Shocking news: Interest rates and the costs of living are rising!
I know, right? After more than 11 years of declining interest rates, the RBA has finally achieved what it set out to achieve – inflation. Now the game is to keep it restrained and within tolerances.
With the end of fantasy interest rates looming and an inevitable return to ‘normal’ interest rates, all of us who have a mortgage will be affected by increased repayments. Paying any sort of attention to the news would have you thinking that this frightful situation is the end of the world as we know it.
But what do they know? The cost of living is rising, but it always has done, so there’s no surprise there, and we should have a plan to deal with the rising cost of borrowing and the extra focus and commitment required on a practical level to manage our spending.
I personally dislike debt. Debt creates need.
See, the problem with debt is that it MUST be repaid. There must be surplus cash flow available to repay the debt, after all the expenses in your life are covered, including the investments you make into your future Financial Security.
I personally like cash flow. I mean, I really like cash flow. Having excess cash flow is the key to creating Financial Security and independence. It’s the key to having a choice, whether you NEED to work or not. I like this choice, and you should too.
Arguably the easiest way to create more cash flow is to reduce your debt commitments in a planned, predictable way.
The alternative is trudging on forever on the financial treadmill. For ever and ever giving the bank a big chunk of your pay cheque, and it sucks.
I rarely meet people with any sort of plan, structure, strategy or habits in place to achieve this. And it’s not that hard.
Generally speaking people are a bit shit with their money. Not pointing the finger at you, just saying so based on a decade of kitchen table meetings with all sorts of Aussies.
Most spend more than they earn, lean on credit cards, suck the equity out of their home to buy dumb shit, eat out too often, holiday too expensively (if the hotel has a comfy bed and is clean, why isn’t that enough? The back of the plane arrived at the same time as the front), they buy too much ‘stuff’ – much of which doesn’t get used, make excuses why they spend on and spoil the kids.
Designer homewares anyone? Custom licence plates? It’s all a waste of money.
And guys, don’t point the finger at your missus. You’re just as bad. And vice-versa.
These same people are stressed out of their eyeballs because they are skating on thin ice, financially speaking.
Trying to keep up with the Joneses, they haven’t realised the Joneses are dead broke and living in debt.
They’ve got no savings, nothing substantial in their offset account and nudging the ceiling of the equity in the family home.
A common example I see are the clients who are 50+ and can’t see the end of their mortgage in sight, plus they begin to realise the limitations of refinancing for longer terms – they’ll be 80 when they finish a 30-year loan term and the bank wants to see a strategy that doesn’t put them into a position of hardship.
This is a freaking nightmare, because the family home is supposed to be the Fort Knox of your wealth.
I don’t want to be ‘that guy’, I love buying new things as much as the next person. Just ask me about my collection of skis, windsurfers or how many times I’ve been to Japan. But there’s a balance to it – I mostly live like a monk. I usually only spend on things which are non-discretionary i.e. food for me and consistent, heavy investment in BH Brown, my Fremantle Mortgage Brokerage.
The strict, restrained attitude I have towards spending money (basically I hate it) causes friction in close relationships.
We all must talk about our money and sometimes it’s bloody challenging. But there must be a limit on how much goes out, because there’s a limit on what comes in.
It’s not easy keeping spending under control because it’s so much fun. I wobble now and again, but I’m good about 80% of the time which is all you need to succeed.
Exactly like training for an iron man, dieting or weight loss, or training your pet rabbit or whatever, 80% and over is a High Distinction at university so let’s benchmark that. See what I mean? If you work hard at it 80% of the time, you’re going to be able to finish the race – probably in good form.
On the other side of the cash flow concept is your ability to increase what you earn. We won’t talk about this in detail here, but if you’re earning a wage you better be sure that you’re pondering how to grow your income as well as reduce debt.
As I write, we have an energy crisis, brought about through a confluence of factors and one that might be further exacerbated by the election of ultra-wealthy independent politicians who don’t live in the real world and to whom a further 50% increase in the price of fuel won’t bother.
I read in the Economist that the price of oil might rise as high as US$185 per barrel. That’s a further 50% higher than today. Have you put any thought into how you will cope with this and stick to your personal wealth plan? Have you even got one?
Are you the type who’s humble enough to reflect on your ‘financial life story’ and say to yourself ‘I need some help with this’?
I mean, when did you actually get any coaching or financial training? You probably haven’t. Ever.
After your mental and physical health, family, critical relationships, what’s more important than Financial Security?
For most, this sense of Financial Security starts with the home – owning it, I mean.
You get to keep the title with your undies. When you own your home, or close to it, you can leverage the equity, invest your spare cash flow, save, reinvest, take care of you, your family and live a life that is far less stressful. Shit yes!
Our strapline is “Creating Financial Security and Wealth through Professional Mortgage Advice” and I believe that wealth for most people starts with mortgage management, which is YOUR job.
I took a call from a prospective client recently who had just defaulted on a mortgage repayment on his luxury home in a premium riverside part of Perth. Panicked and stressed, he wanted to know how I could help, like, you know, wave my magic wand.
A year ago, when I met him at our office in Freo, I tried to help him. Told him in detail why he has the wrong attitude. He didn’t take the advice seriously. He treated the advice with disdain. He made no changes. He didn’t even read the Millionaire Mortgage Secrets book which is how he found out about me. He still hasn’t read it. He’s cynical about self-help finance knowledge. Thinks that stuff is just for losers.
And look now. A well-dressed, shiny-watch-wearing, $130,000 luxury-car-driving, highly-paid father of two and husband does not have enough money to make the repayments on his family home.
Now what? A damaged credit report, forever paying a premium on top of the choice interest rates the rest of us get, difficulty in refinancing, borrowing money, the forced sale of cars that are worth less than the loan, leaving lingering unsecured debt, a strained marriage, the poisonous trickle down to the kids and their relationship, disunity, physical and mental health effects and – in the worst of cases which I have sadly seen, with a close friend – suicide.
Listen, if you like the sound of our strapline and you’re smart enough to know that you don’t know it all and would like Professional Mortgage Advice to organise your mortgage, the purchase of your first or next home or to restructure and refinance your debt to get it working more efficiently for you, then request a quick mortgage and finance consultation with me here.
Here’s to YOUR Financial Security,
Brodie Brown