The power of a budget
Do you have a budget? Or better still, do you have a budget that you stick to? A whopping 86% of the Australian population don’t, so if you are in this camp, you’re not alone. Okay, I know what you are probably thinking, it takes time, I have better things do, it’s too hard, “she’ll be right, mate”.
It’s not going to be a 5-minute job, but with technology and the world going paperless, it doesn’t take all that long and we believe it is one of the best things you can do. Here’s why.
Home loan interest
You will see that if you have a home loan the repayment takes up a large amount of your budget. Home loans are generally taken out over a 30-year period which means on an average loan size of $731, 539 which is what it is in NSW, you will be paying about $564,254 in interest.
Living beyond your means
Having a budget helps you not to live beyond your means. I’m sure we have all heard horror stories of our family or friends (or even yourself) accumulating large credit card debt or taking out large personal loans and finding themselves in too deep and seemingly unable to break the cycle of pay check to repayment. Having a budget that you stick to is one of the foundations we promote to financial success.
Make appropriate changes
With a good understanding of your expenses, you will be able to break them down into two categories, the “must haves” like food, bills, rent/mortgage, transport etc and your lifestyle expenses, or “fun”. You then can look for opportunities to save some money on your must haves, for example by changing providers, refinancing your loan, eating out less etc. You can also decide to reduce the money you spend on nights out or go out less frequently, or even choose healthier alternatives like exercising or enjoying some time at the beach. The budget savings you make can be put to other beneficial uses.
You can also increase your earning potential by going for a promotion, changing employers, or upskilling to increase your household income.
Building for the future
With a solid foundation is place that includes a budget that you stick to, you are setting yourself up for financial success. We often suggest giving some thought to at a minimum making additional (and frequent) payments to your home loan. This is because your extra payments go directly off your principle, meaning that your one step closer to becoming debt free and paying less interest to the lender. Here’s an example.
On a $700,000 mortgage @4.2% interest with a 30-year loan term you will be paying $532,323.28 in interest. Your minimum monthly repayment will be approx. $3,423.12 per month.
On the same loan, if you decide to make an extra payment of $1,000 per month, you could save $210,403.96 in interest and save 10 years and 8 months off your loan term.
In an environment where interest rates are rising, more of your hard-earned money is going to the bank in interest, not reducing your loan balance.
For more information on our services, please contact www.buildprotectfs.com.au
