Adulting: Loan Repayments

The banks aren’t likely to tell you this, but I will. You can mess with how much interest you get charged on a loan. It’s not that hard. It’s actually really simple. Followers of that Dave Ramsey bloke let me in on it through their own books.

Dave Ramsey’s way of getting it done is having an off-set account. This means that instead of getting paid into your regular account, you get paid into this off-set account which basically means your pay is going into your loan account. You withdraw from it as you need to cover essentials and leave the rest in there. Having such a huge amount of money going into the account each pay fortnight means less interest charged even though some of it is being pulled out to cover the cost of living.

There are two points that are essential to know however: It takes a huge amount of financial control/restraint/awesome budgeting to make this work so not all banks will offer this to every customer if they can see a borrowers track record on spending isn’t that great; there needs to be a basic understanding of how interest is calculated.

Interest is calculated monthly in arears. Simply, this means that the clever little calculators look back on how much your loan account had in it every day of the previous month (e.g. August) and on the first day of the next month (e.g. September 1^st) you get whacked in the face with the interest. So for every individual day that the amount owing has come down a bit, there’s less interest charged. Months with 31 days in it will always hurt interest-wise a little more than days with 30 or 28.  How interest is calculated also means that when it comes to making repayments it’s better to make them fortnightly or weekly rather than monthly.

Me being me though, I don’t do it this way. I do it my way. I get paid into my usual account (which isn’t with the same bank). When setting up the fortnightly automatic repayments out of my usual account I cringed when the number was $518. I asked my lending manager can that be changed, it’s doing my head in, it needs to be a number divisible by 5 so he bumped it up to $520. And then I thought ‘Upping it by $2 every fortnight is going to make f*** all of a difference’ so I logged on and changed it again… to $525, $7 more than what I’m supposed to repay. I didn’t stop there. As I said before, every day the loan has less money owing is a lower interest hit at the beginning of the next month. So next I scheduled $10 to automatically transfer over every Monday. That’s another $40 extra per month totalling $54 extra per month. As mentioned in the budgeting blog, the tax bill and council rates means I’ve had to put these extra repayments on hold for a while, just until I’m a bit more stable again. When I hook back in I’m going to change the extra payments from being on Mondays to being on Sundays and Tuesdays, still at $10 apiece. Which means I’ll go from $40 extra repayments to $80 extra repayments (totalling $94 per month extra).

How does this play out in the long run (which is where it is most important)? My loan is a 30 year loan. I’ve had this loan for 2 years and 1 month now which means I have 27 years and 11 months’ time limit left to pay it back. However, the estimated term of when I’ll have it paid off is 21 years and 6 months. That means I am over 6 years ahead on my repayments, I’ve achieved this in 2 years. Imagine how quickly you could pay off your own loan just by tweaking a few things!

Adulting: Cooking

I was 19 when I got to Legune Station in the Kimberley. I was very young, very naive. However, being out there made me grow up fast. Just as I was starting to get into the swing of things I got bucked off a horse, broke my back, spent four days in hospital, another month just lying in bed and that was it for me for the rest of the year. I came back to work onto light duties just as the camp were wrapping up mustering.

For the first part of the year our cook was actually a professional chef. I learned to like mushrooms because of his cooking. I learned from him how to chop certain veggies really quickly. Then he quit to go to Thailand. That sucked. The gardener got the interim job of cook until another one could be found. I learned to hate onions because of his cooking. Then we got this utter psycho (diagnosable psycho who wields pig-sticking knives and throws pots and pans at people) who was cook for about two weeks before he got fired. And then I was cook because I was on light duties. I hated it. Number one because I didn’t actually know how to cook. I continue to hate cooking because of all the preparation and cleaning involved and when I cooked for others I often felt like it was unappreciated. Now I’m on my own it’s much easier to peel back the corner of some plastic film and chuck it in the microwave.

Being shoved in the kitchen at 19 and being told to cook for 40 people was a bit daunting. At this point, I only knew how to cook pancakes, sausages, fried eggs, scrambled eggs, spaghetti bolognaise, some cakes and bacon the way I like it. Home economics at school taught me how to bake the cakes and it was my mum that taught me to cook the other things listed above. I was screwed. I was supposed to be able to whip up four meals a day and the only thing I could safely do was breakfast. What saved me was a dusty 1980’s reprint of Margaret Fulton’s first cookbook. That lady has no idea how much of a saving grace her cookbook was. She has no idea even that she taught me how to cook. Next thing you know I’m bashing out goulash, braised steak, stroganoff and biscuits.

Below are a few recipes that helped me survive cooking for big mobs of people or things that can be bulk cooked and frozen in portions.

GOULASH

1kg Diced beef
1 can Diced tomatoes
200mL Beef stock
1 Green capsicum, diced
1 Red capsicum, diced
1 Celery, diced
1 Onion, diced
1 tspn Paprika
1 tspn Cumin

Chuck it in the slow cooker in the morning on the auto setting, stirring it through thoroughly and it’ll be ready by dinner time. There’s enough in this recipe to feed a small crowd or portion it up and freeze it. Serve with mashed potatoes.

EASY CURRY

500gm Diced Beef
1 can Coconut cream
2 potatoes, diced
1 ½ cup Peas
2 Carrots, diced
1 heaped tbsn Curry powder

Mix the curry powder and coconut in a bowl before pouring it over the rest of the ingredients and stirring it through. Chuck it in the slow cooker on auto in the morning and by dinner it’ll be ready. This recipe will get you through a couple of nights. Serve with rice.

 

ANZAC BISCUITS

1 cup Plain flour
1 cup Rolled oats
1 cup Brown sugar
½ cup Coconut
125g Butter
2 tbsn Golden syrup
½ tspn Bi-carb soda

Mix the flour, oats, sugar and coconut together. Melt the butter in a saucepan then add the golden syrup, a dash of water and stir in the bi-carb. Mix the wet ingredients with the dry ingredients and roll into balls and place on a baking tray lined with baking paper. Put it in the oven at 175 deg for about 15-20mins.

Adulting: Fixed and Variable Interest Rates

In shopping around for a loan, so far we’ve looked at interest rates and comparison rates. Now we’re going to look at variable and fixed interest rates. Seems quite obvious doesn’t it? A fixed interest rate stays the same amount for the term stipulated on a loan (usually 5 years) and a variable rate can go up and down.

Interest rates, especially variable interest rates are not exclusively determined by the bank providing the loan. It’s the Reserve Bank of Australia (RBA) that plays the biggest role in determining interest rates nationwide for one of their primary goals is to keep Australia’s economic welfare stable; there is a set target that they must achieve and maintain. When determining an interest the RBA looks at the activity over the previous month of overnight loans and the interest rate of those overnight loans in the money market; this is the cash rate. The RBA board meets on the first Tuesday of every month (except January) to determine the cash rate. Their decision is effective from the next day.

So, to keep the cash rate where it needs to be sometimes the RBA dishes out money to the banks like “Here, have all the money, we have too much!” and the banks respond by going “Hey, we don’t need that much money. Hey, Sheeples! We’ve got some money you might want. We’re almost giving it away”. And if the RBA is tightening the belt they’re like “No banks, bugger all money for you!” The banks’ response is “If the RBA won’t give us the money, we’re gonna take it from the Sheeples through higher interest rates!” This behaviour correlates directly back to those overnight loans and the cash rate target mentioned before.

Want to learn more about the RBA? Check it out here.

A fixed rate can change if the bank feels inclined to pass an interest rate drop onto its borrowers but your repayments don’t change and overall you’re protected from an interest rate increase though there are certain options that might not be available to you. Variable rates however, you’re at the mercy of the bank and your repayment amounts can vary according to the interest rate. Banks often offer more flexible terms for variable rate borrowers, however, the uncertainty of knowing what your repayments will be can make budgeting difficult.

Once again, shop around, find the deal that’s right for you and your situation. And as boring is at may seem, pay attention to what the news says about decisions made by the Reserve Bank of Australia. Once you’ve got a loan it affects you! Especially if you’ve chosen a loan with a variable interest rate.

 

 

Adulting: Interest and Comparison Rates

If you wanted to buy a house, getting a home loan is the number one way to go about it. There are very few people who can pay for a house upfront. Well done to those who can. However, let’s be realistic here. Most of us struggle to put enough away for a deposit let alone put enough away to purchase a house outright.

If you have got enough money together and are ready to look for a bank to take out a loan with then you are probably shopping around for the best interest rates. You’ll notice that there is an interest rate advertised in big, bold letters and then another which is comparatively sized as fine print. That big, bold interest rate might look enticing but it’s the little one tucked away to the side that you’ve got to actually pay attention to. This is called a Comparison Rate.

The big, bold interest rate indicates how much interest you’ll pay on the loan amount. The Comparison Rate shows the true cost of the loan. This is because most banks will apply any fees and charges to the loan and apply interest to them as well. So when looking for a home loan you need to look at both. Ideally a Comparison Rate should be of a very similar number to the interest rate. Smaller banks like Bendigo Bank are more likely to have interest rates and Comparative Rates that are similar. Bigger banks, like Westpac, the number can differ quite a lot. It might not look like much when comparing the columns now, but the long-running impact of the difference could determine how quickly you can pay the debt off and if you can afford that debt at all.

Using a website like Canstar can be useful in narrowing down a home loan that is right for you. Avoid being fooled by fancy interest rates and feel-good advertisements because at the end of the day it’s the terms of your loan and the Comparison Rates that can make or break your dream.

Adulting: Budgeting

Remember when 5c used to get a few lollies in the store? 5c doesn't get you feck all anymore... Your teeth says you don't need any more fecking lollies anymore. Your bank account agrees.

Budgeting sounds like such a bad, unwanted word that could easily provoke the rolling of the eyes of cynics and those who struggle with the responsibilities of adulthood. However, all attitudes aside, it’s necessary. Budgets aren’t just for businesses.

So where does one start? First, assess what one’s income is and what one’s expenditures and financial obligations are. Financial obligations, such as loans and rent, must be met as a priority and ideally banks and rental agencies prefer that repayments and rents be automatically deducted from the account that pay goes in to in an effort to ensure that they’re going to get what they’re owed.

Expenditures must be split into two categories: essentials and luxuries. Essentials are food, fuel, phone bill, insurance and other bills (like medical, mechanical, car rego and incidentals like birthday or Christmas presents for immediate family or partner). Luxuries are alcohol (yes, seriously), unnecessary clothes, unnecessary things, beauty products and treatments, take away, lunches and dinners out, concerts, recreational drugs (if you’re that way inclined) etc. You get my drift. If you can easily live without it, if it’s not necessary to your survival as a human in the modern world then it is a luxury.

I’m not saying luxuries should be ruled out completely, however, they must be reined in. They are luxuries after all. Massive budget restrictions of my own means I recently missed out on the ballet and the opera coming to town. I was devastated but feelings should not get in the way of priorities. Self-control is key, letting yourself have small luxuries means you don’t feel like you’re entirely missing out. I allow myself $40 a fortnight. This caters to a pay day lunch with colleagues and anything else that may crop up in the fortnight I might want to enjoy.

Earlier in the year, 35-year-old millionaire Tim Gurner (who also happens to just scrape in as a millennial himself) pissed off a lot of fellow millennials by saying that millennials have too big an issue with wasteful spending to be able to crack the home buyer’s market. What he used to get his point across was avocados and take away coffees. He has a point, these things add up and could mean an extra $50 per week saved, though people then hated him for dissing avocado consumption, never mind that he was only using them as an example. The message he was trying to put it out was that it’s all about sacrifice.

My own self-control hasn’t always had a stellar record. For example, a month ago I bought a handheld GPS for $150. I am still copping it on the chin and have not financially recovered from making that purchase one month later. This is exacerbated by the fact that my exorbitant tax bill (which keeps a dole bludger on a stolen bicycle idle on the job market for an entire month) and my council rates have both come in at the same time.

Hello? Are you still there? I know this is insanely boring, however, it is insanely important.

There’s a financial guru out there on the interwebs called David Ramsey (Google him and his methods and you’ll be able to find people willing to share their own experience). He makes big bucks teaching people how to manage their money. I was frugal and on a budget before I came across him, however, he has some clever ways of getting people to curb their spending and lifestyles. One method, which has been adopted by a friend of mine, uses an envelope system. I track all my expenses in a notebook, his envelope system puts an emotional twist on it.

Once your automatic deductions are taken from your account on pay day, withdraw what’s left, leaving behind $20-$30 to save, and put it in a variety of envelopes. Each envelope is allocated an amount and a purpose e.g.: $200 for groceries in one envelope, $160 for fuel in another envelope. This means that at any time that money is spent on a non-allocated purpose there’s the emotional set back of having to hand over that cash rather than mindlessly swiping this and pay-waving that. The intention is that you cringe and feel guilty about spending on something that isn’t a necessity… and it works. I like my notebook because I stare at the cost of something I’ve bought that I might not necessarily have needed and tears well in my eyes because I’m less likely to save that fortnight.

If your expenses are more than your income then the budget needs to be looked at it in minute detail. Are you trying to afford a lifestyle when you can barely afford life? Knowing my tax bill and council rates were coming I cancelled my pet insurance for Dog and stopped the extra repayments I was making on my home loan. I was informed about my employer’s deal with Microsoft for their Home Use Program and applied that so I could cancel my Microsoft Office subscription. Doing these three things meant $90 less in expenses per month. If you do go over budget, carry that figure across to the next fortnight by deducting it from your budget. Avoid writing it off by saying “I’ll do better next fortnight” because no, if you give yourself that rein, it will become an unhealthy financial habit and all this won’t be worth it.

It will hurt taking a good, hard look at your own expenses if you know there are a few too many times where you’ve been careless (did you really need that fishing rod?). Though it especially helps if you have a goal to work towards like paying off the car, saving for a holiday or saving for a house deposit. Once those goals have been achieved, set another goal. The forming of a diamond cannot be achieved without extreme pressure, a financial goal cannot be achieved without the same rigorous efforts.

 

Adulting: Introduction

Normally my blogs are somewhat entertaining as I stumble through adult life. Annoyingly, adult life contains so many responsibilities it makes us wants to go back to kindergarten and get our hands messy in finger painting again. We can think through our to-do list and do one thing on it then binge watch our favourite TV show until our to-do list becomes a vague, niggling feeling in the back of our minds. “Adulting is hard” has become a slogan for so many under the age of 35. “Adulting being hard” means having to work full-time is hard (many people would rather work from home in a specialist niche if it was financially viable). Raising kids is hard (I don’t know this personally, however, the impression most parents have given me have indicated that it’s not only stressful but it’s frustrating and scary too). Figuring out what to eat every day or even cooking is hard (this is how processed and fast foods have become such hugely consumed foods). Keeping up with the bills is hard. There need be no explanation of the last one.

With a focus geared more toward financial literacy than anything else, the next few blogs will give a bit of an insight, without delving too deep into my personal affairs, of how I deal with that horrid reality of “adulting”.