7 of the best financial resolutions for 2020

Finance may not be sexy, but this classic season for goal-making and self-reflection is actually quite suited to financial resolutions. Access to annual financial statements can show you how you managed your money in 2019, and give you an idea of what you can achieve in 2020.

If you’re not sure where to start, we’ve picked 7 of the best financial resolutions for you:

1. Make a realistic 2020 budget

As the saying goes, a goal without a plan is just a wish. If you’re serious about improving your financial situation in 2020, you need to have a realistic plan that you can stick to. In finance, the best plan is to start by preparing an honest budget.

Write down a list of your current debts and bills, and do a thorough expense audit of your annual bank statement to find out where your money is really going.

Did you spend an unexpected $500 this year on UberEats? Maybe you subscribed to free trials of Prime Video, Disney+, Netflix, Stan and FoxtelGo, and didn’t notice that they all switched over to paying accounts?

Whatever you have done with your money this year, be honest with yourself, because if you cheat, you’re only cheating yourself.

Find out how to set your own 2020 budget here.

2. Cut down on stuff you don’t need

When you’re making your 2020 budget, think about what you can afford to live without.

Cutting down on your expenses is almost a similar process to decluttering your home. As Japanese Author and tidying consultant Marie Kondo says, “Small changes transform our lives.”

This same logic applies when reviewing your spending habits. Reducing unnecessary expenses can significantly impact the amount you can save, and help you pay off debts.

Starting small is the key to success. Getting rid of just one digital subscription for example, could save you over $100/year, and show you the benefit of sacrificing one small luxury to grow your savings.

Four ways to cut down on your expenses in 2020

3. Check your savings rate is above the inflation rate

A quick tip that you can implement quickly in 2020 is checking that your current savings account is offering you an interest rate above the inflation rate.

The inflation rate is currently sitting at 1.7 per cent. So, if your savings account is offering you an interest rate less than that, you are basically “parking” your money, rather than earning real interest on it.

For example, if you have $100 in your savings account now, and your savings interest rate is 1.5 per cent per annum, you will technically have $101.50 in your account at the end of the year.

However, if the inflation rate is 1.7 per cent, at the end of that year you will need $101.70 to buy goods or services originally worth $100. So, in terms of “real purchasing power” at the end of the year, you have lost 20 cents. Technically, the bank is not taking away any money from you, you are just not earning as much as you could have previously.

0.02 per cent, or 20 cents for every $100 may not sound like a lot, but if you have $100,000 in your savings account, this 20 cents turns into $2,000.

Learn more about how the inflation rate can impact savings rates.

4. Get a lower interest rate on your home loan

After three RBA cash rate cuts in 2019, interest rates for both owner occupier and investment home loans have reached record lows.

This prompted many Australians to start looking at the rates offered by their current lenders. Some customers found they could save thousands by switching from a big four to a smaller lender with a lower rate, yet many are still reluctant to switch. Whether this is a case of consumer inertia, or customer loyalty, is hard to tell.

However, just because you don’t want to switch doesn’t mean you can’t get a lower rate. If you’re a loyal customer, you can always negotiate a lower rate on your home loan by trying one of these four negotiation tactics:

  1. Shop around and find the lowest rates on offer, to see if you can save
  2. Ask for the same rate as a new customer, if you’re a reliable debtor
  3. Ask your bank for a discharge form, to show you’re considering switching
  4. Speak to a mortgage broker, to get professional financial advice

Learn more about how you can convince your bank to lower your home loan rate.

5. Consolidate your debts

Consolidating your debt can make managing your repayments a lot less confusing. It can also help you reduce the total interest you pay on your debts, to save you money overall.

Two popular methods of consolidating debt are personal loans and balance transfer credit cards. Depending upon your financial situation, either could help you reduce your debt in 2020.

A balance transfer credit card allows you to transfer existing debt to a new credit card, and they often come with interest-free periods of up to twelve or even eighteen months. These cards can revert to a higher rate when the interest-free period is over, so if you want to consolidate your debt, be sure that you can repay it within that time frame.

A debt consolidation personal loan, on the other hand, does not have an interest-free period. These types of loans will often have a lower interest rate than what a balance transfer card will revert to after the interest-free period is up, yet provide a level of certainty if you need a few years to pay off your debts.

6. Resolve to improve your credit score

Your credit rating takes into account your entire credit history, positive and negative, and is used by lenders to determine whether you are a reliable debtor.

Here’s how you can improve it in 2020:

  • Check your credit score: Showing you are committed to your financial situation, and regularly checking your credit score can, in fact, improve it.
  • Pay off your debts: Increasing your credit card repayments or reducing your credit limit can do wonders for your credit score.
  • Pay your bills on time: Making regular bill payments on time can make a positive impact upon your credit score, as you’re conscientiously working toward repaying your debts.
  • Don’t apply for multiple loans: Applying for multiple loans at once can harm your credit rating, but multiple comparisons will not, so it’s important to compare loans first.
  • Determine eligibility before you apply: Being rejected from a loan can also leave a mark, so before you apply, try to determine whether you will be approved.
  • Check your credit data is correct: Credit providers can provide incorrect information, such as listing the same debt twice, so it’s important to check and contact them if it’s incorrect.

7. Make sure you always start small

A general rule for setting resolutions is to ‘think big, act small.’ If you have major goal you want to achieve, cut it down into smaller, more realistic goals.

Say you want to buy a house, for example. You might first consider aiming to save $10,000, or to pay off your existing credit card debt.

This final resolution is the most important resolution of all, because if you aim too high, too quickly, you may feel overwhelmed and end up giving up altogether.

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What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

Interest Rate

Your current home loan interest rate. To accurately calculate how much you could save, an accurate interest figure is required. If you are not certain, check your bank statement or log into your mortgage account.

What is a guarantor?

A guarantor is someone who provides a legally binding promise that they will pay off a mortgage if the principal borrower fails to do so.

Often, guarantors are parents in a solid financial position, while the principal borrower is a child in a weaker financial position who is struggling to enter the property market.

Lenders usually regard borrowers as less risky when they have a guarantor – and therefore may charge lower interest rates or even approve mortgages they would have otherwise rejected.

However, if the borrower falls behind on their repayments, the lender might chase the guarantor for payment. In some circumstances, the lender might even seize and sell the guarantor’s property to recoup their money.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

What is breach of contract?

A failure to follow all or part of a contract or breaking the conditions of a contract without any legal excuse. A breach of contract can be material, minor, actual or anticipatory, depending on the severity of the breaches and their material impact.

What happens when you default on your mortgage?

A mortgage default occurs when you are 90 days or more behind on your mortgage repayments. Late repayments will often incur a late fee on top of the amount owed which will continue to gather interest along with the remaining principal amount.

If you do default on a mortgage repayment you should try and catch up in next month’s payment. If this isn’t possible, and missing payments is going to become a regular issue, you need to contact your lender as soon as possible to organise an alternative payment schedule and discuss further options.

You may also want to talk to a financial counsellor. 

How often is your data updated?

We work closely with lenders to get updates as quick as possible, with updates made the same day wherever possible.

Mortgage Calculator, Repayment Type

Will you pay off the amount you borrowed + interest or just the interest for a period?

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

Why was Real Time Ratings developed?

Real Time RatingsTM was developed to save people time and money. A home loan is one of the biggest financial decisions you will ever make – and one of the most complicated. Real Time RatingsTM is designed to help you find the right loan. Until now, there has been no place borrowers can benchmark the latest rates and offers when they hit the market. Rates change all the time now and new offers hit the market almost daily, we saw the need for a way to compare these new deals against the rest of the market and make a more informed decision.

What is a debt service ratio?

A method of gauging a borrower’s home loan serviceability (ability to afford home loan repayments), the debt service ratio (DSR) is the fraction of an applicant’s income that will need to go towards paying back a loan. The DSR is typically expressed as a percentage, and lenders may decline loans to borrowers with too high a DSR (often over 30 per cent).

Why is it important to get the most up-to-date information?

The mortgage market changes constantly. Every week, new products get launched and existing products get tweaked. Yet many ratings and awards systems rank products annually or biannually.

We update our product data as soon as possible when lenders make changes, so if a bank hikes its interest rates or changes its product, the system will quickly re-evaluate it.

Nobody wants to read a weather forecast that is six months old, and the same is true for home loan comparisons.

What is a construction loan?

A construction loan is loan taken out for the purpose of building or substantially renovating a residential property. Under this type of loan, the funds are released in stages when certain milestones in the construction process are reached. Once the building is complete, the loan will revert to a standard principal and interest mortgage.

What is appraised value?

An estimation of a property’s value before beginning the mortgage approval process. An appraiser (or valuer) is an expert who estimates the value of a property. The lender generally selects the appraiser or valuer before sanctioning the loan.