How to have a happy new year! - Newsletter 2003

The end of one year and the start of another is the ideal time to review one’s finances. During a busy year, we tend to let things roll along. The New Year can provide the time to analyse things like how suitable a current home loan might be. Personal finances at this time of the year are also often extended at Christmas. So why not make a New Year’s resolution to review your financial situation and to make forward plans accordingly?

Post-Christmas debt

In today's credit card age, too many people fully extend their card debt at Christmas. Of course, the most advantageous way to shop for Christmas is to do it on a credit card to get the rewards points but then make sure you pay off the bill in its entirety each month. If you don't trust yourself with a card, pay cash. But if you have racked up too much credit on your card, then try to reduce that as soon as possible. Remember, credit card interest is higher than most other loan types. So reducing credit card debt should be a priority in any investment planning.

If you can't pay the card off from your own salary, first off consider a redraw on your housing loan. Home loans interest rates are much lower than credit card rates. Remember as a general rule interest on money borrowed to purchase your house is not tax deductible and nor is interest on money used to purchase Christmas presents so your tax affairs should not be messed up. (Of course, you should be careful getting a redraw on an investment loan to pay off your credit card because this would mix up business and non-business borrowing, complicating your tax affairs).

It could also be a good time to look at refinancing to access more equity in the house. In doing so, it may be possible to establish a Line of Credit or pay most of the increased borrowing back to the loan on settlement of the increased borrowing. This is like a 'diy line of credit' and gives you the confidence of knowing the extra money is there if you need it for either investment or personal purposes.

Any of these 'solutions' will, however, increase the size of your outstanding loan. So if you are confronted by credit card debt after Christmas, make a New Year's Resolution to keep your card spending in check over the coming 12 months. Save for Christmas beforehand, rather than pay it off later. If you have trouble controlling your spending, it may be worth asking the bank to reduce your credit card limit to a manageable level.

Review

The recent interest rates are having an impact on the finances of many households. Many borrowers are concerned about the impact of possible interest fluctuations over the coming year.

Homebuyers can look to minimise the impact of higher interest rates by reviewing their loans. In many cases, Peach has found that borrowers may be able to reduce their interest costs and some have been able to avoid the interest rate rises altogether by switching to more competitive loans.

We're inviting all borrowers to take advantage of a free no-obligation mortgage check-up with Peach. Homebuyers and investors have nothing to lose by checking out the options. You could end up saving thousands.

Many borrowers have simply been paying too much interest on their loans.

Peach can show almost anyone how to get at least 0.5% off the standard variable rate - without sacrificing features. That means that many borrowers can now make the market work for them and pass rate rises onto their lender!

And if your lender won't play ball, Peach can refinance you with someone who will. Sometimes you can even commence low-rate loans with a honeymoon! You just have to know where to look or who to get to look for you.

Plan

Many people only take a short-term view of their finances and investments. They worry about small fluctuations in property prices, share prices or interest rates. These investments should be approached with a medium- to long-term view.

Once again, why not use the New Year to make a financial plan covering short-term, medium-term and long-term views?

For the short-term (the year ahead), work out what your income and expenditure is likely to be. Will you be able to make any investments? Are there any anticipated one-off expenses? Does your home require maintenance work in this time frame? Can you cope with any unexpected contingencies? Can you make additional payments off your mortgage?

Likewise, make medium-term and long-term financial goals. Do you have a timeframe in which to pay off your home? Do you hope to make property investments over the next five to ten years? What impact will family requirements, employment and retirement planning have?

These are complex questions and should be tackled in as informed a way as possible. Independent financial planners can assist in approaching these questions and in making plans for the future. You should consult qualified professionals to assist with associated legal, tax and financial matters but be careful of the advice of those who make commissions on the products they recommend. Remember, if they're receiving commissions, they are salespeople and should be treated as such. There are good salespeople and bad salespeople and salespeople can be the source of good information about the market, but take it all with a grain of salt, talk to more than one salesperson and do your own research to check out what they say and why they're saying it. And as I've said before, that goes for us too!

See you next month.



AKA Dr Nicholas Gruen
December 2003

Please note: The observations made here are general and indicative. Nicholas Gruen is not a qualified investment adviser and his comments are general and do not take into account your specific circumstances. Nor are they warranted as free from error in any respect whatsoever. You should not rely on any aspect of them without taking independent financial advice relating to your own specific circumstances. We suggest you obtain advice on a fee for service basis rather than from someone who earns either up-front or trailing commissions from investments they recommend. We would be happy to let you know of service providers who provide advice on this basis.