As the days get longer and we understand more about how the outlook for interest rates and the property market are shaping up, it’s the perfect time to pull back the curtains to give your home loan and general finances a thorough spring clean. You’ll then be in a better position to stay on top of your finances and property dreams.

Compare the current rates

You may have noticed that your home loan repayments have probably risen or will rise once your fixed-rate term ends, and you may be understandably nervous about how high they might go.

The most important thing to remember is that when you took out a mortgage, your repayment ability was measured to at least 2-3% above the default product rate (depending on when you took out the loan), with many brokers and lenders stress testing to 5%.

This means that unless your income has dramatically reduced, you are probably still able to service today’s rates, especially since they are rising from an all-time low. But to be sure, let’s start by checking that your current mortgage rate and structure is still the best fit for you.

Spruce up your mortgage rate

To assess your current mortgage, you first need to compare your interest rate against those currently on offer. This can be trickier than it looks, as mortgage benefits and discounts can differ widely, with your rate depending on the type of mortgage you have as well as your lender.

It is also wise to check your loan type – fixed, variable or mixed – and assess if it is still best for you going forward. We can help ensure you’re comparing apples with apples through our comprehensive data base that includes broker-only and up-coming offers. We can also give you a guide on how much your repayments are likely to rise with different rate rises and on different loan structures. If you are considering refinancing your mortgage, don’t forget that you’ll need to factor in any re-mortgaging costs when deciding if changing your mortgage is worthwhile.

Decluttering your finances

Whether you already have a mortgage or are hoping to buy your first property, you need to look at your whole budget and identify the monthly mortgage repayment level, that will tip you into tightening your financial belt and possibly mortgage stress.

Knowing where you stand and what the future may look like, should help you feel more in control and allow you to plan for the months ahead.

There are a lot of free budget templates online, including this MoneySmart one that makes it easy to include all your expenses. Don’t forget that annual payments like home insurance as well as quarterly utilities may be substantially higher the next time you receive a bill.

Plan ahead

Building a buffer or emergency fund can assist with not only unexpected expenses but provide you with some breathing room should rates continue to increase. Many people are deciding to build a financial buffer by cutting back on their discretionary spending before it’s really necessary, reducing items like TV subscriptions and meal deliveries. And don’t forget that if you’ve got an offset account, maintaining, or building your savings can reduce your monthly interest payments.

If your finances are stretched, you could also consider moving to interest only payments for a time or contacting your lender for a repayment ‘holiday’. Just be aware of how much extra interest you will be accruing. We can let you know what options your lender offers before you apply.

If you’re saving for a deposit or want to buy an investment property, you’ll need to check that you’re still on track for achieving your goals. Changing interest rate rises will impact the amount lenders will offer you, so you may need adjust your expectations as to what you can realistically afford. This includes the price of properties, as they may have gone up or down and you may need to adjust your expectations or timeline.

If you have any questions about managing rising interest rates or want some help giving your mortgage a spring clean, please give us a call.

It’s a challenging time for household finances right now. Interest rates are rising as the Reserve Bank of Australia increases the cash rate to put the brakes on inflation, and flat wage growth means household incomes have not been keeping pace with cost-of-living increases.

The best way to deal with uncertain times, is to be on the front foot with your finances and ensure your personal financial situation is as healthy as it can be.

If you are feeling the pinch of higher inflation you’re not alone. The prices of certain goods and services have risen well over and above the official inflation measure, most notably electricity – with the wholesale price surging more than 141% over 12 months, and petrol – increasing by over 32%. We are also feeling the pain at the shops with food prices also rising and experts suggesting increases could be as much as 10%.

So as the cost-of-living increases, how do you manage to boost your savings, save for a home deposit, or pay down the mortgage to get ahead?

Let’s look at some ways you can flex your money management muscles and strengthen your financial situation.

Get off the couch

The first step is to think about what motivates you to use as your focus, so have a think about your financial goals. Are you wanting to save for a particular purpose like for a home deposit? Or are you at a different stage of your financial life and keen on getting that mortgage down or looking at investing or renovating? Whatever the goal it’s important to identify how much you are wanting to save and your timeframe.

Don’t just think about your goal in cold, hard financial terms – being emotionally connected to your goal, i.e. why this particular goal is important to you, will provide the impetus to get started and to also keep you on track.

Track your expenses

To get off and running, add up your monthly expenses – the more information the better, so include quarterly or annual expenses as well as your discretionary spending which may be a little more difficult to track. As you go through the figures to come up with a total of your spending, see what you can learn from your spending patterns and where you might be able to cut back.

What’s your bottom line?

Analysing how your financial situation is faring is then a matter of taking your income over the course of a month and subtracting your total monthly expenses. Once you have a clear picture of your current financial position, it’s a matter of tweaking your spending and/or your income over a specific time frame to meet your financial goal.

Get a hand with the heavy lifting

Sounds easy but tracking expenses and sticking to an allocated budget can be tough, so why not let an app do some of the heaving lifting for you. There are many options including Beem It, Fudget, and Pocketbook. It’s also worth checking what budgeting features are offered by your bank or financial institution.

There are many and varied approaches to budgeting that you can select from, so find something that works for you. One popular method is to prioritise your savings and ‘pay yourself first’ putting a designated amount of money each month into a separate account. Or you could try the 50/30/20 method which involves splitting your monthly income into three main categories:

• 50% of your income for your needs – food, bills, insurance, transport, rent or mortgage repayments etc
• 30% of your income for your wants – distinguishing between needs and wants isn’t always easy but ‘wants’ are generally the extras that aren’t essential to living and working like travel, entertainment and dining out.
• 20% of your income for saving

Bulking up your savings

Discipline and developing good habits through repetition help you build your strength. Don’t panic if you have a blowout or an unforeseen event throws you off. Just get back to those good habits you are establishing. On that note it can be a good idea to have a contingency in your budget to reward yourself at a certain point or even to deal with a financial emergency.

There is nothing like the feeling of being in control of your finances and working towards a goal that you care about, so take first step to start flexing those financial muscles today.

Retirement means starting a new chapter of your life, one that gives you the freedom to create your own story, as you decide exactly how you want to spend your time. While retirement may not be part of your immediate plans, there are advantages to giving some thought as to what retirement looks like for you and how to best position yourself, well before you leave the workforce behind.

A time of profound change

Even setting aside the huge financial implications of leaving a regular salary behind, retiring from work represents one of the biggest life changes you can experience.

For most people, the freedom of being able to do whatever you want to do, whenever you want to do it, is pretty enticing. However, it is quite common to have mixed feelings about retiring, particularly as you get closer to retirement. What we do for a living often defines us to some extent and leaving your job can mean a struggle with how you perceive yourself as well as how others view you. Coupled with the desire for financial security in retirement and the need to make your retirement savings last the distance, you have a lot to be dealing with.

So, let’s look at the things you need to be thinking about sooner rather than later, from an emotional and practical perspective, to ensure your retirement is everything you want it to be.

Forge your own path

Don’t be tied to preconceptions of what retirement is all about. Retirement has evolved from making a grand departure from the workplace with the gift of a gold watch to a more flexible transition that may unfold over several years. Equally, if the idea of a clean break appeals to you then that’s okay too and you just need to plan accordingly.

The same applies for your timeframe for retirement. The idea that you ‘have’ to retire at a certain age is no longer relevant given advances in healthcare and longer lifespans. If work makes you happy and fulfilled, then it can make sense to delay your departure from the workforce.

Planning how to spend your time

It sounds obvious but you’ll have more time on your hands so it’s important to think about what you want to devote that time to. A study found that 97% of retirees with a strong sense of purpose were generally happy and satisfied in retirement, compared with 76%without that sense. Think about what gives your life meaning and purpose and weave those elements into your plans.

If you are part of a couple, it’s critical to ensure that you are both on the same page about what retirement means to you. This calls for open and honest communication about what you both want and may also involve some degree of compromise as you work together to come up with a plan that meets both of your needs.

Practical considerations

There’s a myriad of practical considerations once you have started to plan how you’ll spend your time.

Here are a few things you may wish to consider:

• Where do you want to live? Do you want to be close to a city or are you interested in living in a more coastal or rural area? Are you wanting to travel or live overseas for extended periods?
• What infrastructure and health services might you need as you age? Are these services adequate and accessible in the area you are thinking of living in?
• What hobbies and activities do you want to be involved in. Do you need to start developing networks for those activities in advance?
• Who do you want to spend time with? If you have children and grandchildren, think about what role you’d like to play in their lives upon retirement

The best laid plans…

Of course, with all this planning it’s also important to acknowledge that the best laid plans can go astray due to factors beyond your control. It’s important to keep an open mind and be adaptable. While redundancy or poor health can play havoc with retirement dreams, it’s still possible to make the best of what life throws at you.

And of course, we are here to help you with the financial side of things to ensure that retirement is not only something to look forward to, but a wonderful chapter of your life once you start to live out your retirement dreams.

Australia’s superannuation system is based on individual accounts, with men and women treated equally. But that’s where equality ends. It’s a simple fact that women generally retire with much less super than men.

The latest figures show women aged 60-64 have an average super balance of $289,179, almost 25% less than men of the same age (average balance $359,870).

The reasons for this are well-known. Women earn less than men on average and are more likely to take time out of the workforce to raise children or care for sick or elderly family members. When they return to the workforce, it’s often part-time at least until the children are older.

So, it makes sense for couples to join forces to bridge the super gap as they build their retirement savings. Fortunately, Australia’s super system provides incentives to do just that, including tax and estate planning benefits.

Restoring the balance

There are several ways you can top up your partner’s super account to build a bigger retirement nest egg you can share and enjoy together. Where superannuation law is concerned, partner or spouse includes de facto and same sex couples.

One of the simplest ways to spread the super love is to make a non-concessional (after tax) contribution into your partner’s super account. Other strategies include contribution splitting and a recontribution strategy.

Spouse contribution

If your partner earns less than $40,000 you may be able contribute up to $3,000 directly into their super each year and potentially receive a tax offset of up to $540.

The receiving partner must be under age 75, have a total super balance of less than $1.7 million on June 30 in the year before the contribution was made, and not have exceeded their annual non-concessional contributions cap of $110,000.

Also, be aware that you can’t receive a tax offset for super contributions you make into your own super account and then split with your spouse.

Contributions splitting

This allows one member of a couple to transfer up to 85% of their concessional (before tax) super contributions into their partner’s account.

Any contributions you split with your partner will still count towards your annual concessional contributions cap of $27,500. However, in some years you may be able to contribute more if your super balance is less than $500,000 and you have unused contributions caps from previous years under the ‘carry-forward’ rule.

If your partner is younger than you, splitting your contributions with them may help you qualify for a higher Age Pension. This is because their super won’t be assessed for social security purposes if they haven’t reached Age Pension age, currently 66 and six months.

Recontribution strategy

Another handy way to equalise super for older couples is for the partner with the higher balance to withdraw funds from their super and re-contribute it to their partner’s super account.

This strategy is generally used for couples who are both over age 60. That’s because you can only withdraw super once you reach your preservation age (currently age 57) or meet another condition of release such as turning 60 and retiring.

Any super transferred this way will count towards the receiving partner’s annual non-concessional contributions cap of $110,000. If they are under 67, they may be able to receive up to $330,000 using the ‘bring-forward’ rule.

As well as boosting your partner’s super, a re-contribution strategy can potentially reduce the tax on death benefits paid to non-dependents when they die. And if they are younger than you, it may also help you qualify for a higher Age Pension. These are complex arrangements so please get in touch before you act.

A joint effort

Sharing super can also help wealthier couples increase the amount they have in the tax-free retirement phase of super.

That’s because there’s a $1.7 million cap on how much an individual can transfer from the accumulation phase into a tax-free super pension account. Any excess must be left in an accumulation account or removed from super, where it will be taxed. But here’s the good news – couples can potentially transfer up to $3.4 million into the retirement phase, or $1.7 million each.

By working as a team and closing the super gap, couples can potentially enjoy a better standard of living in retirement. If you would like to check your eligibility or find out which strategies may suit your personal circumstance, get in touch.