Property Review Video – August 2023
Stay up to date with the latest developments in the property market over the past month. Our video takes you through an overview of the state of...
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 per cent over 12 months, and petrol – increasing by over 32 per cent.i, ii We are also feeling the pain at the shops with food prices also rising and experts suggesting increases could be as much as 10 per cent.iii
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.
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.
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.
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.
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.
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:
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.
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