Blog How to be money savvy in the New Year

How to be money savvy in the New Year

21 January 2020

The dawn of a new year brings a lot of joy for many people. Time off from work, a much-needed trip, Christmas lunch with the family and more. But it’s also a very expensive time of year, with Australians spending about $5.8 billion each year on Christmas gifts.

If you’re experiencing a Christmassy financial hangover, then check out these 7 tips on how you can fix your finances and be money savvy in 2020.

Clear your Christmas debts

The average amount accruing interest per account holder on credit cards is $1,986, according to the Australian Bureau of Statistics, while an ASIC report found that Aussies have over $903 million in outstanding buy now, pay later balances.

These are numbers that will surely rise over Christmas, leading many people to build large Christmas debts. If you have big credit card debts, try to pay as much above the minimum repayment as you can, or balance transfer those debts to a card with a 0% balance transfer period.

Build a savings buffer

Did you know that one in five Australians have less than $250 in their bank accounts, while one in three of us have less than $1,000*?

Everybody should aim to have between 3 and 6 months of emergency savings stashed away somewhere should something bad happen, like a bad injury or the loss of a job. This is to protect you financially in the event you are no longer receiving an income.

Having an emergency buffer like this could help you pay for:

Until you get back on your feet, and can also be seen as a positive thing by lenders, who like to see ‘genuine savings’ built up by prospective borrowers.

Start your new year off by dedicating about 10% of your payment to a separate bank account you can’t touch until an emergency strikes.

Lower your rent

Rent is a huge expense for many Australians, with the median rental price across Australian capital cities sitting at $520 a week, according to Domain.

If you are currently renting, it might be worthwhile for you to consider any of the following to see if you can save money on rent:

  • Get an extra housemate or two

  • Downsize to a smaller place or one further from the city

  • Commit to a longer lease and ask your landlord for a rent reduction

  • Research similar properties that are cheaper

Buy a used car

Cars depreciate in value extremely quickly, so if you want to buy a car, consider getting a used car that’s only a few years old. These cars will likely still be in good condition and will be much cheaper than the same model bought from a dealership. A $10,000 car will also result in you paying far less in interest than a $20,000 car with the same car loan interest rate.

Plus, you should also consider buying a car in the second half of the year: a 2019 report from the Australian Used Vehicle Value Index found vehicles sold in September and October saw lower prices compared to March and April 92% of the time.

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Source: Manheim Used Vehicle Value Index

Cars are also a big expense too, so it makes sense to try and sniff out some bargains when you can.

Start investing

Saving frugally is all well and good, but you also need to make sure your money is working hard for you. That’s where investing comes in.

According to the ASX 2018 Long-Term Investing Report:

  • Investing in Australian shares has returned 4.0% p.a. over the past 10 years

  • Investing in Global shares has returned 7.2% p.a. over the past 10 years

  • Investing in Australian property has returned 8.0% p.a. over the past 10 years

  • Investing in managed funds has returned 5.7% p.a. over the past 10 years

The highest average return on investment here is investing in property at 8% p.a, which is much more than just sticking your money in a savings account or term deposit which barely reach 2% p.a. You can start investing in property by choosing a good value investment home loan, or you can contact a financial adviser to help you get started in other investment classes.

Make extra repayments on your home loan

One of the biggest expenses in your life is your home loan, so it makes sense to start here. The more repayments you make the faster you can pay it off, and you can save yourself some interest in the process.

After a number of rate cuts in 2019, home loan interest rates have been lowered, but that doesn’t mean you have to lower your repayments. If you’re not in mortgage stress and are comfortably meeting your repayments, continuing to make the same home loan repayments that you were prior to the cuts can ensure you pay off your loan faster and save thousands of dollars in interest.

Every little bit helps, so try and add a little extra to your home loan repayments every now and then.

CALCULATE REPAYMENTS

Get a better home loan

Finally, you can save some big bucks by finding a home loan with a lower interest rate and therefore lower minimum repayments. Let’s compare two home loans with different interest rates over a 30-year loan term (variable-rate, principal and interest repayments):

Loan amount

3.50% p.a. min monthly repayment

4.50% p.a. min monthly repayment

Monthly savings at 3.50% p.a.

Total savings over 30 years at 3.50% p.a.

$300,000

$1,347

$1,520

$173

$62,280

$400,000

$1,796

$2,027

$231

$83,160

$500,000

$2,245

$2,533

$288

$103,680

$700,000

$3,143

$3,547

$404

$145,440

$1,000,000

$4,490

$5,067

$577

$207,720

As you can see in the example above, you can save hundreds of dollars a month and tens of thousands over the course of the loan by picking a lower-rate home loan, with the potential of even bigger savings the lower the rate is.

loans.com.au has a range of low-rate home loans that are competitively priced compared to the rest of the market, so have a look at what we offer and make saving on your home loan a priority in 2020.

COMPARE HOME LOANS

*https://www.savings.com.au/savings-accounts/one-in-five-aussies-have-less-than-250-in-savings-amp-bank