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So you’ve got yourself a mortgage. Congratulations! Now, what?
Managing your mortgage is important for a number of reasons. Effective management not only helps you to pay your mortgage off faster, but it will also help you to avoid hefty penalties and in extreme cases, possession of your home.
Managing your mortgage is about planning for your financial future. It requires you to create a solid plan for yourself, as no one cares more about your financial wellbeing than you.
A solid financial plan will allow you to save money, afford the things you really want, prioritise your spending, and achieve long-term goals such as growing your retirement fund.
Everyone’s financial plan looks different, but there are some common strategies that are considered financial planning ‘must dos’. Manage these financial basics and effectively manage your mortgage.
Financial planning basics for managing your mortgage
1. Spend less than you earn
This number one rule is a no-brainer. The advice is simple - do not spend more money in a year than you earn in a year. Unfortunately, simple doesn’t mean that following this rule is easy.
To understand your spending you need to track your expenses. A personal finance budgeting app can help with this, and the longer you track, the better you’ll understand where your money goes.
When you track your expenses you may be surprised by how much all those small things add up. You might also discover hidden costs that you can eliminate from your spendings, such as account fees, subscriptions or mistaken transactions.
2. Build your emergency fund
By spending less than you earn you can build up your savings account so that you have a safety net for last-minute, unforeseen expenses. Not knowing what the future will bring means being prepared for anything. With no emergency fund you could face taking on further debt - a slippery slope to financial troubles!
To start building your emergency fund, open up a separate high interest savings account. Next, set up automated payments to go through each month. A recommended goal is to save for 3-6 months of living expenses but there’s nothing to say you have to stop there.
3. Engage a financial advisor
Getting educated about wealth-management options is a necessary part of planning for your financial future. Not everyone has time to become a financial expert, however.
A financial advisor can provide valuable advice and can help you to assess your financial status. A financial advisor will counsel you on specific investment products or strategies and while engaging one will be an initial investment, they can save you a ton of money over the long-haul.
Doing your own research and upskilling yourself is doable, but to do it right requires you to keep up with changes in investing and insurance regulations, among other changes. A financial advisor does the hard work for you.
4. Pay off credit cards each month
If you’re using credit cards, make every effort to pay off your spending each month. This will help you from accruing costly interest payments or paying more in interest than the original purchase itself.
According to ASIC’s Money Smart, making minimum repayments on a $4,400 credit card purchase will take you 31 years to pay off and will cost you $14,900 in interest. That’s $10,500 more than the original debt!
If your credit card debt is already out of control, consider consolidating your debt into one easy-to-manage debt.
5. Get properly insured
Insurance is something that can often be overlooked but without proper insurance, a job loss or house fire could send your life into a tailspin. Protecting your assets and finances with life, home, income, mortgage or renters’ insurance is hugely important, as it can be the difference between you facing a small bump in the road and complete financial ruin.
Learn more about mortgage protection insurance, which is designed to provide a payout should you become unable to meet your home loan repayments in certain circumstances. This type of insurance isn’t a ‘must’ but it might be something worth considering.
Managing other financial goals
When you’re managing a mortgage it’s easy to neglect other financial goals. These goals could include saving for a child’s education, an annual family holiday, buying a new car or saving for your retirement.
Paying off your mortgage is a financial responsibility that needs to be taken seriously, but it’s not the only financial goal you should be concentrating your efforts on. Managing yourself financially encompasses all the things important to you, be it a roof over your head, a legacy to leave, or getting to see the world.
When you apply the above basic financial planning tips you start to understand your relationship with money. This in turn helps you to be clear about financial goals outside of your mortgage repayments and it helps you to make a budget. Budgeting allows you to create a spending plan for your money, ensuring your money is spent in a way that suits your wants and needs.
Budgeting isn’t about restricting your lifestyle, it’s about making SMART (Specific, Measurable, Achievable, Relevant and Time-Bound) financial decisions. This framework is excellent for setting milestones in your financial future.
Are you ready to get financially responsible for yourself?