Get out of debt fast
Extravagance over the holidays often leads to promises of spending less, saving more and getting out of debt. Nila Sweeney, editor of Your Mortgage reveals a handful of tried and tested strategies to help you whip your finances back in shape
The first few months of the year are always a good time to re-examine your income and spending habits for the year. With interest rates likely to increase over the next 12 months, there has never been a more important time than now to start looking at what you can save, how soon you can save it and what to do with the savings.
But how can you save if you're barely making ends meet with your current income? Here's an action plan to help you trim down your mortgage while beefing up your bank account.
Get real. Create a realistic plan and stick to it. The key word is realistic'. There is no point placing a strict budget on yourself that you know you won't stick to. Get yourself a spreadsheet and list absolutely everything down to the last latte.
Brown bag it. Bringing your lunch from home more often in the working week and putting the savings made into your mortgage can significantly reduce your interest payment and the term of your loan. A sandwich can cost you $7 to buy. If you made your own lunch for just three days a week, you could save $21 a week or $84 a month. If you put that extra monthly payment into a 30-year $250,000 mortgage at a rate of 7.82% p.a., you would save yourself about $71,519 in interest over the life of the loan and reduce its term by four years and five months.
Budget for larger items like car insurance and registration. If you put a little aside each month, your credit card won't take the hit come premium time.
Make sure you include everything you spend on a weekly/fortnightly/monthly or yearly basis. This can be time-consuming but having this information enables you to make sound financial decisions about the future.
Squirrel away a small amount each week for the upcoming Easter break or holiday period and save yourself the January Blues'. Start saving now no matter how small. Set up a direct debit from your transactional account to a savings account you can't spend it if it's not there.
Shop around for the highest interest rate in savings. There are plenty of products in the market offering high interest rates with no fees. It pays to search around for the best deal. If you are looking at buying a home or an investment property enlisting a mortgage broker to help you find the best mortgage loan deal for your objectives and financial needs is a great way to secure the finance package that is right for you today and in the future.
Make fortnightly repayments. Set your repayments fortnightly instead of monthly, as you will then be making 26 payments in a year rather than 24. This in turn will save you interest costs and reduce the term of your loan.
For example, if you have $250,000 loan for 30 years at 7.82%, a fortnightly repayment will save you $114,926.11 and reduces the loan term by seven years and three years over the life of the loan.
Allow yourself occasional treats, but don't lose sight of your end goal. Be realistic about your goals and try not to sacrifice your lifestyle too much because this is a budget that you wanted to keep in the next 20 years or 10 years at least.
Like all New Year Resolutions most don't get fulfilled, but if you can just do one you will be personally better off as well as financially.
*Figures and savings represented are intended as a guide only, consult a mortgage broker when considering if this information is right for you.