MONEY: now is the time to look after your financial health
Giving a little time and attention to your finances can yield huge monetary benefits, according to Money magazine editor Effie Zahos.
1 Be super attentive
The Royal Commission has underscored what we’ve long known: if you’re with an underperforming super fund you can lose tens of thousands of dollars. Women in particular need to be diligent about monitoring retirement savings, Effie says, because the gender wage gap and taking time out to raise a family put them at a disadvantage.
“Super is (for most of us) one of the most tax-effective wealth creation strategies for the future,” Effie writes in her book, A Real Girl’s Guide to Money.
Most people are in a balanced fund, but there is a big difference in returns within that category. “Fees can range from 0.6 to over two per cent and that means a lot to your end balance,” Effie says. Ask yourself, what’s your fee? What are you paying? “You shouldn’t be paying more than one per cent.”
When comparing super funds look at performance, Effie says. Make sure you compare performance over a period of at least five years, not just the past year.
“If you had $100,000 in the worst performing fund you’d be worse off by $60,000 over a 10 year period,” Effie says. “That’s a comfortable life for one year.”
2 Clean up your home loan
Home loans are a big chunk of your household budget, so negotiating a better rate can potentially increase your monthly income by a few hundred dollars.
“The average standard variable rate is about 4.37 per cent yet the cheapest home loan on the market right now is about 3.44 per cent,” Effie says. “That difference over the life of the loan on a $400,000 loan is $61,000.”
The first thing you need to do is find out what rate you are paying on your home loan.
“If it’s a four or above, call your lender and say, ‘I’m hearing all these rates at 3.5 and 3.4 per cent, why is mine so high?’ You’d be surprised how easy it is to get a discount on the phone.”
Effie says she managed to negotiate a better rate over the phone just asking the question. But, if you’re considering re-financing, you may need to be prepared for a financial detox. If you’re shopping for a better rate, you need to have your finances in order because the banks will check them, Effie says.
“They look at statements. They want a sense of your spending. If you have Netflix, if you’re catching Ubers, they want to know.”
If you aren’t happy with your lender and haven’t had any luck negotiating a better rate, be prepared to clean up your affairs, Effie says. This means reigning in spending, paying off debt and lowering credit card limits.
“Even if you don’t have debt on the card your serviceability is taken on the limit. Clean up everything because it isn’t pleasant being asked why you’re getting an Uber.”
3 Cut the credit card debt
When it comes to credit card debt, Effie’s message is simple: There is no point even trying to save money until you get rid of high cost debts first. Australians owe about $50 billion on credit cards, about $30 billion of which is hard core debt – meaning it simply isn’t being paid off.
“It’s a real shame because that monkey on your back prevents you from moving further in life,” she says.
Cards that offer rewards can be deceptively costly.
“A lot of us get caught up with all these rewards. Be honest with yourself. Are you getting value out of these rewards cards? If not maybe its time to move it to a low rate credit card and save some money,” Effie says.
“The good news is that there are some cards out there as low as 6.64 per cent.
“There are some cards that charge the same interest rate as your home loan. Most cards are sitting at around 8.99 – the low ones. But the average card is 17 per cent. So there’s a big difference again to be looking at cards.”
4 Put your money in the best place
It’s always better to own the bank than have money in the bank, Effie says, which means you’ll get a better return on shares than you will leaving money in a bank account. “I think every woman should get familiar with some investment strategies,” she says. The government website moneysmart.gov.au is a great resource for first-time investors.
If you prefer to keep money in a savings account, don’t pay a ‘lazy’ tax. Some accounts advertise a high rate that comes with fine print. “Be prepared to move about if you’re chasing a high cash rate,” Effie says.
5 Get the right advice
Good financial advice is always a sound investment, but the key is shopping for the best provider. Ask trusted and savvy friends where they got their advice, and then ask more questions: how is this advisor being paid? Are they affiliated with the major banks? Do they sell their own investment products?
Ultimately, Effie thinks the Royal Commission shake-up is going to have a positive effect on the whole industry, which will be passed on to consumers.
“The culture is going to shift from a sales mindset to wanting to help people,” Effie says.