Have a clear budget
Improving your cashflow is a natural byproduct of managing a solid budget. There are a number of free and paid tools and software options to aid this. Whatever you opt for, the key is to be thorough in documenting your essential and ongoing expenses – then review, review, review. Reviewing weekly will help you see where over or underspending occurred.
Equally importantly, be aware of likely impending increased expenses (yes, such as mortgage repayments). Ultimately, in times of high inflation, the old adage of ‘cashflow is king’, or put simply, never spend more than you earn, remains very true.
So, what can you do when the current or the likely cashflow position is looking tight, or possibly negative?
Managing household expenses
Here are a few possibilities to consider to help reduce your household spending: use free streaming services, review the necessity of all subscriptions, review and switch your phone and electricity plans, bring your lunch to work, critically review your food shopping habits, reduce eating out, and consider swapping paid activities for free ones on the weekend. Hopefully a review of these items, and others, can help get you into a more disciplined mindset around responsibly driving and tweaking your household budget.
Managing your home loan
When it comes to reviewing your lending profile, banks are now closely scrutinising every purchase you make. Although there may be a softening coming soon, it’s possible that a proactive review of your overall mortgage and personal lending could offset some of the increasing challenges of your household cashflow.
Here are some possible options that a review may drive:
Consolidation of personal lending
Short-term debt such as personal loans, credit cards and AfterPay type facilities are cashflow killers. Consolidation into a short-term home loan may save on both overall interest costs and regular repayment outgoings. Equally, if cashflow enhancement is the primary driver, even student loan refinancing may have similar merit
Changing your home loan to interest-only repayments for a while may temporarily lighten your household expenses. These are usually only available on application for a short term period as you’ll still have to repay your loan before your maturity date, potentially making the eventual repayment amounts higher. This may be a good option if you are anticipating to offset this by an increase in your regular income, or a one-off amount that is expected to be paid your way.
Stretching it out
Extend your home loan term. Extending the length of a home loan reduces payments, but ultimately adds to your overall interest costs. It’s not common, but in some cases, it can be an effective tool to mitigate cashflow challenges by spreading the payments out over a longer period of time.
Refinancing your loan with another bank is something you could consider. You’re essentially paying off your existing loan and taking out a new one at a different bank or lender that may have more favourable terms for your situation. Often the cash contribution incentives negotiated for this offset the costs of time and legal fees.
Each of these cashflow-enabling options comes with its own costs. Balancing up the merits of the best strategy really does require professional support and advice. Our super friendly mortgage team knows just what’s required to get your finances in order to get your lending situation optimised.
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