How to build savings and pay off debt
During the last few decades, Australia's household debt has grown rapidly. Driven by a number of factors like growing living costs, ever-increasing housing prices, slow wage growth and our consumer-driven society, it's easy to see how people end up in significant debt. For many Australians, their most important loans are the mortgages on their home or investment properties. We've included a few suggestions below that will give you some ideas on how to build up your savings while still paying off debt.
Review your debt
As Scott Pape says in The Barefoot Investor,' the debt must be domino-ed ' What this means is that you need to review your loans to assess the highest interest points. Common debts that Australians have include debt from credit cards, personal loans, lending for cars, HECS-HELP loans and mortgages. While each of your debts will have minimal repayments, it's high-interest debts like credit card debt, and high-interest personal loans that you should concentrate on first paying off. Look into the possibility of consolidating the high-interest debt to make it more manageable.
Put everything into a budget
Next you must examine your household budget to decide where your money goes and eliminate unnecessary spending. If you don't have a budget for the family, check your bank statements over the last few months and put everything into a budget. Your budget should include fixed expenses (mortgage payments or rent, insurance, transportation, and other expenses such as Netflix subscription) as well as the money that you will set aside for other expenses each month.
First pay yourself
The author Robert Kiyosaki illustrated in' Rich Dad, Poor Dad' the value of paying yourself first. To do this, when you earn it, you need to pass a portion of your income straight to savings. Around 10 per cent is an excellent starting point sometimes. Your savings will increase over time, particularly if you invest the capital into a balanced portfolio.
Yes it could seem responsible for making extra mortgage payments. This isn't putting your money to work for you though. Pay off your mortgage to the minimum and transfer additional funds to an offset account.
Small steps, big results
Some things may seem so easy when it comes to money, that you might not try them. Such steps may not be glamorous, and they are not a fast scheme to get rich, but these acts will pay great dividends over several years. Everyone's financial situation is different, so make sure you talk about your situation to a financial adviser.
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The information is for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.