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:
3. Interest free days:
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.
CAN MONEY REALLY MAKE US HAPPY?
Someone said to me the other day that money might not buy happiness, but they would prefer to be rich and unhappy than broke and unhappy!
I tend to agree with this sentiment, but would go one step further and say that rich and happy is my preference. Whilst this is rather a flippant viewpoint, there is some truth to it, because whilst we all might like to be rich and happy, most of us would simply be content to feel in control of our finances.
Not having to worry every time a bill comes in and having enough money to fix items that need repairing or replacing those that break, would make most of us very happy indeed.
In fact, what makes us happy is a topic that was recently investigated by Australian Unity, who, in 2015 found that what we want most in life are good relationships, a sense of purpose and to be control of our finances. But how much money is enough?
How much money do we need to be happy?
The Australian Unity study found that just a modest increase in income makes most of us very happy. More specifically, for someone earning less than $30,000 per year, giving them an extra $18,750 would make a very big difference to their level of happiness!
On the other hand, someone on $200,000 a year wouldn’t do a happy dance for $18,750, but they would for an extra $147,000. Whilst this means that it takes more money to make a rich person happy than a poorer person, it doesn’t mean that rich people are greedy.
What it means it that when the extra money is enough to relieve our financial stress – we feel happy. It just takes more money for people on higher incomes to relieve their financial stress, than it does for people on lower incomes.
Measuring financial happiness
Since feeling in control of our finances makes us feel happy, ANZ decided to find out what factors actually contribute to this control. They discovered the following three factors: the ability to pay our bills, having enough money to enjoy life, and being able to deal with unexpected financial emergencies. Using these three factors they created a happiness score that reflects how we feel about our finances.
It might come as no surprise to you that the average Aussie scored only 59/100; men scored 61/100 and women scored 57/100. Paying off your mortgage increased this score to 74/100, people who were raised to take care of their finances scored 67/100, whilst those with less than $1000 in savings scored 34/100.
The ANZ study also found something that is really worth remembering, which is if you are financially savvy, you don’t need a big income to feel happy.
Tips on boosting your financial wellbeing
Not everyone is lucky enough to have a pay rise or windfall, so most of us have to look to other avenues to increase our finances. The study by ANZ Bank found that people who actively save money, as well as those that don’t borrow for everyday expenses have a bigger sense of happiness than people who don’t share these behaviours.
HOW TO GET A HANDLE ON YOUR FINANCES IN 2019
It might not surprise you to learn that many Aussies are worried about their finances. Whilst a lack of money often keeps us awake at night and causes us an undue amount of stress, one of the biggest problems is that we don’t know where our money goes.
Getting a handle on your finances in 2019 should start with an understanding of where you spend your money, because if you don’t know what is eating your money, you won’t be able to make any positive changes. Research has shown that financial stress can cause insomnia, poor health and angry outbursts, and we all know where fighting over money leads.
Earning more money isn’t a golden ticket
For some people, earning more money is their answer to their financial stress, however if you don’t have a solid budget, more money isn’t going to be of much help. People on high incomes, for example $150,000 a year, are still under financial stress, but just at a higher level. These are the people who take out really large mortgages and they struggle to pay their bills just as much as people earning $90,000 a year.
Financial stress is relative! If you have enough money to pay your mortgage or rent, buy food and clothes, and provide for your basic needs and still have some discretionary money left over – you should be happy. More money doesn’t make you happy, an abundance of money doesn’t make you happy!
All it does is give you more opportunities to buy more expensive food, clothes, gadgets, houses and cars. People who earn a high income generally spend their money on the same things as people on lower incomes, they just spend more of their money on these things. So they usually end up in even more debt than people who earn a lower income.
When people earn more money they tend to spend more money, they don’t save it. They buy a better house, a better car, a better sound system, a bigger TV, designer clothes and go to fancy restaurants. Earning more money, if you don’t have a handle on your expenses and you don’t have a financial plan in place isn’t the solution to your financial stress.
What’s the solution to your financial stress?
This is where creating a workable financial plan is vital to reducing your stress levels - so that you can see where your money is going and come up with a viable plan that ensures your bills are paid and your family is taken care of properly.
The solution is exactly the same for people regardless of their income, because even people on high incomes don’t pay enough attention to their expenses and often land up in financial stress. Whatever your income, you must know where you are spending your money and look at ways to curb your excessive spending and channel it into your bills or into a savings plan.
If you decide to get a second job or a higher paying job instead of understanding where your money goes, then you will simply spend even more money and dig yourself into deeper financial trouble. On the other hand, if you want to reduce your financial stress in 2019, why not ask an expert to help?
MAKING SURE YOUR SUPER IS ON TRACK
For most of us, it is our super that will make a big difference to the quality of our retirement, so we need as much money as possible in our super funds! This means that you can’t be complacent when it comes to your super and you should at the very least, take a good hard look at your statements.
What to check first on your super statements
First of all, you need to make sure that your contact details are always up to date, particularly if you have moved recently. Then you need to take a look at the balance and make sure that it is what you expected, confirm that your employer is making your super contributions and if you have been making additional contributions yourself, that these are all correct as well.
Are your fund’s fees too high and your returns too low?
Always check to see how much has been taken out of your account to pay for the fund’s fees. It will pay you to compare your fund’s fees with other funds, but always keep in mind that there’s no point in changing to a fund with low fees if they underperform every year. You can find a list of comparison sites on the ASIC website, so please take the time to confirm that your fund is right for your needs and if not, make a change!
A good rule of thumb is to expect to pay 0.8% each year on admin and investment fees for your fund, so if you are paying anything substantially higher than this rate, it might be time to look around for a fund with lower fees.
Also, give due consideration to the type of investment options you have selected for your money, because some of these options outperform others. Always remember however, that options that provide higher rates of return also pose greater risk, so either split your contributions between different options or speak to a professional who can help you decide what investment options are best for your situation.
It’s fair to say that our needs change over time, so when we are young we might be happier with higher returns and higher risks, whereas for those of us near to our retirement age, we might prefer a more conservative approach with lower risk.
Do you need life insurance with your super?
Most super funds offer life insurance which can take a big chunk out of your investment funds. If you already have an insurance policy with another provider, then consider whether you really need this additional insurance. After all, you don’t want to pay for something you don’t want, but if it suits your circumstances, then make sure that it provides the cover you need.
Don’t forget your beneficiaries
If you haven’t filled out this section on your fund’s website yet, it’s best to do so now. This is because your super can’t be included in your will, instead it must be given to someone you nominate, otherwise the trustees will decide who receives your super if something happens to you.
For help understanding your super statements and for advice managing your super, call me (Amanda McCall) on 07 3356 6929 or book your appointment online.