Welcome to 2016 and whatever it may hold for you. If you haven’t already done so now is an ideal time to make a plan for the year ahead. Rather than a New Year resolution that will last 2 weeks, I’m talking about an actual plan and timeframes with an outcome or goal at the end of what you want to achieve this year.
There may be several categories that are involved in this plan; typical examples are things such as health goals – losing weight or giving up smoking, Material goals – such as buying a new car, or other big ticket items, Educational goals – enrolling in a course, or learning a new skill, career goals – such as gaining a promotion or changing job; but the one I am going to focus on here is financial goals, because a lot of our plans cannot happen unless we can finance them in some way.
Typically you may look at your income and realise that to achieve your goals, you may need more money than you currently earn, so the obvious answer might be to work harder to get what you want. This is fine as a strategy, however I personally, as well as thousands of others have experienced the employer who makes a hollow promise of ‘if you do extra work for me today, I will reward you tomorrow’ only for them to deny this or renege on this when you have delivered, or worse you give your full commitment with no reward even on offer. Just make sure that if you plan to work harder to bring in more money that the benefits are there.
Alternatively there are other options to making more income. This may involve seeking new employment or promotion, or by starting a side line business to supplement your income, which is a whole planning session in itself. For more immediate results I look at what I spend and where I can cut waste. To give a couple of examples of this, some years ago my brother asked me how he could save money, so over lunch we went through what he spent his income on (at the time he was single and wanted to save a deposit for a property). A simple way to do this is over the course of a week or two, keep a log of what you spend money on; every cent. Then go through the log and look at what items are not necessary or where expenditure could be reduced. His typical week involved a minimum of 4 nights out down the pub, a packet of cigarettes a day, lunch bought from the sandwich shop 5 days a week, having a bet on some sort of sports game twice a week, and a take away meal once a week and this was before we even looked at things like pay TV, or taxi’s home and the like. Now I’m not suggesting you live like a monk or nun, but a few adjustments rather than wholesale changes to this agenda easily produced savings of over $200 per week, and over time this increased even more.
Even small adjustments can make a huge difference. My wife used to buy a coffee and banana bread every morning after dropping the kids at school. Cost: $6 per day, equivalent of $30 per week or $130 per month. I would always buy lunch from the food court. Cost $10-12 per day, equivalent of $55 per week or $240 per month. We wanted to do some renovations on our house so we made some changes. Firstly we bought an expresso machine – nothing flash, it cost less than $200. A Banana bread loaf was added to the weekly supermarket shop. At dinner time we would make a bit extra and I began taking this as leftovers for lunch the next day. After month 2 we had reallocated $300 per month on cafes and food courts to home renovations.
There were a couple of by-products from this as well which can also tie in with your other goals; in this case we also both wanted to lose weight and by being in control of portion sizes through our realignment of expenditure on these items, it meant intake was in our hands rather than feeling obliged to finish the slab of banana bread or lunchtime container of noodles.
Another example I’ll give is that I also regard travel expenses on commuting to and from work as essentially giving money away. So in 2010 I worked out that if I bought a bike to commute to work on, not only would it pay for itself in a year, and give me more or less free commuting thereon, it was also beneficial to my health and was actually quicker than sitting on the bus. The only downside was the required perseverance and dedication to turn this way of commuting from a novelty into a routine, and having to endure sometimes horrible weather and aching muscles initially. After a year however, I was $50 a week better off, which again is something that over time adds up to a significant amount.
In addition, when I came to purchase the bike, I didn’t just buy the first thing I saw, I did some research and found out that each year around May time, bike manufacturers bring out their new models, and to shift the stock of last year’s model (where the difference between them can be as minor as the paint colour), retailers reduce the price by about one third, so with the budget I had I was able to by a much better model than if I’d rushed in. Herein lies an element of being financially savvy which most people adhere to – that is they look for the best deal. People go to Boxing Day sales because of the savings they believe they are making. People buy petrol on the day they believe it’s cheapest, or buy bulk items at the supermarket to get more bang for their buck. Car dealers have an end of financial year sell off to entice buyers to snare a bargain, yet the biggest ticket item that is typically the largest monthly expense for a household is also the most ignored when it comes to obtaining the best deal. I am talking of course about your home loan. So here are a few facts.
• Based on current interest rates, if you had a $500,000 mortgage and you were to switch lender and in doing so saved 0.5% this would equate to a saving of $1,750 per annum, the equivalent of $146 per month
• Once you have obtained your home loan, you are not obligated to stay with the same lender for the duration
• The loan you have got today may not be competitive in 2 years time
• The lender will never tell you if you are paying more in interest than you should be
• Lenders do not provide special offers to existing customers, only new ones
It may be apathy that stops people from refinancing their home loan. It may simply fall into the ‘if it ain’t broken, don’t fix it’ box, but I think it’s just too difficult for borrowers to know which deal is best for them, and this is where the services of a mortgage broker can be invaluable to guide you through the minefield of which product will save you the most money and fits your circumstance. As a minimum it won’t cost you anything to have a look and see what you qualify for, and the worst case scenario is that you stay with the same lender.
So to summarise. If you have set a goal or objective that requires saving money to achieve it
• Keep a log of what you spend over 2 weeks and look at where it goes and what you could change
• Implement those changes, but don’t deny yourself a little luxury
• Remind yourself of why you are doing this – what is the end objective? Do not lose sight of your goal
• Set up an online savings account and each week transfer out the savings made to this account to stop you spending it
• Set a realistic but challenging timeframe to reach the required savings
• Give yourself a big pat on the back when you reach your goal!
Lastly – based on my figures, if you implemented the things mentioned above, namely:
1. Coffee and banana bread change
2. Leftovers for lunch
3. Commute by bike
4. Switch mortgage to a cheaper lender
You’ve just saved $8,000 per year.
Happy 2016!
Paul Martin
