Aside from the housing downturn, the state of Australia’s job market is another factor that dampened households’ financial comfort. The subdued wage growth and high levels of underemployment and job insecurity have affected households’ comfort with their income.yourmortgage.com.au
While there’s always going to be some people that are doing great, according to surveys Australians really aren’t that jazzed about their finances.
With that pretty heady list above in the quote it’s really not that surprising. In the past year housing has taken a big whack, wage increases over the past few years have gone backwards in real terms and job insecurity is indeed worrying. All of this contributes to how good or bad your financial comfort is.
What’s Financial Comfort?
Financial Comfort is how safe you feel about your personal finances. Maybe you’re very worried because you have $40,000 in credit card debt and a job that you’re about to be fired from.
On the other side of the scale you might own your house, have zero debt and own your own successful business that has many diverse customers all happily paying you money.
Obviously there’s a big spectrum of different financial comfort and where you sit will depend on things like how rich your parents are, where you live, the decisions you’ve made and more. One positive thing about it though is that you can always change it for the better!
Improving Comfort Levels
While it’s a big spectrum where some are poor, in debt or rich one of the biggest things you can do to improve your comfort level is to have some form of financial cushion.
This usually comes in the form of at least $1,000 in your bank account for emergencies or once off, random problems that occur. Others advocate for 1, 3, 6 or even 12 full months of expenses. Obviously the higher up you go, the more comfortable you’d likely become but what many don’t detail is where to keep this money.
Most assume that it’ll just sit in a high interest savings account but it’s much better being in your mortgage. This is because it’ll offset your mortgage interest which is always going to be higher than a savings accounts interest rate.
While it didn’t always used to be the case, now you can very easily get instant access to your extra mortgage funds. Most banks these days allow you to instantly transfer money from your mortgage account to another linked account instantly 24/7/365.
As such, having your financial cushion in your mortgage offset account (or just in your plain old mortgage account) allows exactly the same amount of flexibility as a high interest one.
It also means less complexity as you have fewer accounts to keep track of and you don’t have to pay taxes like you would on the interest that is earned in a savings account. So you’re paying less tax and earning a much higher effective interest rate, a win/win!
Getting From A To B
While you might start out either being in debt, having no debt or savings or (if you’re lucky) having no debt and savings it’s important to always keep pushing to improve your financial comfort. That pushing of course includes mutilating your mortgage!
If you’re in the “got zero savings” camp then building that cushion is one of the most important things you can do. There are so many random (or common) things that can blind side you in this world. You need to be at least partially ready for them and the best way is to have some type of financial cushion.
Having that savings sitting in your mortgage not only offsets some of your interest but more importantly will help your mental state to relax. While worrying about money even happens to ridiculously wealthy multi-millionaires (they worry about loosing it all) there are different levels.
For those without any type of financial cushion this worrying comes in the form of constant stress over everything from job security to being able to pay that latest rates or insurance bill.
Having just 1-3 months worth of expenses stacked up in your mortgage will take this unneeded weight off your mind and free it up to think about more advanced things… like fully mutilating your mortgage in under 10 years!
The benefits include: 1) How to pay off your mortgage faster than 99% of people with one hour a month of work 2) How to get rid of your debt and have the freedom to spend money on the things you love, guilt free 3) Clear outline of how to setup your expenses, mortgage and general finance 4) How offset accounts work and how to get the same result without being gouged by the big banks 5) How to cut through the crap and focus on the things that truly matter when taking down a mortgage 6) How to adjust the strategy so it works for you, even if you have kids, even if you only have one income 7) How to do all of these things and maintain a normal social life (and never be cheap).