Wealth Insights for Young People

There is such a myriad of ideas for how to manage you money it is very difficult to know where to start and what is appropriate for you.

In one of my regular interviews on Wake Up! WA we discussed money tips for young people, including students. IN the later half of the interview we also touched on how parents of young people can support their children in creating positive money habits.

Watch the video below or here.

You can watch other Money Guide videos at www.MattHern.tv and here on my blog.

How To Save Up To Buy Your First Home

Owning your own home is one major goal for many young Australians. But with property prices so high a first mortgage may appear out of reach. In this interview on Wake Up WA, Certified Financial Planner professional Matt Hern shares three strategies that first home buyers (especially young people) can use to save up to buy their first home.

(Recorded 3rd July 2008.)

Not So Average Wedding Cost

Wedding On The BeachIn the life planning step of my “Save For The Significant” process one of the common goals is a dream wedding.

Parents often list a goal of wanting to contribute to their children’s weddings. And independently minded young couples often want their dream wedding without the “suggestions” from their well-meaning parents – thus they want to pay for their own wedding.

Weddings are costly and not an expense most people can easily absorb into their income for that year. That means they need to be save up for and most people get that. But how much does a wedding cost and how early do you need to start saving?

Earlier this year Bride to Be magazine released the results of their Cost of Love 2008 survey, which found the average cost of a wedding was $49,202.

That is only a couple of thousand dollars less than the average Australian wage before tax.

Since many couples probably earn less than the average wage they need to be saving one partner’s full wage for probably two years or more just to pay for their own wedding. That could be a tough ask especially if you are also saving a deposit to buy your marital home.

When you’re already dreaming start saving

Perhaps a better approach would be for ladies who dream of a lavish wedding to start saving right now, even if you are not yet in a committed relationship. When cupid strikes the wedding can creep up quicker than you can save.

Blokes Beware – Bling is Costly

Blokes should also be aware that the average cost of a bride’s engagement ring was $5,116. It seems the old notion of three months wage may be continuing. So if you are a traditionalist then get saving right now mate, ‘cos you don’t want to pay costly credit card interest on a depreciating asset like a ring.

Then of course you need to consider the wedding bands. They cost an average of $1,507 for the bride and $1,096 for the groom.

Remember that costs increase

One tip when you are establishing your savings plan is to factor in an increase in costs. One article about the survey results reported that the average wedding cost had risen 76 per cent in eight years. That equates to cost increases averaging 7.3% each year.

Save for your dream wedding

Your wedding and honeymoon are not the most important events in your life but they are one during which you get to be the centre of attention and one that will be remembered. So if you want to be able to do it as you dreamed it the ensure you have saved for it. Don’t make it any more expensive than it needs to be by borrowing money and paying interest.

Save for the significant events in life and you can have enough money for what you really want.

(I can’t find the official survey results on the magazine’s website but they were widely reported in newspapers including here and here.)

Solving The Financial Decisions On Your Mind

On Thursday I conducted a webinar in which I addressed the top three types of financial decisions that are on your mind, as submitted in the recent survey.

Almost all respondants said that they think about these things daily or a few times a week. That is a lot of time and energy consumed on money matters instead of spent doing the things you really love. Better to resolve the issues and spend more time with family and friends, or pursuing your hobbies.

Most issues fell into these three broad categories: Planning, Saving and Investing. For example:

“How will I have enough money for…”

“How can I save more money for…”

“Where is the right place to invest my savings?”

For an insight into the process to resolve these issues watch the recording of the webinar below.

The recording is 45 minutes. A small time investment when you consider the time cost of repetitively thinking about financial issues without resolution.

For assistance to make more clear, confident financial decisions call me.


Download video as an MP4 file (126MB)

To Fix Interest Rates or Not?

With two interest rate rises already under our belts more people are asking me if they should be fixing their rates. Read on to discover the pros and cons and if fixing your interest rates may be right for you.

With two interest rate rises already under our belts more people are asking me if they should be fixing their rates.

You give up flexibility for certainty plus you often pay more.

 The initial attraction to fix rates is often primal – we hate to miss an opportunity to save money. With more rate rises forecast that’s precisely what people think they’ll be doing if they fix rates.

Most get it wrong

The reality is somewhat different for most. Research has shown that over half of people who fix their rates end up worse off financially. They pay more interest and repayments than if they’d left their loans variable.

For a personal illustration of that just ask anyone who fixed their rates two years ago when there was still talk of rates going higher. That crystal ball was clearly broken.

The Rate You’ll Be Paying

One belief is that you can fix your rate at the current variable rate, so as soon as rates go up you’re in front. That is not the case. Fixed rates are set taking into consideration the lender’s forecast of rates during the fixed period.

The following table summarises rates as at 7th November 2009 from the four biggest lenders:


 


Std

Var


Basic Var

1
Year Fixed

2
Year Fixed

3
Year Fixed

5
Year Fixed


ANZ

6.31

5.61

6.50

7.34

7.69

8.04



CommonwealthBank

6.24

5.48

6.64

7.34

7.74

8.04


nab

6.24

5.74

6.59

7.29

7.59

7.89

Westpac

6.31

5.61

6.54

7.19

7.59

7.94

Source: Cannex

Ponder This: If you fix your rates now how high do variable rates need to go before you break even overall?

For and Against

Why Fix

  • You can’t keep food on the table if your repayments go much higher
  • Your mindset is that certainty is a very high priority. (Any control freaks reading this article?)

Downside Trade-offs:

  • You immediately pay a higher interest rate and higher repayments, which impacts your cash flow
  • You are very restricted on the amount of additional repayments you can make, meaning you can’t ahead as quickly as you may like.
  • There can be a break fee if you need to refinance during the fixed term (usually when your fixed rate is higher than the variable rate, like now.)

Things To Consider

What are your life plans over the next three or five years?

Your financial decisions today impact on the options you will have available to you tomorrow, next year and five years from now. If you’re not well informed some decisions you make can shut out important life choices you would like to make in coming years.

For example, let’s say you plan to upgrade your home in the next few years. If you have a fixed rate you may be liable for a large break cost. At the time the cost may be so high that you can’t afford it and end up not being able to move as desired.

Maybe you don’t plan to for certain, but maybe it’s an above fifty percent possibility. If so, wouldn’t you like to keep the option flexibly open to you?

Before fixing your rates write down all the things you think you may like to do in the coming years. Project out as far ahead as the period for which you are planning to fix your rates.

Pay rises

Right now you may not have the cash flow to make high additional repayments but keep in mind the pay rises and bonuses you may receive over the next two to three years. Wouldn’t you love to be able to use them to nail your mortgage?

Cash flow control

Remember that if your cash flow is hyper-sensitive to increased repayments then fixing rates will immediately increase your pressure. Instead, over the next few months redirect that same amount into getting some cash flow coaching. You’ll discover ways to save money that’ll actually decrease your sensitivity to rate rises.

Call or e-mail me now to enquire about my Cash Flow Coaching program.

Still Unsure?

On thing you can do is hedge your bets by splitting your loan into a variable and a fixed portion. It doesn’t need to be an even split.

If you’d like some assistance in making the decision then book a meeting with me. I’m confident you’ll have a clear decision in under an hour.

Please Share This

If you found this article to be useful please forward it to your friends who have mortgages.

Latest Research: You Save More by Paying For Financial Advice

Want to save more money? Then pay for financial advice. That is the one of the findings revealed in this latest research by KPMG/IFSA. Clients of financial planners on average save over $2,400 per year more.

To some people it is a statement of the bleeding obvious to say that getting financial advice is an investment not a cost; you make more than you pay.

However, I know from talking to people after my seminars that when they are struggling to save money they also mentally struggle to pay for support in creating better behaviours.

What we professionals and our clients have know for decades has today been confirmed by research – clients of financial planners save and invest more for their future lifestyle.

On average clients “save an additional $2,457 each year, compared to a similar individual who does not have a financial planner.”

Source: KPMG Econtech research for IFSA (Investment and Financial Services Association).

Personally, I charge less than that amount for my Cash Flow Coaching program, which is just like having a personal trainer for your saving. Clients typically get control of where their money goes, accelerate their debt repayment and start saving for important lifestyle goals.

When you consider how much interest you save on your credit card and other debts then cash flow coaching delivers a very immediate return on investment by boosting your savings.

So if you are a little financially unfit enlist in a boot camp for your saving. Call or e-mail me now to join my cash flow coaching program.

Avoid the Christmas and New Year Debt Hangover

Whilst lots of fun the festive season actually can be one of the biggest creators of financial pain. With a little bit of prior financial planning it doesn’t need to be that way for you.

 Christmas Money TreeToday is just eight weeks until Christmas; and nine weeks until 2010.

The Pleasure

The festive season is awesome. There are so many invitations to functions: drinks with each group of friends, your work, your sports clubs and other associations. And with the beautiful warm weather and high spirits it’s hard not to hand over the cash and join in. Then there are gifts, it can be fun shopping, wrapping, giving and receiving.

The Pain

Whilst lots of fun the festive season actually can be one of the biggest creators of financial pain. All the spending burns a hole in your pocket. And when all of your pockets are burned through, most people start wearing out the stripes on their credit card.

Pause for a moment now and take a guess at how much you think you will spend through the festive season, both on gifts and on entertainment.

The Hangover

Then January hits and the debt hangover begins. You’ve spent your savings, and January’s pay packet isn’t enough to repay your credit card. So you pay what you can and incur the interest – often a whopping 15-18 percent. But worse, did you know that on most cards every purchase you make from then will immediately incur interest too? You’ll only get back to using interest free days when you’ve fully repaid a subsequent statement balance in full by the due date.

Ooh, the pain of the good times just keeps lingering. Hand me some paracetamol.

Build Your Fitness

To avoid the New Year debt hangover start early and build your financial fitness. Start now and write a list of everyone you intend to buy a gift for. Then, next to their name write approximately how much you may spend. Divide the total by ten and start saving that amount each week from now.

Yes, that may require you to sacrifice some of your current spending. But if you are going to spend the money anyway, you will need to sacrifice at some stage. If you make the sacrifice after the pleasure, then the pain lasts longer due to you having to pay the credit card interest. So you may as well make the sacrifice up front and minimise the pain.

If you are planning on travelling for the holidays ensure that you include the cost of that in your calculation. And while you are at it, you may as well include an allowance for the parties.

Make It Easier On Yourself

Simply writing a budget for the festive season may be an interesting eye opener. What proportion of our annual income are you supposedly planning to spend during that brief festive season? Would you like to have more to show for the effort?Here’s some suggestions for cutting the pain while maintaining, even increasing the pleasure:

  • Among family, friends and work groups suggest that gift giving be operated under the “Secret Santa” method
    o Make some gifts. It doesn’t have to be fancy – I was thrilled one year when a friend in our Secret Santa group made me chocolate balls and shortbread. (They were sooo yummy.)
  • Make it fun and creative. Once, in the same Secret Santa group of friends, we had to find the most fun and crazy gift under $5. Perhaps this year I’ll suggest that we do a “hand-me-down” toy – that’ll clean out my garage for me.
  • Volunteer to help them do something. Do it before Christmas, take a photo of you in action and include the photo in your hand made Christmas card.
  • Have a garage sale of old gifts you don’t use anymore and use the proceeds to fund this year’s gifts.

I’m sure there are plenty of other wonderful ideas.  Please share your ideas in the comments below so we may all benefit.

Merry Christmas!

P.S. I’ve just thought of another idea. You could give people a very valuable but inexpensive gift by telling them about this article

The Three Fatal Financial Behaviours

Have you ever thought you are not getting as far ahead financially as you think you should, but are not sure why? Then maybe one or more of these three behaviours may be the cause.

Have you ever thought you are not getting as far ahead financially as you think you should, but are not sure why? Then maybe one or more of these three behaviours may be the cause.

financialYour current financial situation is the cumulative effect of all the financial and lifestyle choices you have made to date. Over time your possible lifestyle outcomes diverge greatly and not necessarily towards the outcome you most want (represented by the star on the diagram to the right).

The purpose of comprehensively planning your financial situation is to maximise the probability that you will meet or exceed your desired lifestyle.

Implicit in this is to minimise the impact of negative outcomes from your choices and from external events.

Why we don’t meet our financial goals

I believe there are three main categories of reasons we don’t meet our financial (and therefore lifestyle) goals:

  • Knowledge – we don’t find out the right things for us to do right now
  • Behaviour – we don’t do the things we already know we should be doing
  • Time – we take action too late (delay)

In this article let’s look at three financial behaviours that can prove fatal to the achievement of your goals and what you can do to overcome them.

There are other destructive behaviours. I have chosen these three because they eat away at your foundation and are counter-productive to your other efforts. Long term readers may notice they link to the three Cs of Money Mastery.

The Three Fatal Behaviours

”three

1. No idea what you spend

The common impact of this behaviour is that you end up spending way too much money on insignificant things and don’t have enough for really important things. The longer term impact is that you will not be diverting enough savings to longer term wealth creation meaning you may never be able to retire on your terms.

A symptom of this behaviour is thinking “wow, where did all my money go?” Another symptom is having an ad-hoc important event creep up on you, like a wedding or milestone birthday and you not being able to afford to fully participate. A variant of that symptom is that whenever that happens you whack it on your credit card and spend months trying to repay it.

What to do

You know what to do to solve this one just like I know what to do to get fitter. If you exhibit this behaviour hire a personal trainer for your money to support you in getting financially fit.

Call me about cash flow coaching and read my last article for additional suggestions.

2. Haphazard investment decisions

We make haphazard investment decisions when we don’t really know what is the best option for us but we can’t be bothered spending the time and energy on the research. So we tend to do what others are doing and take emotional comfort in being part of the crowd. (For most people this will be sub-conscious.)

The impacts of this behaviour are many and include:

  • Mediocre returns – you may make money but probably nowhere near enough for the ‘risk’ you took, and also not as much as the rest of the market. So you miss your lifestyle target (the star).
  • Stress – you are not confident about the investment so you are stressed about what could or is going wrong. You saved time doing the research but traded it for emotional stress – what’s the point?

What to do

The solution here includes:

  • starting early (like right now) so time is on your side
  • starting simple with only what you currently understand
  • Taking incremental steps forward in your knowledge so you can increment forward in complexity of investments
  • Hiring a mentor to educate you and thereby increase your confidence and capability. (A good financial planner will not only advise but also educate you.)

3. Blind optimism

This behaviour is all about the impact of negative outcomes from your choices and from external events.

buried head in the sandOptimism – you think it’ll never happen to you. You underestimate both the likelihood and the consequences of something going askew.

Blind – You don’t even bother to investigate, consider and evaluate what could go wrong and its impact.

What to do

“Sometimes maybe curiosity can kill the cat-astrophe before it actually happens. Ask questions, seek answers, find possibilities.” Wise words from one of my mentors, Glenn Capelli.

Next erect your safety nets so if you fall off the tight rope of life you bounce rather than splat.

Do It

You probably know this stuff already – I write about it all the time. But if you are not doing the positive things you are robbing yourself of riches. One day the party is going to end and you will wake up with a rude hangover (that could last decades).

Party responsibly and you can enjoy both today and tomorrow.

Just like health, if you need support and accountability to implement new financial behaviours hire a personal trainer and even buddy up.

To have enough money to live the life you’d love stop researching new trends (K), start doing the foundation actions (B) and do it now (T).

Yours in prosperity

Matt Hern CFP
Financial Educator and Adviser

More Money To Pursue Your Passions

thought_leaders-cover250.jpgDo you want to create wealth but your eyes glaze over with number talk?

Would you like ideas to manage your money in a way that doesn’t take much time and doesn’t require you to read the business news every day?

Do you like the idea of outsourcing to a professional but are not sure how?

If so, you should download and read my latest free e-book here.

This version includes a targeted introduction for information entrepreneurs, but the recommendations are equally applicable to most people. Download the e-book for free now.

3 tips to manage your mortgage stress

Have recent rises in interest rates left you feeling the strain of meeting mortgage repayments? Or perhaps are you concerned that if interest rates go much higher you will be under financial stress? If so, this interview is perfect for you.

This morning I interviewed expert Mortgage Professional, Damian Day of Ardent Finance to uncover some of the loan options that may be available to you if you are concerned about your repayments.

You will learn about:

  • The value of refinancing to consolidate debts at a lower rate
  • Where and how to shop around for a lower interest rate
  • How fixed interest rates can be used to provide cash flow security
  • The important traps of refinancing and fixing rates that could cost you much more than you gain in lower interest

The interview goes for 20mins 20 secs and could save you thousands of dollars in loan interest. I encourage you to make a cup of your favourite beverage and listen now.

For expert assistance on creating your debt structure contact Damian Day by telephone on 1300 793 813 or e-mail dday AT damianday DOT com

‘Tis the season to be…broke??

Wow, the Christmas decorations are up and about in the shopping centres and even through Perth city centre. Christmas is a terrific fun time, but historically it also is a time where we not only eat and party to excess but we seem to spend to excess. Eating to excess leaves us feeling terrible and spending to excess can leave us with a big financial hangover that can last for weeks, not just one day.

With a bit of forethought it does not have to be that way. In this interview on Wake Up Perth I reveal fun and quick ways to avoid the New Year Debt Hangover.

If you have know of other great ways to cut the costs of Christmas whilst boosting the fun please leave your suggestions as a comment below.

Ho Ho Ho Merry Christmas!

Calculating the costs of your children’s education

Being a parent is one of the greatest gifts I have received in my life. But over the past two years I have also noticed the increase in our spending, and we have not yet even hit school or the teenage years. I know from working on education plans for my advice clients how much can be spent on giving our children the best start in life that we can.

Australian Scholarships Group (ASG) have just released an online calculator designed to help parents estimate the future costs of their children’s secondary school education. They claim it is based on extensive research of costs in addition to school fees. You can also select to calculate for different categories of school and differentiate based on your state of residence.

You may also be interested to read this more detailed research report from AMP & NATSEM, which examines the total cost of raising children. AMP & NATSEM Report – The Cost of Raising Children (Oct 2002) Note that the figures are based on values in 2002 and should be indexed for inflation.

(Please note that Australian Scholarships Group also offer education savings plan products – this post is NOT a recommendation for their product nor a recommendation for ‘education bond’ class of products . There are many different ways to save for your children’s education and you should explore them with your adviser.)

Would you like a cheap holiday?

Achieving your lifestyle dreams is about getting the most lifestyle from your current money as well as about creating wealth.

If you’re like me and most other people I meet then you like the idea of luxurious holidays. And the prospect of not paying full price is a bonus attraction. Add to that an offer of two nights accommodation for just $29 – do I have your attention?

A few weeks ago I received an offer in the mail just like that, and yes it got my attention. (After all it did say that I was “special”.) A part of you may be thinking “that sounds too good to be true; I bet Matt is going to write about not being duped.” Well read on, because this type of offer may suit some people as a way to reduce their expenses while maintaining their lifestyle.

Vacation Clubs

The offer I received was from a company promoting a vacation club. A vacation club is a modern day evolution of the time-share accommodation from a couple of decades ago.

Even though they are called “clubs” it is just a marketing name. In fact these vacation clubs are property investments, often through an unlisted trust structure.

In summary some of the key features include:

  • You pay an amount of money to be a “member” of the “club” (up-front plus annual)
  • The “club” owns many properties in desirable locations
  • You receive annual rights to stay at the club’s properties
  • You also have beneficial ownership in the properties
  • You may receive additional benefits and reciprocal rights to stay at properties owned by other vacation clubs around the world.

Even though you become a part-owner in property the investment basis is very unclear. In fact, no investment characteristics were mentioned in the presentation.

Are they worth considering?

Yes, vacation clubs may suit some people. Particularly if you:

  • Travel a lot, and plan to every year for the rest of your life
  • Generally pay for 4 and 5 star accommodation when you travel
  • Are comfortable with restriction on your destination

How to find out more

To become a member of the club (investor in the property trust) you will probably need to attend a Preview Session to have the investment explained to you. To get invited to such a Preview I suggest that when you are doing anything travel related to always tick boxes that say “yes, please send me marketing material because I love it.”

You will eventually be specially selected to receive an irresistible offer designed entirely to get you to give up a couple of hours of your time to attend a Preview Session. For example, we received an offer to stay for 2 nights at one of their fancy properties all for the low price of a $29 processing fee. (Since we had planned a holiday near one of their properties we decided it was worth two hours of our time.)

(If you are desperate for immediate pay-off then type “Vacation Club” into an internet search engine and that will point you to some clubs. But if you contact clubs directly you may miss out on the irresistible offer.)

Forewarned is Forearmed

Be Aware – you may be told that it is an information session but in fact it is going to be a selling session too. You will probably be offered an amazing set of bonuses to sign up at that very session – and they will be mouth watering.

If you think the concept is of interest to you and therefore you may be inclined to want to join on the night then attend the meeting prepared with actual information on your travel. Think carefully about:

  • How often you’ve travelled in recent years (number of days)
  • The average amount you spend on accommodation per night
  • How many days per year you plan to travel in future years (for the rest of your life)
  • The dates and locations (including hotel or areas) for any travel over the next year.

If you’re serious then there are a couple of other important points to know.

  • This is an investment so you must receive a Product Disclosure Statement (PDS) and Financial Services Guide (FSG)
  • You must be given a cooling off period. Before signing, read the PDS to find out how long the cooling off period lasts. The one we saw had only 5 days which is way too short in my opinion given the selling environment.
  • There is often no easy or set way to sell your investment
  • Many of the bonuses are dependent upon the reciprocal agreements with other vacation clubs. These are not guaranteed so do not base your decision on anything other than the core properties owned by the trust.

Also note that it will probably take longer than the time frame quoted to you, especially if you ask questions or want to read the information before deciding. Plus allow an extra hour for signing up, should you be disposed to do that.

The cheap holiday

Whether membership of the club provides you with cheap holidays will depend upon how you use your investment.

Either way you may get at least one cheap holiday by accepting the tempting offer to attend a preview session.

You may even get a second cheap holiday. On our way out a second sales person had a last ditch attempt at convincing us to consider the club. We were offered another heavily discounted accommodation deal at selected properties. The exchange for this deal was to attend another preview session while on holiday. But you have to decide on the spot. So I suggest that you attend your session knowing where you plan to stay in the next year, the offer may just suit your existing plans.

Receiving marketing material may be a good financial planning decision after all! Enjoy your cheap holiday.

Saving for your children’s education

Research suggests that the cost of raising children can be about a quarter of a million dollars per child over their lifetime. When you add private school fees to the mix (and every associated expense), you can probably increase that by another 50% or more. So it is a wise idea to plan ahead and incorporate future education expenses in your wealth creation plans right from the day the “c” word enters your relationship conversations.

Daddy's Precious Angel (aka Sophie) on my first Father's Day

Our Children: we love them from the depths of our hearts and we dream of the many experiences that we want to give them. I often here parents say “I want to give my children the best start in life that I possibly can.” One of those “best starts” that parents often have in mind is to send their children to private school.

Research suggests that the cost of raising children can be about a quarter of a million dollars per child over their lifetime. When you add private school fees to the mix (and every associated expense), you can probably increase that by another 50% or more. So it is a wise idea to plan ahead and incorporate future education expenses in your wealth creation plans right from the day the “c” word enters your relationship conversations.

How Much Does Education Cost?

Recently The West Australian newspaper released a “Guide to Independent & Catholic Schools, 2006/2007”. They summarise that in fees alone primary school costs ranged from $600 to $8,000 per year, and the secondary school fees ranged from $1,200 to $13,500 per year. In addition you can expect to pay for books, uniforms, laptops, sports, camps and other special tuition, depending on the school.

Looking through the range of fees it appears that a large proportion of the fees for primary school are around $3,000 per year, and around $5,000 per year for secondary school.

I then asked my tutorial students at Curtin University for an idea of university costs and they suggested it costs about $10,000 per year.

A $6,000 per year Savings Plan

Based on those broad averages above if you start saving from the day each child is born you need to save approximately $6,000 per year, for each of their first 21 years. That estimate is in today’s dollars, so each year you need to increase the amount by around 3% to keep up with inflation.

(For those number crunchers reading this there are a bunch of assumptions built into that estimate. I have assumed a balanced portfolio, and that fees increase by 7% p.a. which is the average increase over the last 15 years.)

A Common Savings Plans

It seems that when many people think of education savings plans they think of the formal plans promoted by a couple of prominent groups. Such plans require a regular monthly payment and you only get your money back according to a specific schedule, and under the right circumstances it could be tax free. These plans operate under special provisions in the tax act, and are also known as Education Bonds.

These products have improved in their flexibility in recent years, but they are still not super flexible. For people who are not very disciplined savers (spenders), the rigidity of these plans can be just what the doctor ordered.

An Alternate Approach

If you want the best wealth creation strategy then I suggest you take a broader view. Consider saving for your children’s education in the broader context of your overall lifestyle creation strategy. After all, children’s education is just another lifestyle expense like saving for a big family holiday or a new car.

Other options you could consider include one or a combination of:

  • Saving into a dedicated bank account
  • Saving into a diversified portfolio of managed funds
  • Making extra repayments onto your mortgage, saving loan interest, and then later redrawing from your mortgage to pay school fees or just paying the fees from your income once the loan is repaid
  • Gearing, using a home equity line of credit or a margin loan using instalment gearing

How To Decide

To decide the best strategy for saving for your children’s education you need to find an appropriate balance between such factors as:

  • Your saving/spending discipline and habits
  • If you have any existing lifestyle debts such as mortgages, car loans, personal loans and purchase payment plans
  • Your marginal tax rate
  • Your tolerance of investment risk (also known as your risk profile.)

Your Next Steps

The best way to save for the cost of children is not to do it in isolation. To in fact do it as part of a more comprehensive look at your wealth creation, because in doing so it opens up a broader range of strategies and possibilities to you.

And that all comes down to your goals and dreams.

So the best next steps are:

  • Work out what type of school you want to send your children to
  • Find out how much that will cost
  • Add that to your broader lifestyle dreams
  • Ask a financial planner to help you create a strategy that achieves a balance of them all

Six tips for choosing the best home loan

To help you choose appropriate finance products I interviewed one of Perth’s top mortgage brokers, Damian Day of Ardent Mortgage Services, and asked him to share his top tips.

To help you choose appropriate finance products I interviewed one of Perth’s top mortgage brokers, Damian Day of Ardent Mortgage Services, and asked him to share his top tips.

Here are Damian’s Six Tips:

Tip 1: Be clear on the purpose of the finance

Gone are the days when there were only a few types of mortgage structures to choose from. Now there are lots of products for all the different ways people use their money. So before speaking to a lender be clear on he purpose of the finance you are seeking. For example, is your purpose buying a new home, building, renovating, car, holiday, investing, or bridging several of the above?

Consider not just your immediate purpose but also what may happen in the foreseeable future (say 3 to 5 years).

Tip 2: Make your finance as flexible as you

Our lives change rapidly these days. We change jobs, get married, start families, move suburbs, cities, states, start businesses, buy investments all within short spaces of time. (Or is that just me?)

Over these lifestyle changes, your cash flow needs change quite a bit too. So it is important to ensure that your finance is structured with the amount of flexibility you require. Consider:

  • Is there a limit to the amount of additional repayments?
  • Can I access my extra repayments if I need to?
  • How easily can I refinance the entire arrangement?
  • Can some of the overall loan be fixed, variable, interest only?

Tip 3: Cheapest is not always the best

Tip 3a: Beware hidden fees

Years ago when the regulations on calculating comparison interest rates were introduced it was a good system. But, the lenders have since worked out how to charge you fees which are not required to be included in the calculation of the comparison rates. This makes the loan look cheaper than it really is.

Some hidden fees to be wary of include:

  • Exit fees on early repayment
  • Restructure fees
  • Lump-sum payment fees

Tip 3b: Consider the non-financial features

The money that is lent to you generally costs all lenders about the same amount. So the only way lenders can offer cheaper deals is by being more efficient or cutting out services.

Your loan may be cheap but come with no branch network, no relationship manager who cares about you, only a 1300 phone number operating on east coast time zones and limited transaction facilities. If any of those services are important to you it may be worth paying for them.

Tip 4: Ask for a package deal

Years ago these were called “Professional Packages”, but lenders have smartened up and now offer package deals based on your income and total amount borrowed. Under such deals you pay an annual package fee of around $295 to $400 and receive:

  • Low (or zero) annual fee credit card
  • Deferred establishment fees
  • No loan ongoing fees
  • You can split the total mortgage often into up to 5 parts to tailor each loan to be as flexible as your life.
  • You receive discounted variable rates, and sometimes also discounted fixed interest rates

You can access such packages with an income of around $60,000 per year and/or total amount borrowed of around $150,000. These days most mortgages are for at least that amount, so almost everyone is eligible. You just have to ask!

Tip 5: Negotiate and shop around

Lenders DO negotiate! Branch staff may tell you that it is “policy” not to negotiate. They also may not even offer you the best product from their own company. That is because, in general, they are not rewarded for winning your business and making you a happy, long-term customer. They are paid mostly (or wholly) as salary.

So be prepared to shop around to get the best deal because in Damian’s experience the lenders do negotiate most often. Well they certainly do when a mortgage broker is involved!

If you’ve enjoyed these tips and need finance you can contact Damian Day of Ardent Mortgage Services on 0409 950 975 or by e-mail at .