Tag Archives: Cashflow

How is your credit score affected by COVID-19?

By Robert Wright /August 28,2020/

If you’re one of the many Australians financially impacted by COVID-19, who have deferred $218 billion worth of payments this year – fear not. Your credit score is unlikely to be affected by payment deferrals or mortgage holidays due to the current state of the world.

While that’s good news, it’s still important to maintain a high credit score by understanding how it’s calculated and what you can do to maintain it in future.

So, what is a credit score?

A credit score is a number between zero and 1200 that reflects how much money you have borrowed, the way you use credit and your history paying off any loans and credit cards. This is calculated based on many sources of information including:

• Your personal details like your age, income and living arrangements.
• Financial information like how many loans and credit cards you have.
• Your bill paying history for expenses like energy and phone bills.

While your credit score is a record of positive information, such as your track record making repayments on time and in full, it also encompasses negative information such as late payments, court adjudications, bankruptcies and insolvencies.

All in all, the higher the score, the better and the more likely lenders will be to approve loan or credit card applications you might make. The lower the score, the riskier you will be perceived by lenders, making them less inclined to approve your application for a loan, which is why having a high credit score is important.

How is it calculated?

Credit bureau are responsible for consumers’ credit scores, which are calculated across the bands below:

• Excellent: 841 – 1,200
• Very good: 756 – 840
• Good: 666 – 755
• Average: 506 – 665
• Below average: 0 – 505

What is a credit report?

A credit report sits alongside your numeric credit score and contains all the information used to determine that number. The report includes detailed information about the way you handle credit, such as your repayment history, as well as any defaults or overdue payments. It also encompasses information about your active loans and credit cards such as their value and repayment amounts.

Be aware your credit report will include a record of any defaults if you miss a payment valued at $150 or more that’s overdue for more than 60 days.

What’s it used for?

Banks and other financial institutions check your credit score and your credit report to see how likely you are to be able to make your repayments on new loans or credit cards for which you apply. Banks, telcos and energy companies also check this information every time you apply for credit with them.

What might cause your credit score to drop?

There are a range of reasons your credit score could drop, such as when you pay off a loan or cancel a credit card. While this might be confusing, this is because lenders have less information to assess how reliable you are at paying off debts or assessing loan applications.

Your credit score can also drop when you successfully take out new credit. This is because the average ‘age’ of your debt drops with the new loan. Over time, when lenders see you making regular payments on your new card or loan, your credit score should increase once more. Your credit score will also drop if you miss a payment, are routinely late making payments, or, if you go bankrupt.

How can I improve my credit score?

There are lots of steps to take to improve your credit score, including:

Pay your bills and loan repayments on time, and, in full. It’s an idea to set up direct debits so all of your obligations are automatically paid. This could help minimise the risk of missing a repayment and having this affect your credit score.

Don’t apply for too many new lines of credit, for instance multiple credit cards, at the same time. Lenders can take this as a sign you’re experiencing a cash flow crisis and need access to money fast, which can put you in the higher-risk category as a borrower.

Lower your credit limit. Lenders like to see borrowers using credit responsibly by paying off their repayments on time, and, in full.

Will my credit score be affected if I have deferred my mortgage repayments?

Banks have allowed borrowers who have been affected by COVID-19 shutdowns to defer loan and mortgage repayments for up to six months. Rest assured your credit score will not be affected if you have deferred your loan repayments.

This means that your credit report will not include a record that you have missed a payment as a result of deferring your repayments due to COVID-19. However, your credit score may be impacted if you have missed a payment on a loan or credit card for other reasons.

What should I do if I think my credit score is wrong?

You can take steps to correct your credit score if you think it’s wrong. Contact the credit reporting agencies to amend details such as your name and address. If the error involves incorrect defaults or information on your file that is a result of identity theft, contact your credit provider.

Source: BT

Don’t let overspending be your undoing

By Robert Wright /August 28,2020/

Do you struggle to control your spending around your friends and family? If the urge to ‘keep up’ with a certain lifestyle is stretching your finances, it could be time to take action.

From splitting the bill at an expensive restaurant, to having the ‘right’ house, car and clothes, many of us fall victim to overspending. But if you regularly suffer from buyer’s remorse, or spend over and above your means, it’s time for a serious reality check.

Overspending can quickly spiral into long-term debt, especially if you use credit cards to try and bridge the gap.

Young Australians are particularly at risk, taking on debt at a far earlier age and carrying it longer than ever before. Research by RateCity shows that 42 per cent of those aged under 24 have between $10,000 and $30,000 in personal debt, not including a mortgage.

Even if you’re not living paycheck to paycheck, overspending will prevent you from reaching your longer term financial goals, like financial security and financial freedom.         

Fortunately spending habits are just that – habits – and they can be changed. Here’s how to avoid the debt spiral and get your finances on track.

1. Identify your risky behaviours

Do a financial health check and work out where the majority of your overspending happens.

Is it a penchant for designer clothes? An addiction to expensive electronics? Or a love of fine dining? We all have vices that threaten to throw us off track, so look at the numbers and be honest with yourself about which behaviours are forcing your finances off course.

If those behaviours are closely associated with certain friends, family or work colleagues, it could be time to re-evaluate your unhealthy relationships.

2. Associate with people who share your values

Once you know what’s driving your poor spending habits, use it to take action. Distance yourself from any negative influences and find others who better fit in with your long term plans. Being surrounded by likeminded people will help restore your bank balance in no time.

3. Find alternatives

If your social life is at the centre of your overspending it could be time to make some healthy swaps. Try suggesting low-cost alternatives such as bush walking, art classes or the beach. You might even meet new people who share your values.

Lead by example and encourage good financial practices among your friends and family. Be upfront about your goals and values, without being pushy. True friends will be supportive and want to spend time with you anyway.

4. Make a financial plan

Taking control of your spending starts with evaluating your priorities and setting long-term goals. By making a financial plan, you’ll identify what is really important to you – and the steps you need to take to get there.

You can do much of the groundwork on your own, although consulting a financial planning professional can help you to nail the details and act on your plans. You could be experiencing financial freedom sooner than you realise.

5. Stick to a budget

It’s much easier to maintain your new spending habits and make a real change if you have a budget in place. Make sure to allocate funds for clothing, entertainment and ‘fun’, so that you still get to indulge in some of your favourite interests.

6. Create a ‘want to buy’ list

Every time something comes up that you want to buy, add it to your list then wait at least seven days before purchasing the item. In the meantime, find at least three prices for the same item. This reduces the risk of splurging on things you don’t really need and makes it more likely that you’ll get a good deal.

7. Focus on the bigger picture

It’s easy to get carried away trying to keep up with a certain lifestyle and you may not even realise it’s happening until you’re already in debt. Good financial planning and a focus on the bigger picture will help keep your overspending in check.

Source: Money & Life

How to budget for your social life in retirement

By Robert Wright /August 28,2020/

If you’re in or approaching retirement, you may be prioritising things such as living costs, utility bills, health care and even potentially helping the kids out with their future financial goals.

With many Australians looking at a retirement (which in reality, could span a few decades), another thing to give some thought to is keeping some money aside for your own recreation and social life.

What activities are on your to-do list?

Think about what you enjoy doing, what you’re likely to want to do more of, or even get into with more time on your hands.

• Eating out – restaurants, beach barbecues, picnics, food fairs
• Travel – interstate breaks, overseas holidays, road trips, caravanning
• Entertainment – cinemas, concerts, events, stage shows
• Sport – golf, tennis, cycling, yoga, pilates
• Hobbies – fishing, sailing, photography, drawing, woodwork
• Volunteering – hospitals, soup kitchens, animal shelters
• Club associations – Rotary, Leagues, Surf Life Saving
• Tournaments – trivia, bridge, chess.

How can you budget for the things you enjoy?

If you need a guide, the Association of Superannuation Funds of Australia (ASFA) benchmarks the annual budget needed to fund a comfortable and modest standard of living in retirement, with figures based on an assumption people own their home outright and are relatively healthy.

According to June 2020 figures, individuals and couples around age 65, looking to retire today, would need an annual budget of $43,687 and $61,909 respectively to fund a comfortable lifestyle, or $27,902 and $40,380 respectively to live a modest lifestyle.

According to ASFA, a comfortable retirement lifestyle would enable an older, healthy retiree to be involved in a broad range of leisure and recreational activities, whereas a modest retirement lifestyle would enable an older healthy retiree to afford more basic activities.

How much are you likely to spend on recreation anyway?

According to research, singles and couples (aged 65 to 85) living a comfortable lifestyle in retirement would spend about $184 and $277 of their weekly budget respectively on leisure and recreation.

This takes into account a broad range of recreational activities, including:

• Lunches and dinners out
• Domestic and international holidays
• Movies, plays, sports and day trips
• Things like streaming services
• Club memberships.

Making your money go further for the fun stuff

• Make use of your Senior’s Card for transport concessions and other discounts
• If going overseas isn’t in your budget, you could consider a road trip interstate
• Pack a rug, food basket and esky, and head to the park or beach for a picnic
• Swap a visit to the day spa with a DIY manicure and candle-lit bubble bath
• Have the troops over for a poker night or take turns hosting dinner parties
• Find cheap accommodation on Airbnb or consider listing your own place to earn money while you’re away.

Source: AMP Insights

Financial counsellor or financial planner: What’s the difference?

By Robert Wright /August 07,2020/

Ok we get it, knowing where to turn to for financial advice can be confusing sometimes! Financial planners and financial counsellors are both types of financial experts, so which one is right for you?

To answer this question, start by considering why you’re seeking financial advice. Is it to improve your financial wellbeing? Plan for retirement? Manage your debt? Or something else entirely?

What is financial planning?  

Financial planning is all about developing strategies to build your wealth and reach your financial goals, such as achieving financial independence or having a comfortable retirement.

A financial planner, sometimes called a financial adviser, will work with you to develop a financial plan and make suggestions on how to achieve it. Some of the areas they can provide advice on are:

• Investing
• Superannuation and retirement planning
• Estate planning
• Insurance

Importantly, they must hold, or work for a company that holds, an Australian financial services license, which is granted by the Australian Securities and Investment Commission (ASIC).

How is it different to financial counselling?

Financial counselling, on the other hand, is a free service that exists to support people in financial difficulty. It is usually offered through community organisations and some government agencies.

Financial counsellors are qualified professionals who provide advice and advocacy to people struggling to manage debt, or unable to meet their ongoing expenses. They aren’t licensed to provide investment advice or invest funds on your behalf.

Some of the services a financial counsellor can provide are:

• explore your financial options and advise you on the pros and cons
• develop a budget or money plan
• prioritise your debts
• speak to creditors on your behalf and negotiate repayment arrangements
• help you access government grants or concessions
• advise you on credit, bankruptcy and debt collection laws.

Unlike financial planners, financial counsellors are not required to hold a financial services license from ASIC, provided they meet strict conditions. This includes not charging clients any fees or accepting any third-party payments or commissions. They are also required to be a member of Financial Counselling Australia.

You should never pay for financial counselling services. Anyone charging fees is, by definition, not a financial counsellor.

When should I see a financial planner?

Many people believe financial planning advice is only for the ‘wealthy’. However, it can help people of all ages prepare for the future and achieve their financial goals. If you’re looking for strategies to build and protect your wealth, a financial planning professional can assist you.

Financial planners work with people at all stages of life, from those in their 20s and 30s, right through to those in retirement, so it’s never too early to get started. Ideally, your relationship with your financial planner will last a lifetime.

Often, people seek out financial advice around major life events. If you’re thinking about buying your first home, starting a business, having children or nearing retirement, it could be a good time to get professional financial advice.

When do I need to see a financial counsellor?

If you’re struggling with debt, at risk of being evicted or having your electricity, gas or phone cut off, we recommend speaking to a financial counsellor as soon as possible.

So, which one should I see?

Going back to our earlier question, what are your reasons for seeking financial advice? If it’s to build, grow and sustain your wealth, and you’re not in financial hardship, then a financial planner is the right professional for you.

If you’re experiencing any financial difficulty, then a financial counselling service is the best option to get you back on your feet. Once your financial situation has stabilised, you should definitely consider seeing a financial planner to help you reach your long-term financial goals.

Source: Money and Life