This week’s Hudson Report is about “do the extras in your life add extra to your life” or are they hurting you financially?
I was talking to a member recently who was extending their home loan to purchase a boat. He and his wife haven’t retired yet but think that boating might be something they can enjoy together on their weekends. The elements of this purchase and subsequent loan increase that they haven’t considered are storage costs for the new boat, running costs, maintenance costs and depreciation.
When purchasing any new luxury item such as a jet ski, caravan or boat one needs to consider whether or not they will need to provide storage for the new purchase on their property or will they need to pay for storage offsite, and will they need a new car to tow said purchase?
While not all items are large and require the afore mentioned questions any purchase that requires more thought and money than would normally be required for an everyday purchase including luxury items such as handbags, clothing, shoes etc. the question you need to ask yourselves is do these items add value to my life as a whole or are they adding pain to my bank balance?
I believe we all have a “thing”, a thing we like to be nice and expensive. For me it’s my handbags. I like a nice handbag. In saying that I have one and it lasts me about two years and I have never spent over $1,000 for one. For some people it’s shoes and for others it might be their car. I don’t begrudge people nice things and if you can afford it then go for gold but what I would like you to think about is “if it doesn’t add value to your life financially or emotionally do you really NEED it?” Are actually taking on a new financial burden and therefore more stress by purchasing an item aimed at decreasing your stress levels, e.g. a boat or a jet ski?
When purchasing a luxury item for yourself also consider the depreciation on that item. Some handbags, shoes and jewellery actually appreciate or hold their value quite well if and when it comes to resale. While boats, caravans and jet skis do not. Always consider buying second hand when it comes to these items as you might find that someone else purchased these items new, hardly used them and are now on-selling them at a greatly discounted price to when they were first purchased. Also consider hiring before buying when it comes to luxury items. If you are looking to buy a caravan, hire one beforehand for a few weekends as you might find that you don’t feel comfortable towing such a large item or you just don’t enjoy caravanning. Ask friends and family who own a boat how much maintenance, storage and running costs are? If you don’t know anyone with a boat ring a dealer or do your homework online.
If you are considering purchasing a holiday let apartment stay in the building over a few weekends and ask guests what they think of the place. Look up reviews on Trip Adviser. Looking up reviews on any large purchase is always a good idea as some makes and models of particular items are known to have problems.
Some figures: If you add a $120,000 boat loan to your 30 year mortgage at current rates of about 4%pa this will add $144,000 to your mortgage repayments (if rates didn’t change the whole time which is unlikely. Therefore this figure is likely to be higher), which means the boat effectively costs you double what you paid for it. Not to mention storage fees of about $400 a month ($4,800 p.a.), insurance ($1,200p.a.), fuel each trip ($500) and maintenance (endless). Depreciation on such an item is also quite high.
As I said in the beginning I am not begrudging people a few of life’s indulgences because as I always say “what’s the point in working if you can’t spoil yourself every now and then”, the point I am trying to make in this article is that like the purchase of a home, do your homework before spending your hard earned cash on an expensive indulgence. Compare prices, compare reviews and most importantly ask yourself “is this item going to add value to my life (emotionally or value wise) or is it going to make it harder (financially)?”
Hip Pocket Health check
It should be something that we all do annually but most of us don’t have the time and if we seem to be able to afford the lifestyle we have why would we do it? What is this annual health check you may ask…. Well it’s the one for your hip pocket. Every year fees go up, sometimes without us even knowing. These are the fees we should be looking at annually:
Insurance: Home and contents, health insurance and personal insurance (life and TPD). Have these premiums increased? If yes by how much and could I be getting a better deal elsewhere? (http://www.canstar.com.au/home-insurance/ , http://digital.iselect.com.au/, or ring your Hudson adviser for advice on life, trauma and TPD insurance)
Repayments: Home loan, investment loans, car loans? What have been the annual increases on these? Should I look at refinancing? Are there better rates on offer? Can I pay any of these out to reduce my overall debt and repayment level? (Ring your adviser or talk to our home loan specialist Matthew Kerr)
Credit cards: Are there better offers available? Are some banks offering no annual fees or lower interest rates? Look at the rewards on offer. (www.creditcardfinder.com.au)
Personal expenses: Have you been going to the same hairdresser and you have stayed loyal because they are close? Should you be looking elsewhere as yours keeps having price increases? This goes for all forms of beauty therapy.
Pet bills: Are your pets costing a small fortune in vet bills? I am not saying get rid of the pets but maybe having insurance for them would actually work out cheaper than paying for expenses.
Food bills: Are you dining out frequently? Are your grocery bills increasing? There are websites available that allow you to compare the major supermarket chains and see who is cheaper that week. (http://www.grocerycop.com.au/)
Petrol: Again there are websites available to show where the cheapest fuel is and what days you should be buying. (https://www.racq.com.au/cars-and-driving/driving/fair-fuel-prices)
Gas and electricity: These price increases are a constant battle. Always ring your provider and make sure you are getting the best rate as they may be able to offer you a better deal. (http://www.energywatch.com.au/)
Internet and phone: Phone companies won’t tell you if they have a better deal on offer so always check company websites and know when you are out of contract. Bundling phone and internet together can also save you hundreds of dollars (http://www.comparebroadband.com.au/)
The websites mentioned above are just a few of hundreds available to consumers to compare prices and options. Also look at what you do and don’t need when it comes to what you pay for every year. If you don’t want to have children or don’t think you will have any more children then you won’t need pregnancy coverage as part of your health insurance. If you have sold off some of you antiques at home then you may be able to reduce your home and contents insurance. If you have had teenagers move out of home you may not need such a large download limit on your internet. A little bit of time every year could end up saving your hundreds or even thousands of dollars. Saving a little on every bill can add up to a lot throughout the year and as the saying goes “every little bit helps”.
Set yourself a challenge each year to save towards a big item, such as a family holiday, and use any annual savings towards that! See how you go, you might be surprised at how much you can save.