It's always a good time for a few financial reminders.

Wealth creation is about looking after your personal finances, and making well thought out financial decisions, preferably before you complete the transaction. You are the Chief Executive Officer of your finances, are you behaving accordingly?

Let's take a look at an example.

Jane earns a good income, and she thinks she is making some sound financial decisions. Once we started chatting this is what she came to realise.

Her income is $90,000 gross or a net monthly income of $5,300

She has made a few purchases over the last few months and decided to use credit to fund the purchases;

1.       New Car = A car loan $15,000, at 11% interest on a three year term = $491 per month.

2.       A holiday overseas = A credit card, owe $6,000 - a repayment figure of 3% of the limit = $180, If you choose to pay the card off over three years the repayment would be $222 per month.

3.       New items for her flat = A personal loan of $12,000, at 15% interest on a three year term = $416 per month

When she purchased each item, she honestly thought the repayments were more than affordable, the total payments did only come to $1,087 per month.

Let us now look at the real impact of the above decisions.

1.       The total interest bill is over $7,500

2.       The total payments principal owing and interest is $40,681 over three years, the equivalent of eight months net earnings!

3.       If you saved the $40,680 and then invested it in the bank at 8% rate of return you would accumulate $51,000 in five years.

4.       Your borrowing affordability for a home loan would reduce from $450,000 (with no debt) to $340,000 with this debt.

It is so easy to get caught up in 'life' and 'spending' especially will all the credit freely given by retailers, but it's time to take another look at your finances. If you already have debt, and suddenly realise the true impact you need to organise a debt repayment plan, one that is achievable and fits with your goals and lifestyle.

What are the traits of a good Chief Executive Officer of your own finances?

1.       Do not make impulse decisions regarding your large purchases, as you can see you should look into the impact of that decision before you purchase.

2.       Do not make impulse decisions regarding the small purchases. Many clients think $100 here or there is nothing but over a month it could be $1,000

3.       Have goals, try to write them down. If you know what you are aiming for it is easier to stay focused. For example, you want to buy a new top for $150, you can easily ask 'is this getting me closer to my goal?' if not it can make the decision whether to buy or not a lot easier.

4.       Know how to achieve the goals, saying 'I want to own a house in one year' is great, but have a plan as to how this is actually going to be achieved.

5.       Set up a 'budget', I know this word can make you turn and run in the other direction, but at least have a guide as to your money flow; what is coming in versus going out.

6.       Once you set your money flow, keep an eye on it each month, there is no point setting up a plan if you don't implement it.

Have you seen it yet? Your finances are a business, you have objectives, an implementation plan, and you assess it monthly. If you don't know how to do this you need to take action and employ someone with experience to do it. Build your professional team; they will be worth their weight in gold.

Time is marching on... Have you achieved or are you on the path to achieve your financial resolutions? Take action!

In addition here are a few credit card facts:

1.       Interest is calculated daily. If you purchase an item on December 1 for $100.00 and another item on December 15 for $200.00, your average daily balance $150.00 ($100 for 15 days and $200 for 15 days)*

2.       As interest is calculated daily, pay as soon as you can. It will save you money.*

3.       $5,000 owed on credit card, at 20% interest will cost in excess of $1,000 in interest every year.

4.       There are NO free interest days for cash withdrawals on credit cards. You will be paying 20% interest on the funds from day one.

5.       If you don't pay the credit card off in full by the due date, the interest free days are forfeited.

6.       There are annual fees, late payment fees, cash advance fees, and over limit fees.

*some credit cards offer free interest days.

Article by Tracey Munn

For further information please contact Connect Mortgages on:

0508 more than mortgages
(09) 337 11 11
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
www.connectmortgages.co.nz

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