5 Money Management Tips

5 Money Management Tips

Buy Now, Pay Later – Friend or Foe?

Money Management
  1. Put yourself first

We often find excuses to not invest with one of the most common being “I don’t have enough money left over”

This is because we tend to spend what we have. As an example, if I am paid $1,000 per week, I will likely spend $1,000 per week.

However, if you pay yourself as soon as you get paid, you are not leaving it up to chance if you are going to have enough to save and invest at the end of the pay period.

This process is made even easier if you follow tip number 2!

  1. Automate your savings

Having an automated savings plan in place takes out any guesswork and human error. Most banks now allow you to set up automatic transfers between accounts which can make savings so much easier.

For instance, you could set up an automatic transfer from the account your wage gets paid into, to a savings account on the day you get paid so that you don’t even see it or have to think about it.

You can of course do this for multiple accounts and setting up transfers so that a split amount of each pay is transferred into different accounts. You might want to put $100 into an investment account and another $100 into a holiday account for example. This leads to tip number 3.

  1. Name your bank accounts

By giving names to your bank accounts, you are able to more easily decipher between your financial goals and know exactly how much money you have saved for each individual goal. You are also much less likely to splurge on things you don’t need if you know you have to take away money from your “Holiday” account.

By giving the account a name, you attach feeling to the money which helps you stay on track.

  1. Have a plan for the worst

While not as exciting as an investment or holiday account, an emergency fund could be a financial life saver.

Imagine you have saved diligently and have nearly enough in your holiday account to go on the holiday you have dreamt of but then your car breaks down. Without any saved-up funds for emergencies, you will be forced to dip into your holiday account to pay for this or worse, take out a personal loan.

  1. Buy Now, Pay Now

The rise of buy now pay later services has seen millions of Australians begin to spend money they do not have.

While these services do have their benefits which I discuss in my last article, at the end of the day, you are constantly playing catch up and this debt can easily spiral out of control.

Therefore, instead of paying later, save up and then buy it with your own money. While this may take longer, your future self will thank you. You can even use Tips 2 and 3 by automating savings to an account for these splurge type of expenses so you can continue to treat yourself – guilt free!

Emma – Financial Advisor

E eck@plus1group.com.au

T 0358333000

Book a time with Emma

Mason – Financial Advisor

E mnt@plus1group.com.au

T 0358333000

Book a time with Mason

Need more help or information?

Click the link below to contact us at Plus 1.

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Buy Now, Pay Later – Friend or Foe?

Buy Now, Pay Later – Friend or Foe?

Buy Now, Pay Later – Friend or Foe?

buy now pay later

Buy Now, Pay Later (BNPL) companies such as Afterpay and ZIP have introduced us to a new way to spend money which has revolutionised retail spending as we know it.

For those of you who may not know, BNPL companies are basically bringing the old layby system into the modern age – allowing us to pay for things in installments. A key difference being of course is that you get to have what you want now rather than having to wait until it is fully paid.

The rise of these companies has been particularly prominent over the last few years with BNPL transactions increasing by 55% in 2019/20 and have more than tripled since 2016/17. This is according to a report from the Reserve Bank of Australia in March 2021 (1).

These BNPL companies typically target millennial shoppers with the majority of users being under the age of 40.

Unlike credit cards, there is typically no interest payable on these outstanding payments (there can be late fees however). This is perhaps why credit card use is declining while BNPL use is rising.

Credit cards can charge outrageous amounts of interest and if you get into the habit of using your credit card to fund your expenses, this interest can quickly add up and snowball. All of a sudden, all of those clothes and shoes you bought on sale and got a great deal on doesn’t look so good.

Therefore, it is understandable that BNPL may be seen as a better alternative than a credit card and I would have to agree with this. Particularly for young Australians who may be able to get a credit card with a limit that is far too much for them to handle. If BNPL helps to reduce the amount of credit card debt in Australia, then I believe that is a good thing.

In fact, some people see BNPL as a bit of a budgeting tool. Instead of having to pay $200 for new sneakers today, you can budget this across your next four pay cycles and only pay $50 over four fortnights.

Unfortunately however, by being able to spread out transactions across four separate payments, we can easily spend more than we would have liked. For instance, you may not be able to justify paying $300 for a new pair of jeans, however, paying $75 over four weeks does not feel quite as bad.

While the math may be simple and we can see than this is the same amount overall, when we are in the moment of purchasing, the brain only focuses on the $75 instalment, not the total purchase price of $300.

This human tendency that leads to this outcome is known as loss aversion bias whereby we prefer to avoid losses over acquiring the equivalent gain (e.g. we would rather not lose $10 than gain $10).

So while BNPL may be better than a credit card, this does not necessarily mean that are good for our spending and saving overall.

Therefore, some tips to make sure you do not overspend when using BNPL:

  1. Always look at the total purchase price, not the instalment
  2. Set spending limits and stick to them
  3. Sleep on it – see if you still want to make the purchase the next day

If you do find yourself spending a little bit too much through BNPL, you may need to consider closing your account and saving up for things the old fashioned way. This may help you not buy things you cannot yet afford and greater appreciate the things you do buy.

Emma – Financial Advisor

E eck@plus1group.com.au

T 0358333000

Book a time with Emma

Mason – Financial Advisor

E mnt@plus1group.com.au

T 0358333000

Book a time with Mason

Need more help or information?

Click the link below to contact us at Plus 1.

Open Hours

Monday to Friday
8:00am to 5:00pm

Closed Public Holidays

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If you need to get us documents quickly, access remote support, or the MYOB Portal click the button above.

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Shepparton, VIC 3630

T: (03) 5833 3000
F: (03) 5831 2988
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Major Changes to Income Protection Policies

Major Changes to Income Protection Policies

Major Changes To Income Protection Policies

Effective 1 October 2021

income protection pig

There are some major upcoming changes to income protection, effective 1 October 2021. Importantly, if you are considering applying for income protection, now is the time to do it.

There are 4 major changes;

  • Indemnity definition will be the previous 12 months only; at present, it is the best 12 months, of a 3 year period (insurers vary, some only do the best 2 years)  This is particularly important for females who may be taking maternity leave in the future. At present those who have policies in place, the insurance company would look at the best year of income over a 3 year period. With the new rules, they will only consider the previous 12 months of income. For example, if you stopped full time work in December, for 6 months mat leave. And you needed to make a claim in February. They would look at your income 12 months previous to Feb, which would be ok. But if you needed to make a claim in say August, they would look at your 12 months income from July, meaning there would be 6 months of those 12 months where you haven’t earnt employment income.  We generally wouldn’t recommend reducing your cover during this period, as you would need to be fully underwritten to increase it in the future, but given you are healthy, this could be an option, it is really a case by case basis.
  • Reduced cap of 70% of earnings; with super included. Currently you are covered for 75% of your income, and you can decide to include super on top of this. Now it will be 70% of earnings which includes super. Example; if someone was on $100,000, they would be covered for a maximum of $70,000 and $10,000 of this would go into super. With a cap of 10% super maximum.
  • Long Term claims; For claims longer than 2 years, the occupation rating will change from “own occupation” to “any occupation”.
  • 5-Year Health check; this has been pushed out until October 2022, as it will be too hard to police. What this means is, after a the 5 year period, a new policy must be entered into that reflects the current market terms and conditions. If a policyholder enters a new contract after the initial 5 years, medical underwriting is not required but any changes to the policyholder’s occupation, financial circumstances and dangerous occupations or pursuits or pastimes must be updated and reflected in the new policy. Insurers are also unable to extend a current policy even if the circumstances are the same.  A new policy agreement must be entered into.

You can rest assured that if you already have an income protection policy in place, this change does not affect your policy.

For some background information, APRA implemented significant changes to income protection policies in Australia. Over time, due to the competitive nature of the industry, the features and benefits of income protection policies have grown to a point where claims paid are consistently exceeding premiums received making the industry unsustainable. In fact, income protection departments of Australian Life Insurers have lost approximately 4.3 billion dollars over the last 5 years.

APRA has stepped in to address the situation and regulate the market to ensure it is sustainable.  The measures imposed by APRA will significantly affect income protection policies entered after the 1st of October 2021. Importantly, there is no requirement for legislation to pass to implement these changes.

If you have any further questions don’t hesitate to book a time with our Financial Planning team through the below links.

Emma – Financial Advisor

E eck@plus1group.com.au

T 0358333000

Book a time with Emma

Mason – Financial Advisor

E mnt@plus1group.com.au

T 0358333000

Book a time with Mason

Need more help or information?

Click the link below to contact us at Plus 1.

Open Hours

Monday to Friday
8:00am to 5:00pm

Closed Public Holidays

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If you need to get us documents quickly, access remote support, or the MYOB Portal click the button above.

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T: (03) 5833 3000
F: (03) 5831 2988
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Should I Fix My Whole Home Loan?

Should I Fix My Whole Home Loan?

Should I Fix My Whole Home Loan?

Home Loan

Interest rates are currently at record lows, with some fixed rates below 2% per annum. This begs the question, should you fix your entire home loan?

Firstly, it is important to know the difference between a fixed rate and a variable rate.

A fixed rate is an interest rate which is fixed for a period of time. For example, you might fix your home loan rate at 2% for the next three years. By fixing your interest rate, it cannot go change over the fixed period (in this case, three years).

By fixing your rate, you are essentially making a prediction that you think rates will likely rise in the future. If you thought rates were going to go lower, then logic says that you wouldn’t fix your rate.

Conversely, a variable rate can change with the market. For example, when the Reserve Bank of Australia increase the cash rate, it is likely your bank or lender will also increase your variable rate. This means your repayments will increase as well.

So with fixed rates currently lower than variable rates on the surface, it makes sense to look at fixing your home loan.

While there are benefits to this, there are however some key factors that need to be considered before you call your bank and fix your loan:

BENEFITS

Certainty By fixing your home loan rate, you have certainty in knowing how much your repayment are going to be for a set period of time. This can help with managing your ongoing cash flow and reduce stress.
Lower Rate The fixed rates are currently lower than the variable rates. Therefore by fixing your loan you can effectively save the difference between the two rates.
If Rates Rise If interest rates rise, you will be fixed into a lower rate thereby increasing the amount you are saving

 

DRAWBACKS

No Extra Repayments Typically, you are unable to make extra repayments on a fixed loan. Therefore, if you like the ability to pay down your home loan faster, perhaps fixing your entire loan is not a great idea for you.
If Rates Reduce If rates go down, you may have fixed in at a higher rate and are therefore paying more than the market rate. While rates are at all-time lows, this does not mean they cannot go lower still.
Break Fees If you need to break your loan, there is usually a fee to do this which can be costly.
Less Flexibility Fixed loans typically do not have offset accounts or redraw facilities. They also don’t typically allow you to make changes once fixed – hence the term fixed

*Different lenders have different rules around their fixed loans. Ensure you check the rules with your lender before making any decision

As you can see from the above, there are numerous benefits and drawbacks to fixing your home loan. It is certainly not once size fits all.

If you are unsure whether or not you want to fix your home loan or keep it variable, perhaps you should consider splitting your loan.

Splitting your loan means that you can have part of your loan fixed and the other part variable.

For instance, you may want to fix half your loan while keeping the other half variable. By doing this, you can get the benefits of the lower rate and fixed repayments on one half of your loan, while still being able to make extra repayments on the other part of your loan.

While one loan does not fit all, it is important to know your options and make an informed decision.

For many of us, our homes are one of our biggest assets and our home loans our biggest liabilities. Making good decisions around our homes is therefore crucial to our overall wealth.

If you would like to discuss this further or would like more information, please contact us on (03) 5833 3000 and ask to speak to Emma or Mason. Alternatively, you can click below and book an appointment directly into our calendar.

Emma – Financial Advisor

E eck@plus1group.com.au

T 0358333000

Book a time with Emma

Mason – Financial Advisor

E mnt@plus1group.com.au

T 0358333000

Book a time with Mason

Need more help or information?

Click the link below to contact us at Plus 1.

Open Hours

Monday to Friday
8:00am to 5:00pm

Closed Public Holidays

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If you need to get us documents quickly, access remote support, or the MYOB Portal click the button above.

Contact Us

27 Welsford Street
Shepparton, VIC 3630

T: (03) 5833 3000
F: (03) 5831 2988
Email Us

CryptoCurrency – Are you Investing or Speculating?

CryptoCurrency – Are you Investing or Speculating?

CryptoCurrency – Are you Investing or Speculating

cyber-security-laptop

Unless you have been living under a rock, you would have heard about the rise of Cryptocurrencies over the past several months.

This rise in value has seen many people begin to put more and more money into these assets in the hope that they will continue to rise in value. As more people put money into these assets, the values go higher and higher and so on. We are not going to give an opinion on whether we think Bitcoin and other cryptocurrencies are good investments or not. This would be pure speculation.

But it does pay to ask the question, are you investing, or are you speculating?

The main difference between investing and speculating is the amount of risk you are taking on to try and get a return. High-risk speculation has many similarities to gambling, whereas investing uses a basis of fundamentals and analysis.

Investing typically involves diligent analysis of the underlying fundamentals to determine whether an asset is under, over or fairly valued. An investor then based on this analysis can make an informed decision as to whether or not they should invest in a particular asset. This can be a company, a property, a commodity or other asset that can appreciate in value.

Speculating on the other hand is putting your money into an asset and just hoping it will increase in value. Usually, speculators seek abnormally high returns in a short period of time. A bet so to speak. If I buy this asset today, I hope it will be worth significantly more in a week or a month from now.

Speculating can see you make a lot of money very quickly. This is what is happening now and as more people make quick, abnormally high returns, others who are not speculating get a fear of missing out and then decide to jump on, in hope of getting similar returns.

This is where the real danger lies in speculating. Speculators are looking at past returns and hoping it will continue. It may continue, but it also may not.

The number of conversations we have had over the past couple of months regarding how to buy Bitcoin and other cryptocurrencies has increased dramatically. The same conversations were happening during the last Crypto boom and that ended in tears.

We are not saying you should or shouldn’t buy Bitcoin or other cryptocurrencies. What we are saying is to be diligent and do your research.

Everyone is now an expert because they may have made a quick buck. Winning a bet doesn’t make you an expert. How many of these people can actually explain what cryptocurrency is and why it is worth what it is?

If they cannot answer this question, they are speculating.

It is important to do your own research and not put more than you are willing to lose into these high-risk assets.

Emma – Financial Advisor

E eck@plus1group.com.au

T 0358333000

Book a time with Emma

Mason – Financial Advisor

E mnt@plus1group.com.au

T 0358333000

Book a time with Mason

Need more help or information?

Click the link below to contact us at Plus 1.

Open Hours

Monday to Friday
8:00am to 5:00pm

Closed Public Holidays

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If you need to get us documents quickly, access remote support, or the MYOB Portal click the button above.

Contact Us

27 Welsford Street
Shepparton, VIC 3630

T: (03) 5833 3000
F: (03) 5831 2988
Email Us

Are you Investing in Residential Property?

Are you Investing in Residential Property?

Are you Investing in Residential Property?

cyber-security-laptop

With so much media on the much-flaunted rise of Australian Residential Property prices, we thought it prudent to put together this article which is anticipated to provide our view on Capital Growth figures over the longer term.

Whilst we appreciate there are many persons capitalising on low interest rates and other government initiatives to purchase their own dream home, this article is more intended for those persons considering to purchase an investment property.

Importantly, with so much noise going on:

  • Soaring property values encouraging “get on the band wagon”
  • Cash rates and hence mortgage rates being likely to be lower for longer
  • Huge dollar values being quoted as examples of “look what I did”.
  • TV shows showing auctions
  • The whole promulgated property renovation revolution
  • Stories highlighting property entrepreneurs’

We would encourage people to take a back step from all that noise and carefully consider any entry into the investment property market with some cautious optimism as you would with any great expenditure. After all, this decision outside your own home purchase and superannuation, being your two biggest investments, this is right up there in significance in dollar decisions. Further, you are going into the property market in one big hit with big dollars, not gradually.

Moreover, we would first stress that we are certainly advocates for residential investment property purchases for the wealth creator type investor, but not so strong on these strategies for retiree types. Again, it’s a horses for courses and will largely depend on how this fits in with a person’s overall investment portfolio, surplus cash flow, liquidity of other investments and exactly what is trying to be achieved and in what timeframe.

For the purposes of this illustration, we have attached a table of the median Residential Property Prices values in the 3 main capital cities (Melbourne, Sydney and Brisbane) for the period of 17.5 years from 30 September 2003 to 31 March 2021.

We have captured these specific dates to provide a reasonable long-term view in modern times.

For ease of illustration (see the last 3 columns on the right side) we have put the starting point (September 2003) as house capital values being $100,000 for the 3 main capital cities. In other words, for every $100,000 of “investment property” you purchased, then this is what would have transpired over the period to 31 March 2021 (based on the median capital growth percentages shown).

As you will see, the capital growth and fluctuations are very evident from the table. The compound rate of return is approximately 4% to 5% per annum. This is consistent with capital growth (mainly) over the very long term is generally a couple of percent above inflation each year. Some properties would have done better or worse – this table is the median. This long-term percentage capital growth per annum, which we consider to be very good.

Of course, for any total return there would be rental income less expenses and interest payments depending on exactly how the investment property purchase was funded. The main rental income used to be about 4% per annum (being 5% actual rent less say 1% property expenses) – this excludes any borrowing interest expenses. At the top end of the market, rental yields will generally be lower relative to the current market values.

At the time of writing the rental yields in Melbourne, for instance, are approximately 2.90% the value of properties (before expenses and any funding costs). The range can vary from as low as 1.60% to high 5.00% depending on the suburb and property value. What this tells us is that rents have not kept pace with growth in property values. Will there be a pull back or will the rises continue – the answer is who knows – any prediction is just an opinion at best.

Referring to the Melbourne example in the below table, some of the percentage returns can be negative over various periods. In fact, over the 17.5 years there was 4 negative years. The percentages confirm there will be negative years, flat years and years where the growth is substantially above the long-term averages.

We believe the percentage capital growth return on our monies invested is more reflective of what to look at rather than big dollar values being spruiked around. Of course, the likely rental yield added thereon would then give the full picture.

Our financial planning team here at Plus 1 Group are always available to discuss issues of this nature with due regard to your investments or financial planning generally.

Need more help or information?

Click the link below to contact us at Plus 1.

Open Hours

Monday to Friday
8:00am to 5:00pm

Closed Public Holidays

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If you need to get us documents quickly, access remote support, or the MYOB Portal click the button above.

Contact Us

27 Welsford Street
Shepparton, VIC 3630

T: (03) 5833 3000
F: (03) 5831 2988
Email Us