In this newsletter:
Hot tip of the month
Bring your loan term forward and save big bucks
When you get a loan, you need to meet the bank or lender’s servicing rules. These rules determine if you can afford a loan and still have a surplus to live. Some of the figures the banks use as benchmarks are good, but depending on your circumstances, they can be way more than you use to live or way less if you have an expensive life.
Recently, Elise helped a client get a car loan. Even though she requested a three-year loan, the lender’s calculations meant the client got a six-year loan. However, the client has a plan to pay it off in 18 months while also saving for a home.
Paying the loan off early will save him $405 in monthly account fees and over $4,000 in interest, allowing him to boost his savings for his home faster. He is pretty stoked!
Understanding how the term of your loan affects the total you will pay and putting a plan in place to pay your loan off quickly will save you a lot of money in the long term. If you need help with understanding the numbers or planning, please get in touch with Elise.
Did you know?
Win your next quiz night with this bit of trivia!
The world’s first credit card was introduced by Diners Club in 1950. Initially, it was a charge card that could be used at various establishments. They didn’t charge interest, but cardholders had to settle the entire bill at the end of each month.
First-home buyer tips
How to keep your KiwiSaver deposit safe
So, you have been working and saving for your first home. Your KiwiSaver has been building, and you can feel your own home is nearly within reach.
You may have been in a balanced or growth fund to help boost your savings. This is great, as those funds are most likely to give you better returns over multiple years. But as you find yourself nearing your deposit goal, it is time to revisit your funds.
If you are using KiwiSaver for the deposit, the last thing you need is for the markets to go down and your funds melt away just when you need them. So, as you get close to entering the market, you need to put your KiwiSaver into a conservative/defensive/cash fund. These funds are income investments that are not affected by market fluctuations.
Thoughts from Elise
Welcome to 2024; we are off to a racing start! Sarah and I had a fantastic holiday with family down in Wanaka and enjoyed some quality time with family and friends.
We have switched a major internal system over the break, and, as with all IT projects, it has come with some benefits and some pain! Please bear with us as we complete this process. This new system is going to help us bring in some new services to help you get the most out of your full financial life, so watch this space.
The rate of inflation has been reducing and is now down to 4.7%, but with interest rates still high, some households are under pressure. Please reach out if you need some help.
As Sarah and I came back from this last weekend away, we were diverted due to a serious crash and to news that the NZ Road Toll is already at 30 lives lost for 2024. So, enjoy the rest of the summer, but please drive carefully and stop to rest if you are tired.
Values are bouncing back. Is now the time to invest?
The latest CoreLogic report confirms that property prices are bouncing back. December saw a rise of 1.0%, the strongest monthly gain since January 2022. The increase follows a 0.4 rise in October and 0.7 in November, 2.1% total since September’s cyclical trough.
However, the report also says, “National property values remain 3.3% below this time last year, and 11.4% lower than the peak from two years ago.”
Elise notes that while the gains are small, she believes many markets are still overpriced, and the increase in immigration is still putting pressure on the supply of properties needed for both homes and rental accommodation.
So, property values are likely to continue to climb, especially as interest rates start to come down (which is still a way off). While investors can still get finance before the full debt-to-income (DTI) measures come in, now is a good time to buy.
Protect yourself from market volatility
In uncertain markets, being strategic can keep your investments safe. Follow these five steps and rest easy about the future.
- Diversify Wisely: Spread investments across diverse assets to reduce risk. A mix of stocks, bonds, and real estate can offer balance.
- Think Long-Term: Keep your eye on long-term goals. Markets recover over time, so resist making impulsive decisions based on short-term fluctuations.
- Check Your Portfolio Regularly: Periodically reassess and rebalance your portfolio to match your goals and risk tolerance.
- Maintain an Emergency Fund: Keep a separate emergency fund to avoid selling investments during downturns.
- Stay Informed: Be aware of market trends and economic indicators. Informed decisions are crucial for adapting to changing conditions.
Consulting with a financial advisor adds personalised insight to navigate market fluctuations.
The long-term view is rates are coming down – but when?
The 3 –5-year loan rates have been steadily coming down, with all banks’ special rates under 7%. ASB has made the big move to set them all around 6.55% for non-special rates.
For the short term, we are getting mixed messages from the main banks. Most of them are holding their breaths for the next OCR announcement on the 28th of February.
Depending on your needs, fixing for the short-term still seems like the best strategy, but before fixing, have a chat with Elise to see what other advantages you can take at review time. If you don’t have a review, let’s have a chat anyway; if your circumstances have changed, you may be able to change your approach and shave more time off your loan.
Debt-to-income (DTI) – what is it, and why should you care?
We are likely to expect no change in the OCR on the 28th of February, although Elise still thinks the Reserve Bank may follow through on their threat and bump it up to 5.75% to ensure to try and keep a lid on the property market.
Debt-to-income ratio, known as DTI, was floated back in 2017 but not acted upon. During that discussion a DTI ratio of 5 was considered high. DTI’s are back on the table, and all the discussion papers are talking about a ratio of 6-7. Putting in place DTI limits will mainly affect investors and business owners; there will be exceptions for first-home buyers. DTI could be a blessing and/or a curse; the devil will be in the details. Meanwhile, many of the banks have already set limits as part of their eligibility criteria.
Control your cash flow and stay in business
The holiday season is over, and everyone is pretty much back at work. After a good holiday and festive season, the bank account may be feeling quite tight.
Businesses thrive or die based on cash flow. The keys to good cash flow are:
- Invoice promptly
- Ensure good terms with suppliers and strong trade terms for debt recovery
- Have diversified income streams so you have options as the market changes
- Monitor and control – regularly check your cash flow and have strict controls in place; this will protect you from employee theft or losses from obsolete subscriptions
- Use finance terms for insurance and other covers to spread the payments and ease the monthly cash flow
- Build strong customer relationships – satisfied customers will often pay faster and provide repeat business and referrals
- Have cash flow reserves – have loan facilities available for tough times and one-off situations prior to needing the facility.
Remember: Cash flow is king!
Know your insurance – policy owner vs policy beneficiary
The policy owner is the individual who owns the insurance policy and is responsible for paying for the policy. They control who is listed as beneficiaries of the policy and the levels of cover.
The beneficiary is the person or entity that receives the proceeds of an insurance policy when a claim is made.
If the policy owner and beneficiaries are not set up correctly, you could find that the wrong person receives the money. This takes a significant toll on those involved, as a payout is inevitably after a difficult event and in a time of high stress. For this reason, review your policies as you experience life changes, such as a change in relationship status or as your family grows.
If you need insurance advice, Elise can help. Email firstname.lastname@example.org for a consultation.