In this age of disruption, many traditional products and services are facing competition from more innovative and cost-effective providers.  The big four have traditionally dominated the Australian mortgage market through their direct home loan products. However, in recent years, their market share has been slowly eroding due to competition from second tier and online providers.   Due to increasing competition, there are thousands of lending products available, including lesser-known providers who can offer equivalent or superior loan products at a much-reduced rate.

Many lenders (some backed by a big four bank) are now offering online lending platforms with comprehensive features such as redraw facilities, credit cards, offset accounts and the ability to ‘split’ the loan between fixed and variable rates.  The lower costs to manage these products are often passed back to the consumer via reduced interest rates and lower ongoing fees.

The larger banks often take existing clients for granted, and rely on the mentality that customers will remain loyal to the bank they have been with since they started their first savings account.  Unfortunately, banks do not always reward customers for their devotion!  Homebuyers and existing mortgage customers may not consider the benefits of shopping around or switching their existing home loan to an alternative lender.  This misplaced loyalty may cost thousands of dollars in interest payments and fees over the life of a home loan.

If you review your other bills such as phone, electricity and insurance to save money, it makes sense that you review what is most likely your largest expense!  The savings realised over the life of a home loan could amount to thousands of dollars.

As an example, in a recent client comparison to refinance a variable principal and interest home loan of approx. $300,000 from a major bank, a reduction of 0.52% in the interest rate saved $150 per month ($1,800 p.a.), with a potential saving of nearly $60,000 in interest payments and fees over the 30-year term of the loan.

There are many issues to consider before refinancing your home loan.  Please contact one of our lending specialists to determine the costs and benefits, and to discuss your options. One of our friendly mortgage brokers might be able to save you thousands over the life of your home loan/s.

One of the most exciting business activities we undertake here at The Investment Collective is to help small businesses, restructure, grow or divest.  The use of the word “exciting” is deliberate.  More often than not the task is an emotional roller-coaster, where best intentions are often undermined by client fear, once “supportive” banks, angry creditors and warring business owners.  Through our involvement with small business, one thing has become clear – many, many small business owners have no idea of how to run a business.

Now, before you bridle at my perceived arrogance, consider that we are nearly always called when things are obviously bad. We nearly always find that everything is in the owner’s head, the financial records are terrible, and there are no budgets, business plan or financial model in place.  Frequently, we find that the situation has been brewing for months or years and that the ATO is owed money.   Overwhelmingly, we are called in with the expectation we will “fix everything”, using the simple tools of charm and magic.

The basic fact is that shit happens in business.

You cannot accurately predict when you will lose a client, a crop, or a valuable staff member, but you can very much take ownership of your business, formally understanding it, and putting in place disciplines such as those mentioned above.  Compared to growing your favourite crop, or selling interesting products, or fabricating machinery this mightn’t sound too exciting, but without these disciplines, you won’t be getting much joy from anything when the shit does hit the fan.

Sound dramatic?  Consider that it can take several months to build a formal set of accounts from the data normally found in the back offices of small businesses, and to build bankable forecasts from that.  Believe me, you won’t have that time if you really are facing a downturn.  Consider also, that recognising and quantifying a downturn before it really sets in gives someone like me much more opportunity to address the situation early – something that the banks will appreciate and that will give you the best chance of coming through the other side.

So, business consultants like us can be a very big help in structuring and ensure your business is well run and able to manage through downturns, but in every case, the effectiveness of that help starts with you.

Get yourself a good accountant.

Many businesses choose their accountant because they are a “good bloke/gal”, but like financial planners, accountants come in all shapes, sizes and levels of professionalism and competence.  Too many are simply collectors for the ATO with a high opinion of themselves, and charges to match. But they don’t really deliver anything useful and too many clients view the role of the accountant as one of tax reduction.

What a really good accountant will do is not only help you fulfil your statutory obligations but make sure your accounts actually mean something to the business.  From the way your accounting software is set up to the production of financial reports, the accounting data is at the heart this.  It is your window into how things are really going and it needs to be collected and tabled regularly and rigorously, to clear and generally accepted standards, and in any event suitable for handing to the bank as-is.

At the end of the financial year, your internal accounts need to be reconciled to the formal statutory accounts, so that management accounts for the new year start from the right base.  If you don’t do this, you’ll be completely lost – it’ll only take a few months.

In summary, few accountants are good business consultants or strategists, and most business consultants and strategists focus on just that.  To get the best result you really need to consider engaging both, preferably in a form where they agree to happily work hand in hand.  If you do this, your financial records will become a tool through which business management becomes easier and easier, you will have fewer worries because you will be more in control, and you will have an informed support base armed with detailed and up-to-date data, for which there is no substitute when a storm approaches.

Please note that this article is prepared as general advice. It does not take your personal or professional circumstances or goals into consideration. To learn more about our business consulting services, contact us today.

Are you managing your cash flow effectively?

A well-constructed budget is the key to good financial management.

Do you find it difficult to manage your money so that you have enough to pay your big bills when they are due?  Having a proper budget that you update regularly will make all the difference.

I hear you say ‘but I don’t know where to start’!

The first step is to find a tool to help, one you like using and find easy to use.  There are lots of free budgeting options available on the internet and the Money Smart website is a good place to begin.  Another really useful option are apps on your smartphone, there are many different options including; Pocketbook, YNAB (You Need A Budget), Mvelopes and Mint.

Find your last pay slip and record in your budget tracker the amount of each payment and the frequency that it comes in.  Record any other income and then begin on your expenses.  Start by identifying what are your needs and what are your wants.  Needs are things that just have to be paid e.g. rent, groceries, etc. and wants are the discretionary expenses like dining out, a morning coffee on the way to work.

Populate your spreadsheet with all of the needs for the current week and for the months ahead so that you know when the car registration bill is due and you can leave enough money to pay that bill when it arrives.  How much is left over each pay period after you have paid your necessary expenses?

That amount is all that you have left for the wants.

Do you want to plan for a holiday or a new car?

Identify what you want to do, how much it costs and when it is to be – say you have decided that you want to take a holiday that will cost you $2,000 and you want to go in 6 months’ time.  Look at your budget – you have allowed for the needs, and you know what is left after they have been paid.  Factor in an amount to save each pay as you are entering up your discretionary expenses, or wants. This will tell you if your savings expectation is achievable.  If it is not, then you have to adjust your budget – where can I trim something off the discretionary expenses so I can save what is needed, or do I have to wait longer for the holiday?

Once you are in the habit of watching and tracking what you spend, you will find a budget easy to work with and that you can achieve your goals because you have planned for them.

Please note the information provided in this article is general advice only. It has been prepared without taking into account any person’s individual objectives, financial situation or needs. Before acting on anything in this article you should consider its appropriateness to you, having regard to your objectives, financial situation and needs.

Happy New Year from all the team at The Investment Collective.

What is your New Year’s resolution? Is 2018 the year you achieve it? I’d like to say that the odds are on your side, however, statistics from 2016 show that only about 8% of people achieve their New Year’s resolutions.

Setting goals is always tricky. Many New Year resolutions are either financial or fitness related. Financial and fitness goals are challenging at the best of times, especially if sacrifices or a change in regular behaviour need to be made. Is there another approach?

Setting only one goal will allow you to focus all your energy on achieving a positive outcome. Your financial New Year’s resolution may, for example, involve paying off a credit card. Setting up a regular cash transfer from your spending account after each payday will gradually reduce the amount you owe. These small steps will help in the long run to pay off the credit card by the end of 2018.

Paying off your mortgage is a big hairy audacious goal (BHAG) and an unlikely achievement in one year. However, you can make some simple steps to reduce years of repayments and thousands in interest. Firstly, get your mortgage reviewed from one of our mortgage specialists. Our team will compare a range of lenders to find you the best offer. Secondly, set a monthly repayment amount that is above the minimum required mortgage payment.

Have you set a fitness goal? The same way you consult a financial adviser to help you reach your financial goals, I suggest talking to an expert who can assist you step by step to help you achieve your fitness goals.

Personally, I have only set one goal that is not a BHAG – I’m getting married next year! My goal is to save an additional $10,000 before the wedding. I have also stepped out how I’m going to achieve this goal. The wedding is in one year, so I have a definitive timeframe. My goal is $10,000 and I intend on saving an additional $200 per week. To help me reach this goal, I have taken on an additional job that is flexible and manageable.

As you can see, each step is measurable, time-based and realistic. 2018 is the year I will achieve my goal. Will you achieve your goals, whatever they may be?

Please note this article is prepared as general advice only. It has not taken into account your personal circumstances or financial goals. If you would like financial advice tailored to help you achieve your goals, please contact us and talk to one of our friendly advisers today.