It’s February and what a summer it’s been with success on the tennis court and the cricket pitch. Now that the kids are returning to school and we settle back into our ‘’new normal’’ routines, the new year begins in earnest.
January is normally a quiet month on the economic scene, but not this year. Inflation and speculation about rising interest rates dominated the month, sending global shares tumbling. US stocks fell 6% in January while Australian shares fell 7%. After US inflation hit a 40-year high of 7%, the US Federal Reserve is tipped to start lifting rates as early as March.
In Australia, inflation is sitting at 3.5%, while underlying inflation (which excludes volatile items) is at a 7-year high of 2.6%, within the Reserve Bank’s target range of 2-3%. The Reserve has said it won’t lift rates until 2024, or unemployment is near 4% (it fell to a 13-year low of 4.2% in December) and annual wages growth is close to 3% (currently 2.2%). While wages are going backwards in real terms, one third of a panel of 23 economists interviewed by The Conversation expect the Reserve to start lifting rates this year.
One of the big influences on inflation is oil prices, with crude oil near 7-year highs. Brent Crude jumped 15% in January and 65% over the year to US$90.94 a barrel. Aussie motorists paid record prices for unleaded petrol in January, with a national average price of 170.4c a litre.
The ANZ-Roy Morgan consumer confidence index fell 8 points to 100.1 points in January, while the NAB business confidence survey fell to a 19-month low of -12.4 points in December on the back of COVID-induces supply chain issues and labour shortages.
The Aussie dollar fell US2.5c in January to close at US70c as the greenback strengthened on rate rise speculation.
The true value of convenience
Even with the varying degree of lockdowns experienced across Australia in 2020 and 2021, the world remains largely at our fingertips. In fact, through the pandemic the use of our phones or computers to organise dinner, groceries, shopping, and workout programs only increased.
Technology has undoubtedly enabled greater convenience in our lives. However, it’s important to recognise that convenience may come at a cost. It’s worth asking yourself if you would you still opt for the convenience if these costs were known up front?
Why we spend on convenience
We know that convenience often comes with an additional price, whether that be delivery fees to have that item arrive straight to our door rather than battling the shopping centre car park, or paying for an Uber on that night out rather than catching public transport.
With many of us living busy lives, home cooking is often what falls off our priority list – stats show that Aussies spent $2.6 billion on food and drink orders through food delivery companies in 2021.i
And shopping has never been easier; with a few clicks you can purchase items at any time of the day or night, no matter where you are. Pre-pandemic stats from Australia Post show that 40 million parcels were delivered in December 2019, and with many housebound due to restrictions the following year, in November 2020 online shopping had grown more than 45% year on year in Australia.ii,iii
Assessing the true value
Convenience often gets prioritised over cost, yet when you do the sums, you may be shocked to know how much you are paying for this privilege. You might have the sinking realisation that all those Uber trips or Deliveroo dinners may have been better spent paying off your mortgage or going on holiday.
Yet that doesn’t mean that convenience needs to be abandoned for the sake of frugality. The key is to recognise where it adds value.
For instance, shopping online may come with an extra cost due to a delivery fee, but it saves you time and stress facing the crowds at the shops. An online fitness program is more expensive than simply running around the block or investing in dumbbells, but it can keep you motivated and more likely to meet your goals.
It’s worth thinking about what will add to your life as well. Putting time aside to cook meals can be a worthwhile pursuit – it can bring the family together or give you some solo time to unwind – or it could add to your stress. Understanding what fits in with your lifestyle will help determine whether you’re better off making your own meals or ordering them in.
Consider what is important to you. If you want to improve your health by eating wholesome, fresh food, being on a first-name basis with your local fish and chip shop is at odds with that. Visiting a farmers’ market on the weekend, where you can select your own produce, will suit you better than doing a big grocery shop online.
Tracking the costs
Logging what you spend will make what you’re paying for clearer, which will help with comparisons. If you get takeaway three times a week, how much would you save by replacing even just one meal with a home-cooked alternative? Would the amount you pay for registration for the second car you barely use be better off spent on an e-bike?
There are many expense trackers you can use, such as Mint or Pocketbook, to help keep track of how much you are spending and on what. Once you have the figures, look for alternatives for things that aren’t bringing you the value you would expect.
If the money being spent isn’t adding satisfaction or making your life run more smoothly, you’re not paying for convenience – you’re paying for something you don’t need. By streamlining your expenses, you will not only save money but add to your life’s contentment with conveniences that make a difference.
(Re)finance your way to renovation
Why go through the worry (and expense) of moving when you can turn your current place into your dream home? While renovations aren’t always stress-free (or cheap) there are some straightforward ways to finance your property’s facelift, so it suits your post-pandemic lifestyle.
The type of renovation you want and the budget you’ll need will dictate the type of loan required so it pays to plan ahead. If you choose the wrong loan, you could be left with a skip load of unexpected debt.
Tradie comparison site hipages.com.au crunched the numbers in 2021 to reveal that significant home extensions and renovations start at about $100,000 and can cost up to $300,000 for a traditional family home.
Once you have the ballpark budget, then you can decide just how you might finance your home improvement.
Refinance your home
Renovation time just might be the perfect opportunity to review your home loan and see if it still works for you. Changing lenders could provide a better rate and additional product features, but you’ll have to pay for the costs of refinancing. Negotiating with your current lender and extending your loan with them may allow you to avoid such costs. Ultimately, if you renovate wisely then you will be increasing the value of your home and the long-term benefits should outweigh any upfront loan costs.
Redraw from your mortgage
If you’ve been making additional payments on your home loan over time, then redrawing some of the extra money could help fund your renovation. You’ll only be able to use the additional amount you’ve added so you’ll need to ensure it will be enough before redrawing. Just check whether your home loan has a redraw facility and verify whether your lender charges for such transactions.
Top up your mortgage
When you top up your home loan, you’re basically increasing your mortgage amount so you can borrow extra money against your home. If you have plenty of equity in your home and the ability to make extra repayments, then your lender may increase your existing home loan limit so you can pay for your home renovations. Remember, however, that topping up your home loan means taking on more debt.
Take out a construction loan
This option will allow you to access larger amounts of money for significant structural work, with the understanding that your property will be worth more once renovations are complete. To apply for a construction loan, however, you’ll need council approval and a fixed price building contract from a registered builder. The upside of a construction loan is that the interest is calculated on the outstanding amount, not the maximum amount borrowed. As a result, you have more money in your kitty, but you’ll only pay interest on the money you spend. It is also worth noting that construction loans usually come with slightly higher interest rates than a typical home loan.
Home equity loan (aka a line of credit loan)
Put simply, equity is the dollar value amount of your home that you own. Lenders will let you use that equity to fund a renovation through a home equity loan. Homeowners can generally call on up to 80 per cent of their loan-to-value ratio (LVR). To calculate just how much you might be able to dip into, subtract your current loan balance from your property’s value and then multiply by that by 80 per cent. This kind of loan will often charge a lending establishment fee and possibly a monthly loan account fee.
Getting ready before renovating
- Have a valuer review how much equity you have in your property.
- Research property values in your neighbourhood to ensure you are not overcapitalising and might not be able to recoup costs when it comes time to sell.
- Be aware that borrowing more than 80 per cent of your home’s value will require you to pay Lender’s Mortgage Insurance.
When weighing up your finance options, consider all the pros and cons associated with each option and get in touch with us to discuss what would work best for you.
Market movements & review video – February 2022
Stay up to date with what’s happened in Australian markets over the past month.
January is normally a quiet month on the economic scene, but not this year. Inflation and speculation about rising interest rates dominated the month, sending global shares tumbling.
Please get in touch if you’d like assistance with your personal financial situation.
Daniel Grusd and Onelife Wealth Management Pty Ltd (ACN 139 437 513) are authorised representative of Synchron, AFS Licence No 243313. Trading as Onelife Financial, Suite 806, 251 Oxford St, Bondi Junction NSW 2022. Unless specifically indicated, the information contained in this newsletter is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where necessary, seek personal advice from a financial adviser’.