After finally paying off your mortgage, many would say that it’s time to crack open that bottle of champagne and celebrate.
But now that you have money to spend (rather than save), you’ll inevitably be left asking the question: “What do I do with all my leftover money?”
Money management facts
With high house prices, the idea of owning a home and having a mortgage has become less popular. According to the Australian Bureau of Statistics (ABS), the number of Australians owning their homes was reduced by 66% in 2017-18. Conversely, the number of households opting to rent increased to 32%. The percentage of households who owned a home with a mortgage had also increased to 37%.
With mortgages sucking up a substantial amount of money, statistics are showing that Australians do not have large savings. In fact, the household saving ratio reached an 11-year low when it fell to 2.6% in 2018-19.
It comes at no surprise that surveys have revealed that many Australians still struggle with the task of managing their finances. A 2018 ASIC report showed that 1 in 5 Australians had reportedly not saved money over the last six months, and 12% struggled to accumulate enough money needed to fund their expenses.
However, Australians who have paid off their mortgage are said to be more budget-conscious. Rather than spending their money on unnecessary items, a 2019 survey showed that Australians with mortgages are spending over 30% of their disposable income on their mortgage, which experts are attributing to ‘mortgage stress’. The survey also showed that owners/occupiers of homes with a mortgage experienced the lowest levels of financial comfort.
Investing your mortgage money wisely in 2020
However, managing your money when you’re free of a mortgage can be just as stressful. There are so many options when it comes to what you can spend it on, and it’s often too easy to fall into the trap of splurging on unnecessary holidays and shopping sprees. While it’s good to treat yourself once in a while, it’s important to think long term. These tips give you some ideas on how you can manage your funds wisely in the New Year.
Invest in property
Numerous people elect to invest in property because they can touch and see their investment. Furthermore, they can track how their wealth is growing.
Another benefit is this type of wealth requires minimal capital investment on your part. You also have to pay very little off the mortgage as your tenant pays the majority for you.
Property investment can reduce the tax that you pay using a negative gearing strategy. This philosophy increases your residual income further while you are working. Then, when you are ready to retire, you can choose to sell your assets to fund your retirement. Alternatively, you can sell some of your investment property. The money can then be used to pay off others so you can live off the rental income.
Make the most of low interest rates
Buying an investment property now, when interest rates are at an all-time low, means you can make your money work harder for you. Nevertheless, many investment advisors suggest having a buffer that covers at least 6 to 12 months of the mortgage. Applying this strategy will protect you against any interest rate rises and also reduce your financial risk.
As many Australian homeowners say, there is no secret to paying off your mortgage, it just takes diligence and discipline. Hence, you can also apply this strategy to your investment property so that you build greater retirement wealth. Just remember to plan and set yourself goals before jumping into property investment.
Buying the right investment property
Once you have outlined your plan and set goals, it’s time to look at what’s available. Traditionally, houses have higher capital growth than apartments. Yet, apartments and units have a higher rental yield. For this reason, many investors choose to buy a mixture of property, as this diversifies their investments. Ideally, you should purchase property that meets your needs long-term.
Invest in shares
Despite all the disheartening reports of an impending recession, there is still time to invest in shares and not lose out. Consider buying shares in a company and then selling them for profit when the time is right. You may also get extra money from dividend payments. According to strategists at Macquarie Group Ltd, investors should consider buying shares in stocks with rising earnings. Contacting a stock-broker may also provide you with useful guidance through this process.
Strengthen your retirement funds and savings
Use any extra money you have to contribute to your superannuation fund. Contributing more to your superannuation sooner will pay off in the long run due to the interest that is accumulated. It will also be wise to use your money to pay off any existing debts such as credit card debts, and once this is done, creating specific savings accounts for any savings goals that you are working towards. It may also be handy to set aside some money as a ‘safety net’ in case of any emergencies.
Words by Vidya Kathirgamalingam
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