My tax return is due to be lodged very shortly so I bit the bullet and made my final lump sum payment on my HECS/HELP student debt. Four years at uni and my total HECS debt was almost at $30k inclusive of inflation indexation. I finally got sick of my student debt and paid it off.
Oh yeah, maths wise it could of been considered foolish since my loan was indexed to inflation of 3% last year(only 1.7% the prior year) and if I get a new mortgage, then my mortgage rate will be around 7% to 8% depending on the amount that I end up borrowing. I just paid off my super cheap student loan but I don't regret it one single bit. I don't want to be one of those older folks with a student debt dangling over my head from my younger days.
Here's to a debt free existence for the time being. I am currently debt free woo hoo! (Gotta ignore my credit card balance because that gets paid in full every single month). Next year I could be looking at a mortgage of up to a few hundred thousands of dollars so I may as well enjoy my debt free status as much as possible.
It's been a mixed year so far. Lots of sad events mixed with with happy events. 2011 is now going down as the year of four weddings and four funerals. Lots of sadness against lots of happiness. Lots of grief yet lots of joy. I particularly grieve for the aunties that we have lost and have been contemplating the subject of death a lot recently. When I find myself wiping away tears again and again, my heart feeling heavy- I can't help but think of death.
The fear of death when we first know that we're going to die, the acceptance of death as the time comes near, the welcome of death when the pain becomes unbearable and then what happens? Do we die and thats it? Or do we die and our spirits roam the Earth or our favourite hang outs? Or do spirit worlds really exist and our spirit goes somewhere in the afterlife? For me, I like to think of death as finality. That there isn't any afterlife and there isn't any reincarnation. That's what I'd like for myself whenever I die. The thought of death as the end and nothing more is much more soothing than to imagine that the spirit could be out there, hungry and lost and stuck on some inescapable spiritual plane.
I don't want to end this post on a sad note so let me say that each and every event has taught me to appreciate family and friends every single day. I'm being thankful and appreciative of my wonderful family and friends and try to live each day as it comes in gratitude. I don't want to ever become a selfish, lazy nor nasty person. I want to live my life generously and kindly towards others. Lastly, on the main subject of this post, I'm so glad to have finally paid off my HECS debt - it's like a shadow in the background that I've finally banished. Well, it's getting late now so good night folks and hope you remember to tell your loved ones how much you love them every day. Our lifetimes are much too fleeting.
Showing posts with label HELP/HECS Debts. Show all posts
Showing posts with label HELP/HECS Debts. Show all posts
Saturday, October 15, 2011
Wednesday, July 27, 2011
HECS HELP Loan: Calculating final lump sum payment
You want to make a final lump sum payment on your loan right? I've got plenty of Googlers landing on this blog because they want to understand how much, when and where to make that final lump sum payment.
The latest budget is cutting lump sum payment discounts from 10% to 5% starting 1st January 2012. That's going to hurt for the current batch of University students and also for graduates like moi who make erratic extra lump sum repayments because there are heaps better returns on your money invested elsewhere rather than paying it off early.
A few important points about paying off your HELP loans (previously known as HECS debt):
* Lump sum payments of $500 and greater attracts the discount
* HELP loans are indexed to inflation(CPI) on 1st June every single year
* If you have spare money and wish to make lump sum payments, aim to make your lump sum payment in amounts of $500 or greater prior to 1st of June(saving yourself the indexation on that payment)
* If you plan to make a FINAL lump sum payment, ensure you pay the lump sum before you lodge your tax return so that you're applicable for the discount. If you did your tax return first, then you'll have to pay a compulsory amount which is not applicable for discounts. You can save yourself hundreds and possibly thousands depending on the final payment amount by paying that final lump sum before your lodge your tax return
If you're like me and plan to make a final payment to kiss that student loan goodbye, then I'll show you how you can calculate your final repayment:
A) My formula that you can use:
$Balance of your HECS&HELP debt /110 * 100 = $Final payout figure
B) If your final HELP loan amount is $8800 for example
$8800/110 * 100 = $8000 final payout figure (discount= $800)
C) If your final payout figure isn't a whole number, just round it up and pay the rounded up amount and any extra will be either be a refund or reduce your tax payable after you lodge your tax return.
Eg, if you HELP loan amount is $9000
$9000/110 * 100 = $8181.8181, just pay $8182 (discount =$818.20)
How you can make extra HELP repayments:
A) Call the ATO on 13 28 61 and ask them to send out your HELP debt statement with payment options
B) The statement will have a final payout figure- easy peasy
C) You can ask them for your balance and payout figure over the phone
D) You can ask the ATO for a repayment booklet which has information for payment options such as BPAY, direct credit, post office and mail payments
So before I lodge my 2010/2011 tax return, I'm going to make a final lump sum payment on my HELP loan and it will be FINIS! Time to celebrate the end of me babysitting my loan lol
Further reading on HECS/HELP debt:
1. Liabilities at tax time
2. Making a lump sum payment on my HECS/HELP loan
The latest budget is cutting lump sum payment discounts from 10% to 5% starting 1st January 2012. That's going to hurt for the current batch of University students and also for graduates like moi who make erratic extra lump sum repayments because there are heaps better returns on your money invested elsewhere rather than paying it off early.
A few important points about paying off your HELP loans (previously known as HECS debt):
* Lump sum payments of $500 and greater attracts the discount
* HELP loans are indexed to inflation(CPI) on 1st June every single year
* If you have spare money and wish to make lump sum payments, aim to make your lump sum payment in amounts of $500 or greater prior to 1st of June(saving yourself the indexation on that payment)
* If you plan to make a FINAL lump sum payment, ensure you pay the lump sum before you lodge your tax return so that you're applicable for the discount. If you did your tax return first, then you'll have to pay a compulsory amount which is not applicable for discounts. You can save yourself hundreds and possibly thousands depending on the final payment amount by paying that final lump sum before your lodge your tax return
If you're like me and plan to make a final payment to kiss that student loan goodbye, then I'll show you how you can calculate your final repayment:
A) My formula that you can use:
$Balance of your HECS&HELP debt /110 * 100 = $Final payout figure
B) If your final HELP loan amount is $8800 for example
$8800/110 * 100 = $8000 final payout figure (discount= $800)
C) If your final payout figure isn't a whole number, just round it up and pay the rounded up amount and any extra will be either be a refund or reduce your tax payable after you lodge your tax return.
Eg, if you HELP loan amount is $9000
$9000/110 * 100 = $8181.8181, just pay $8182 (discount =$818.20)
How you can make extra HELP repayments:
A) Call the ATO on 13 28 61 and ask them to send out your HELP debt statement with payment options
B) The statement will have a final payout figure- easy peasy
C) You can ask them for your balance and payout figure over the phone
D) You can ask the ATO for a repayment booklet which has information for payment options such as BPAY, direct credit, post office and mail payments
So before I lodge my 2010/2011 tax return, I'm going to make a final lump sum payment on my HELP loan and it will be FINIS! Time to celebrate the end of me babysitting my loan lol
Further reading on HECS/HELP debt:
1. Liabilities at tax time
2. Making a lump sum payment on my HECS/HELP loan
Thursday, June 9, 2011
What are people Googling?
Any decent website or blogger would have installed some type of traffic analysis code on their site so that they know why people are visiting their site, how many pages people read, the links that people exit on, the length of visit etc
Every now and then, I check my statistics to see what the Google queries have been so I can see what readers are looking for or are interested in. The last time I wrote about Google queries was in a post, 'Why do people think they are anonymous on the internet?'
It's been a while since I've done a recap of the wacky query results so I thought I'd do another recap, particularly with the queries that would not have been answered in the post that they landed on:
Query> we've saved $50000 should we invest it, put it on our mortgage or splurge on a holiday? : $50,000 isn't that much at all so if you have a non-deductible home (PPOR)mortgage then you should stash that amount in the offset and as an incentive, save up some more and then you could use it for a holiday.
If your tax rate is 40% for example, then you can calculate similar scenarios such as:
a)If you leave it in a normal bank account earning 6% interest, after-tax the the yield will be 3.6%
b)If you bought $50k worth of stocks, fully franked at 5% dividend yield, due to the 30% franking credits, at a 40% tax rate, your after-tax return is 4.5%
c)If you deposit the funds in your PPOR/home mortgage then you save yourself the (after-tax) interest rate of 7.5% (current average rate)
d)If you use it for a holiday, there's no return and it's all gone and you lose the opportunity cost of that $50k working for you for the rest of your life
Comparing the after-tax returns of 3.6%, 4.5% and 7.5% is a no brainer. You can even compare them on a gross-up yield basis ie: 3.6/0.6 =6% before tax, 4.5/0.6=7.5% before tax, 7.5/0.6 grossed up is 12.5%.
The best option in that scenario would be dumping the $50k into the mortgage loan offset account and if you want to use it to invest, then you need investment returns of 12.5% and greater to make it worthwhile in taking risks. If you have the money and are unsure what to do with it, it generally helps to compare what the various results will be from your various decisions.
Query> australia agony aunts : For my post about relationship and money
Query> tweets, dora bondi vet : Dora, the dog that was bitten by a snake has survived and is back with her family
Query> food stockpile addiction : Can't help you there, I've got my own bad food stockpiling habits that I've been trying to resolve (and it's working because our larder is looking a lot emptier and so has the freezer and all the half opened jars)
Query> is eating out cheaper than cooking : Emphatically the answer is NO. Cooking will always be cheaper if you use fresh ingredients, less meat and ingredients that are in season. It's always cheaper to cook your own meals because you're saving on labour cost by using your own labour. Takeaway foods are priced to cater for raw material cost, labour cost, rental costs and overheads (such as business insurances, accounting fees, legal fees etc)
Query> ivan caple, indonesian abattoirs etc : After the Four Corners expose on the Indonesian slaughter industry, the Govt has temporarily banned all live export to Indonesia. The inhumane slaughtering in some of the Indonesian abattoirs were horrifying and a shameful display of cruelty
Query> valuation of hancock coal pty ltd : If any of the companies are listed, you can find out from their Annual Financial Reports. Valuation is achieved by multiplying the quantity of shares issued by the stock price. If it's a private company and unlisted, then there's no way that you can find out their valuation unless you've got some buddies on the inside working in the accounting and finance section
Query> $150000 income poor : $150,000 income isn't poor at all and if you can't survive on that then it's time you had a look at your spending. Things you can do: downsize your housing, don't use any air conditioning, turn those wide screen tvs, gaming consoles, multiple laptops and computers off and read a book in the family room together under one light, eat pasta and rice everyday, don't buy bottled water, get rid of those consumer debts...
Query> any luck with principal reduction for investment properties and rental properties : Ya dreamin' ....
Query> australians stock piling food 1011 : If you want to look at Aussies and their stock piling habit, read about the Queensland floods and how people went crazy in supermarkets and bakeries because food supply routes were destroyed and they were worried about starvation
Query> boq account scammed : You should call the Bank of Queensland and request them to reimburse you. Most of the time if it wasn't through your own ignorance(Nigerian schemes, lottery scams etc) then you'll be reimbursed
Query> can my 3G ip (sic) address be traced back to me : If you have a fixed(ie static) IP Address then yes. If you don't then they can only track it back to your ISP carrier
Query> debt in 20's bad : Depends what type of debt. If it's an investment debt to buy investment properties or a stock portfolio which is earning an income for you then it's generally considered good debt. If it's debt on your credit cards, your car or debt on that sofa that isn't earning any income for you then it's bad debt
Query> how to save an emergency fund when unemployed : It's a bit late to be saving for an EF when you're already unemployed. Best thing you can do is cut your expenses as much as possible and plan for the worst case scenarios such as being unable to pay your mortgage or rent and what if you were homeless, at what point do you think you will need to start liquidating assets to feed yourself? Don't wait for those last desperate days before trying to flog your assets off at huge discounts because you're so desperate...
Query> roger munro ponzi, roger munro australia, roger munro properties : Read my previous post about Roger Munro, 'How to lose your life savings'. It's with the list of 'popular posts' because there have been a lot of traffic to that post from a lot of people who have lost money
Query> Final HECS lump sum : If you can make your final lump sum of $500 or greater before you lodge your tax return for the year, then you will also get the discount. The amount that has been automatically withheld from your salary will probably be refunded depending on your tax return. If you can make a final lump sum payment, ensure you do it before 1st June (which has already passed but take note-for those doing it next year) and before lodging your tax return so that you can get your 10%, soon to be only 5% discount.
Query> my hecs-help debt keeps going up but I am paying the compulsory yearly payments why : Because if your compulsory yearly payment is less than the indexation to inflation then your debt balance will keep rising. Eg: If your debt was $25,000, inflation rate was 3% (indexation of 3%*$25k = $750) BUT your yearly compulsory repayment is $500, then this is what happens in chronological order >
A) $25,000 + yearly 3% indexation on 1st June of $750 =$25,750
B) Less $500 yearly compulsory repayment after lodging your tax return between 1st July and 31st October
C) Balance = $25,250
There are heaps of wacky Google queries but that's all I'm writing about for today. Peace x
Every now and then, I check my statistics to see what the Google queries have been so I can see what readers are looking for or are interested in. The last time I wrote about Google queries was in a post, 'Why do people think they are anonymous on the internet?'
It's been a while since I've done a recap of the wacky query results so I thought I'd do another recap, particularly with the queries that would not have been answered in the post that they landed on:
Query> we've saved $50000 should we invest it, put it on our mortgage or splurge on a holiday? : $50,000 isn't that much at all so if you have a non-deductible home (PPOR)mortgage then you should stash that amount in the offset and as an incentive, save up some more and then you could use it for a holiday.
If your tax rate is 40% for example, then you can calculate similar scenarios such as:
a)If you leave it in a normal bank account earning 6% interest, after-tax the the yield will be 3.6%
b)If you bought $50k worth of stocks, fully franked at 5% dividend yield, due to the 30% franking credits, at a 40% tax rate, your after-tax return is 4.5%
c)If you deposit the funds in your PPOR/home mortgage then you save yourself the (after-tax) interest rate of 7.5% (current average rate)
d)If you use it for a holiday, there's no return and it's all gone and you lose the opportunity cost of that $50k working for you for the rest of your life
Comparing the after-tax returns of 3.6%, 4.5% and 7.5% is a no brainer. You can even compare them on a gross-up yield basis ie: 3.6/0.6 =6% before tax, 4.5/0.6=7.5% before tax, 7.5/0.6 grossed up is 12.5%.
The best option in that scenario would be dumping the $50k into the mortgage loan offset account and if you want to use it to invest, then you need investment returns of 12.5% and greater to make it worthwhile in taking risks. If you have the money and are unsure what to do with it, it generally helps to compare what the various results will be from your various decisions.
Query> australia agony aunts : For my post about relationship and money
Query> tweets, dora bondi vet : Dora, the dog that was bitten by a snake has survived and is back with her family
Query> food stockpile addiction : Can't help you there, I've got my own bad food stockpiling habits that I've been trying to resolve (and it's working because our larder is looking a lot emptier and so has the freezer and all the half opened jars)
Query> is eating out cheaper than cooking : Emphatically the answer is NO. Cooking will always be cheaper if you use fresh ingredients, less meat and ingredients that are in season. It's always cheaper to cook your own meals because you're saving on labour cost by using your own labour. Takeaway foods are priced to cater for raw material cost, labour cost, rental costs and overheads (such as business insurances, accounting fees, legal fees etc)
Query> ivan caple, indonesian abattoirs etc : After the Four Corners expose on the Indonesian slaughter industry, the Govt has temporarily banned all live export to Indonesia. The inhumane slaughtering in some of the Indonesian abattoirs were horrifying and a shameful display of cruelty
Query> valuation of hancock coal pty ltd : If any of the companies are listed, you can find out from their Annual Financial Reports. Valuation is achieved by multiplying the quantity of shares issued by the stock price. If it's a private company and unlisted, then there's no way that you can find out their valuation unless you've got some buddies on the inside working in the accounting and finance section
Query> $150000 income poor : $150,000 income isn't poor at all and if you can't survive on that then it's time you had a look at your spending. Things you can do: downsize your housing, don't use any air conditioning, turn those wide screen tvs, gaming consoles, multiple laptops and computers off and read a book in the family room together under one light, eat pasta and rice everyday, don't buy bottled water, get rid of those consumer debts...
Query> any luck with principal reduction for investment properties and rental properties : Ya dreamin' ....
Query> australians stock piling food 1011 : If you want to look at Aussies and their stock piling habit, read about the Queensland floods and how people went crazy in supermarkets and bakeries because food supply routes were destroyed and they were worried about starvation
Query> boq account scammed : You should call the Bank of Queensland and request them to reimburse you. Most of the time if it wasn't through your own ignorance(Nigerian schemes, lottery scams etc) then you'll be reimbursed
Query> can my 3G ip (sic) address be traced back to me : If you have a fixed(ie static) IP Address then yes. If you don't then they can only track it back to your ISP carrier
Query> debt in 20's bad : Depends what type of debt. If it's an investment debt to buy investment properties or a stock portfolio which is earning an income for you then it's generally considered good debt. If it's debt on your credit cards, your car or debt on that sofa that isn't earning any income for you then it's bad debt
Query> how to save an emergency fund when unemployed : It's a bit late to be saving for an EF when you're already unemployed. Best thing you can do is cut your expenses as much as possible and plan for the worst case scenarios such as being unable to pay your mortgage or rent and what if you were homeless, at what point do you think you will need to start liquidating assets to feed yourself? Don't wait for those last desperate days before trying to flog your assets off at huge discounts because you're so desperate...
Query> roger munro ponzi, roger munro australia, roger munro properties : Read my previous post about Roger Munro, 'How to lose your life savings'. It's with the list of 'popular posts' because there have been a lot of traffic to that post from a lot of people who have lost money
Query> Final HECS lump sum : If you can make your final lump sum of $500 or greater before you lodge your tax return for the year, then you will also get the discount. The amount that has been automatically withheld from your salary will probably be refunded depending on your tax return. If you can make a final lump sum payment, ensure you do it before 1st June (which has already passed but take note-for those doing it next year) and before lodging your tax return so that you can get your 10%, soon to be only 5% discount.
Query> my hecs-help debt keeps going up but I am paying the compulsory yearly payments why : Because if your compulsory yearly payment is less than the indexation to inflation then your debt balance will keep rising. Eg: If your debt was $25,000, inflation rate was 3% (indexation of 3%*$25k = $750) BUT your yearly compulsory repayment is $500, then this is what happens in chronological order >
A) $25,000 + yearly 3% indexation on 1st June of $750 =$25,750
B) Less $500 yearly compulsory repayment after lodging your tax return between 1st July and 31st October
C) Balance = $25,250
There are heaps of wacky Google queries but that's all I'm writing about for today. Peace x
Sunday, May 29, 2011
HECS HELP Student Loan: Lump sum payment
Goodbye $3,500 .... I made a lump sum payment against my student loan last Friday. I was reluctant to part with it because it meant that the $3500 won't be sitting in my account accruing interest income for me at $17.06 per month.
So you're thinking "Bah $17.06, that's nothing!" Let me show you the ramifications of that $17.06/month passive interest income that has been forgone.
Although $17.06/month pre-tax isn't truly significant, the after tax amount could have bought me each month(until I reach 65 yo)**:
* Two sandwiches at the sandwich bar (840 sandwiches) OR
* 28 super soft, freshly baked bread rolls that I love munching on (11,760 bread rolls) OR
* 3 kilos of apples (1,260 kg of apples) OR
* 4 kilos of oranges (1,680kg of oranges) OR
* 2 litres of vanilla ice cream (that's 840 litres of ice cream) OR
* 4 vanilla slices (that's 1,680 vanilla slices!)
It could have been a passive income of $17.06/month, EVERY month, EVERY year for the rest of my life. Is that starting to sound more significant yet?
$17.06/month in interest income is:
$204.72/year and
$23,389 in total across the next 35-40 years until retirement age**
So maybe I've convinced you to agree that missing out on $23,389 of forgone, sacrificed income does sound significant. It's more significant when you realise that it would have been $23,389 for doing zilch, absolutely nothing at all. All I had to do was let it accumulate and compound every single year until I reach 65yo (if I survive to that age).
You can acquire those benefits too
By saving $17.06 more each month OR by spending $17.06 less each month. All those actions will translate roughly into $23,389 when you're 65yo, presuming you're in your twenties to early thirties.
So why did I make a lump sum payment?
Unfortunately the Government cut the discount rate for upfront lump sum payments of $500 and more from 10% down to only 5%. HECS/HELP loan indexation occurs on 1st of June every year. So by paying $3500, my loan will decrease by $3,850 and also I don't get indexed on $3,850 potentially saving me $115.50 (assuming the inflation indexation rate is 3%). That means a total of $3,965.50 off my loan balance from paying just $3,500.
**Assumptions:
* Those are pre-tax numbers and will obviously be less with tax
* Assuming I save that $17.06 every month for the next 35-40 years
* That $1 today isn't more valuable than $1 in the future (when $1 today is worth more than a future $1 due to inflation)
* That the compounding interest rate is 5.85% return per annum (what my savings are currently earning)
* That you've got 35-40 years before you turn 65yo
* Assuming prices of apples, ice cream and vanilla slices are the same in 35-40 years (which it won't be because there's always going to be inflation)
Further reading:
1. Perform monthly or fortnightly financial health checks for optimum results
2. Understanding loans and their features
So you're thinking "Bah $17.06, that's nothing!" Let me show you the ramifications of that $17.06/month passive interest income that has been forgone.
Although $17.06/month pre-tax isn't truly significant, the after tax amount could have bought me each month(until I reach 65 yo)**:
* Two sandwiches at the sandwich bar (840 sandwiches) OR
* 28 super soft, freshly baked bread rolls that I love munching on (11,760 bread rolls) OR
* 3 kilos of apples (1,260 kg of apples) OR
* 4 kilos of oranges (1,680kg of oranges) OR
* 2 litres of vanilla ice cream (that's 840 litres of ice cream) OR
* 4 vanilla slices (that's 1,680 vanilla slices!)
It could have been a passive income of $17.06/month, EVERY month, EVERY year for the rest of my life. Is that starting to sound more significant yet?
$17.06/month in interest income is:
$204.72/year and
$23,389 in total across the next 35-40 years until retirement age**
So maybe I've convinced you to agree that missing out on $23,389 of forgone, sacrificed income does sound significant. It's more significant when you realise that it would have been $23,389 for doing zilch, absolutely nothing at all. All I had to do was let it accumulate and compound every single year until I reach 65yo (if I survive to that age).
You can acquire those benefits too
By saving $17.06 more each month OR by spending $17.06 less each month. All those actions will translate roughly into $23,389 when you're 65yo, presuming you're in your twenties to early thirties.
So why did I make a lump sum payment?
Unfortunately the Government cut the discount rate for upfront lump sum payments of $500 and more from 10% down to only 5%. HECS/HELP loan indexation occurs on 1st of June every year. So by paying $3500, my loan will decrease by $3,850 and also I don't get indexed on $3,850 potentially saving me $115.50 (assuming the inflation indexation rate is 3%). That means a total of $3,965.50 off my loan balance from paying just $3,500.
**Assumptions:
* Those are pre-tax numbers and will obviously be less with tax
* Assuming I save that $17.06 every month for the next 35-40 years
* That $1 today isn't more valuable than $1 in the future (when $1 today is worth more than a future $1 due to inflation)
* That the compounding interest rate is 5.85% return per annum (what my savings are currently earning)
* That you've got 35-40 years before you turn 65yo
* Assuming prices of apples, ice cream and vanilla slices are the same in 35-40 years (which it won't be because there's always going to be inflation)
Further reading:
1. Perform monthly or fortnightly financial health checks for optimum results
2. Understanding loans and their features
Friday, February 18, 2011
Peform monthly or fortnightly financial health checks for optimum results
Everyone should perform a financial health check at least once a month, if not fortnightly.
The benefits are vast:
1) You can see what bills need to be paid, what you've paid, tally up any expenses if you track them and update accounting or financial management software if you use them
2) If you have a budget then you can see how your actual income and expenditure measures up against your budgeted ones
3) If you've got savings in high interest accounts, in term deposits or whatever, then you can have a quick hunt around to see if there are better rates on offer, negotiate for them with your existent bank or set up new accounts and transfer your funds into them
4) You can check to see if you've been meeting your liabilities and have been making payments against outstanding debts
5) If you've got funds in transactional accounts not earning any interest, then move them into a high interest account
6) If you've got debts or bills to pay, you can figure out how you're going to allocate your income to pay them, instead of waiting until the due date comes around and then panicking about how to pay them
Recently I just performed mine. It involves doing the following:
1) Checking the interest rates on my online saving accounts and ensuring that I'm receiving a competitive rate on my savings
2) Pay my bills, check for future bills that may be forthcoming, check my expenditure for the month, compare with previous month and if I can be bothered, compare with last years
3) Recurring bills such as insurances, checking to see other offers out there and requesting or changing to something more competitive if I can't get a better deal
3) Finding out the balance of my superannuation retirement funds, the balance of my HECS student debt, checking the market value of my portfolio of stocks (although the iphone Bloomberg app is fantastic for this - it will automatically update the prices whenever I'm on the WiFi)
4) Check the social events that are coming up and the gifts that I have to buy (birthdays, baby showers, special events) or give (most wedding gifts require money to be given as gift since most couples are already living together)
The results of my recent financial health check:
1) (good) Savings account were good, all up for 2011
2) (good) Interest and dividend incomes were good, also all up for 2011
3) (good) Stock portfolio was good (capital gains), up for 2011
4) (good) Superannuation retirement fund was good, also up for 2011
5) (good) Expenses for Jan/Feb 2011 was down from Jan/Feb 2010, which is good
6) (good) Investment loan liability balance for Feb 2011 is down from Feb 2010, which is good
7) (stable) My HECS student debt is pretty flat, have been contemplating making another lump sum payment in April. I had the plan to make an additional lump sum payment in April off my HECS / HELP debt to drop the balance to 30% (ie have 70% paid off)
8) (good) Net wealth balance is up comparing Feb 2010 versus Feb 2011, which is good
No Euro trip for 2011, bummer:
Unfortunately the Euro trip will have to be for 2012 instead. It turns out, I barely have any annual leave days left after burning through so many days in 2010. So as a result, the 2011 savings/funds will be utilised in four possible ways:
1) Lending some to my friend to buy the replacement car since it was my fault that we were in that region when the guy wrote off the car and the insurance payout is insufficient for buying a replacement
2) Spending some on a snow trip somewhere, either Australia or New Zealand
3) Buying the investment property or
4) Doing nothing and buying some(all) toys on my wish list
Note on Jan/Feb 2010 vs Jan/Feb 2011 - I had a lot of one off expenditures in Jan/Feb 2010 which I didn't fortunately have to incur for Jan/Feb 2011. Expenditures such as passport renewal, prepaying for tickets etc for our trip to Japan and Hong Kong, medical expenses. I got really gouged by medical expenses last year to the tune of $3,314 and wrote two post on medical bills:
* Navigating our health insurance
* Poor health can send you broke
The benefits are vast:
1) You can see what bills need to be paid, what you've paid, tally up any expenses if you track them and update accounting or financial management software if you use them
2) If you have a budget then you can see how your actual income and expenditure measures up against your budgeted ones
3) If you've got savings in high interest accounts, in term deposits or whatever, then you can have a quick hunt around to see if there are better rates on offer, negotiate for them with your existent bank or set up new accounts and transfer your funds into them
4) You can check to see if you've been meeting your liabilities and have been making payments against outstanding debts
5) If you've got funds in transactional accounts not earning any interest, then move them into a high interest account
6) If you've got debts or bills to pay, you can figure out how you're going to allocate your income to pay them, instead of waiting until the due date comes around and then panicking about how to pay them
Recently I just performed mine. It involves doing the following:
1) Checking the interest rates on my online saving accounts and ensuring that I'm receiving a competitive rate on my savings
2) Pay my bills, check for future bills that may be forthcoming, check my expenditure for the month, compare with previous month and if I can be bothered, compare with last years
3) Recurring bills such as insurances, checking to see other offers out there and requesting or changing to something more competitive if I can't get a better deal
3) Finding out the balance of my superannuation retirement funds, the balance of my HECS student debt, checking the market value of my portfolio of stocks (although the iphone Bloomberg app is fantastic for this - it will automatically update the prices whenever I'm on the WiFi)
4) Check the social events that are coming up and the gifts that I have to buy (birthdays, baby showers, special events) or give (most wedding gifts require money to be given as gift since most couples are already living together)
The results of my recent financial health check:
1) (good) Savings account were good, all up for 2011
2) (good) Interest and dividend incomes were good, also all up for 2011
3) (good) Stock portfolio was good (capital gains), up for 2011
4) (good) Superannuation retirement fund was good, also up for 2011
5) (good) Expenses for Jan/Feb 2011 was down from Jan/Feb 2010, which is good
6) (good) Investment loan liability balance for Feb 2011 is down from Feb 2010, which is good
7) (stable) My HECS student debt is pretty flat, have been contemplating making another lump sum payment in April. I had the plan to make an additional lump sum payment in April off my HECS / HELP debt to drop the balance to 30% (ie have 70% paid off)
8) (good) Net wealth balance is up comparing Feb 2010 versus Feb 2011, which is good
No Euro trip for 2011, bummer:
Unfortunately the Euro trip will have to be for 2012 instead. It turns out, I barely have any annual leave days left after burning through so many days in 2010. So as a result, the 2011 savings/funds will be utilised in four possible ways:
1) Lending some to my friend to buy the replacement car since it was my fault that we were in that region when the guy wrote off the car and the insurance payout is insufficient for buying a replacement
2) Spending some on a snow trip somewhere, either Australia or New Zealand
3) Buying the investment property or
4) Doing nothing and buying some(all) toys on my wish list
Note on Jan/Feb 2010 vs Jan/Feb 2011 - I had a lot of one off expenditures in Jan/Feb 2010 which I didn't fortunately have to incur for Jan/Feb 2011. Expenditures such as passport renewal, prepaying for tickets etc for our trip to Japan and Hong Kong, medical expenses. I got really gouged by medical expenses last year to the tune of $3,314 and wrote two post on medical bills:
* Navigating our health insurance
* Poor health can send you broke
Thursday, October 22, 2009
Understanding loans and their features
Loans can have a fixed or variable rate of interest, be secured or unsecured, negotiable interest rates and payment terms. There are many different types of loan available.
Fixed or Variable Interest
1) Fixed Interest – Interest is fixed for the duration of the loan, from the time it’s taken out to the day you pay it off.
2) Variable Interest- The rate changes either up or down depending on the market rate (which varies depending on the loan type eg: LIBOR, Bond, Central Bank rates).
Secured or Unsecured
1) Secured – Then lender can sell whatever asset you’ve secured the loan against if you default and can’t pay the loan. Assets typically used as security are houses, cars, stock portfolios and personal possessions. Loans that are usually secured are car loans, mortgages, mortgage line of credit accounts
2) Unsecured- The lender has no recourse. You’ve got not asset with the lender as a collateral. If you default on the loan, the lender considers you a bad debt and will most likely pass you along to the debt collection agency as a last resort. This loan is riskier for lenders so they usually charge a higher interest rate because of this increased risk. Examples of unsecured loans are credit cards, store cards, personal loans and personal lines of credit
The different type of loans available are:
Car Loans
Car loans are usually secured against your vehicle. They may insist on car insurance as well. You should shop around for the best financing deal first before going shopping for a car because car yards will always have their own financing but this may not be the best deal around.
Car loans are usually for a fixed amount of money, organised upfront with a fixed interest rate, repayment amount and period. Example: $10,000 car loan at 10% interest, repayable by monthly instalments for the duration of 4 years.
Credit Cards
If you can’t pay off a credit card every month before the interest free period ends, then don’t use a credit card. If you don’t listen to this wise and sagacious advice, then it will ultimately be your downfall. You only need one or at the most two credit cards ever at any period of time.
These beasts come in various structures with interest free period ranging from 0 days or 55 days to 6 months typically. Read the fine print! Understand what you are signing up for. Don’t be fooled into thinking that it’s worth spending on the credit card because you get reward points or frequent flyer points. Wow, you’ve gone and spent $3,500 so that you can collect 3500 points, the equivalent of $25-$30 in rewards – if you can't pay that $3,500 off before incurring interest charges then it's a bargain with the devil.
If you can’t pay them off by the interest free period, you will be paying through the roof with rates ranging from 11% to a more typical rate such as 18% and 28% per annum interest. Usually the banks will have a 'minimum payment' amount of around $25 or $30. The problem with paying only the minimum amount is that you will end up paying interest on the balance owing and it will take you 25-40 years to pay off the credit card at the minimum amount that they request you to pay.
I will re-iterate myself because credit cards have been at the root of marital breakdowns, stress, tears and bankruptcies – if you can’t pay them off by the interest free period, don’t use them. Otherwise, you are best off looking at other financing options such as lines of credits or personal loans which charge lower rates of interest.
Debt Consolidation Loans
Debt consolidation is a process whereby you take out a new loan (or increase an existing loan) in order to close off several smaller, separate loans. This can be done by organising a new personal loan, refinancing your mortgage and rolling those debts into your mortgage or withdrawing equity out to pay off your multiple loans.
Why do people consolidate their debts? They consolidate in order to close off the loans with a higher interest rates onto a new loan with a lower interest rate. Credit card debts may be incurring interest at anything between 9% - 38% and by consolidating and refinancing, you replace the debt with a new debt with a lower rate such as 9%. It's also sometimes done to simplify repayments, instead of multiple payments to multiple loans, you make just one single payment for that new consolidated loan.
Margin Loans
Loans that are taken out usually to buy stocks and invest in portfolios. It can also be utilised when trading CFDs. The margin loan is usually secured by your stock portfolio and they will have different loan to valuation ratios (LVR) depending on what stock you buy. The average LVR could be up to a maximum of 70-80%, this varies depending on the lending institution but the higher the LVR, the more you expose yourself to margin calls.
I'll be writing a separate article regarding margin loans due to it's complexity and how it operates.
Mortgage Loans
Mortgage loans are used to buy residential and commercial properties. It's usually for an established amount (eg $380,000) with either a variable or fixed interest rate. Your loan contract will determine the period of the loan (eg: 25 years, 30 years or 40 years) and the monthly repayment amount, which may vary depending on the interest rate charged.
I will be writing articles about how to pay your mortgage off faster, amortisation schedules and techniques to pay your mortgage off faster.
Mortgage offset and redraw facilities
A mortgage offset account works by offsetting your mortgage balance by the amount in your offset account. The interest that is charged is on the net balance amount between these two accounts. To illustrate, assume Sally's mortgage on the 1st of March is $380,000. If Sally has $100,000 in her offset account, then the bank will charge Sally interest on only $280,000.
Lending institutions will usually not approve your loan without a deposit however, they may lend anything from a maximum of 80% to 105% of the property's value depending on your income and repayment abilities. The smaller your deposit and the greater your LVR, you may have to pay lenders mortgage insurance on your loan.
A redraw facility may be a component of your mortgage, depending on whether your mortgage loan has this facility or not (check your mortgage contract). With a redraw facility, if you make any extra repayments then you can withdraw the extra repayment anytime you wish.
Again, this is a complex area and I will write a full article dedicated to mortgage loans. If you don't understand the complexity of a mortgage loan then you will not know what features of the mortgage that you will need. Also, do you really want to be spending the next 30 years of your life paying off your mortgage? Understanding the finer points will allow you to establish the appropriate loan for your circumstance and be flexible enough to cater for your repayment ability.
Overdraft
An overdraft is usually an extension of your normal account, allowing you to have a negative balance. Businesses commonly have overdraft enabled on their account to cater for cash flow imbalances throughout the year. Some individual accounts has overdraft facilities enabled, but be sure to check if you are being penalised for the usage of this facility everytime your account drops below a $0 balance.
Payday Loans
Payday loans are the biggest rort ever. This has got to be the very last resort! The moment you start using payday loans, you are probably closer to insolvency and bankruptcy than you realise. If I could say which loan to avoid at all cost, it would be this one.
Personal Loans
These loans are either secured or unsecured. If the loan is secured, the rate will usually be lower than credit card rates and loans that are unsecured. They usually have a fixed interest rate and a set amount established at the beginning of the loan. The loan will have a payment schedule with fixed repayments, normally monthly, until the loan is paid off. You cannot vary a personal loan without creating a brand new personal loan.
Commonly used for buying cars, consolidating various loans, purchasing white goods, renovation, holidays and multitude of things. Normally classified as a bad debt and not used for investing but for aiding personal spending.
Revolving Line of Credit / Line of Credit Accounts
Similar to an oversized credit card, except they are usually secured. There is an established limit such as $100,000 and you can spend from the line of credit as much and as often as you wish until you have spent your limit – which is $100,000 in this example.
Monthly payments are based only on the component that you’ve used and may vary from a certain percentage to interest only. So if you have a $100,000 line of credit (LOC) and you’ve spent $50,000 on renovation, then you will usually have to pay the interest or minimum percentage on only that $50,000 that you’ve spent. Don’t fool yourself though. You will have to pay that $50,000 principal debt eventually, so be wise and spend only what you can afford.
Store card loans and credit
This basically covers vendor financing. It's where a retail store will offer you their store credit card (eg David Jones or Macy etc). Depending on the terms and conditions, these credit varies markedly. Some whitegood stores selling furniture, for example, may offer a 'buy now, interest free for 2 years' type of deal. If you don't pay the balance off before the interest becomes applicable then they commonly back date the interest charge to the very first date that you bought the goods.
It can be a very expensive lesson to learn. Be wise and if you can't afford to pay for it today, then don't buy it.
Student Loans
These differ from country to country. I’ll only be covering Australian student loans. In Australia they’re called HELP or FSS debts. Which is Higher Education Loan Programme debts.
I'll be writing about HELP debts in depth in a separate article due to it's complexity regarding the discounts that are applicable depending on how you pay the HELP debt.
There are so many type of loans out there. Basically everything and anything could be financed nowadays by the stores or by the shops. The terms and conditions of each loan differs and repayment structures also differ. If you don't understand the loan, don't borrow until you've done your due diligence and understand what you are signing up for.
Fixed or Variable Interest
1) Fixed Interest – Interest is fixed for the duration of the loan, from the time it’s taken out to the day you pay it off.
2) Variable Interest- The rate changes either up or down depending on the market rate (which varies depending on the loan type eg: LIBOR, Bond, Central Bank rates).
Secured or Unsecured
1) Secured – Then lender can sell whatever asset you’ve secured the loan against if you default and can’t pay the loan. Assets typically used as security are houses, cars, stock portfolios and personal possessions. Loans that are usually secured are car loans, mortgages, mortgage line of credit accounts
2) Unsecured- The lender has no recourse. You’ve got not asset with the lender as a collateral. If you default on the loan, the lender considers you a bad debt and will most likely pass you along to the debt collection agency as a last resort. This loan is riskier for lenders so they usually charge a higher interest rate because of this increased risk. Examples of unsecured loans are credit cards, store cards, personal loans and personal lines of credit
The different type of loans available are:
Car Loans
Car loans are usually secured against your vehicle. They may insist on car insurance as well. You should shop around for the best financing deal first before going shopping for a car because car yards will always have their own financing but this may not be the best deal around.
Car loans are usually for a fixed amount of money, organised upfront with a fixed interest rate, repayment amount and period. Example: $10,000 car loan at 10% interest, repayable by monthly instalments for the duration of 4 years.
Credit Cards
If you can’t pay off a credit card every month before the interest free period ends, then don’t use a credit card. If you don’t listen to this wise and sagacious advice, then it will ultimately be your downfall. You only need one or at the most two credit cards ever at any period of time.
These beasts come in various structures with interest free period ranging from 0 days or 55 days to 6 months typically. Read the fine print! Understand what you are signing up for. Don’t be fooled into thinking that it’s worth spending on the credit card because you get reward points or frequent flyer points. Wow, you’ve gone and spent $3,500 so that you can collect 3500 points, the equivalent of $25-$30 in rewards – if you can't pay that $3,500 off before incurring interest charges then it's a bargain with the devil.
If you can’t pay them off by the interest free period, you will be paying through the roof with rates ranging from 11% to a more typical rate such as 18% and 28% per annum interest. Usually the banks will have a 'minimum payment' amount of around $25 or $30. The problem with paying only the minimum amount is that you will end up paying interest on the balance owing and it will take you 25-40 years to pay off the credit card at the minimum amount that they request you to pay.
I will re-iterate myself because credit cards have been at the root of marital breakdowns, stress, tears and bankruptcies – if you can’t pay them off by the interest free period, don’t use them. Otherwise, you are best off looking at other financing options such as lines of credits or personal loans which charge lower rates of interest.
Debt Consolidation Loans
Debt consolidation is a process whereby you take out a new loan (or increase an existing loan) in order to close off several smaller, separate loans. This can be done by organising a new personal loan, refinancing your mortgage and rolling those debts into your mortgage or withdrawing equity out to pay off your multiple loans.
Why do people consolidate their debts? They consolidate in order to close off the loans with a higher interest rates onto a new loan with a lower interest rate. Credit card debts may be incurring interest at anything between 9% - 38% and by consolidating and refinancing, you replace the debt with a new debt with a lower rate such as 9%. It's also sometimes done to simplify repayments, instead of multiple payments to multiple loans, you make just one single payment for that new consolidated loan.
Margin Loans
Loans that are taken out usually to buy stocks and invest in portfolios. It can also be utilised when trading CFDs. The margin loan is usually secured by your stock portfolio and they will have different loan to valuation ratios (LVR) depending on what stock you buy. The average LVR could be up to a maximum of 70-80%, this varies depending on the lending institution but the higher the LVR, the more you expose yourself to margin calls.
I'll be writing a separate article regarding margin loans due to it's complexity and how it operates.
Mortgage Loans
Mortgage loans are used to buy residential and commercial properties. It's usually for an established amount (eg $380,000) with either a variable or fixed interest rate. Your loan contract will determine the period of the loan (eg: 25 years, 30 years or 40 years) and the monthly repayment amount, which may vary depending on the interest rate charged.
I will be writing articles about how to pay your mortgage off faster, amortisation schedules and techniques to pay your mortgage off faster.
Mortgage offset and redraw facilities
A mortgage offset account works by offsetting your mortgage balance by the amount in your offset account. The interest that is charged is on the net balance amount between these two accounts. To illustrate, assume Sally's mortgage on the 1st of March is $380,000. If Sally has $100,000 in her offset account, then the bank will charge Sally interest on only $280,000.
Lending institutions will usually not approve your loan without a deposit however, they may lend anything from a maximum of 80% to 105% of the property's value depending on your income and repayment abilities. The smaller your deposit and the greater your LVR, you may have to pay lenders mortgage insurance on your loan.
A redraw facility may be a component of your mortgage, depending on whether your mortgage loan has this facility or not (check your mortgage contract). With a redraw facility, if you make any extra repayments then you can withdraw the extra repayment anytime you wish.
Again, this is a complex area and I will write a full article dedicated to mortgage loans. If you don't understand the complexity of a mortgage loan then you will not know what features of the mortgage that you will need. Also, do you really want to be spending the next 30 years of your life paying off your mortgage? Understanding the finer points will allow you to establish the appropriate loan for your circumstance and be flexible enough to cater for your repayment ability.
Overdraft
An overdraft is usually an extension of your normal account, allowing you to have a negative balance. Businesses commonly have overdraft enabled on their account to cater for cash flow imbalances throughout the year. Some individual accounts has overdraft facilities enabled, but be sure to check if you are being penalised for the usage of this facility everytime your account drops below a $0 balance.
Payday Loans
Payday loans are the biggest rort ever. This has got to be the very last resort! The moment you start using payday loans, you are probably closer to insolvency and bankruptcy than you realise. If I could say which loan to avoid at all cost, it would be this one.
Personal Loans
These loans are either secured or unsecured. If the loan is secured, the rate will usually be lower than credit card rates and loans that are unsecured. They usually have a fixed interest rate and a set amount established at the beginning of the loan. The loan will have a payment schedule with fixed repayments, normally monthly, until the loan is paid off. You cannot vary a personal loan without creating a brand new personal loan.
Commonly used for buying cars, consolidating various loans, purchasing white goods, renovation, holidays and multitude of things. Normally classified as a bad debt and not used for investing but for aiding personal spending.
Revolving Line of Credit / Line of Credit Accounts
Similar to an oversized credit card, except they are usually secured. There is an established limit such as $100,000 and you can spend from the line of credit as much and as often as you wish until you have spent your limit – which is $100,000 in this example.
Monthly payments are based only on the component that you’ve used and may vary from a certain percentage to interest only. So if you have a $100,000 line of credit (LOC) and you’ve spent $50,000 on renovation, then you will usually have to pay the interest or minimum percentage on only that $50,000 that you’ve spent. Don’t fool yourself though. You will have to pay that $50,000 principal debt eventually, so be wise and spend only what you can afford.
Store card loans and credit
This basically covers vendor financing. It's where a retail store will offer you their store credit card (eg David Jones or Macy etc). Depending on the terms and conditions, these credit varies markedly. Some whitegood stores selling furniture, for example, may offer a 'buy now, interest free for 2 years' type of deal. If you don't pay the balance off before the interest becomes applicable then they commonly back date the interest charge to the very first date that you bought the goods.
It can be a very expensive lesson to learn. Be wise and if you can't afford to pay for it today, then don't buy it.
Student Loans
These differ from country to country. I’ll only be covering Australian student loans. In Australia they’re called HELP or FSS debts. Which is Higher Education Loan Programme debts.
I'll be writing about HELP debts in depth in a separate article due to it's complexity regarding the discounts that are applicable depending on how you pay the HELP debt.
There are so many type of loans out there. Basically everything and anything could be financed nowadays by the stores or by the shops. The terms and conditions of each loan differs and repayment structures also differ. If you don't understand the loan, don't borrow until you've done your due diligence and understand what you are signing up for.
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