The RBA moved to drop interest rates at the last week to a low of 3.25% which represents a ‘saving’ of around $104 a month on a loan of $500,000.
If you’re a home owner or a business owner with outstanding loans – you’re likely to be feeling just a bit relieved. If however, you’re heading towards retirement, lower interest rates mean lower rates of earnings – so you’re less likely to be excited by the downward trend in interest rates.
At the same time as the RBA board were making their decisions, the ME Bank Household Financial Comfort Report showed that more than 50% of households are struggling to get to the end of the month before the month’s budgeted money runs out.
Yes, you read that correctly – more than 50% of households are struggling even though our national savings rate went up. Apparently we’re buying less and saving more than we have for two decades. Before the GFC, Australians saved just under 4 cents in the dollar and now we’re up to almost 10 cents. But that having been said 53% aren’t saving anything at all.
Worse still, a full 10% of households are not just struggling – they’re actually going backwards having to draw on their savings, increasing loan debt, spending on credit cards or pulling equity out of their homes (if they own one).
So how can you improve your level of financial comfort? The key is gaining control over your finances. The world can be an uncertain place, but understanding that and building in a buffer for it will certainly increase your level of comfort around your finances.
5 tips for improving your level of comfort – financial comfort that is.
Have realistic expectations – Yes, strive for your goals. And maybe fake it a little till you make it. Just not when it comes to your finances. The best and really only approach is keep it realistic and live within your means. If that means tightening the belt for a little while whilst you get back on top of things, so be it. You’ll be much better off in the long run for it.
Know what money is coming in and going out. Although your mortgage repayments might have dropped, chances are some of your bills have increased. Do you know what that looks like? In order to keep a tighter watch on your finances and be able to live within your means, you need to know what comes in, goes out and whether you’re likely to get to the end of the money before the end of the week, fortnight, month or year or whatever timeframe you plan around.
Create and stick to a household or business budget. One of the main reasons businesses fail is due to poor financial controls. And money issues are often cited as a key cause of personal relationship breakdown too. So after you’ve looked at your income and your outgoings, put it together into a spreadsheet so that you can keep track. Turn it into a bit of a family (or business) challenge to see if everyone can stick to the plan for that month. If not, adjust the budget to reflect reality.
Allow for the ‘incidentals’ that are often left out of the budget – that $20 you withdraw for coffee/lunch from the ATM, the monthly clothes shop, the chips and chocolates you purchase with your petrol. You’ll be surprised at how quickly they add up. $20 a week on coffees or incidentals over the course of a year is more than $1000. Now we’re not saying you should sacrifice everything and be a slave to the budget – it’s more that you’re aware of what you’re spending and tweak the budget to reflect reality. Then you can better reflect whether those coffees, chips, etc are worth a goodly portion of a trip away each year.
Pay yourself first. The easiest way to create a savings buffer (and the idea behind retirement saving – ie: superannuation) is that if you don’t see it and you can’t touch it easily, saving becomes easier. So organise a direct debit of whatever you can manage on the day that your pay hits your bank account. It doesn’t have to be a huge amount, it just needs to be paid regularly, into a separate bank account that’s not tied to your ATM card. Of course if you’ve got credit card debt, especially on a card with a high rate of interest – you might consider paying that out before embarking on a savings plan.
Have a plan in place for retirement. Interestingly enough the most comfortable folks in the household comfort survey were the self-funded retirees. The higher the balance past $200K, the higher the likelihood of comfort became. Most likely that had to do with the fact that these people had a plan and knew how to make the most of their funds and live within them.
As always, if we can help you in planning your finances, minimising your tax or providing advice in the financial or business sphere, please give us a call on 6023 1700.