PAYING OFF YOUR HOME LOAN SOONER
In the world of real estate, the positive experience of purchasing a property can only be beaten by the feeling of paying off your loan!
There are a number of ways of achieving this goal much sooner than the 25 or 30 year term of a standard loan contract. Here are some simple but effective strategies to help you substantially cut the term of your loan and the interest you pay:
Change the frequency of your repayments (available on variable loans) from the standard monthly repayment to weekly or fortnightly repayments. The interest on your loan is calculated daily, which means that in every month, you can get an extra 15 days of your money working for you!
Take the minimum required monthly repayment amount on your loan. Divide that amount by 4. This figure then becomes your weekly repayment amount. By doing this, you will actually be making an additional payment in the calendar year and reducing the amount of interest you pay.
Making seemingly small changes to your lifestyle and spending habits can free up a surprising amount of 'extra' money that can be tipped into your loan. Simple things like making pizza instead of ordering in; hiring a video rather than going to the cinema; having a domestic holiday rather than going overseas, or making your lunch rather than buying it, can add up to enormous savings during the course of a year. Thousands of 'extra' dollars can add up quickly by making these relatively simple adjustments. By putting that extra money onto your mortgage, you can save years off the term of your loan and tens of thousands of dollars!
Stay informed! Keep an eye on what interest rate trends are doing and stay abreast of when changes occur. Consider fixing all or part of your loan when interest rates look like increasing.
While interest rates are low, pay as much extra money onto your loan as possible*. In the event that interest rates rise substantially in the future, you will have already paid a substantial amount off your loan, saving yourself lots of 'higher rate' interest.
*This option is only available with Variable Rate Loans and Royal 'O' Suite Fixed Rate Loans.
GETTING THE MOST OUT OF YOUR MONEY
It's a noble intention to 'save more money', but sometimes the best laid plans come unstuck if you don't pay close attention to where your money is going on a daily basis. Since small things really do add up (both in terms of spending and saving!) it's important to set a realistic budget and stick to it.
Time spent developing a 'workable' and efficient household budget really will make a difference to your cashflow, and may also help to alleviate that feeling of money constantly coming in and going out, with nothing much left in between!
A comprehensive budget will not only spell out where your money is going now, it can give you a road map to trimming expenses and making the funds you do have, work harder for you. It takes a little bit of effort to establish, but there's a great sense of satisfaction in being able to track your positive progress towards a goal. In the long run, the process of developing and living within your budget should leave you with more available funds to channel towards your goals - both long and short term, and you will be making the first steps towards taking control of your experience of owning a home, rather than the home owning you!
Here are a few helpful hints to keep in mind when developing your household budget:
Find out where your money is really going, now. Make a comprehensive list of all your household expenses. Keeping receipts each week for all your spending is a good way to establish an accurate record of your spending habits. Include everything, from large expenses such as car repayments right down to the small things that add up, like buying your lunch, take away coffees or lotto tickets.
Determine your goals, both long and short term and calculate how much money you will need to achieve them. Make a conscience effort to allocate funds towards those goals and look for areas in your budget where money can be re-directed to help you achieve them as quickly as possible.
Think about the value of the money you spend.
A seemingly small amount, such as $3.00 spent on a take away coffee each day equates to $1095.00 a year that could have been re-directed into your real goals, such as paying off your mortgage sooner!
Be realistic. Good intentions are important, but being realistic about what you can actually achieve in a given time frame not only keeps you motivated because you can see progress, but also gives you more chance of success. If you're currently spending $500 a month on groceries, chances are you won't be able to cut that down by half, but you might be able to save $25 to $50 a month with careful planning and conscience choices. That $50 a month adds up to $600 over the course of a year!
Don't give up! It takes time and patience to get a budget working efficiently. Don't get disheartened or frustrated if you don't achieve all your goals in the first month! But don't let your plans fall by the wayside either. Like diets, many of us have started on a budget, only to see it wither away over time. Try to keep your enthusiasm and resolve up by giving yourself small goals to aim for. This will keep you interested long enough to get over the initial hurdle of sticking to your plan of attack. After you've reached a few of your short-term goals, you'll be able to see the reward for your efforts and be more inclined to stick with the program until you reach the bigger goals such as paying off your car or saving for a holiday!
To start saving, take an inventory of your needs (not wants) to establish where you might be able to save dollars. Begin with the bigger expenses (such as your car), where the greatest potential for saving is, and move down the scale to the smaller things (such as food, clothes, etc.). A moderate saving on the big things, combined with savings on the smaller things, can add up to significant overall savings in your total budget.
Distinguish between needs and wants. You'll find saving money is much easier if you don't confuse these two! It may seem obvious, but it's easy to blur the line between what is essential for survival (needs), such as food, shelter, clothing, transport, and extra little luxuries (wants) that might make the short term more pleasurable but will move us further away from greater long term rewards.
An example of this might be your choice of car (possibly the next most significant expense in your budget outside of your mortgage repayments). For most people, a car is a need. It facilitates your ability to earn money and go about your daily business. But it's in your choice of vehicle where substantial saving or spending occurs. Afterall, a brand new $50,000 car still gets you to the same places your second hand $10,000 can. Reducing (or eliminating) outgoings in your budget is the key to achieving your financial goals quickly. That's not to suggest that you shouldn't be able to have the things you want - you should. However, to work those wants into your 'bigger picture' budget, you may need to make a few trade-offs.
Try before you buy and delay purchasing bigger ticket items until the 'impulse' of "I want/have to have that" has passed. This will go a long way in avoiding the silly purchase of things that you end up rarely or never using. Borrow, rent or try out big ticket items before you commit to buying them. If you're bored with it, or determine that it is not truly something you need before you spend the cash, then you won't end up with unnecessary holes in your budget and a house full of seldom-used purchases. If you really do want something, try to allocate funds for it in your budget and pay cash for it. That way, at least you'll be paying the best price and not getting slogged with other charges like credit card interest as well.
Compare prices for items you need. A cost effective and time efficient way to do this is on the internet. Many retail outlets will price match just to get your business, so shop around, get the best price and try to get a retailer near you to come to the party.
Always ask if a retailer can give you a better price if you pay cash. It (literally) pays to ask, and you might be surprised at the savings you make for simply asking the question.
Consolidate or eliminate debt. If you're paying high interest and charges for credit cards, car loans, personal loans and other debt, you could be wasting lots of valuable money! Consolidating all your debts into one place will save duplicating fees and interest charges and will leave you with one (probably smaller) overall payment. Royal Guardian can help you consolidate your additional debts. Call the Royal Guardian Variations Team direct on 02 9715 4788 for more information.
Insurance is a necessary evil in the household budget, but it's also an area where substantial savings can be made if you're a bit smarter about the way you approach it:
- Shop around when your renewals are due, instead of automatically renewing them with the same provider each year. You may find that premiums differ considerably between providers for similar coverage.
- Some insurance providers also offer multi-policy discounts. Take this into consideration if you have more than one policy. An overall saving might be made if you have your car, home, contents and possibly even health insurance with the same provider.
- Consider raising your excess if it reduces your premium. With a bit of luck, it's unlikely you'll need to make a claim, so the savings you make on the reduced premium will remain in your pocket and in your budget for other things.
Food/Grocery shopping is a necessary and ongoing expense in the budget. By saving as little as $20 a week on your purchases, you can save over $1000 a year! Here are some tips on how to achieve this:
- Plan and shop weekly, make a list and stick to it. By doing this, you'll get all the things you actually need in one trip and avoid the temptation to pick up those 'little extras' (which can really add up) when you drop into the shop on your way home at night. You'll also avoid getting stuck in the habit of buying more expensive 'convenience' foods. You'll also save petrol by reducing the number of trips you make to the grocery store.
- Shop at the cheapest location. Do some research into the overall costs at the stores in your area. You may find you save as much as 15 - 20% on identical grocery items just by shopping at the cheaper location. Don't throw away good money simply because you're in the habit of shopping at a particular store
- Consider store/generic brands. In most instances, the quality of generic brands is comparable to the big name brands and they are considerably less expensive. Also look on the lower shelves for less expensive versions of the same goods. The most expensive brands are located at eye level and are within easy reach on the shelves.
- If you buy soft drinks, buy them in bulk off the shelves in the supermarket, not cold out of the fridge. You pay more for having the supermarket chill them for you. This also applies to alcohol at the bottle shop. Allow the time to chill wines/beer at home and always buy by the case/dozen. This will save you between $5 and $50 depending on your purchase.
- When items you use on a regular basis are on sale, stock up! But make sure you don't stock up on things you only use occasionally just because they're 'on sale'. It will only make an unnecessary dent in your cashflow and take up shelf space!
- Allow a realistic budget for your weekly grocery shop, then go to the store with cash only. This will force you to take notice of what you're actually putting in your trolley and stick to your budget. The last thing you want is to get to the checkout with a trolley load of goods that you don't have the cash to pay for!
Clothing is another necessary and ongoing expense in the budget, especially if you have children, but with some careful planning and savvy choices, there are savings to be made. Here are a few basic money saving ideas for this area of your household budget:
- Buy separates and co-ordinate. You can make numerous combinations with a few well-matched items. Buy the best quality clothing and shoes your budget will allow, so that your clothes will last a few seasons.
- Consider second hand and factory outlets. Pre-loved designer clothing outlets are great places to buy good quality, good label clothing at a fraction of the original retail price. Often only a season out of date, they are still fashionable and still in good condition. Factory outlets are also a good place to purchase end of line or seconds clothes/shoes. They are almost always cheaper than the regular retail outlets.
- Buy a season ahead. Towards the end of current seasons, stores run sales on clothing and shoes to make room for new season lines. It's a great time to shop for the following year and put the items away. Beware to only buy staple items that you need and feel confident will fit the following season. It's not saving money if you don't end up getting any use out of it!
- Stay away from trendy fashions. Buy 'classic' colours and styles that will stay in fashion longer than the latest trends.
- Allow a season budget. Make a list and shop once during a season for the items you need, rather than getting caught out shopping for things you really don't need simply because you happen to be passing a shop window and you see something that appeals. If your budget allows, leave an amount of money from your seasonal budget aside to cover the few items you might see during the season that you 'must have'.
- Don't hoard! At the end of a season, go through your wardrobes and take out items that no longer fit or didn't get worn during the season. These are great items to collect for a garage sale. It requires a little effort and planning, but garage sales are wonderful ways to get your hands on some extra cash for items that are usually just collecting dust or taking up space around your home. One mans trash is another mans treasure!
GENERAL MONEY SAVING IDEAS
There are some more general areas in your budget where hidden savings can be found simply by changing your approach, such as:
* Car. Regular maintenance can save you lots of money on repairs and running costs and will mean you have reliable, ongoing transport. You don't have to have your car serviced by a dealer to maintain the warranty, so shop around for a well-priced, reputable mechanic in your area. Always ask the mechanic to call you before they commence any major work so you can determine the likely cost ahead of time.
* Fill your car up on the 'cheap' days. Weekends and public holidays are the most expensive times to purchase fuel for your car. Often, earlier in the week (on a Monday or Tuesday), you will save between 5 and 15 cents per litre.
* Don't buy your milk, bread, soft drinks etc at the petrol station, where you will pay a premium for the convenience.
* Look for cheap carriers for household utilities such as internet and phone services. Some providers give discounts for multi services as well. Shop around.
* Monitor your thermostat! Heating and cooling can add substantially to your energy bills. Don't run heating at night after you go to bed, and don't leave it running while you are away from the house. You may want to consider an automatic timer.
* Rent a video for $3.00 rather than spend $15.00 per person going to the cinema. If you do go to the cinema, consider taking your own nibblies to save extra money.
* If you're a smoker, quit! Not just for your health, but for your bottom line. A pack a day can add up to more than $70 a week! Over the course of a year, you'd be saving $3800 by eliminating that cost altogether. At the very least, try to cut down. The same applies to alcohol - similar savings can be made for the moderate social drinker. Consider limiting your alcohol consumption to weekends and special occasions. If you can't eliminate them altogether, allow yourself a weekly budget for these little luxuries and stick to it.
* Christmas and birthdays can get expensive. Try to plan ahead and shop for family and friends during sale seasons, such as end of financial year sales and post-Christmas sell-outs.
* Children's birthday parties can also be made less expensive by making party foods and decorations, buying cheap party favours from $2.00 shops and holding the party at a local park or in your home.
There are many savings to be made when you put your mind to it! These are just a few general tips to get your mind ticking over about the possibilities before you.
It's worth spending a few moments to consider your personal situation and look for additional areas where you can squeeze the maximum benefit out of your budget.
Remember that a combined saving of $75 a month in your expenses applied to your mortgage principal will do wonders to the term and amount of your loan and will put you on the fast track to financial freedom.