New Car, Are you driving your investment?

Lots of us like to drive a new car but did you know it costs around $121 per week to finance the average small car?

Many Australians have a love affair with new cars with a record 1.14 million new vehicles sold in 2013. So are you one of those Aussies who want to buy a new car as soon as the last one is paid off? If so then let’s consider these points:

  • How many of us really NEED a NEW car every 3 to 5 years?
  • How could $121 pw make a real difference to your life?
  • Did you know you could probably afford an investment property with $121 pw?
  • We know that cars depreciate in value over time and properties appreciate over time, yet we are often guilty of investing in instant gratification – such as a new car NOW – as opposed to delayed gratification – such as a more secure financial future.

Did you know that approximately 80% of Australians end up on some form of government assistance in retirement? Did you also know that ONLY 20% of Australians invest in property?

Do you think this is a coincidence? Probably not.

While many of us like to have a new car, would you consider driving your current car for a few extra years if you knew your financial situation would be improved as a result?

Just think of some of the financial advantages that could be enjoyed if you were to postpone a new car purchase. You could maybe buy some other ‘toys’ with your extra cash, have a great holiday OR you could use that extra cash to start building wealth and become part of the 20% of Australians who actually enjoy a comfortable retirement. There are many paths to building wealth and id=”mce_marker”21 pw is usually enough to get you started. Let’s have a look at just two options for using that extra cash.

Option 1: Purchase an investment property. How do the numbers work?

A quick check of the table on the next page shows $710 pw in mortgage expenses and rental income of $392 pw leaving a shortfall of $318 pw.

But didn’t I say it would cost around $121 pw? Yes, but the story doesn’t end here.

By using both depreciation on the property AND claiming your finance expenses against your income you can reap a combined tax reduction of approximately $10,000 pa!

This reduces your weekly commitment to just $126 pw. You can even claim your tax refund in advance each pay cycle to help with cash flow.

Search the ATO website for the PAYG withholding variation application for more details.

Purchase cost

Median unit price for Australian capital cities $425,954

Interest rate* 5.91%

Weekly repayments $627

Expenses

Rates (will vary between councils) $1,200 pa

Property management (based on 10% of rent) $2,038 pa

Insurance $500 pa Maintenance $600 pa

Total expenses $4,338 pa or $83.42 pw

Total weekly cost for investment property $710

Income Average weekly rent $392

Option 2: Pay off your home loan sooner.

If you are not yet ready to take the next step into the property market then why not consider paying off your mortgage even faster? If you take the median unit price in Australia of $425,954 with an interest rate of 5.91% you will be paying weekly repayments around $627. If you add the extra $121 pw to the mortgage, this will boost the repayment amount to $748 pw. Now I’m sure you can guess this will turn into some serious savings – in fact it could take up to 7 years off your mortgage and save you a whopping $127,700+ in interest over the life of the loan!

Is this food for thought?

So NOW what are you going to do when you pay off your car?

Job Hopping – When is the best time to change jobs?

With the holiday season upon us, many have the time to consider their employment options. The holiday break brings hopes for a fresh outlook and a new employer as one of their new year’s resolutions.

Here are some interesting facts about employment statistics and job hopping:

Are we changing jobs more frequently?

Australians who have been in their job five years or more are something of a dying breed according to the most recent labour mobility stats from the Australian Bureau of Statistics. Of Australia’s 11.5 million workers:

  • 56% had been in their jobs less than 5 years and 18% had been in their jobs less than 1 year.
  • About 66% of women and 60% of men who left work during the year did so voluntarily.
  • In the same 1 year period an estimated 240,000 men were retrenched compared with 149,000 women.
  • Managers, professionals and clerks were least likely to switch jobs. Sales workers were most likely to switch jobs. • Employees might change their jobs, but were not so likely to change occupation.
  • Of the 1.4 million managers who left work during the survey period only 5.5% moved to a job outside management. • Just 9% of the 990,000 labourers who left work moved onto something other than labouring.

Did you notice that the statistics above show that not everyone CHOOSES to leave their job?

If your employment is secure, how long should you stay at your job (even if you don’t like it)? It may be that job hopping could impact your future employment options and, even worse, your future borrowing options. You may be right to be concerned.

A Bullhorn survey reports that 39% of recruiters believe the single biggest obstacle for an unemployed candidate in regaining employment is having a history of job hopping or leaving a company before they have been there for a year. In fact, recruitment managers said a 55 year old with a steady employment history is easier to place than a 30 year old job hopper!

Common questions from a job hopper:

When is the best time to change your employment?

There isn’t really such a thing as a perfect resume because there are so many reasons for leaving a job and other reasons for staying in your current employment. Your reasons and decision to change matter on a long term basis as well as a short term one.

If I start a new job, how does that affect my ability to negotiate a loan?

If your new role comes with a pay rise it may increase your borrowing potential as your income level is obviously a key to your ability to repay a loan. But lenders might be more concerned about the security of your new employment than your potential greater capacity to repay.

Lenders will usually consider:

  • how often you change jobs
  • whether you are staying within the same industry, or
  • if you are taking your career in a new direction

These factors influence the lender’s assessment of whether you are a good credit risk. They tend to prefer applicants who have been in the same job for two years or more.

If you change jobs during the application process however it is usually regarded more positively if you are staying within the same industry and employed in a similar role.

If you are contemplating a new job during the next six months, you really need to book a time with us to assess your options and cover any concerns the lending institutions may have. Please call us before any decisions are made.

Ask us to send you our article on: ‘If I start a new job, can you help me get a loan?’

Counting for Life

About Counting for Life

 As many of you know we are proud to be sponsoring Counting for Life which aims to develop the numeracy skills of children in Years 3 to 5. This program is specifically targeted at children who are experiencing difficulties in numeracy. Here is a bit of feedback from one of the young and budding participants Angelica.

 

Angelica’s progress

Angelica is eight-years old and in year three at Old Guildford Public School. Angelica has completed five 45 minute sessions in the Counting for Life Program so far. When Angelica was assessed her main struggles were processing speed and she often found herself second-guessing answers to questions which meant she was unconfident and would withdraw from some of the activities and games. The sessions have been focused on addition and subtraction with Angelica’s strengths in addition lying in written practice. She can complete all of the skills in written practice, however when it comes to completing activities without writing it down she seems to struggle.

Over the five weeks Angelica has really improved in her willingness to have a go and make mistakes, something that she previously did not do – often opting to not say anything at all despite appearing to be working it out in her head. She is answering questions a lot faster and getting through more of the material than was possible in the earlier sessions. Her enjoyment of the program is increasing at every session as she gains more confidence and her self concept has changed regarding her ability to solve maths problems. Angelica is really enjoying the worded problems and board games and is coming to each session excited!

Upcoming sessions will focus on finishing off addition and applying it practically as well as moving on to subtraction and combining the two areas to increase familiarity and confidence.

Georgia our volunteer says that “I am able to observe changes on a week-to-week basis – she is engaging more, is more self-confident and above all becoming better in her maths tasks.”

 

Build on Bookkeeping are also proud Sponsors of Counting For Life – heres a few words on why  

Whether it’s Lego pieces or company revenue, we know how important it is to understand numbers and be able to count accurately. It’s a life skill that can mean the difference between achieving an outcome, and not. We chose to support the Counting for Life program so that more children who are experiencing difficulties in numeracy will get the 1-on-1 intensive support and education that they really need.

Using the equity in your home for a family pledge

If you are already repaying your own home or another investment property, you may be able to use the equity you have built up to assist your children with their entry into the property market as a family pledge.

This scenario will assist if your children do not have sufficient savings for a deposit. Let’s use an example to explain this process.

Your ability to assist

Lenders generally only loan up to 80% of the property value unless lender’s mortgage insurance (LMI) is paid. To keep things simple we will assume that the bank will only loan 80% of the value of your existing property. From our example on the right, there is $250,000 sitting in your home loan that could be used as a family pledge to assist your child with the purchase of a property.

Your child’s purchase

Let’s assume that your child does not have sufficient savings to purchase a property but has the servicing capacity to purchase a property worth $500,000. As they do not have any savings they will need to finance 100% of the property value plus upfront purchase costs. These upfront costs vary from state to state so we will assume an amount of 5% of the total purchase price (or $25,000). This means there will be a need to borrow $525,000.

Security for this loan will need to be provided as:

  • $400,000 against the property to be purchased (being 80% of the property value), and
  • id=”mce_marker”25,000 against your existing property.

End result

As a consequence of the above transactions the following will result:

Obviously, the amount of savings the child may have will reduce the need for a family pledge – or the amount of the pledge.

Importantly

If your property was used as security for a family pledge, your child would owe the lender $525,000. As a parent you would continue to only owe the original id=”mce_marker”50,000. However in the event that your child defaulted on their loan and was unable to repay the lender then the lender may call upon you (as security provider) to repay the loan. If there are additional costs and default interest the ultimate amount that is payable as a parent may exceed id=”mce_marker”25.000.