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4 Must Dos to Increase Your Cashflow in 2023!!

Written by Aaron Alston

2022 has been a year where we have seen the cost of living substantially increase.  The Australian Bureau of Statistics released a quarterly update on inflation figures and over the last 12 months to the September 2022 quarter, the Consumer Price Index rose 7.3%.

What does this mean in simple terms?? Everything is more expensive!!

The most significant price rises were new dwelling purchases by owner-occupiers (+3.7%), gas and other household fuels (+10.9%) and furniture (+6.6%).  The expectation is things are going to get worse before they get better, so I have provided 4 helpful hints/tips to help increase your cashflow.

  1. Negotiate with your lender a better interest rate or refinance your loan to a longer loan term.

Negotiate with your lender a better interest rate – It is unnecessary to pay more interest than you need to.  If you can lower your interest rate, you may be able to pay off your home loan sooner which will save you money.

Lenders will never proactively contact you and offer you a better rate, hence why you are going to have to ask for it.  Asking for a lower rate doesn’t mean you’ll get one, however, most lenders are willing to review your rates at least once a year, on the provision you are a responsible borrower (good credit history, make payments on time, have stable employment etc).

How do I ask my bank to lower my interest rate?  Simply call them.  Here are some tips to help you prepare for the call

1) Know what your current interest rate is

2) Compare your interest rate with competitors in the market

3) Ask for the rate that new customers get

4) Take advantage of the fact that you’re a loyal customer.

Remember – Always be friendly and courteous to whomever you are speaking with over the phone, because it is not their fault your rate has gone up as these decisions are normally made by the executives much higher above.

Refinancing your loan to a longer loan term – Although this may not generally be recommended if you are looking to repay off your home loan as soon as possible, it may be an option if you are feeling the pinch and struggling with your repayment.  Be mindful that if even if you change your loan term you don’t necessarily need to change your existing repayment structure.  It does however provide peace of mind you could revert to minimum repayments if you are struggling with cashflow.  See below table.

Home Loan $600,000 $600,000 $600,000
Interest Rate 5% 5% 5%
Loan term 20 years 25 years 30 years
Minimum Repayments $3,960 p/m $3,508 p/m $3,221 p/m

Example – $600 000 loan at 5% interest rate

Outcome – By refinancing from a 20-year to either a 25-year or 30-year loan term, the customer has freed up $452 p/m or $739 p/m cashflow respectively.

Source – https://www.commbank.com.au/digital/home-buying/calculator/home-loan-repayments

  1. Negotiate with your Electricity provider.

As mentioned previously if you don’t ask you don’t get so it is worth a shot to do your own research and contact your electricity company to see if you can get a better deal.  Be mindful that the electricity market is a regulated market and there may be little variation in pricing depending on which state you live in.  You may not be entitled to a discount; however, you are entitled to ask 😊

Real Life example – A couple of years ago I contacted my electricity provider at the time and asked for a review in pricing and the representative over the phone gave me a 15% discount!!

  1. Review your discretionary spending.

A discretionary expense is simply an expense that you can survive without.  This may include takeaways, alcohol and tobacco, coffee, and drinks etc.  I am not one to tell you how or where you should spend your money, however, you may surprise yourself with how much you spend on these items.

Tip – A quick tip may be to tally up your bills such as mortgage repayments, rates, electricity, gas, mobile etc and calculate what your annual cost of living is for these necessity items.  You can then review your bank statements from 12 months ago to now and see how much you are spending on discretionary items.  Alternatively, you can also track a written budget (via excel or an app), however, I generally find over the longer term, most people will stick to it for 3 months and then revert to old habits

Example – Bob and Mary earn a combined $140 000 p/a after tax.  They calculate that for their basic needs they require $60 000 p/a (mortgage repayments, electricity etc).  They review their bank statements from 12 months ago and identify they had $30 000 in savings.  12 months on they now have $40 000 in savings.  Based on these figures they have estimated they have spent $70 000 (5,833 p/m) on discretionary items.  Bob and Mary put a realistic goal in place to reduce their discretionary spending to $4,000 p/m.  They do this by creating a separate account and depositing $4,000 each month into this account after they get paid.

Outcome – Bob and Mary will increase their cashflow by approx. $22 000 p/a ($5,833-$4,000 x 12 months).

  1. Review your personal loans, car loans, home insurance, car insurance etc.

Lastly, review any type of general product you have to see if there are better deals out there.  A useful place to start is Canstar which is Australia’s largest financial comparison website.  Canstar research thousands of products from over 730 brands across 30 different categories.  You can review your home loan rates here as well for comparison; however, it would generally be recommended to contact your lender or mortgage broker (Hudson) first as these rates may not be available based on your current position.

Link to Canstar is here – https://www.canstar.com.au

BEWARE OF REVIEWING YOUR PERSONAL INSURANCE.  WITH GENERAL INSURANCE WHERE YOUR PERSONAL HEALTH IS NOT ASSESSED AND IF YOUR HEALTH HAS CHANGED SINCE YOU TOOK OUT YOUR POLICY YOU MAY BE TRADING OFF PRICE FOR A SIGNIFICANTLY WORSE INSURANCE POLICY.  TALK TO YOUR FINANCIAL ADVISER IF YOU ARE WORRIED ABOUT THE RISING COST OF YOUR PERSONAL INSURANCE PREMIUMS.

Summary

  • The expectation is 2023 could be tight for many households
  • Review items such as your home loan, electricity, discretionary spending, loans, and general insurance products could save you thousands of dollars annually!!
  • There are many other things you could be doing to increase your cashflow such as asking for a pay rise, upskilling etc however hopefully the tips provided in this article can get you on your way to start 2023 with a bang!!

 

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