Simple ways to help claw back thousands
MANY Aussies are forking out a small fortune every single week for no reason - but thankfully, there's a few easy ways to get that cash back in your wallet where it belongs.
According to property expert and The Freedom Formula author Bushy Martin, a huge number of Australians with home loans are missing out on the best deals - and they're losing wads of cash as a result.
But the solution is simple.
"It's actually pretty easy and it's sitting there right under people's noses," Mr Martin told news.com.au.
"Just by refinancing or restructuring (your home loan), it's very easy to put anywhere between $100 to $350 a week back into your pocket - that's between a $7000 and $26,000 a year pay rise.
"The issue people have is they are time poor, and they're nervous about talking to the banks because there's this feeling that they hold the power because they control the money.
"But the lending space is extremely competitive."
Mr Martin said there were around 40 lenders in Australia, but that more than 50 per cent of home loans in this country were with the major banks - meaning a huge number of us are missing out on better deals from lesser-known lenders.
He said once you had got the best deal on your home loan, it was then essential to restructure the way you manage your finances.
But while that task seems daunting, Mr Martin insisted it could be done with a few clicks of a button, starting by linking an offset account to your home loan.
It will act as a savings or transaction account - but the beauty is the balance of the account is offset against your loan, which means you're charged less interest on the difference between the two.
"Make sure you have a fully transactional offset account - they are like sleeping giants; the banks offer them but they don't like to use them because they save people in excess of $100,000 over their loan in most cases," Mr Martin said.
All of your income should go into that offset account first before being used for other expenses.
The next step is to set up an "automated money management system".
This involves getting a 55-day interest-free credit card which is to be used only for everyday essentials such as phone payments, gas and electricity bills, Foxtel and Netflix subscriptions and any regular car expenses.
Then, set up a monthly automatic payment of your entire credit card balance, which will make sure you "never pay a cent in interest".
"The credit card should never leave your house - stick it in a safe once you've set up the monthly payment, because you don't want it sitting in your wallet when you're tempted by a new pair of shoes," Mr Martin warned.
Finally, Mr Martin suggested setting up a "lifestyle" debit account, which is used for discretionary spending.
"It's not like a credit card, once it's spent you've got nothing left until next pay," Mr Martin said.
As a rough rule of thumb, around half of your income will probably go towards the everyday essentials credit card, while about 30 per cent can go into the "lifestyle account" and the remaining cash stays in the offset account.
Using the example of a couple with a $400,000 principal and interest home loan with one of the major banks, Mr Martin said renegotiating that loan or refinancing to a lower cost lender and incorporating an offset account, weekly repayments and credit consolidation could reduce costs by $100 to $350 per week.
"To earn this amount in your hand, with average tax at 32.5 per cent added back in, your gross income would go up by the equivalent of over $7000 up to $26,000 a year," Mr Martin said.
"Boom - an instant pay rise, and most don't know it's possible.
"It's not rocket science, but people are so time poor they think they'll get around to it, but it never happens."
Mr Martin also recommended downloading a budgeting app such as Money Brilliant.
"It will start changing your thinking on spending versus saving, because every transaction pops up on your phone and tells you how you're going against your budget and where you are spending your money," he said.
"Budgets don't work … people make New Year's resolutions to budget but by the end of January it's gone out the door because it's too hard, whereas this is very simple and time effective."
He said how you choose to spend the extra saved cash could also help your finances.
"Some of you may decide to use the extra to help pay down your home loan - if structured the right way, that extra $100 to $350 a week will save you over $130,000 to $152,000 in interest and you'll pay off your home loan over 10 to 17 years earlier," he said.
Mr Martin stressed that while he was qualified to talk about property and finance, he was not a financial planner or accountant, and that people should talk to professionals before making major financial decisions to make sure it suits their risk profile.