From the experiences of our network of Yellow Brick Road Branches.
1. Not Having a Financial Plan
When you’re in your 20s and 30s, mapping out your financial future may not be a top priority. However, as you progress in your career, having a budget in place will help set you up for financial freedom in the future.
Keith Steer of Yellow Brick Road Campbelltown recommends separating your bank accounts to make budgeting easier. “Have one account for living expenses and a separate account that cannot be touched,” he says.
Huong Le of Yellow Brick Road Canley Heights agrees, “When you make more money, it’s easy to spend more money. When it all blows out, people wonder where all the money went. This is why a financial plan is so important,” he said.
2. Spending Money on Depreciating Assets
In today’s world, we are constantly bombarded with consumer advertising more than ever before and it’s easy to spend money on material possessions rather than thinking about the long-term future.
Alex Soncini of Yellow Brick Road Blacktown, says, “It’s a buy, buy, buy world now. I think it’s important to take a step back and scrutinise where your money is going.” Geoff Walley of Yellow Brick Road Baulkham Hills agrees, “If you want a more stable financial future, spend your money on assets that build your wealth rather than depreciate in value.”
3. Overspending on Credit Card Facilities
Not paying off your credit card every month is the top mistake our Yellow Brick Road leaders see happening.
“By not paying monthly, you are charged high interest rates. Spend only what you know you can pay off at the end of the month on your credit cards,” says Campbell Korff of Yellow Brick Road Ballina.
Having multiple credit cards or owning cards with high credit limits is another common mistake people make with credit cards.
Lenders assess your minimum payment on total available credit card limits at a rate of 2-3% per month. Owning multiple credit cards or ones with a high credit limit can significantly reduce how much you can borrow.
4. Not Making Extra Repayments
It’s so easy to just pay the repayment on your home loan and assume you’ll make extra payments when the time comes. As human behaviour would have it, we tend to spend our money on all the other things in life. And those extra repayments? They don’t seem as desirable any more.
Daniel Carini of Yellow Brick Road Bondi says there’s an easy solution. “Set your loan repayments to be the minimum PLUS a set amount, say $50 or $100 a week. As the extra amount is only small and the payments are coming out automatically, you will hardly notice. Over time the extra payments will really add up,” said Mr Carini. Mathew Lekovski of Yellow Brick Road Beverly Hills agrees and suggests doing the same with superannuation to get ahead on retirement savings.
5. Not Using An Offset Account
Any extra money should be placed in an offset account linked to your loan. Money that sits in this account reduces the interest you are charged on your loan. The best bit? You still have access to this money whenever you need it. The accounts are nearly always free when linked to a loan.
Mr Carini often encourages his clients to utilise their offset account, as it’s an easy way to save money without much hassle. For example if you are saving for a holiday, place your money in the offset account instead of a savings account. Until you use this money, you’ll be saving money on your loan. When it comes time to paying for the holiday, the money is there and available for you to use. However, always double-check this with your lender.
6. Playing One Lender Against Another
Graham Ede of Yellow Brick Road Belmore says he’s seen people playing one lender or broker off against another, trying to get a better deal. While it may be tempting, it can do more harm than good.
“If two loan applications are lodged for the same deal with discrepancies between the two, the loan provider can get nervous. This can cause unnecessary delays while further questions are asked.”
In addition to this, an enquiry will be recorded on your credit file for each of the applications.
7. Basing Your Loan on Temporary Income
It’s important to ensure that any income used to service a loan is consistently and regularly received. A one off payment, such as an annual bonus, is dependant on many factors. It might be possible these payments are excluded when assessing your ability to afford the loan.
8. Focusing Too Much on Negative Gearing
The word negative gearing is thrown around a lot in the property sphere. Whilst there are benefits to negative geared properties, Mr Walley of Baulkham Hills believes some people are too focused on the tax benefits and base their financial decisions on this point alone.
“At the end of the day, you need to consider if it is the right investment for your future,” he said.
9. Not Declaring Retail Contracts
You know those no interest/no repayments for 36 months type of contracts from the large retailers? You need to list them as a liability in your loan application. These are credit contracts that are often provided in the form of a store credit card, which can be retained for future use.
Mr Ede explains; “They appear on your credit file as an enquiry and can cause delays as we seek information. We need to include them when calculating your ability to afford the loan”.
10. Not Getting a Second Opinion
Getting the best deal on your home loan can be hard work. Loyalty to your bank is one thing, but it’s another to not do your homework and get a second opinion. That second opinion could save you a lot of money.
Mortgage brokers do all the legwork, searching the market and finding the best product for you. This gives you more time to find the perfect home.