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Posts tagged "money"

Money Series: All you need to know about budgeting.

February 22nd, 2021 Posted by Financial Management 0 thoughts on “Money Series: All you need to know about budgeting.”

A budget is the best tool you have to help you work out where your money is going, to create a plan to help you think about your finances in the longer-term, and to feel more in control of your money. Don’t be nervous! You don’t need any special tools or expertise to set up your own budget. You just need the will to start looking at where you are right now and where you want to be.

PLANNING

Set your money goals

First, work out why you want to do a budget. This can help you to decide where you want your money to go. Ask yourself: What is my goal? It could be to stay on top of bills, free yourself from debt, save for emergencies, pay for your children’s education, or save for a holiday or a house deposit. Set a savings goal and work out how much you can save each payday. The Australian Government website, MoneySmart, offers a free savings goal calculator to help you work out how long it will take you to reach this goal. You can then put aside money for big bills when they arrive, and plan savings to achieve your money goal.

TRACKING

Tracking your spending is a way to take control of your money. If you ‘don’t see it, you don’t know’. Knowing exactly how much is coming in and going out can help you spend less and save more. Having a clear picture of your regular expenses and spending habits will help you set up your budget.

  1. Understand where your money goes. Taking the time to make a note of every dollar you spend can give you a clear view of where your money is going. You may be surprised by how much all those small things add up. You might also discover hidden costs, like account fees, subscriptions you don’t use, or mistaken transactions (If you discover these, consult the MoneySmart website advice on how to resolve this). Just knowing where your money goes may be all you need to start spending less. You may even start saving more.
  1. Track your spending and expenses
  • How to track your spending. Start small by recording your spending every day for at least a week. This way you can see all the money going out. If you have some weeks or months with more expenses, then track over two weeks or two months. This will give you a more accurate picture. Don’t worry about changing your spending habits straight away. Just track day by day. It might be easier to track with your partner, parent or a friend: You can encourage each other and stay on track.
  • Use a phone app. A phone app is an easy way to track your spending at the time you spend.
  • Some apps offer more options, such as setting spending limits and reminders, and seeing your expenses at a glance.
  • Look at your statements and receipts. When you use a debit or credit card, every transaction is recorded for you.
  • You can view or download these transactions using online banking, or look at your hard-copy statements or receipts.
  • Write it down. Write down every dollar you spend. Include the amount, item or store name, and date. You should do this for both cash and card purchases. Do this as you spend, or set a reminder to do it once a day, using your receipts.
  1. See how you’re tracking. At the end of your tracking period, look at your recorded transactions to see where your money is going. You might find that just by being aware of your spending you start to spend less. Take a moment to ask yourself: Do I need this? Would it be cheaper somewhere else? This can help you think twice about buying something.
  • See where you can save. A good first step is to look at any small items that add up over time. Try cutting back on small, frequent expenses, such as takeaway coffee or lunch. This is a great way to start a savings habit. MoneySmart has some great ideas on simple ways to save money. You could also see whether you could redirect this money, maybe to a savings account, an emergency fund, or to your mortgage.
  • Separate needs from wants. Look at all your transactions and highlight what are ‘needs’ — essential items you need to live. This will give you a clear picture of what are ‘wants’. These are the things you could cut back on or live without to save money.
  • Set limits and reminders. Seeing how much you spend on certain things can help you set a realistic limit for the next week or month. This can help you avoid overspending. Knowing when regular expenses are going to pop up means that you can set reminders and put aside money to cover these payments.
  1. Do a budget. Knowing where your money is going day to day is great first step to creating a budget. The next step is to see where it’s going over a month, then a year. Having a budget can help you feel in control of your money, prepare for big expenses, and save.

SETTING UP YOUR BUDGET

Easy steps to manage and categorise how you spend your money. Use how often you get paid as the timeframe for your budget. For example, if you get paid weekly, you can set up a weekly budget. Then follow these steps to set up each section.

  1. Record your income. Record how much money is coming in and when. If you don’t have a regular amount of income, work out an average amount. Make a list of all money coming in, including:
  • how much
  • where from
  • how often (weekly, fortnightly, monthly or yearly)

This money could be from your wages, pension, government benefit or payment, or income from investments.

  1. Add up your expenses. Record your regular expenses, including:
  • what for
  • how much
  • when

Regular expenses are your ‘needs’ — the essential items you need to pay for to live. These include:

Fixed expenses, for example:rent or mortgage paymentselectricity, gas and phone billscouncil rateshousehold expenses, like food and groceriesmedical costs and insurancetransport costs, like car registration and public transportfamily costs, like baby products, child care, school fees and sporting activities 
Debt expenses, for example:personal loan repaymentscredit card paymentsmortgage repayments 
Unexpected expenses, for example:car repairs and servicesmedical billsextra school costspet costs 

To make sure you’ve recorded all your expenses, look at your bills or bank statements. If you tracked your spending using the MoneySmart tool, use your list of transactions.

  1. Check if you can save. Having some savings can help create a safety net for unexpected expenses. Set a savings goal and work out how much you can save each payday. You can use the MoneySmart savings goal calculator to work out how long it will take you to reach your savings goal.
  1. Set your spending limit. The money you have left after expenses and savings is your spending money. This money is for ‘wants’, such as entertainment, eating out and hobbies. Make a plan for what you want to do with your spending money. This will help you to keep within your limit. Be sure to keep track of your spending so you always know how much you’ve got left.
  1. Bank Accounts. You can set up three bank accounts: A high interest savings account for savings, and two transaction accounts, one each for spending and bills. It’s good to schedule automatic transfers for as soon as you receive your wages to your savings, and explore using a tool such as Gobbill to automate your finances.
  1. Bill smoothing. To help you manage future bills, you can talk to your suppliers to arrange for ‘bill smoothing’. This is where you spread the cost of your bill over regular weekly, fortnightly or monthly payments. For example, you might pay a set amount of $100 a fortnight towards your electricity bill. This will help you budget and provide some helpful additional structure to help manage your larger bills.
  1. Tools and emergencies. You can use the MoneySmart budget planner to create your own budget with custom items. You can set up your budget and save it online or download and use the Excel budget spread sheet. Use any surplus you have each week to add to your emergency fund. This can give you a buffer to cover for any unexpected expenses.
  1. Review your budget regularly. It’s important to adjust your budget as things change. For example, if you find you can’t cover all your expenses, savings and spending, you may have to reduce your spending limit, or change your savings goal. As always, it is important to seek independent advice regarding your specific situation. This content should be regarded as general information.

For more ideas to help reduce spending, take a look at MoneySmarts advice on simple ways to save money.

Up to date as of 31 Jan 2021.

Money Series: How to best manage credit.

February 22nd, 2021 Posted by Financial Management 0 thoughts on “Money Series: How to best manage credit.”

Credit is a contractual agreement in which a borrower (such as yourself) receives something of value now (stuff) and agrees to repay the lender at a later date with interest.

What is a credit card? 

Credit cards are a piece of plastic, like a debit card, issued by banks that give the cardholder access to a line of credit for purchases. They are also now issued online to borrowers without any physical form. The amount of credit you have access to is called your credit limit, and you may be charged interest on any outstanding purchases made.

Credit cards can be a helpful financial tool that allows you to make purchases when you don’t immediately have the funds. But they can also be risky if used incorrectly, and could lead to a ‘credit card debt trap’. ASIC’s review of credit cards reveals more than one in six consumers struggling with credit card debt. For this reason we recommend an abundance of caution when thinking of applying for a credit card. 

Can I get a credit card? Not everyone will be approved for every credit card. It is easier to be approved for a credit card than some other forms of finance, like a home loan, as you don’t need to offer up a deposit to be approved. But you will need to meet credit card eligibility criteria.

Do I need a credit card? Whether you need a credit card or not is determined by how you plan on using the card and your personal financial situation. There are a variety of credit card types with different benefits, such as travel cards with complimentary insurances, which can make life easier for the cardholder.

However, ASIC investigations reveal some consumers are being provided with credit cards that don’t meet their needs. For instance, many consumers carry balances over time on high interest rate products, when lower-rate products would save them money. If you cannot afford to pay your balance off in full each statement period you may begin to accrue interest on your card. This means that if you are not in a financially stable place, or are prone to paying your bills late, a credit card may not suit you.

Shop around for the best deal. Always do your research before you sign up for a financial product like a credit card or loan. Make sure the product is right for you and that you’re getting the best deal. For example, choosing a credit card with a lower interest rate and fewer fees can save you a lot.

Thinking about how you will use your credit card will help you compare the options and get the best card for you.

Choosing a credit card. To choose the best credit card for you, consider your spending habits and how you will pay it off.

Work out how much you can pay off each month. Knowing this will help you choose the best-value credit card.

If you’re struggling to pay your bills, a new credit card may not be the best move. The Australian Government website, MoneySmart, has some great advice on managing debt that may provide other options for you.

If you can pay the full balance each month. Consider a credit card with more interest-free days. This means you won’t pay interest as long as you pay the balance within a set number of days (for example, 55 days). These cards may have a higher interest rate and an annual fee, but that could be worth it.

If you can’t pay the full balance each month. Look for a no-frills card with a low or no-interest rate and a low annual or flat monthly fee. You can use the MoneySmart credit card calculator to work out how much you would need to pay each month.

Set a credit limit you can afford. When you apply for a credit card, your bank or credit provider will offer you a credit limit. This is the maximum amount they’ll lend you, and it is based on your ability to pay it back within three years. If you’re worried about overspending, you don’t have to take the full amount offered. Think about your spending habits and how much you can comfortably afford to pay back.

Weigh up the pros and cons of card options.

  • Store cards. Store cards can be an expensive way to shop. You can only use them in that store, and they may have higher interest rates. Check if the benefits are worth the higher rate. If a store offers an interest-free deal, check when the deal ends. Also check the interest rate on new purchases (called the ‘purchase rate’), as it may be higher than for other credit cards.
  • Rewards programs. Credit card reward programs sound good — you get something back simply by spending on your card. For example, you could earn points you can use to buy movie tickets or flights. But cards with rewards programs often have higher interest rates and extra fees. They could cost you more than you get back. Check if the benefits you get are worth the higher cost.
  • Extras like travel insurance. Some credit cards come with ‘complimentary’ extras like travel insurance for overseas trips. Be aware that extras are usually not free. The cost may be covered by higher interest or fees. Other cards offer ‘cash back’ (credit on your account) or discounts on goods or services. Weigh up if what you will get back is worth you paying more in interest or fees. Consider the pros and cons of transferring your credit card balance to make sure it’s the right move for you.

Compare credit cards

Compare credit cards from different companies to find the one that suits your needs. Comparison websites can be useful, but they are businesses and may make money through promoted links. They may not cover all your options. MoneySmart offer some helpful advice on what to keep in mind when using comparison websites.

Compare credit card rates and fees

Honeymoon (or introductory) interest ratethe interest rate offered for a limited period of time at the start of a new credit card
Purchase (interest) ratethe interest rate on things you buy (purchases) after the honeymoon period ends
Interest-free daysthe number of days you won’t get charged interest on purchases
Annual or monthly feefee you will pay every year or every month
Rewards program feefee for using the rewards program
Other feeslate repayment feescash advance fees (for cash taken out)fees if you go over your credit limitfees for using your credit card to shop or travel overseas

PAYDAY LOANS

A payday loan is not the cheapest credit option. We don’t advise using them if you can avoid it.

A payday loan, also called a small amount loan, lets you borrow up to $2,000. You have between 16 days and one year to pay it back. While it might look like a quick fix, a payday loan may have a lot of fees. For example, to pay back a $2,000 payday loan over one year, your total repayments will be about $3,360. That’s $1,360 more than you borrowed. There are plenty of cheaper ways to borrow money when you need it. Before you get a payday loan to pay off another loan, we advise you first talk to a financial counsellor – It’s free and confidential.

Cheaper ways to get money fast. If you need money fast, these options are cheaper than a payday loan:

No interest loan

  • Borrow up to $1,500 for essential items like car repairs or a fridge.
  • You must have a Health Care Card or a Pensioner Concession Card or an after-tax income below $45,000.
  • You only repay what you borrow. There is no interest, fees or charges.

Take a look at MoneySmart no interest loans for how to get one.

Low interest loan

  • Borrow from $800 to $3,000 for bigger essentials like a second-hand car or computer.
  • You must have a Health Care Card or Pensioner Concession Card or receive Family Tax Benefit A.
  • There’s a low interest rate of 5.99%. There are no fees or charges.

Take a look at MoneySmart StepUP low interest loans for how to get one.

Centrelink advance payment

  • You can get an advance payment of your Centrelink benefit.
  • Most people who receive a Centrelink payment can apply.
  • There is no interest and no fees or charges.

You can apply for an advance payment through the Service Australia’s website.

Help paying your bills and fines

If you’re struggling to pay your bills, we recommend you don’t get a payday loan. Instead talk to your service provider straight away. They can help you work out a plan to pay bills or fines in instalments. The government and some community organisations offer rebates and vouchers that can help you pay utility or phone bills. Take a look at MoneySmart problems paying your bills and fines to find out more. If you’re struggling to make ends meet, take a look at MoneySmart urgent money help. There are free services that can help you.

The cost of payday loans

Lenders can’t charge interest on payday loans, but they can charge a lot in fees. You will have to pay back a lot more than you borrowed. Most payday lenders charge an establishment fee of 20% of the amount borrowed and a monthly service fee of 4% of the amount borrowed. For a $2,000 loan, that’s a $400 establishment fee and $80 per month for the service fee. ASIC has issued an order to stop lenders like Cigno from charging two lots of fees. Under the model used, Cigno customers were signed up to a payday loan and its associate charged extra fees under a separate contract. Before you sign up for a payday loan, we advise you should first check how much it will really cost you using the MoneySmart payday loan calculator.

Fees on payday loans

Under the law, there’s a cap on most payday loan fees. If you’re charged more than the maximum fee, you can get free legal advice on how to get your money back. Payday lenders can only charge you these fees:

Establishment feemaximum fee is 20% of the amount borrowed
Monthly service feemaximum fee per month is 4% of the amount borrowed
Government feecovers any government duties — most lenders don’t charge this
Dishonour or missed payment feecharged if you don’t have enough money in your bank account to make a scheduled repayment
Default feescharged if you don’t make a repayment by the due date — the maximum you can be charged for default fees is double the amount you borrowed
Enforcement expensecharged if you default — to cover the cost of recovering the money you owe

Paying back your payday loan

If you can’t keep up with repayments, visit the National Debt Helpline website for help on how to repay your payday loans. By law, payday lenders must lend responsibly. This means they can’t give you a loan if they think you won’t be able to repay it or it could cause you substantial hardship. If you think the lender didn’t lend responsibly, you can get free legal advice.

BUY-NOW-PAY-LATER (BNPL)

Buy now pay later means you pay by instalments over time, instead of paying the full amount upfront. When you use a buy now pay later service, you can buy a product and then delay payment. You usually pay off your purchase over a few weeks. For bigger purchases, it may be longer. You don’t pay interest on the purchase. Instead you may be charged fees, and they can add up quickly.

Many shops offer different buy now pay later options. Here are some of the buy now pay later providers:

  • Afterpay
  • Zip Pay
  • BrightePay
  • PayRight
  • Openpay
  • Humm (previously known as Certegy Ezi-Pay and Oxipay)
  • Make It Mine

Some buy now pay later arrangements are also offered through credit card networks such as Mastercard and Visa.

What to look out for before you sign up

While buy now pay later can be convenient, it can be difficult to juggle repayments with other financial commitments. In 2020, ASIC research into the buy now pay later industry found that in order to meet repayments on time, one in five consumers:

  • missed or were late paying other bills or loans
  • cut back on or went without essentials such as meals

Before you sign up, keep in mind:

  • It’s easier to over spend – you can over-commit to spending you can’t afford
  • Costs can add up – you are charged fees and costs to use the service
  • It can be hard to manage – if you sign up for more than one service, it can be hard to keep track of payments
  • It might affect a loan application – lenders consider buy now pay later spending when you apply for a car loan or mortgage
  • Late repayments can appear on your credit report – this affects your ability to borrow money in the future
  • Lay-by can be cheaper – lay-by has no account keeping or late fees

Compare the fees and charges

Buy now pay later services are often advertised as ‘interest free’ or ‘0% interest’. But they can charge fees that can add up quickly. They may charge:

  • late fees — if you miss a payment or pay late, up to $15
  • monthly account-keeping fees — a fixed monthly fee, up to $8 a month
  • payment processing fees — an extra fee of around $2.95 each time you make a payment, on top of your set repayment
  • establishment fees — a fee to set up the account. For some there are no establishment fees, but for others these fees can be up to $90.

You may also have to pay bank fees:

  • overdrawn fees — if you don’t have enough money in your account to cover the repayment
  • interest — if you are paying by credit card

Tips for managing buy now pay later

To make the most of buy now pay later services:

  • Stick to a limit and aim to have only one buy now pay later account at a time.
  • Budget for bills, loan payments and buy now pay later payments.
  • Consider linking your buy now pay later account to your debit card instead of your credit card. That way you’re using your own money and avoid credit card interest.

If you sign up for a buy now pay later option, add the repayments to your budget — and your calendar. You can use the MoneySmart budget planner to help with this.

What to do if you get into trouble

Most buy now pay later providers have dedicated complaints and hardship services. Contact your provider if you have a complaint or if you’re having trouble making repayments. As always, it is important to seek independent advice regarding your specific situation. This content should be regarded as general information.  If you’re struggling to make repayments, you can also talk to a financial counsellor. They offer a free and confidential service to help you get your finances back on track.

Credit can be a tricky business so be careful, reach out for help of you need it.

Up to date as of 31 Jan 2021.

Property investors in the crosshairs as ATO clamps down on deductions

March 14th, 2019 Posted by Financial Management 0 thoughts on “Property investors in the crosshairs as ATO clamps down on deductions”

Reported in Domain 14th Mar 2019, almost nine in 10 property investors who claim tax deductions on their rentals are making errors, new research shows. Investors are in the crosshairs of the Australian Taxation Office, which is turning its focus to the incorrect property claims made at tax time.

Tax commissioner Chris Jordan said that the ATO had been making random inquiries about tax returns. “Our auditors have now completed over 300 audits on rental property claims and found errors in almost nine out of 10 returns reviewed,” he said. “We’re seeing incorrect interest claims for the entire investment loan where it has been refinanced for private purposes, incorrect classification of capital works as repairs and maintenance, and taxpayers not apportioning deductions for holiday homes when they are not genuinely available for rent.”

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