how much to borrow

When it comes to borrowing to purchase property, be it for a home to live in or for an investment I feel that most clients ask the wrong question, which is "How much can I borrow?".

I think what clients should be asking is "How much should I borrow?".

There is a big difference between the two because if you stop and think about it - people should only borrow what they can really afford not what the banks' standard formula comes up with, which uses your current income, your it expenses and applies it to the current interest rates with a little buffer and presto! the clients are given a loan.

I then look at the statistics of the record number loans going bad and ask "Why were these clients given the loan in the first place?" It is possible that most clients can't afford the loan in the first place.

Let's take a young couple that are renting at say $300 per week. Everyone is telling them that "rent money is dead money" so they decide to do what everyone tells them what to do which is to buy a home. So they do the right thing and borrow say $400,000 and buy their new home. Now let's look at their situation: if the interest rate is say 6.5% then their interest repayments will be around $500 per week - that's $200 more than what their rent was and of course this does not take into account the extra they need to pay against the capital. They are already feeling the financial pressure because they not only have to find he extra $200 but they also have to find extra funds to repay some of the capital. And what happens if the interest rates go up? more pressure.

And all because they asked the wrong question of "how much can I borrow?".

If on the other hand, they asked me "how much should we borrow?" then my answer would be "not more than $250,000". Why? because the interest repayments on $250,00 would be equal to that of their rent. And if they can't buy a house with that price then they should keep renting for a little longer and save "like crazy" until they have accumulated large enough deposit that will not put them in financial pressure by changing their rent for interest repayments. There is no law that says you must own a home or an investment property. You should only own a home or an investment property if you can afford it.

So if in the future you are thinking to buy a home or an investment property - remember to ask "How much should I borrow?" NOT "How much can I borrow?" By asking the wrong question you can get yourself in financial trouble.

My business is "financial advice" - so feel free to ask. Spending few dollars on good advice upfront can save you thousands of unnecessary costs later.

insurance

Insurance is a funny business.

We the consumer are always looking for the "cheapest" premiums and we are happy to change companies every year if we can save few dollars - and why not it's out money. The insurance companies, on he other hand, set their premiums based on what profitability they expect on their investments and returns for their shareholders.

So who wins the consumer or the insurance companies.?

I suspect the insurance companies will eventually win because at the end of the day we may think we are changing insurances but we in fact are probably staying with the same companies. Over recent years there have been many acquisitions of insurance companies leaving fewer companies owning more brands. The Insurance Australia Group (IAG) is the company behind the brands NRMA, RACV and CGU. And the company Suncorp Metway, on the other hand, is behind a number of the well known insurance brands including GIO, AMP GI, Vero etc.

So what does this mean for us the consumers?

I suspect only one thing - higher premiums. And following the recent storms that hit us during Christmas there is talk that we are definitely looking at higher premiums.The expectations are that next time you receive your renewal notice form the insurance company for your personal insurances they are likely to go up by between 5% and 10%.

This will be another opportunity for the consumer to shop around as not all brands will have the same increases.

I am an insurance agent for one of the brands AMP GI - so when you receive your next renewal notice, feel free to contact me for a quote.

banks

Is it fair that we should get upset with the banks when they raise the interest rates?

Absolutely YES! I hear some of you say, because YOU know that the increase in the home loan rates means you have to pay the bank more. So, technically you have the right to be angry because it directly affects your pockets.

But what about those of you that don't have a loan? Should you be also angry? Absolutely NO! You should be happy because an increase in the home loan rates means that eventually the interest on bank deposits will also go up - and this will put more in your pocket. So, technically you have the right to be happy because it will directly affect your pockets.

Who was it that said: "you can only please some of the people some of the time......" As I see it, when it comes to banks there are two arguments:

I HATE THE BANKS ARGUMENT

Last financial year the 4 large banks made over $24 billion dollars profit. Have you ever stopped to think what a billion is? that's 1,000 millions. And you would think with that much profits they can absorb some of their so called increased "borrowing costs". And how can we forget their practises of increasing their rates as soon as the Reserve Bank raises the official rate yet when the Reserve Banks reduces the rates - it takes them more than a week to adjust their rates.

And look what happened now! the Reserve Bank has left the rates unchanged but the banks have decided to increase the rates.

Those grubby, dirty, money making banks - don't you just hate them?

I LOVE THE BANKS ARGUMENT

But don't we want our banks to be solid and safe? I have worked all my life to save few dollars and I don't want to lose it - in fact I want to earn some decent bank interest so I can enjoy my life without having to work so hard. Have you forgotten how during the Global Financial Crisis (GFC) our banks were seen as safe? We all know they remained SOLID AS A ROCK at a time when a number of the larger banks around the world collapsed losing billions of dollars. Surely, this is what we want our banks to do - make enough profit, keep it in reserve to protect us during the "rainy days".

SO, IN WHICH CAMP DO YOU BELONG IN?

THE HATE OR THE LOVE ???

MY ADVICE! luckily today we have a wider selections of lenders. You don't have to stick with the larger banks, as there are many smaller lenders around that can help you with lower rates.

If you are not sure - just call me and I am happy to provide you with "options" that may save you money.

And if you are in the hate camp - DON'T GET ANGRY - JUST GET EVEN! - SHOP AROUND!

spruikers

HOW I WENT FROM VIRTUALLY ZERO TO $3.5 MILLION OF REAL ESTATE WEALTH IN JUST 18 MONTHS!

This was an "advertisement" that appeared in one of the daily papers. The advert goes on to explain that she is a successful author, qualified accountant and economist, multi-millionaire property investor and of course a mother of three.

Now why would you think this person wants to share her secret with us on how to make money? I have never heard of this person and I don't think many have?.

And have you noticed that all these people that "sell" their secrets are not your everyday proven successes that you hear about? I mean have you ever heard Kerry Packer advertising a seminar on how to make money? or Bill Gates or Gina Reinhard?

Most successful business people make their money from their businesses - they don't need to sell anything.

Let me tell you:

1. THERE ARE NO SECRETS on how to make money and
2. YOU WILL NEVER LEARN how to make money from someone "spruiking" secrets. All you will do is part with your hard earned dollars and you will be left greatly disappointment.

Making money is a process of (mostly) hard work and long hours, good business ideas, good people to operate that business, good timing, good opportunities etc. And yes, every now and then some luck may play a small part in it.

But every now and then you will come across people - just think of names like Henry Kaye and Peter Foster - and successfully fleece many unsuspecting victims. Personally, I don't have much of sympathy for people that get caught out.

I would be interested to hear from anyone that has come across or heard of a great idea on how to make money. May be I am wrong??? - may be there is a way I can make money without really trying.

Have a great week...........

my first Thank God it's My Say

Here I go with my very first blog.

For many years now I have been sending my weekly Thank God it's Friday emails, which has allowed me to share with you all my views and thoughts on many topics, current affairs and everyday events that affect our lives. Many of them were very technical, some were funny (I was told) and some may be were not that good. But overall, judging from your emails, most of you did enjoy them.

But over the years my children have tried to convince me that I should embrace the "new world" of internet and social media and I should make my thoughts available to the wider community.

So finally I have decided to take their advice and move with the times and here is my brand new blog.

Unfortunately, I had to change the name from Thank God It's Friday to avoid unnecessary stoush with that famous restaurant TGI Friday.

So the new name of my blog is THANK GOD IT'S MY SAY

I know I don't look it, but I have been working for just over 37 years, of which 25 years as a self-employed tax agent/accountant and financial planner. I have accumulated a lot of knowledge and wisdom and I am sure it is time that I start using it for good rather than evil.

On 6th January this year I become a grand father - our daughter Stephanie and her husband Gian welcomed a little boy Alfie into our world.

Does this mean that I am now officially "THE WISE OLD MAN".??

I am confident that my blog will entertain you and inform you about many things that affect all of us with regards to finances and taxation matters.

I look forward to a great 2012. Feel free to send me a feedback....