WHAT ARE THE ADVANTAGES AND DISADVANTAGES OF A BUY NOW, PAY LATER SERVICE?

Buy Now Pay Later services have been heavily advertised in both the media and retail stores, but how good are they and should you make use of them?

What are Buy Now Pay Later services?

These are financial services that let you buy a product today, but delay payment to a later date. Over the past five years, their popularity has grown significantly and include Afterpay, zipPay, Oxipay and Openpay.

These services are offered at the point of sale in many retail stores, as well as being an option for online shoppers. You will need to provide your credit card or bank account details so that payments can be automatically deducted and you may be required to pay an initial deposit on the purchase.

What are the advantages of a Buy Now Pay Later service?

The first advantage of these services is that you can take home your purchases and pay them off over a period of time. You can quickly set up one of these accounts and use it straight away, compared with the time it takes to apply for other forms of credit.

As with credit cards and debit cards, Buy Now Pay Later services are fully integrated with a store’s checkout systems, so it is just as easy to use this service, as your EFTPOS card. As long as you make your repayments on time, there are no fees or interest to pay, and the payments are automatically deducted from your nominated account.

What are the disadvantages of a Buy Now Pay Later service?

As mentioned above, the initial advantage of these services is that they allow you to defer payments, but so do credit cards. The biggest difference between a Buy Now Pay Later service and a credit card is that credit cards are regulated under the National Credit Act and providers are required to comply with this Act.

Buy Now Pay Later services who are not covered by this Act, don’t need to enquire about your financial situation to ensure that you can afford the repayments. You might consider this an advantage, but in reality, borrowing more than you can afford to comfortably repay is a distinct disadvantage of Buy Now Pay Later services.

Also, since most credit cards charge interest on purchases, an interest free service, such as Afterpay, can be very seductive. Clearly an interest free option is a good financial move, but not if it encourages you to make impulse purchases that you can’t afford.

If you don’t have enough money in your account to make a payment when it is due, you will incur a late fee, which for Afterpay is $10 with another $7 if you don’t make the payment within another seven days. If you have used the Buy Now Pay Later service to purchase items that you really can’t afford, these late payments can quickly add up and might even total more than the actual cost of the item!

If you already struggle to control your finances, then these Buy Now Pay Later services are not the best option for you. For help organising your finances, call me (Amanda McCall) on 07 3356 6929 or book your appointment online.

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MONEY DOESN'T BUY YOU HAPPINESS - OR DOES IT?

Most of us wouldn’t turn a lotto win away, because after all, we can all do with more money! Whether more money makes us happy however, is a contentious issue, but it’s likely to depend on our definition of happiness.

If you want the world to be a perfect place and everything to go your way, then more money won’t turn your life into a nirvana, but if you want a life free of financial worries, then more money can certainly achieve your goals.

Defining what makes you happy

The issue of happiness and how it is defined was at the core of a recent study by Australian Unity. Their 2015 report – What Makes Us Happy? – revealed that happiness depends on three factors: a sense of purpose, good relationships and how much control you have over your finances.

Immediately, you can see that your financial situation is only one part of how you measure your happiness, so unless you have a sense of purpose and great relationships, even winning the lotto won’t make you totally happy!

Clearly, relationships and a sense of purpose are questions for another time, what I want to deal with here, is how you can help yourself to feel better about your finances. After all, if you feel more secure financially, then that can reduce any pressure on your intimate relationships and help you to discover a sense of purpose.

How much money do you need to feel happier?

When you look at the Australian Unity Report, you can see that the less money you have, the happier you become when you get more! For example, if you change jobs and your income increases from $40,000 to $55,000 per year, your level of happiness increases.

The amount of money that makes you happy is all relative however, because, as you can imagine, someone earning $200,000 a year won’t be hugely impressed with a $15,000 a year pay rise. In other words, their level of happiness won’t be increased as much as the person earning $55,000 - they will need a bigger pay rise to make them feel happier.

This example clearly indicates that it’s not the amount of money that makes you happy, it’s how it makes you feel. So if you can feel more in control of your finances, it should make you feel happier!

How can you feel more financially secure?

Whatever your current financial situation, feeling more in control of your finances will make you happier. Paying bills on time and having a pot of emergency money to hand are two ways that you can improve your financial wellbeing, and the key to financial security is to learn how to budget.

Initiating a savings plan and not borrowing money for your living expenses are both important steps that will keep you in control on a daily basis. After all, the more money you borrow for items that are not assets, the more money you fritter away and the less happier you become. To be happy with your finances, you need to be in control!

If you need help organising your financial future, call me (Amanda McCall) on 07 3356 6929 or book your appointment online.

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What you need to know about your credit cards in 2019

Most of us have one or more credit cards that can be very useful in managing our finances. However, whilst there are many good reasons for credit cards, they can also lead us into debt that can spiral out of control, resulting in more harm than good.

This is why ASIC has introduced changes to the way we use our credit cards, hoping that these changes will result in fewer people becoming trapped under an increasing amount of debt. The first of these changes commenced in July 2018 when credit card providers were prevented from sending you unsolicited offers about increasing your credit card limits.

This means that to increase your credit limit you must now contact your credit card provider yourself, but the amount of credit you can access changed in January 2019. Two other changes also came into effect at the same time in January and whilst we will mention all three of these changes, the one that actually effects your credit limit will have the biggest effect on how you manage your money.

1.     Credit card limits

This is the change that will most probably have the greatest influence on your finances, because there are now stringent rules that restrict your credit card limit to the amount you can repay in full, within three years. Of course, you don’t need to repay this amount in full within three years, it is just the strategy that ASIC is using to help people from spiralling into deeper debt.

This means that if you currently have a credit card with a limit that you could not pay off in three years (regardless of how much credit you have accessed on that card) and want a second credit card, your best strategy is to reduce the limit on your current card to one that you could repay in three years. Otherwise, you may not be able to hold another credit card or the limit may be very low - because the limit on one credit card affects the limit on other credit cards.

This can cause problems if you want to transfer your debt to a 0% p.a. interest rate credit card, particularly if the debt you want to transfer is now greater than the limit on the new credit card. In this case, you would be better reducing your credit card debt to one that can be transferred to a 0% p.a. interest rate card with the lower limit or apply for a personal loan.

2.      Cancelling credit cards online:

You are now able to easily cancel your credit cards and reduce your limits online and the credit card providers must not try to offer you alternative strategies. This takes the angst out of trying to lower your limit or cancel a card, when the provider is trying to persuade you otherwise.

3.      Interest free days:

Credit card providers can no longer backdate interest charges to when you first made a purchase, when you don’t repay the full amount by the due date of your statement. Your provider has most probably already contacted you about this particular change.

Ultimately, these changes are aimed at reducing credit card debt, but if you still need help organising your finances, call me (Amanda McCall) on 07 3356 6929 or book your appointment online.

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DO YOU UNDERSTAND YOUR SUPER STATEMENTS?

Just about all Australians have a Super Fund, but not many of us pay it too much attention. It’s fair to say that when the Super statement arrives in the mail, far too many of us don’t bother reading it and if we do, we really don’t understand what it’s telling us. It’s just a jumble of numbers, which is hard to interpret.

It doesn’t matter how old you are, everyone needs to understand their Super statements, because if you don’t, you might be paying more in fees than in money earned. Your fund might also not be the best for your situation, but you won’t know unless you can understand your statements.

So if you have problems understanding your Super statement, here is a short overview of what you need to pay attention to when it arrives in the mail.

Make sure your personal details are correct

To avoid unclaimed super, always check that your name and address are correct on every statement. With more than $17.5 billion in lost super across Australia, making sure that your contact details and your tax file number are all correct is the best way to ensure that you don’t loose track of your super when you change jobs or move to a new house.

Did you make any personal contributions?

These are the contributions you can make to your super above those paid by your employer. If you do make these contributions, make sure that they are all tallied and if any are missing, contact your super fund to find out why. The wrong tax file number is one reason why your voluntary contributions may become lost, but there are other reasons, so it’s always best to check that they are all correct.

Check your employer’s contributions

You might be surprised to learn that not all employers pay the correct amount of super into their employees funds, some don’t actually pay any contributions at all. Trying to make your employer pay your super, if they have been remiss, involves contacting the ATO and can be an uphill battle if you have already left their employment. So always check that your employer has made the correct contributions and if not, follow it up immediately.

Check your super fees

If your super fund charges high fees for administering and investing your contributions, and depending on how well the fund invests your money, you may see very little in the way of positive returns. This is why you need to keep an eye on the fees that your fund charges to your account and whether or not your returns are worth these fees. As a general rule, you want their fees to be the lowest possible, whilst still providing a good return on your investment.

Check your final balance

You want your money in a super fund that actually increases your balance at a decent rate, but that can depend on many factors. Your first step is to make sure that your balance is increasing over time and not being eaten away by high fees and poor management. Also check that you are not being charged premiums for life insurance that you don’t need.

If you are concerned that your superfund is underperforming, it might be time to look at other options for your super. If you want help managing your superannuation, call me (Amanda McCall) on 07 3356 6929 or book your appointment online.

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COSTS YOU MAY NOT HAVE CONSIDERED FOR YOUR RETIREMENT

One of the best ways to plan for your retirement is to have an idea of your likely future expenses. After all, no one wants to live solely on a government pension, not if they have any other options. Creating those options however, means that you need to have a financial goal in mind.

To this end, let’s take a look at some of the expenses you might not have considered for your retirement, but first let’s consider how much the government thinks you need in your retirement.

What does the government consider a comfortable retirement?

The ASFA Retirement Standard is the amount of money that the government predicts you will need to live a modest or a comfortable lifestyle in retirement. These figures are updated quarterly and take into account inflation, but they aren’t big numbers. In fact, singles are expected to live a modest lifestyle on $27,425 a year and comfortable lifestyle on $42,953; couples on $39,442 and $60,604 respectively.

The problem is that you might not consider that $39,422 lends itself well to a comfortable lifestyle for a couple! After all, this money needs to pay for all your essential living expenses, as well as holidays and upgrading your car or at least keeping it on the road. Another consideration is that these figures are based on the fact that you own your home and are in good health.

What are your costs in retirement?

If you will still be paying a mortgage or rent in your retirement, then this will have a big impact on your lifestyle. However, whilst everyone’s idea of a moderate or comfortable lifestyle is different, when you consider the rising costs of food, energy, council rates and healthcare, your retirement might no longer look bright and shiny.

Some people can expect high medical bills when they retire, simply due to an existing illness, so these expenses will need to be factored into their budget. The fact that we are living longer also means that we need more money to support ourselves for longer, as the alternative is a significant drop in lifestyle. Not forgetting that as we age, we are more likely to need medical care and the money for these services needs to come from somewhere!

For many of us, we look forward to retiring and travelling the world, but these expenses place a big demand on our budget, which if we rely on the pension isn’t going to get us very far. So you not only need to consider your medical bills and holiday expenses as additional costs in your retirement, but what about leaving money to your children?

If you have always wanted to leave your children a substantial inheritance, then you need to factor this into your retirement lifestyle as well.

Whilst we can hope that the aged pension continues to keep pace with inflation, if you need to rely solely on a pension with little or no superannuation, a moderate lifestyle may be the best you can afford. However, if you haven’t retired yet, it might be wise to consider making additional payments to your superannuation so that you can, at least, have a comfortable lifestyle in your later years.

For help planning for your retirement, call me (Amanda McCall) on 07 3356 6929 or book your appointment online.

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