TOP 11 DISCIPLINES FOR FINANCIAL SUCCESS

Spend less than you earn – champagne taste on a beer budget?

Pay down non-deductible debt first

Any debt that doesn’t make you money or create your wealth should be paid down first. Start repaying your store and credit cards and personal loans then your home loan BEFORE your investment debt. For every $5,000 racked up on your credit card, you are affecting your property borrowing capacity sometimes by about $30,0001 or more.

Pay off your highest interest bearing credit card fast

Paying off a credit card with a 27% interest rate will allow you to feel awesome. When you apply your existing payment that was previously used to pay off the high interest rate card to another card debt, watch the balance drop significantly in a much shorter time frame.

Think carefully before taking on any new (or bad) debt (including credit cards, Afterpay/Zip Pay, personal or car loans). Not every 0% interest (or low interest) rate is what it seems.

Always check with your financial adviser (us) first, BEFORE taking on any new debt.

If you start to shop around yourself, you could very well damage your credit rating and end up not being able to borrow at all for a longer period of time.

Spread your indulgences over a longer time frame

Yes, you need to be rewarded for your hard work and discipline.

So when you DO indulge, spread it across the year or over several months to take advantage of maintaining your budget, cash flow and to reduce any more financial damage.

Revisit the way you are using and spending your money often

Sometimes we drop out of good habits. Don’t beat yourself up, just jump back into the flow and get cracking again.

Invest in good quality objects/clothing that will last as opposed to grabbing possessions in sales that you will only use on a few occasions or perhaps never use at all.

Quality over quantity is a good mindset to have in the world of saving, finance and investing.

Prepare for life’s unexpected financial events.

Have a rainy day account to avoid upsetting your plans. You don’t need any excuses to stop your progress and results.

Don’t be afraid to ask for help. BUT – be careful who you listen to

Sometimes those who give us advice are the ones not following their own advice or have little knowledge and/or success themselves. Remember, we are only a phone call away.

Be positive about the future

What we think about comes about, so be careful what you focus on. Looking at your debt will bring more debt. Look at your equity and asset growth instead!

Educate yourself, then take massive action

“To know and not do is really to not know.” Stephen Covey. There is a lot to do to achieve financial success. Don’t try it alone.

Call us to arrange a catch up. We can discuss your personal needs and help you get on track financially.

POST-PURCHASE Party Poopers

5 unexpected costs that can turn your dream home into a house of horrors

You’ve found the perfect home, had the housewarming party, and now it’s time to sit back and enjoy your new home. Not so fast.

There are plenty of potential post-purchase expenses lurking just behind your new front door. However, with some expert knowledge and planning, you can be prepared for whatever surprises your new home throws your way.

Beyond the buy

For most buyers, it’s all about the deposit and subsequent mortgage repayments. However, there is more to consider. Some experts estimate that immediate costs beyond the deposit can run to around 10% of the property purchase price, and there are also ongoing future expenses to consider.

Here are some common costs you need to plan ahead.

1. Homes – it’s what’s inside that counts

The immediate period after purchase can give rise to a host of costs. Remember to include the removalist which can run into well over $1,000. Make sure you measure first so you can ensure your furniture fits. And remember, unlike a rental there is no guarantee the property you purchase will be sparkling clean when you take ownership, so you may need to employ contract cleaners, especially if you are planning to rent out the property. New locks, curtains, blinds, new appliances (if your existing ones don’t fit) and possibly flooring may also be required. Adequate savings will ensure you can attend to these items sooner rather than later.

Incidentals like filling your pantry with the basics are often overlooked by first home buyers. Also things taken for granted at home are items like cleaning products, an ironing board and iron, clothes baskets, cutlery and cooking utensils, kettle, toaster and the basics used daily are not always factored into a move. Look around home first (inside and out) and create a list of items you will need to budget for.

Remember you will also now be responsible for household utilities like gas, electricity, rates, water, internet connection and yes – you’ll be up for your own Netflix, Stan and Foxtel services.

2. House or unit – it makes a difference

When it comes to ongoing costs, there is a great divide between owning a freestanding house and owning a unit or apartment. Generally, when you purchase a home, you can do as you please to your land and home (as long as you have the appropriate council permits) and you are solely responsible for all maintenance and ongoing costs.

Owners of units or apartments, on the other hand, are generally governed by strata title, meaning broadly that the common areas of the complex will be managed by strata management, and strata regulations will determine each individual owner’s rights and obligations.

3. Strata fees and sinking funds

If you have purchased a unit or apartment, you will need to pay strata fees which will cover the costs of the upkeep of common areas (these costs are usually known and budgeted for). You may also be required to contribute to a sinking fund to cover emergency or unexpected costs. Strata fees vary depending on the size of your building or complex and can include items such as water rates even if your home is separate. Prestigious buildings can command strata fees of tens of thousands per year, smaller complexes can be around $3,000 per year.

4. Ongoing maintenance and repairs

House, unit, apartment, duplex… no matter what type of property you have purchased, one thing is for sure – it requires work to maintain it. There are various factors that impact the amount you need to set aside for maintenance (such as the age, location and size of your home), however a general rule of thumb is to set aside 1% of the value of the property each year for maintenance and repairs. It’s a good idea to have the property sprayed for pests and rodents before you move in (no one wants a creepy crawling house guest!). If you are lucky enough to have a garden you will need to factor in time or cost of weeding, raking and mowing, and if you have a pool there is substantial ongoing maintenance to consider.

5. Unexpected emergencies

Every home has the potential to surprise you with costs you simply couldn’t have planned for. This is where an emergency fund will come in particularly useful. Situations such as your neighbour filing a complaint to council saying your massive jacaranda tree has damaged their storm water pipe/system and you are liable; or a huge storm results in a leaking roof; or a family of possums takes a shine to your back deck… there is no limit to the possibilities. Good home and contents insurance will cover many unexpected expenses, however if you do not have an emergency fund you could be caught off guard.

So, while you are working out a budget to save for your deposit, make sure you look beyond the day of sale and set aside enough funds to cover all the things your new house will need to make it a happy home.

Leave it or List it?

Should you keep your first home as an investment property?

First homes, like first loves, are important milestones in our lives representing more than just bricks and mortar. And like our first loves, most of us eventually move on from our first home. Needs change, families grow and we find ourselves looking for a new property.

This is often a time that property owners turn their thoughts to investing, looking to own an investment property as well as a home to live in. The simple solution would seem to be to hang on to your first home and keep it as an investment property, right?

Wrong!

In most cases, keeping your first home as an investment property isn’t advisable, especially if there is substantial equity in the home. There are, of course, exceptions to the rules. As your personal financial specialist we can look at your unique situation and help you make the most financially sound decision for you.

A few points to consider…
Capital gains tax and the six year rule

When you sell a home that has been used only as a principal place of residence, it does not attract capital gains tax (CGT). Conversely, a home that has been rented out will attract CGT. However, under the six-year rule, a property can continue to be exempt from CGT if it is sold within six years of firstly being rented out AND you DO NOT own another principal place of residence. We can recommend specialists who are best placed to advise you on CGT implications and obligations.

Capital growth potential

Understand the future value of your first home before making any decisions. Look into comparable sales in your area, and research planned developments and infrastructures that may impact its future value.

Again, advice from our financial and real estate experts will help you weigh up potential capital growth against potential capital gains tax and other considerations.

Rentability

Our first home is often purchased using a criteria that is different from the one we would apply to an investment property. When moving on from that home, consider if it will be easy to rent long term. Just because you have loved the home, it doesn’t mean renters will. Speak to local property managers and investigate supply and demand in your area.

It is worth remembering that rent is considered as income, and if your rent is more than the loan and property costs, you will pay the marginal tax rate on the income plus your PAYG income.

Renovations

Whether renovations (improvements) are required to bring the home up to a rentable standard is an important factor to consider, and one that may tip the scales on your decision. Landlords are required to ensure the property complies with safety standards and meets the requirements of a rental property. These standards and requirements may have changed since your home was purchased and could represent a significant financial outlay.

It is worth keeping in mind that only certain improvements will be deductible in line with a depreciation schedule.

Also note – If renovations or improvements are completed before the property is rented, the costs will not be tax deductible as they will be considered as home improvements before renting. If the renovations are done after it’s rented, then the renovations are considered improvements on the property and may be tax deductible, but only for the time it is being rented. Your accountant is best placed to advise you here.

Home loan considerations

The decision of whether you keep or sell your first home is largely dependent on your ability to service the mortgages required. How much you are able to borrow (for one or both properties) will be dependent on:

• how much equity you have in your first home

• the total amount you need to borrow, and

• your ability to service both loans. Lenders have different criteria with investment finance and will generally only consider 70-80% of the rental income.

Using your equity to buy

The greater the equity in your current home, the more you can borrow to buy another home. In addition, when buying your second home, it is possible to use the available equity in your current property as your deposit.

Depending on the increase in value since you purchased your home, you may have more equity than you imagined. This can be used instead of a cash deposit when buying your second home.

However, if you use the equity from your existing home, it will need to be identified separately because the original loan will now be considered as investment, most likely be financed as an interest only loan and will be tax deductible.