Discovering Your Financial Mindset

Discovering Your Financial Mindset

Education, Finance, Investing

In the quest for financial stability and success, we often focus on tangible elements like earning more money, saving diligently, or investing wisely. But have you ever stopped to consider the role your financial mindset plays in achieving your financial goals. Understanding financial mindset Your financial mindset is a set of beliefs and attitudes you hold about money — how you earn it, save it, spend it, and invest it. This mindset largely influences your financial behaviours, decisions and ultimately your financial success.   Each mindset carries a unique perspective about money, influencing your financial decision-making process.   There are four common financial mindsets: 1. The Spender enjoys the thrill of the present, often overlooking long-term financial security for immediate gratification. If you frequently find yourself making impulsive purchases, or your credit card balance perpetually outweighs your savings, you may identify with this mindset. 2. The Saver is characterised by frugality and a steady focus on long-term financial security. If you diligently maintain a budget or feel a sense of accomplishment when growing your savings, the Saver mindset most likely resonates with you. 3. The Avoider, often plagued by financial anxiety, tends to shy away from money matters. If you find bills and bank statements overwhelming, or frequently procrastinate financial planning, you likely have an Avoider mindset. 4. The Investor sees money as a tool for wealth creation. If you appreciate the potential of assets and are willing to take calculated risks for future returns, you are most likely aligned with the Investor mindset. Identifying Your Current Financial Mindset  So how do you uncover your financial mindset? It begins with self-reflection –    Do you often worry about money, or do you feel confident about your financial situation?   Are you comfortable taking calculated financial risks, or does the thought of investing scare you?   Do you view money as a tool for achieving your dreams, or a necessary evil to be managed?  Examining your feelings and behaviours around money can provide valuable insights into your current financial mindset. This process is beneficial because it sets the stage for potential shifts in perspective that can improve your financial life.    Once identified, you can analyse your money behaviours, uncover potential blind spots, and take action to optimise your financial decision-making. For instance –   If you identify as a Spender, incorporating a budget and automating savings can provide some balance to your financial outlook.   Savers could benefit by introducing an element of investment to their financial strategy, allowing their savings to work harder for them.   Avoiders must confront their fears and actively engage with their finances, perhaps by seeking professional guidance.   While Investors generally have a positive approach, ensuring a balanced portfolio to mitigate risks is essential.  Transforming your financial mindset requires commitment, patience, and time. Take it slow and make gradual changes as you grow more comfortable with your changing perspective on money.  It’s not just about money; it’s about your attitude towards it. Adjusting your financial mindset means transforming both how you see money and how you engage with it, paving the path to financial success.     The information provided in this article is general in nature only and does not constitute personal financial advice.

Building a Strong Foundation: Avoiding Mortgage Default

Building a Strong Foundation: Avoiding Mortgage Default

Updated on Budgeting, Economy, Finance

When building a home, it’s often said that the foundations are the most important part. Their primary purpose is to hold your house up – supporting the structure and preventing it from being affected by uneven ground. Similarly, when purchasing a home and financing it with a mortgage, your financial foundation is just as crucial. A solid financial foundation can help you avoid mortgage stress, loan default, or even eviction. Unfortunately, economic factors such as higher living expenses, interest rate hikes, or job loss can jeopardise your financial foundation. What is mortgage stress? Mortgage stress occurs when homeowners face difficulty meeting their mortgage repayments and their living expenses. The Australian Bureau of Statistics has developed a “Mortgage Affordability Indicator”, which applies a 30% mortgage repayment threshold based on a household’s income. Mortgage stress can cause immense strain on individuals and families and increase the risk of mortgage default. Defaulting on a home loan happens when borrowers cannot make repayments as per the agreed terms and conditions of the loan agreement. This situation may result in serious consequences, including eviction and mortgagee possession of the property by the lender. How to avoid mortgage stress and loan default 1. Know Your Financial Situation One of the most crucial steps to avoid mortgage default is having a clear understanding of your financial situation. By evaluating your income, expenses, and overall financial position, you can identify potential risks and understand what options are available to you. Tracking your income and expenses will help you to analyse your spending habits and identify areas where you can cut back or make adjustments to free up cash flow. This is also a great time to review your expenses and renegotiate with service providers. Reviewing your financial position may help you identify available options to assist in financial hardship. 2. Seek Professional Guidance A mortgage broker can help you assess your current loan terms and explore options for refinancing or loan modifications that better align with your financial circumstances. They can provide valuable advice and assist in negotiating more favourable terms with your lender. 3. Communicate with Your Lender If you anticipate difficulties in making your mortgage repayments, it is best to communicate proactively with your lender in advance. Most lenders have teams dedicated to supporting customers experiencing financial hardship. They may be able to offer temporary payment arrangements or alternative solutions to help you through a difficult period. Case Study: Consider the case of John and Sarah, a couple facing the risk of defaulting on their mortgage due to a sudden but temporary loss of income. To avoid this outcome, they took several steps: Reviewed their financial situation – John and Sarah underwent a complete review of their financial situation. They reviewed their expenses, paused or cut back on discretionary spending, and renegotiated with all of their utility and service providers. This freed up cash flow to allocate towards their home loan. They also identified that they were slightly ahead with their home loan repayments. Communicated with their lender – John and Sarah reached out to their lender to explore their loan repayment choices. Since they had made some progress in their payments, they were eligible for a repayment holiday. This option would allow them to pay less towards their home loan for the next six months. They had examined their financial situation and were confident that they could manage these reduced repayments, and this would give them six months to replace the lost income and get back on their feet. To prevent mortgage stress and default, it’s important to actively manage your finances and have a clear understanding of your financial situation. Though it can be tough, taking early action and being transparent with your lender can help you work together to overcome financial challenges and ensure the safety of your home. If you are facing any difficulties in making your mortgage payments, you can find helpful resources on the MoneySmart website: https://moneysmart.gov.au/. The information provided in this article is general in nature only and does not constitute personal financial advice.

Fixed rate mortgage expiring… Now what?

Fixed rate mortgage expiring… Now what?

Updated on Budgeting, Economy, Finance

If your fixed interest rate expiry is coming up, you might have started to think about what happens next and what action you need to take. Or you might be sticking your head in the sand and avoiding the topic entirely. Be warned! The worst thing you can do is take no action at all. If your fixed interest period is due to expire, then it’s time for a review of your finances – Revisit your budget A fixed rate expiry will mean a change to what is often one of our biggest expenses – the home loan repayment. In a rising interest rate environment, this likely means a bigger expense you will need to allow for. By revisiting your budget, you can make sure you can afford the new home loan repayment amount, or adjust your spending where needed. Know your financial situation Your financial situation is going to impact what options are available to you and what options might be best for you. If there’s been recent changes to your income position such as job loss, income reduction or maternity leave, for example, this may impact your ability to refinance your loan. As a result, you may have to stick with your current lender on terms you may not be happy with. If you have surplus cash flow that you want to use to reduce debt, a variable rate loan might be more appropriate so that you’re not as limited with the ability to make repayments. Alternatively, if cash flow is tight, you might appreciate the stability of a fixed rate loan, and knowing your repayment amounts won’t increase during the fixed rate period. By having a good understanding of your current financial position and future goals, you can determine what your needs are and what the best strategy is for you moving forward. Look at what the market is doing One of the main factors to consider when deciding between a fixed and variable interest rate is the current market. While no one has a crystal ball, it’s important to consider what is happening with the economy, housing markets and interest rates. Are interest rates trending up or down? And what might this mean for both fixed and variable interest rate loans? Get clear on your options When your fixed interest term expires, you will need to choose between either re-fixing your loan for a period or switching to a variable interest rate loan. This is also a good opportunity to review your existing loan provider against other loan providers, to ensure you are being offered a competitive rate. With your market research in hand, it’s time to call your existing lender to request a rate review. You can let them know you are considering refinancing your loan and want to know what the best they could offer is. It might be time to switch lenders if they’re not prepared to offer you a competitive rate.   The information provided in this article is general in nature only and does not constitute personal financial advice.

How to create a Debt Repayment Plan

How to create a Debt Repayment Plan

Budgeting, Finance, Superannuation

Debt can be overwhelming and stressful, but creating a plan to pay it off can help ease that burden. In Australia, household debt is on the rise, with the average household owing over $260,000 in 2021, according to the Australian Bureau of Statistics. If you’re struggling with debt, here are some tips and strategies for creating a debt repayment plan. Create a Budget The first step in creating a debt repayment plan is to create a budget. This will help you understand where your money is going and where you can cut back on expenses. List all of your income and expenses, including bills, rent or mortgage payments, groceries, and any other expenses. Once you have a clear picture of your finances, you can start to identify areas where you can save money. Prioritise High-Interest Debt If you have multiple debts, it’s important to prioritise the ones with the highest interest rates. These debts are costing you the most money in interest charges, so paying them off first will save you money in the long run. Make minimum payments on all of your debts, and put any extra money towards the one with the highest interest rate. Automate Payments Automating your debt payments can help ensure that you don’t miss any payments and incur late fees. Set up automatic payments for the minimum payments on all of your debts, and then add extra payments as you can afford them. This will also help you stay on track with your debt repayment plan. Choose a Repayment Strategy There are different methods of debt repayment, such as the snowball and avalanche methods. The snowball method involves paying off the smallest debt first, while the avalanche method involves paying off the debt with the highest interest rate first. Choose the method that works best for your situation, and stick to it. Case Study Let’s compare two scenarios to see how creating a debt repayment plan can make a difference. Scenario 1: Sarah has $10,000 in credit card debt, with an interest rate of 20%. She is making minimum payments of $200 per month, but is struggling to make progress on paying off the debt. Scenario 2: John has the same amount of credit card debt, but has created a debt repayment plan. He is making minimum payments of $200 per month, but has also cut back on expenses and is putting an extra $200 per month towards the debt. He is using the avalanche method, and has prioritised the credit card with the highest interest rate of 25%. After one year, Sarah will still have $8,360 in credit card debt, and will have paid $1,440 in interest charges. In contrast, John will have paid off $4,800 of his debt, and will have saved $1,200 in interest charges. Creating a debt repayment plan can make a big difference in your financial situation. By creating a budget, prioritising high-interest debt, automating payments, and choosing a repayment strategy, you can take control of your debt and work towards becoming debt-free. If you need help creating a debt repayment plan, speak with our advisers who can provide guidance and support.   The information provided in this article is general in nature only and does not constitute personal financial advice.

Three-Minute Financial Check-up

Three-Minute Financial Check-up

Updated on Budgeting

While the standard of living is constantly improving in Australia, economic disruptions, stagnant wage growth and continually increasing house prices are putting more and more people under financial stress. A recent report by the social research group, the Melbourne Institute, ‘Taking the Pulse of the Nation’, found one in three Australians reported being under financial stress. It found that those on fixed-term contracts and anyone self-employed were particularly vulnerable to feeling financial stress, as were people employed in the hospitality and IT sectors. There is nothing worse than that niggling feeling that you’re not in control of your financial situation or worse, the dread that you may not be able to meet your next home loan repayments or that you’ve maxed out your credit cards. For many people, it is simply that their lives are so busy they never have the time to focus on their financial position and so the constant pressure of earning money and paying bills can easily spin out of control. Just as all financial situations can be improved, so all financial problems can be resolved and the earlier you act, the better. Just the simple step of reaching out for help will make you feel better about your financial situation. So, it may be as simple as being unsure whether you will have sufficient savings in super to retire in the way you were hoping to, or it might be that you have created a debt mountain that you feel helpless to reduce. If you find yourself spending a large part of the day worrying about your finances, if you have trouble sleeping at night or if your financial position is causing repeated arguments between you and the people you care most about, it is important that you reach out for help. A good place to start is completing this Three-Minute Financial Check-Up. If you answer no to any of the questions on this list, you should make time to discuss your financial situation with a qualified financial adviser. They will be able to tell you just how serious your situation is and more, how you can take steps immediately to improve your financial position and help you get you back on track, so you do feel in control. Your Three Minute Financial Check-Up Action YES NO Do you pay all your credit cards off in full by their due date?     Do you sleep easy knowing all your bills will be paid when they fall due?     Do you have a budget, and do you stick to it?     Are you making all your loan repayments on time?     Do you know exactly how much your home loan is today?     Do you know what you would do if you lost your job tomorrow?     Are you confident about your children’s financial future?     Do you have life and total and permanent disability insurance in place?     Do you have income protection in place?     Do you know how much you have in super?     Are you and your partner in agreement about your finances?     Do you feel confident about your overall financial position?     The information provided in this article is general in nature only and does not constitute personal financial advice.

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