Welcome to 2019!
We hope you had a fantastic break and you are ready to get stuck into another successful year.
This time for reflection and anticipation of the coming year leads to the inevitable New Year resolutions!
Unfortunately, we can’t make you get up earlier or burn off the extra holiday calories but we can help ensure your loans are “fit for purpose”.
With this in mind we have put together our Top 4 new year resolutions to assist with your financial health:
1. Review your lending every 2 years
24 months is a long time in today’s frenetic world and as market circumstances change so do the loan offerings in the market. By reviewing your lending, you may find that there are more competitive solutions available.
Reviewing your lending with a finance specialist is simple and time efficient – taking the stress away from your finances, allowing you to focus on other important aspects of your personal or professional life. What’s even better is that this review is free.
2. Set a budget
If it is measured it is managed!
Once you have taken stock of where you are, you can look forwards.
The next logical step after reviewing your lending is to picture what you want to achieve over the coming 12 months. This could be buying your first home, an investment property or expanding your business.
Setting a budget will ensure you understand both your income and expenditure, allowing you to either make changes to achieve a goal or hold steady, comfortable with the knowledge that you are in control.
If you have a project you would like to bring to reality, having the right financial solution in place can help you get there!
3. Reduce your limits
While there is a benefit to having capital readily available to you at a moment’s notice there is also a downside to having high credit card limits.
When assessing any loan, a bank will consider the full limit of a credit card to be fully drawn. Currently when banks assess a home loan, they will allow for repayments equal to around 3.8% of your total credit card limit per month.
E.g. For a person earning $100,000 per year with a $20,000 credit card limit, a lender will allow for repayments of $760 per month (assumes the card limit is fully drawn).
- As credit cards are generally paid for with post tax income this person would have to earn about $14,950 before tax to cover this amount;
- A $20,000 card limit could reduce your ability to borrow for a home by as much as $110,000!
Hence, it is worth considering reducing your total card limit to an amount that is sufficient for your personal and professional requirements.
* The above is based on the ATO 2018-2019 Resident Marginal Tax Rate for a $100,000 taxable income of 37% plus 2% Medicare Levy.
4. Prioritise debt
Not all debt is created equal, with differing interest rates, terms, charges and potential tax deductibility, you should consider where your dollar has the biggest impact.
In simple terms, pay off high interest debt before lower interest debt and personal debt before tax deductible or business debt. A general order (from first to last) might be;
- Tax Debt
- Credit Cards
- Student Debt
- Personal loans
- Home Loans
- Higher rate business lending
- Lower rate business lending
Always consult your advisors prior to taking action and consider other benefits, such as discounts offered when paying lump sums off student loans, or the impact of tax debt on your ability to borrow.
It is also important to know that whilst the interest rate on ATO debt is lower than some other forms of debt on this list, most lenders won’t provide facilities to clients with ATO payment plans or arrears.
Working in the healthcare industry can be quite demanding and you often work unusual hours. We understand that getting your finances in check may not be your top priority due to simply not having enough time. That’s where we fit in!
At Ledge Health we have finance specialists who get to know and understand you and your business to assist with your finances, ultimately enabling you to reach your goals. Get in touch with us on (08) 6318 2777.
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