30 September 2009

Dear Investor,

A selection of 10 Golden Rules for managing your finances - Part 1

About four years ago, there was an article in the Sydney Morning Herald that described 10 Golden Rules for managing your finances. We came across the article the other day and were struck by how timeless the rules are, particularly in light of the Global Financial Crisis, so we thought that we would share them with you. They are not the only rules that you should apply when you are managing your finances – but they are worth thinking about.

In this edition of Investment News we will describe the first five, and then next week, we will outline the final five.

  1. Manage your debt

    The first golden rule is always to pay off your credit card debt first, because it attracts much higher rates of interest than other loans.

    A great way to speed up this process is to switch to a better deal. The market for credit cards is very competitive, so it can pay to shop around for a low-rate card. Just be aware that any new spending may be charged at a higher rate than that advertised, and you should exercise some restraint.

    You could also consider consolidating your overall debt to reduce your interest payments. Mortgage interest rates are cheaper, compared to those charged on personal loans and credit cards.

    But be careful here because consolidating your debts within your mortgage will work only if you are extremely disciplined and work to reduce them. Long-term debt on a lower interest rate can be just as harmful as short-term debt on higher interest rates.

  2. Limit your credit limits

    Once you have your credit card debt under control, think about reducing your limit. Not only is the extra credit a temptation to spend what you don’t have, but high credit limits are also a liability when you try to apply for finance because the total of these limits are counted as debt, rather than just the amount that you owe.

    Make sure that your credit limits are sufficient only for what you need. Let’s face it, it’s rare to be faced with a $10,000 emergency.

  3. Manage your costs

    Limiting the number of transactions on your account can save you quite a lot over time. If you’re buying groceries, use the Eftpos facility to pay and take cash out at the same time. First, Eftpos is cheaper than using an ATM and secondly, the two transactions count as one, which brings down the cost further.

    Some banks will waive fees on your bank account if you hold a mortgage with them. But if your account does charge fees, make sure that they are competitive.

    Bear in mind too that, generally speaking, online savings accounts don’t only offer higher interest, but are also fee-free banking.

  4. Find your lost super and then consolidate your superannuation funds

    About one in three people have “lost” superannuation accounts. If you have changed employers since compulsory superannuation was introduced, but haven’t transferred your accounts, you could be one of them. Multiple funds come with multiple fees and charges, which erode your retirement savings. You may also be paying for insurance cover with more than one fund, for insurance cover that you don’t need.

    To find your lost super, check out the following ASIC website - http://www.fido.gov.au/fido/fido.nsf.

    By finding your lost super and rolling over all of your superannuation accounts into one, you can reduce fees and build up your super faster.

  5. Mortgage or Stock Market

    Pay off your mortgage or invest in the stock market? It’s not a crime to invest when you have a mortgage, but make sure that your after-tax return is higher than the interest on your mortgage or it won’t be cost effective. The reason is that by paying off your mortgage you are effectively earning a tax free return that is equivalent to your interest rate. A highest rate taxpayer would need to earn a guaranteed 11.21% return on an investment for it to equal what’s on offer from a mortgage with a 6% interest rate.

Next week, we’ll look at another five Golden Rules for managing your finances.

Best regards,
Chris Andrews


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Chris Andrews
Head of Funds Management

t  +61 3 8610 2811
e  candrews@latrobefinancial.com.au

Chris Andrews is the Head of Funds Management for the La Trobe Group and has responsibility for the La Trobe Australian Mortgage Fund.
Read full profile here.

La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 115 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.

Copyright 2010 La Trobe Financial. All rights reserved. No portion of this may be reproduced, copied, or in any way reused without written permission from La Trobe Financial. Disclaimer

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