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The biggest winner

With the rest of the western world contemplating a near future of interest rate cuts, Australia has headed in the opposite direction with another hike to official interest rates. Meanwhile the banks have been jumping the gun raising the interest rates on fixed rate loans, investment loans and credit cards.

Fair go!
The reason for this un-Australian thing to do is American-caused – the sub-prime home loan mess in the US.

But hang on, we’ve been told that our banks were virtually untouched by this lending stupidity, so why are we paying the price with rate rises bigger than those forced onto us by the Reserve Bank?

Ripple effect

It is true that our banks have had a low exposure to the US sub-prime problems, but the world’s market for loanable funds has become tougher or tighter and this has driven interest rates up.
Recently, NAB has told us that the cost of finance has risen by 40 basis points and that reflects the fact that lenders are making more risky borrowers pay a lot more for their funds.

Any professional outfit looking for short-term money looks at the 90-day bank bill rate, which was at a high 7.38 per cent ahead of the RBA decision. This compared to the official cash rate which was 6.75 per cent. The difference is not usually this great – that is, more than 50 basis points!

Going straight

Okay, so there’s an excuse for this bastardry bank action, but what are you going to do about it? Over the years I’ve made the following suggestions, but I’m going to recap because I know personal reform is so hard. Ask any dieter who made a certain New Year’s resolution just a couple of days ago.

Time to act

Most people fail on diets for the same reason that they fail to get their finances in order. (By the way, a recent survey of Aussies by CXC Research for Wizard Home Loans found 40 per cent of us want financial order in our lives, while only 28 per cent wanted to master dieting for the body beautiful.)

With lenders bound to slug us for higher charges for most of this year, we have an incentive to get our financial house in order.

Now instead of boring you with the usual recommendations that will have you running away from this article and all it says to you, let me try to hold you long enough to win you over.

Step one

Figure out what you want – be realistic – but make it a good dream. It might be to pay off your home loan in 10 years instead of 25 years. It might be to buy an investment property near a beach, which you can let out in busy times and get some use in quieter times. It might be to pay off all of your credit cards and have a home loan at the lowest interest rate possible.

Now write this dream or goal down. Remember – if it’s not in writing, then it’s not on the planet. Put it in a place where you see this goal every day – on a screen saver, on the front page of your diary or even on the back of the dunny door.

Step two

Do a budget. List all of your income per month and then all your monthly expenses. If you have annual premiums for say insurance, rates and so on, take the total and divide it by 12 to get the monthly figure.

Find out what’s left and that should be your monthly saving or loss. This amount has to be turned into a bigger positive and cutting your spending is a great start.

Some people ‘GST their life’ by taxing themselves by 10 per cent  and they use this amount to turn around their money life.

Stretch yourself here to get a big positive sum and use it to make your dream come true. The extra amount can KO credit card debts, pay off home loans faster and cover new loans for new investments.

The weigh in

There’s an old business management saying: “If you can’t measure it, you can’t manage it.” The same goes for losing weight – you have to weigh in, and doing it in front of a dietician, who you pay, works for many. It means you have skin – literally – in the game.

This is why some people go to financial advisers or money coaches.
Winner takes all

Once you have shown yourself the money in your life, get smart and go chasing the best deals on your loans. Websites such as Infochoice and Cannex can tell you the best interest rates in the market. Mortgage brokers can also help you pay less to lenders each month.

You can research the best health, insurance, telecommunications, holiday and car costs deals available, but you have to have a dream that powers you to do the work.

I love this one and I’m sure it will power me all this year: “Work out what you want. Find out what price you will have to pay. Pay the price!”

Published on: Tuesday, February 05, 2008

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