one Hundred Thousand dollars to do this relatively comfortably.

When you do your budget in Money Buckets, Add your Rent, Surplus and other loan payments together to see what you might actually have available to make a home loan payment, if you clear Debt.

We deliberately break your budget into weekly spending money and Regular bill money so that you can get an idea of what you can actually spend on a weekly basis. How tight you keep that is up to you.

If you start out too tight and find it’s not liveable you can always go back in and adjust it.

But if you are using real numbers and there is not enough money, something must change in what you are doing or the Debts and Interest will just keep going till everything eventually falls over.

3. SO YOU WANT TO GO INTO BUSINESS?

With Good Equity in your Home and a burning desire to do your own thing, many will launch into their own business. Many who do will not have done a Budget.

You need to add up the realistic cost and reward for you are about to do. Whatever it is, throw some realistic numbers into our Money Buckets Business Budget.

Does the Business provide enough cash flow and profit to pay your Living costs and the business costs? Be realistic. When you did that, did you allow for Tax on your own drawings and GST on the business Turnover? That will come as a major Financial shock to your Finances around that 2-year mark. That’s one of the reasons why so many businesses’ fail in the first 3 years.

You need to have set up your finances to fund this before you need it and start a business. Trying to get extra money, particularly for unpaid Tax is a high-Interest affair. Especially short term Business Loans. Its always easier to have funding put in place when there are no Financial Problems.

30% of all new starts in business or as Sole traders (The numbers are similar for both) will fail in the first year. This will rise to over 60% in three years and over two thirds in 5 years.

Most will have to endure a period of time when their business doesn’t even provide a minimum wage. This can go on for an extended period of time, sometimes years. Many will work for nothing for years. Many will lose all equity in their home and have to start again. Many will lose their Super starting a small business after they retire.

Shopping Centres and Franchises are notorious for putting people into this position. They rely on the dream of owning your own business and you not doing your homework. You really need to keep your eyes and ears open and do your research. If it’s a Franchise you must talk to previous Franchisees to see what it was like. Do not throw your Super and Home Equity away because you didn’t do a realistic Budget.

Really ask the question, is running a business for you. Are you going to be able to handle Payrolls, Workers Comp and Business Insurance? Handling staff and employment issues, paying tax and Super for people. There are large fines and penalties if you don’t. Running a business is more than just being passionate about your field. Unfortunately, you need to be able to handle your financial responsibility as well. Otherwise, do you have a partner or resource that can make sure you cover this?

Personal Guarantees and Home repossessions are enforced on a regular Basis by Landlords, Lenders and the Tax Department. If it all goes wrong, they will take your home and business and anyone’s who has a personal guarantee against the loan. It is an everyday business fact of life. Don’t think it won’t happen if things go wrong. Remember, this will happen to two-thirds of Small Business starts. Money Buckets can often find solutions to help keep homes at this stage, but not always.

However, get it right and it can be extremely satisfying and rewarding. But you need to be going in with your eyes open and your numbers adding up. If it doesn’t add up don’t do it.

It is imperative you budget and review your position at least every month. Our small Business Budget can be amended and saved at the end of every month to actual figures. This can keep you on track before you get to see your accountant. Getting figures on your business 12months after the fact is all too late. If there is a problem you need to know now.

Need help? Call Money Buckets on 1800 825 010 at any stage of the Business.

4. A PLAN FOR THE DECADES

Are You Fifty-something now?

Scary Right? Here’s a Decade by Decade Plan with some options to see you through. Realistically most people now would have to work till 75 to have enough Super to retire, have a life in retirement and move into aged care. But if that’s not practical, or you won’t have enough Super or it’s just not Desirable, here are some more options.

Decade 1: Your 50s Consolidate and reduce Debt.

Don’t keep Large Credit Cards, Car Loans or Personal Debt at high Interest.
Do look at Consolidating Credit Cards, Personal loans, and Debts into a lower rate Home Loan and aim to pay out all Debts and home loans by retirement.
Don’t go guarantor for your Children’s business Loans. 75% of all new business’ will go broke in 2 years, so there is 3 out of 4 chance you will be taking on their Debt. If you can afford to lose the money, go ahead.
DO see a Financial Planner to use your Superfund to save Tax and put the savings on your home loan. Options open up around mid 50s.
Don’t just let your home loan sit there, as the equity in your property increases you can typically get a better Interest rate on your home loan. Use it to speed up paying off your loan. A good Mortgage Broker should be offering you a review every 12 months. Costs nothing and they do all the work.
DO look at a possible investment property. While borrowing money on a home gets harder as you get older, Investment properties which can be sold at retirement if you wish, can offer capital growth to be used later and are easier to finance. If you have been doing a good job of creating equity in your property this can be used instead of a deposit. Look at areas where property prices continue to rise and rents are easy to obtain. Avoid obscure areas.

The more basic average House values tend to double every 10 years in good areas, so you could have a lot of equity to play with by the end of a couple of decades.

Decade 2: Your 60s

Still consolidate to reduce debt if you haven’t already.

Looking to clear your home loan is key or to reduce the loan as much as possible in retirement. Increase home loan payments as much as practical. Ideally you would want to be clear of your home loan before you are 70.

Once you are 65 options open up to release equity in the form of Reverse Mortgages. Typically these days, most people won’t look at this option till their seventies where they could obtain up to 25%

But at 65 you can access up to 20% of your home in a Reverse mortgage. Quite often people are forced into early Retirement by health, Lack of Job opportunity or having to care for a partner. So a Reverse Mortgage can be used if you wish to stay in your own home but can’t afford to make any more mortgage payments.

If you have reduced your mortgage to under 20% of the value of your home, you may be able to convert it to a Reverse Mortgage, where you do not have to come up with any payments at all. You will have to be able to pay the rates Insurance and maintain the home, as a condition of a reverse mortgage. But you can opt for a monthly or yearly pension, as a portion of this, to help.

Depending on the value of your home you can have quite a nice lifestyle once you top up the aged pension with say 10k a year.

Decade 3: Your 70s plus

Most people are going to be retiring or retired in their Seventies. This is still a fairly active period of time if you have your health. Travel is still good, you still enjoy getting out and about, you will still want to be able to eat out, buy presents for Grandchildren etc. This is the most common age when a Reverse Mortgage comes into play. If you have paid the house off and have income from Super you are in a good spot. But once again Super can run out and you may not be able to afford to make mortgage payments and still have a life with just your Super Income. You may find at some stage, you find yourself left with just your house and a pension.

The costs of living still come in. Fridges and washers break, cars need repairs or replacing. An additional income from the equity in your home can keep you going. You don’t want to be housebound and restricted when there is still life to live.

Most of the time the remaining equity position in your home will be maintained over the long term, that is, as long as house prices keep moving upwards at the Historical rates of the last 50 years. It will come in fits and starts.

Into your 80s

As you move past this decade your ability to travel and get around will be affected, so an income to help you stay in your home and have help and be comfortable will be important. There is more and more help available to keep people in their homes as long as possible. Quality of life is generally much better in your own home.

Eventually you may need Aged Care. The percentage of Equity you can access in your home to pay for Aged Care is greater than a Reverse Mortgage. Depending on what you have already taken, you can access this once again to help with the Deposit needed. Once again no repayment is needed until the home is sold or the last partner passes on the estate. You may have relatives live in your home or some have rented it out to supply additional income for your needs, in Aged Care. This may give you the choice of an Aged Care facility that you prefer. It also gives you the choice to return home if you have had to go to an Aged Care Facility because of injury or illness and have recovered sufficiently to manage again.

The vast majority of people will not be in Aged Care for more than 5 years, the average is only 2 years.

In most instances there will still be a reasonable estate left for your heirs to inherit. Even after this whole process. This can be planned for, but keep in mind that if you live to your late 80s or 90s your children will probably be in their 60s and planning their own retirements, with their own homes. They will be needing to look at paying off their own homes and doing their own planning long before they receive an inheritance. They should not be relying on you as part of their retirement plan. Although what you leave them will be of great assistance in managing their retirement.

So 3 decades of planning may keep you right for up to 5 Decades

Quick Review

50s Consolidate, plan and work on reducing Home loan and personal debt.

Look at investing in a second property if it can be done effectively

Look at Superannuation and Tax benefits mid 50s with Financial adviser

Review your mortgage on your home and investments on an annual basis.

60s Hopefully very little personal Debt left,

Goal to pay off home loan or very close by end of your sixties.

Asses investments along the way and close to retirement.

Get Financial advise on how to handle any investments before actually retiring.

70s probably retired by now or soon.

No more Loan repayments to make.

Plan in place to fund money in retirement via Super, Pension and Equity Release.

Live life to its fullest and most comfortable conclusion.

Don’t forget to have some fun on the way.

80s

Slower but still a good life if you are healthy. Still getting around. Hopefully still at Home. In-Home Help affordable and available when needed.

But 50% of people will need aged care in the next 20 years.

Look at remaining equity in Home to see if suitable for help with an Aged Care loan.

Make sure any Financial Advise benefits You first, Heirs second.

90s

Congratulations, you are actually in rare air. But we do expect more people to start turning 90. You’ve seen a lot. At some stage you may have decided to sell the house that is now getting older and downsize to a smaller home, something easier to manage, less running costs or closer to the kids. Investments and good financial advice should still see you with additional income to the pension and assets to call upon.

Everyone’s journey will be a bit different. We hope these options can make this part of your life more comfortable and enjoyable and remove some of the Financial Stress and unknowns that are coming.

5. TEN TIPS TO SAVE MONEY ON YOUR MORTGAGE

There are always steps borrowers can take to pay their loan off faster. To begin your journey, here are a few ideas that may help you along the way.

1. Skip the Honeymoon Rate

There are two problems with honeymoon rates. Firstly, the variable rate is often higher than some of the lower basic loans available so you could end up paying more. Secondly, you need to clearly understand that a honeymoon rate applies only for the first year or two of the loan and is a minor consideration compared to the actual variable rate that will determine your repayments over the next 20 or so years.

2. Make Repayments at a Higher Rate

A good way to get ahead of mortgage commitments is to pay it off as if you have a higher rate of interest. Get a loan at the lowest interest rate you can and add 2 or 3 percentage points to your repayment amount. So if you have a loan at about 6.99 percent and pay it off at 10 per cent, you won’t even notice if rates go up. Best of all, you’ll be paying off your loan quicker and saving yourself a packet.

Every dollar you put into your mortgage above your repayment amount attacks the capital, which means down the track you’ll be paying interest on a smaller amount. Extra lump sums or regular additional repayments will help you cut many years off the term of your loan.

3. Pay it off Quickly

Time is money. There are all sorts of strategies for paying less interest on your loan, but most of them boil down to one thing: Pay your loan off as fast as you can. For example, if you take out a loan of $300,000 at 6.99 per cent for 25 years, your monthly repayment will be about be about $2,134. This equates to a total repayment of $640,126 over the term of your loan.

If you pay the loan out over 10 years rather than 25, your monthly payment will be $3,494 a month (ouch!). But the total amount you will repay over the term of the loan will be only $419,290 – saving you a whopping $220,836!

With most new loans, the first instalment may not become due for a month after settlement. If you can manage it (and your lender will let you), pay the first instalment on the settlement date. If you do this, you will be one step ahead of the lender for the term of your loan. Every little bit counts.

4. Make More Frequent Payments

One of the simplest and best strategies for reducing the term and cost of your loan (and thus your exposure should interest rates rise) is to make your repayment on a fortnightly rather than monthly basis. How can this make a difference I hear you ask? It works like this:

Split your monthly payment in two and pay every fortnight. You’ll hardly feel the difference in terms of your disposable income, but it could make thousands of dollars and years difference over the term of your loan. The reason for this is that there are 26 fortnights in a year, but only 12 months. Paying fortnightly means that you will be effectively making 13 monthly payments every year. And this can make a big difference.

Using our example from above, by paying monthly, you will need to repay $640,126 over the term of your loan. By paying fortnightly, you will save $48,534 in interest and 4.5 years off the loan. Zero pain to you, major benefit to your pocket.

5. Get a Package

Speak to your lender about the financial packages they have on offer. Common inclusions are discounted home insurance, fee-free credit cards, a free consultation with a financial adviser or even a fee-free transaction account. While these things may seem small beer compared to what you are paying on your home loan, every little bit counts and so you can use the little savings on other financial services to turn them into big savings on your home loan.

6. Consolidate Your Debts

One of the best ways of ensuring you continue to pay off your loan quickly is to protect yourself against interest rate rises. If your home loan rate starts to rise, you can be absolutely positive about one thing – your personal loan rate will rise and so will your credit card rate and any hire purchase rate you may happen to have.

This is not a good thing as the interest rates on your credit cards and personal loans are much higher than the interest rate on your home loan. Many lenders will allow you to consolidate – re-finance – all of your debt under the umbrella of your home loan. This means that instead of paying 15 to 20 per cent on your credit card or personal loan, you can transfer these debts to your home loan and pay it off at 6.99 percent.

As always, any extra repayments or lump sums will benefit you in the long run.

7. Split Your Loan

Many borrowers worry about interest rates and whether they will go up but don’t want to be tied down by a fixed rate loan. A good compromise is a split loan, or combination loan as they are often known, which allows you to take part of your loan as fixed rate and part as variable rate. Essentially this allows you to hedge your bets as to whether interest rates are going to rise and by how much.

If interest rates rise you will have the security of knowing part of your loan is safely fixed and won’t move. However, if interest rates don’t go up (or if they rise only slightly or slowly) then you can use the flexibility of the variable portion of your loan and pay that part off more quickly.

8. Forgo Those Minor Luxuries

This is the bit you don’t want to read. Once you have a mortgage, your life is likely to be luxury-free (or at least pretty close to it). Think of all the weight you will lose by giving up your favourite smashed avocado with crumbled feta on five-grain toasted bread every day from your favourite restaurant. For the sake of your health you should quit smoking and drink less anyway. Take your lunch from home and save on bad fast food. Trust us, your body will thank you for it.

If you’re still not convinced consider the following example. A typical day may include a pack of smokes ($10), a coffee and donut ($6), lunch ($15) and a couple of beers after work ($10). That’s $41 a day or $287 a week or $1,148 a month or $13,776 a year.

Assuming a mortgage of $300,000 at 6.99 percent over 25 years, by making $750 in extra repayments each month, you’d save more than $175,000 in interest and be mortgage free 11 and a half years sooner.

No one is saying you should live a convict existence but just cutting down a little on your expenses will see you reap huge financial benefits.

9. Run an Offset Account

Instead of earning interest, any money you have in your offset account works to offset the interest you are paying on your home loan. For example, you may have a mortgage of $300,000 at 6.99 percent and an offset account with $50,000 in it earning 3 percent.

This means that $250,000 of your loan is accruing interest at 6.99 percent but the rest is accruing interest at almost 3 percent (6.99 percent on your loan less the 3 percent the $50,000 in your offset account is earning). Imagine how much you can save!

Of course, the best sort of offset account pays the same rate as your loan (100 percent offset).

10. Pay all Your Mortgage Fees and Charges up Front & Avoid Risk Fees

Some lenders allow you to add to the amount you borrow instead of coming up with cash for your upfront costs. While this can seem a blessing try to avoid doing this. Consider the following example:

Borrower A borrows $300,000 over 25 years at 6.99 percent. Her upfront costs are $1,000 but she has enough cash to make sure she can cover these. Her total repayment over 25 years will be $640,126.

Borrower B takes out the same loan but doesn’t have enough cash to cover the upfront costs. So he borrows $301,000, at the same rate. His total repayment over 25 years will be $642,215.

Two thousand odd-dollars might not sound like a huge amount but what could you buy with it if it stayed in your pocket?

6. TOP WAYS TO CUT YOUR EXPENSES AND INCREASE YOUR SAVINGS

Top ways to cut your expenses and increase your savings

Is the key to saving a home deposit as simple as giving up smashed avo toast for breakfast? Well not quite, but spending less does make a difference.

Start by understanding your spend

It can be easy to lose track of how you’re spending money, especially due to cashless payments and credit cards.

Take advantage of Money Buckets free online Budgets at MoneyBuckets.com.au to start tracking your spend.

Find savings in the essentials

Some costs can’t be avoided – but many everyday expenses can be reduced. For example you could:

Move in with your parents/relatives, or move into a cheaper rental or share house (short-term discomfort can pay off in the long term).
Implement tactics like meal planning, making grocery lists and buying in bulk to save money on food. Set aside a budget for eating out/take-away and stick to it.
Shop around to reduce your regular bills – you may get better value if you switch, or tell current providers you intend to switch. Seek discounts for taking out multiple policies with one insurer.
Use the car less: take public transport; carpool with colleagues; or try walking or riding. You’ll be amazed at how quickly it all adds up to savings.

Make sure you’re paying off debts or credit cards completely each month or as much as possible, to avoid the added expense of paying interest.

Reduce common overspending

If you spend excessively on things like buying clothes, going out or expensive hobbies, it may be unrealistic to cut the expense entirely. Set a weekly or monthly limit and reduce that limit over time.

A survey of more than 1000 Australians showed that 73 percent have a problem with overspending. In particular, people tend to go overboard when Christmas rolls around.

To reduce gift expenses, be like Santa: make a list (and a budget). Buy only planned items within your allocated budget – then stop! Ask your family for support; it’s easier to put a cap on gift values if everyone else does too.

Another common way Aussies overspend is on holidays. CommBank research has shown that a third of holidaymakers spent more on their trip than planned. Do your research and set a daily budget.

Costs that could be eliminated

Look for opportunities to eliminate costs. Cancel unused services. Update your internet or mobile plans if you’re always paying for excess data.

Ask yourself: are you really using that gym membership? Are you getting value from your subscriptions? Remember, every wasted dollar is money you could be spending on your own home.

7. 3 THINGS YOU NEED TO ASK YOUR PARTNER BEFORE YOU APPLY FOR A LOAN TOGETHER

Three things you need to ask your partner before you apply for a loan together

Before you apply for a home loan with your partner, there are a few discussions that you need to have that go a little beyond what you may know already.

You’ve found someone you want to spend your life with (or a significant chunk of it, at least) – the hard part is over, right? Wrong. You know each other well enough to know whether or not you each blow the budget every month, but you probably don’t know each other’s complete credit history. So, before you buy a property together, there are plenty of discussions you need to have. Here are three of them.

Have they defaulted on any payments?

He or she might be relatively debt free now, but has this always been the case? One bad mark on a credit file, such as a late car payment or a default on a credit card, will change the approach you need to take when applying for finance.

It doesn’t mean you can’t secure finance, but it may mean you need to apply to a specialist lender for an alt-doc loan. Money Buckets can help you find the right lender and craft an application to avoid the heartbreak of continual rejection.

That savings balance, where has it come from?

If your partner has savings towards a deposit, that’s fantastic. But the balance is only one part of the equation that lenders consider.

If he or she has managed to build up those savings over a good period of time, making regular contributions and managing their savings well, lenders will consider this a positive indication of an ability to make repayments regularly.

If, however, the savings are the result of a redundancy payout, a gift from family or backing a good horse, they are still helpful as a deposit, but don’t indicate that ability to make repayments.

Again, this is not the end of the world. You’ll be in a better position than you would without that balance, but may need expert help to put your application in the best light.

If we did get into trouble, how would you want to handle it?

You must plan for every eventuality, even one you think is not likely. Having said that, this discussion isn’t so much about having a solid plan in place for the worst, as seeing how your partner would deal with difficulty.

If one of you lost your job, or you had unexpected bills that seemed overwhelming, would they try to struggle through, not wanting to talk about it with you or Money Buckets, and potentially default on the loan? Or would they tackle it head on by calling Money Buckets with you to make a plan to get through it without defaulting?

Before you start looking for a Home Loan or Debt to share with the love of your life, an appointment with Money Buckets is a good start.

8. KEEPING YOUR CREDIT SCORE HEALTHY

Your credit file is one of your most important financial assets.

Safeguarding this file is an important part of the finance application process. Your credit file contains credit applications, overdue credit accounts, payment defaults, clearouts (as a missing debtor), commercial credit information and public record information. You will have a credit score calculated from your credit file. From September 2018, there is additional information about the credit products you hold on your credit report including:

The type of credit products you have held in the last two years
Your usual repayment amount
How often you make your repayments and if you make them by the due date1

Did you know that a score of less than 500 will severely affect your ability to gain finance from many lenders? Do you even know what your score is or how easily it can be affected? What is your credit score? Credit scoring is a mathematical assessment of the data included in your credit report. The credit score is calculated by the credit reporting agency using a number of complex formulas. The score shows the likelihood of an adverse event recorded in the next 12 months. Scores range from zero to 1,200. The higher your credit score the lower the risk that you will default. A ‘good’ credit score is between 622 and 7252. Credit reporting The credit report is the basis for your credit score. In Australia there are four credit reporting agencies: Equifax, Experian, Dunn & Bradstreet and Tasmanian Collection Service. You can access a free copy of your personal credit report through the following online providers: Creditsavvy, Creditsimple, Finder, Getcreditscore and WisrCredit. Your credit report is very important as it provides the information used to calculate your credit score. You will have a credit report if you have applied for any form of credit. This can include:

phone contracts
credit cards
residential or personal loans, or
hire purchase

So what affects my credit score? There are some behaviours you can control that will affect your score:

late payments,
overuse of credit, and
limiting the number of credit applications

We have had clients lodge a loan application with us only to be rejected due to a poor credit score. When we investigated the cases we found there had been multiple credit enquiries listed in a short period of time. What the clients didn’t realise was that every time they were offered (and accepted) a new credit card (at their local grocery store and service station) these services were individually lodged as a credit enquiry.

Our clients had also sought pre-approval from various lenders while they were searching for a new home. These pre-approvals were also listed as a credit enquiry. When the time finally arrived to acquire their home loan, it appeared they had submitted many applications for a range of credit over a very short period. This history resulted in a low credit score and subsequent rejection by the lender.

Surely the lender can understand what really happened? Unfortunately many major lenders are now treating credit scores as a black and white decision. If your score is too low then the loan application will be rejected – no questions or discussion!

What should I be doing?

You need to be conscious of your credit report. Make sure you meet all your credit obligations. If you are considering refinancing in the next couple of years, be aware of all agreements, pre-approvals and enquiries you make (where you sign a privacy agreement) as these will generally result in an entry on your credit report. These entries stay on your file for 5 years. 1. ASIC Money Smart Credit Scores 2. Finder, Equifax Score

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