Paying the mortgage
You’ve been paying the mortgage for a while now. It’s reducing steadily. So what now?
Your number one commitment may still be to reduce your mortgage as quickly as possible.
However, during this time there are other things you can do to secure your financial future.
Here are just a few ideas:
Keep costs down
A dollar saved is a dollar earned.
In fact, it’s better. You’ve already paid tax on the money you save – so this money is like tax free earnings. Save money by getting the best deal on your costs – mortgage, utility bills, phone bills, credit cards.
You can also ask for deals when purchasing other items at many shops.
Spend within your means
Sounds simple, but spending within your means makes sure you are not paying interest or other loan expenses on a regular basis.
When you are buying things on sale consider, can you really afford them, does it make financial sense? You might buy a sofa that is discounted by 20% but if you can’t pay it off in a year you might be paying that 20% back in interest. Try to think about other purchases the same way.
Offset your debt
Most financial institutions offer an offset facility on a mortgage.
What this means is that you can put your income or savings into an account which credit the interest paid on your savings against the interest owed on your loan. This allows you to pay less interest on the outstanding amount for the time the offset is in place. The amount can usually be redrawn when you need it but can work towards your debt when you don’t.
Review your wills
Your estate planning was probably done when you first took on your mortgage.
Are things still the same as when you started? Have you had kids? More kids? Changed partners? Received legacies from family members? Started your own business? Review your Will and superannuation death benefit nominations and make sure your estate is still likely to benefit those you intended. And that your executor and beneficiaries are still those you want.
Insure for needs
As your financial position changes your insurance needs will also change.
You may have children who will need to be supported in the event of your demise. Your marital status will be an important factor, and the level of debt you have outstanding is also important.
A financial adviser can help to determine your requirements.
Utilise your income
Since you took out your loan – has your income changed?
Do you have greater disposable income? Can you put aside some money to invest? As your income increases, try to put aside some of the increase to help you meet future goals. Maybe you want a world trip, maybe you want to return to study. Enjoy some income increases but try to put some money aside to fund your future.
Save for life after work
Superannuation assists in funding your lifestyle goals when you stop working. Look at ways to reach these goals by saving in the most effective way.
For most people, this will be through superannuation because of the beneficial taxation of investments held in this savings vehicle. Can you afford to contribute more? If you were able to put an extra $5000 a year into your super would it have much impact on your cash flow? It wouldn’t necessarily decrease your cashflow by $5000, when you consider the tax implication it will likely be considerably less than the sum you will be adding to your superannuation balance.
Build your wealth
Starting small will take longer to build your wealth but may be more affordable.
Starting a little bigger may allow you to reach your goals more quickly but there are risks – market risk, financial risks, and timing risks (will you be able to access your money when you need it?). You can build your wealth by regular savings from your income. You can add to this by gearing. This means borrowing to invest. You will receive greater returns but there will be a cost – interest (although mostly tax deductible) and also increased investment risk.
Diversify your investments
Diversifying your investment is the safest way of receiving the most stable returns on your investments.
Diversify too, your financial position. Don’t invest everything in your home. AsRich Dad Poor Dad author Robert Kiyosaki said, your home is not an investment. It will never give you an income to live on. You need other streams of investment to fund your life after work or to boost your current income. Superannuation is good for the time when you stop working but you might want to look at other investments if you would like access to this income before reaching the superannuation access age.
Review
When you started your loan you probably calculated your total financial position and from this probably a plan of what you wanted to achieve in relation to your future income, work life, life after work and your lifestyle goals.
Have you made a plan since? You should make sure you review regularly. As your financial position changes, (e.g. debt decreases, income increases), your needs may change. Make sure you are making the most of these opportunities.
If your interest rate increases – review. If your interest rate decreases – review. If you stop working or start a new job – review. If your partner’s job changes – review. If your family position changes – review. If you receive a bonus, or bequest – review. At any of these triggers of change you may be able to contribute more to your loan and pay it off quicker. Or you may be able to put more money into your super and save for your life after work. You may also be able to start an investment which will fund your other future goals.
Keep in close touch with us. There are opportunities for you at any time in your financial journey. Make the most of them and reach your goals quicker and more confidently.
