Category Archives: Money Management

ING Bank: A Comprehensive Review

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

ING Bank, formerly known as ING Direct, was founded in the Netherlands.

In 2014, ING had total assets of €966 billion (US$1.3 trillion), making it one of the world’s largest financial services companies.

ING Bank’s History

It is a Dutch bank and insurance company whose history dates back to 1881. It has branches in more than 50 countries and serves more than 16 million customers. ING Direct, a bank without branches, was started in multiple countries in 1997.

ING has successfully managed to stay relevant. Nowadays, ING is a member of the largest financial services group in the world, with over 450 million clients worldwide.

ING Direct Australia Features, benefits and offers

ING Direct was Australia’s first and leading provider of no-frills, online savings and transactional accounts.

It held the number one position in the highly competitive Australian ‘direct banking’ marketplace – a position it has held since its inception – for eight consecutive years, between 2005 and 2012.

The company successfully positioned itself as a direct bank (no branches) offering value-added products such as high-interest rates on savings accounts and low-interest fees on credit cards. ING also promoted itself as a place to consolidate all your financial products, including home loans and credit cards.

ING Direct Australia Bank and Savings Accounts

It can be hard to find a bank account without monthly fees and great service.

ING Direct offers competitive interest rates on their savings accounts, plus home loans, personal loans, credit cards and insurance. You can apply for an account online in minutes.

Orange Everyday Account

This account is what brought ING Direct into the limelight. The Barefoot investor recommended their card to avoid ATM fees in his popular finance book.

Most Australians were paying $2.50 in fees if they had to use an ATM that didn’t belong to their own bank. Many were paying monthly fees on bank accounts.

Scott Pape raved about the Orange everyday account with linked savings maximizer.

How Has the Orange Everyday Account Changed?

There is still a lot to be positive about with this account. ATM fees are rebated if eligibility criteria are met, now only up to 5 ATM (domestic or international) rebates per month. These criteria each month include:

  • $1000 deposited from an external source to any personal ING account in your name
  • At least 5 ING card purchase

So if you can get your wages paid directly into the account and use the card regularly whilst withdrawing cash rarely, this account may suit you.

ING direct do charge an international transaction fee of 2.5% but this is also refunded if you meet the above criteria.

The interest rate is variable but at the time of writing 1.35%, which is competitive.

If you set up a direct debit to pay selected utility bills, the bank will provide 1% cashback into your account. Terms and conditions apply but they will cash back up to $100 per year. Every little helps.

Opening The Account

The account is easily opened in a 100% online process. With another bank, I have had to physically present to the bank to verify ID (in 2020!). There is no such nonsense with ING. The card arrived in the post with reasonable timing.

Using the Orange Everyday Account

My own experience with ING has been fantastic, with any ATM fee charge refunded automatically.

With an interest rate of only 1.35% and a home loan with an offset, it doesn’t make a lot of sense to keep a lot of cash in this account. But it does come in very handy for segregating our “Fun money“.

Enough of my wage to meet eligibility criteria is deposited directly in my everyday account. The excess is direct debited to our offset account the next day.

My card gets EFTPOS swiped five times a month easily so my ATM fees and any international transaction fees are always refunded.

Savings Maximiser

These can be opened at the same time as the everyday account and linked. There are no account fees. At the time of writing, they are offering 1.35% interest.

To receive this interest, savers need to:

  • Deposit $1000 into an ING account in their name each month from an external provider
  • Use card for EFTPOS payment 5 x monthly or more
  • Add to savings each month

If you fail to meet these criteria, you only receive 0.5% interest.

ING Direct also offers a savings Maximiser offering just 0.65% per annum for savings over $100,000. A 2-year term deposit is available for a piddly 0.25%

ING Government Bonds

The ING direct website is currently warning about this scam. The scammers are using the ING name and logo to sell government fixed interest bonds. Watch out and check out the website for more details.

ING Mobile App

I have the mobile app downloaded on my phone. It is all you would expect, fast and convenient. I can transfer money to friends using PayID and check my balance before buying coffees for the team. You can instantly transfer cash from your savings account to your everyday account, and vice versa, when required.

ING Round Up Feature

ING offers a round-up feature, where you can automatically set the account to sweep small change into your savings account. It’s similar to a micro-investment account except the money is just deposited into savings. Could be useful for those wanting to force themselves to learn to save. I have never activated this feature.

No Branches

Apparently, my parents just went through the hassle of moving banks because their old one closed the local branch. In contrast, I can’t imagine many things I’d like to do less than spend time in a bank branch!

Everything being online suits me fine. When was setting up accounts, I ended up a bit confused about the account linking. The website prominently displays a phone number under the “Help and support” segment. The customer service when I called was excellent.

Recently, for the first time in a couple of decades, I have received a couple of cheques. With ING, these can be posted into the bank with the bank account and client number written on the back. In Sydney, there is an “ING lounge” where you can deposit cheques (but not cash).

Payment Methods

Bpay

Tap and pay

Osko – Almost instant transfer of funds in real time. No waiting for funds to clear

Pay ID – Receive money through your mobile phone number or email address

Google Pay & Apple Pay – Pay with your phone

Coming soon – QR code payments

ING Direct bank security

ING is an authorised deposit-taking institution covered under the Financial Claims Scheme (the FCS). This means that if ING bank were to fail, up to $250,000 per account holder is guaranteed by the government.

The bank uses SSL encryption (secure sockets layer) to keep your information confidential.

A green address bar is displayed with compatible web browsers on the ING online banking website to confirm it is a genuine website.

You log in using a customer number and a 4 digit access code, inserted into a virtual keypad designed to prevent hackers from working out your access code.

ING uses two-factor authentication for higher-risk transactions, for which you will have to enter a one time password texted to your mobile phone.

The online banking website also displays security tips to warn you about recent scams, and how to prevent identity theft.

The Barefoot investor had to go into bat for a couple whose account was defrauded recently. It took Scott Pape making a fuss for the bank to refund the defrauded amount. This is not great, and would probably make me think twice about putting thousands of dollars in an account with ING.

Children’s ING Accounts

ING has a youth banking account for 15-17-year-olds offering 1.35% interest at the time of writing.

There are no account keeping fees, 5 free ATM withdrawals per month and international transaction fees are rebated. There is a withdrawal fee of 50c for withdrawing $200 or more via EFTPOS.

Other Offerings

ING offers two credit cards. An Orange One low rate card charges 11.99% and an Orange one rewards platinum card charges 16.99% but with cash back rewards and free travel insurance.

ING offers personal loans from 7.99%. None of my readers will be interested in that!

They offer home loans with competitive interest rates, insurance and Superannuation

Conclusion & Recommendation

If you are looking for a fee-free account and will use your card regularly each month a linked ING personal account and savings maximiser may be right for you. Please share your experiences with ING below.

For more finance tips and reviews, subscribe to the Aussie doc

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

Frequent Flyer Australia – Is it Worth The Hassle?

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

Anybody else getting a little overexcited?

On the way to work recently, I was listening to the radio (old skool) when my eyes welled up. The radio had announced the lifting of the international travel ban (well sort of). And I can suddenly see the light at the end of the tunnel.

COVID-19 is not over, in fact for me as a doc in a regional town, it has not even begun. But like many immigrants, the worry that I may never see my parents again has been weighing heavily on my mind. The ability to travel again (sometime in the next few months) has renewed hope.

If you are looking forward to the option of travel as much as me, perhaps you are wondering about Frequent flyer Australia schemes?

What are Frequent Flyer Points

Retailers offer Frequent flyer points to incentivize customers to purchase more, develop brand loyalty and share their data.

There are so many companies offering frequent flyer points, it can become very confusing.

The airlines Qantas and Virgin, as well as the supermarkets’ Coles and Woolies, are the major players with the biggest benefits.

How to Start Collecting Frequent Flyer Points

Frequent flyer schemes can seem excessively complex, and it’s hard to know where to start.

It’s actually simple to get started. If you are flying even occasionally and shopping for food you may as well collect these points. The cost is built into the price of the products you are purchasing!

In around 30 minutes you can sign up for the two major airlines, Qantas and Virgin Australia as well as the two main supermarkets, Coles and Woolworths.

You can sign up for a free Qantas membership and Velocity here.

If you ever shop at Coles, Kmart, Target, Coles express, First choice Liquor market or Liquorland sign up for flybuys here. If you ever shop at Woolworths, Big W, BWS, Caltex sign up for a free Woolworths Everyday Rewards card.

Given all of these can be joined for free, signing up is a no brainer. You can even store the virtual “cards” on your phone. Even if you don’t collect a substantial number of points, you can still collect the odd $10 off your grocery shop.

How do you Earn Points

If you just swipe your card at every shop and pay no more attention, you will collect a few points.

With a tiny bit more effort, you can significantly improve your points collection game. Families, in particular, tend to spend a lot on groceries.

Utilise Offers & Bonuses on Grocery Shops

This has the potential to multiply points earned on grocery shopping. Download the flybuys or Everyday rewards app to your phone, check the app and activate offers before a shop. Don’t be tempted to buy items because of bonus points, or spend more than you would normally.

But you can alter the timing of Longlife purchases because the app is offering a particularly generous bonus if you spend a certain amount.

Get a Grocery Rewards Card for Each Adult and Don’t Link

Those with two adults in the household can apply for a fly buys account each.

The supermarkets will offer you bonus points to incentivize you to spend slightly more than you regularly do.

Having two accounts will mess this up. You can alternate accounts depending on who is shopping or even purposely use the account with the best offers.

Collecting Flybuys

Flybuys offers members offers every week, ranging from a bonus 50 points to buy a particular item, to tens of thousands of points for spending a certain amount in a week.

I ignore the “buy this item for a piddly bonus” offers. You can activate them if it’s an item you were going to purchase anyway but it’s not going to move the needle much.

The offers you don’t want to miss out on are the bonus 10,000 points + for a big shop. If you are doing a big shop anyway, you want to activate these before you go. This just involves checking the flybuys app just before a shop, and activating any relevant offers.

Flybuys points can be converted to cash to discount your grocery shopping, redeemed as “flybuys dollars” for travel or convert to Velocity points. There are a variety of flybuys rewards, but these don’t offer nearly as much value.

Flybuys don’t expire if you earn or redeem points in a 12 month period.

Collecting Everyday Rewards Points

Everyday rewards points can be used to discount groceries or transfered to Qantas for flight redemptions.

You can download the Everyday rewards app to your phone, and recieve boosters. It is worth checking the app prior to your shop. Again, boosters are variable in value offered.

Everyday rewards don’t expire as long as you earn or redeem points within 18 months.

Frequent Flyer Australia: Earning Points through Flying

Just make the effort to enter your frequent flyer numbers when booking flights. Combine efforts using “Family pooling.” Virgin allow families to transfer all points and status credits earned to a single family member. This is a huge bonus for families who don’t fly that often. Family pooling makes it far easier to gain status, and it benefits the whole family when you fly together.

Unfortunately, Qantas don’t offer family pooling.

The ideal points collector would be one that is flying regularly on work funded flights. Locum agencies, I find are happy to add your frequent flyer numbers to flights they book. You can even add your frequent flyer number at check in.

The further you fly, the more points you earn. If you fly overseas regularly, it is worth looking at the airlines that fly your route. Make sure you make use of the those points.

Frequent Flyer Australia & Credit cards

It easier to earn frequent flyer points through credit cards and shopping rewards than flights. Many credit cards offer lucrative sign-up bonuses (up to 150,000 velocity points currently).

Virgin and Qantas advertise credit card offers on their websites.

Obviously, this could be a dangerous game. Scott Pape (The barefoot investor) thinks airline points are a dangerous waste of time.

You don’t need a credit card to use frequent flyer points. If you are not completely on top of your finances, religiously paying off your card in full each month automatically, skip this section and focus on the other methods of points collections.

Those with plenty of surplus cash each month and good financial habits may want to consider using credit cards. Paying off the credit card in full is a non-negotiable requirement. Ironically, credit cards and loans are only a useful tool for those that don’t actually need to borrow money.

Earning Points through Credit Cards

There are two ways to earn points using credit cards. Through sign up bonuses and by points earned on transactions.

Sign up bonuses are often generous and tempting. Travel hackers who make a semi-career out of optimising points will sign up to credit cards for the bonus, meet the minimum spend and close the card. Cards lock you out of the sign up bonus (often for 18 months). These hackers work their way around the different credit card companies to utilise many sign up bonuses within a 18 month – 2 year cycle. Then start again.

This is a lot of hassle. There is a lot of small print. If you don’t follow all the terms and conditions you miss out on the bonus. Some of the credit cards put you through a lot of hassle to approve your card (for others, it seems automatic!). And it can definitely damage your credit score, although not necessarily if you are careful. It is probably the most lucrative way to earn points for those that don’t spend a lot of money on a regular basis.

The alternative is to sign up for a credit card that offers good long-term points rewards for spending. Ideally you want a sign-up bonus, but the focus is on the reward per dollar spent. If you are a high income, high spending household or business owner this may be more lucrative than serial credit card hopping (and a lot less hassle).

Does Travel hacking damage your credit?

It is not a good idea to sign up for a credit card if you are planning to apply for a mortgage in the next year. If you are considering opening a credit card, check your credit score and monitor if you are using credit cards to earn frequent flying points.

My credit score did dip after a credit card application. Over time this recovered and exceeded the original score. Monitoring your credit score gives you an idea of when you are pushing your luck with credit cards!

Frequent Flyer Australia Status

Status credits reward frequent flyers over those collecting points in other ways. Most airlines offer a tiered membership status. The higher up the membership status, the more perks available and points earned per flight.

Gold status gets you lounge access, bonus airline points each time you fly and priority boarding.

I think the appeal to most is the ability to get into the airport lounge. By making the lounge seem exclusive, those that are excluded feel they are missing out. Yes, there is free coffee, wine and snacks. But it is not worth paying extra to get these small benefits.

Both Qantas and Virgin make gold members feel important by allowing them to skip the queue with priority boarding. But realistically, does anyone really need to be on the plane for an extra 10 minutes?

The most practical benefit I have found with gold Velocity membership is priority baggage. Your bags coming out first due to the priority baggage label means you can exit the airport faster (yay!) and sometimes beat the queue to the taxi rank.

Here are the links for Qantas status benefits and Velocity. You need a lot more points to gain status with Qantas so will need to be a regular flyer. With velocity, not as many points are needed and you can family pool status points. This is within reach with a status offer, and a couple of family flights.

Both periodically offer discounted status where you can earn the membership tier with fewer flights. This may be worthwhile if you will be able to maintain your status afterwards.

The airlines offer status to improve brand loyalty. The danger is you find yourself booking more expensive flights to maintain status and enjoy the perks of status with your chosen airline.

Virgin vs Qantas

Most will need to focus on one airline or the other (although certainly collect both). Your ideal frequent flyer membership will depend on

  • Intended use of points (overseas flights with a partner airline, domestic family trips)
  • Usual flight routes and which airline flies these
  • Grocery shopping habits (ideally want aligned with your chosen airline)
  • Flying frequency (Qantas frequent flyers need to be regular flyers)
  • Whether you have a family (Virgin offer family pooling of points and status).

Partner Airlines

Both Qantas and Virgin partner with other airlines. This means you may earn points on these airlines, and redeem points for flights with these airlines. If there is a regular long haul airline you prefer to fly with, it is worth checking whether they partner with Virgin or Qantas. Long haul flights earn the most points and offer the most value for redeeming points (if you can earn enough).

Hassle Factor

Collecting frequent flyer points can become a full-time hobby if you want to get really involved!

But those who are looking to minimise hassle can also get good value with a small-time contribution.
For the low hassle version, sign up for Coles, Woolworths, Velocity and Qantas. Put the shopping apps on your phone and activate boosts and offers just prior to a shop.

When you are ready, sign up for the Point hacks introductory email course to learn about how to use your points.

Frequent Flyer Australia Devaluations

This is the biggest problem with frequent flyer points. Over time, the companies have been devaluing the points. This is likely to continue. That means you probably don’t want to be collecting points without using them for years at a time.

It’s important to set realistic targets, which may be an overseas flight redemption for a single or couple but is likely to have to be domestic for a family of four.

How to Use Points

The best points value is generally redeemed against international business flights, purchased with points. Business domestic flights also offer good value, but unless you are very tall seem of little benefit over economy to me. Economy international and domestic flights offer reasonable value, particularly over peak periods (school holidays) where the cash value of the flight increases.

Travel hacking for families

It is often hard for families to redeem seats together. For international flights that is a lot of points! Virgin Australia is a family-friendly option with family pooling of points and status. They allow pausing of your status whilst on maternity leave. Gold members are guaranteed four reward seats together to any domestic destination as long as you book six months in advance. Check out Velocity family benefits.

Reward seat availability

Not all seats can be booked with points. Airlines offer a limited number of reward seats only. This can make redeeming points challenging.

Flights will need to be booked well in advance (Almost a year for internationals) in order to have a chance of a reward seat being available. It is best to be flexible with which day you will fly to increase the chance of reward seat availability.

Preparing for Travel Again

Are you looking forward to domestic and international borders opening properly? Perhaps it’s time to get preparing now. Check those passports – many will be out of date. It’s probably best to beat the rush and update before everyone is preparing for their overseas flight.

Take the easy steps to collect points, and consider signing up for Point Hacks email course.

How many frequent flyer points do you have already? If you’re like most people, you probably don’t know the answer to that question. You may have points on credit cards, airline memberships and grocery shopping rewards than can be transferred and combined. Check your balances out!


My Experience with Frequent Flyer Australia Strategies

Over the past 5 years, I have been increasing my savings rate and focusing on building investment assets. But I still didn’t want to miss out on travel!

I had heard about frequent flyer points, but they seemed too good to be true.

Perhaps for the person being flown around by their employer, or a business owner charging hundreds of thousands of dollars to a credit card each year. I had also read the system wasn’t as generous in Australia as in the US.

Would collecting frequent flyer points be worthwhile for an Aussie cheapskate like me?

Hearing a couple of my colleagues had scored almost free flights to the US with points pushed me over the edge to check it out.

Learning the Game

At first, I didn’t know where to start. The answer, as usual, was google. I discovered Point hacks who offer a free email introductory course to talk you through the basics.

I decided Velocity points were the goal, to be converted to Krisflyer (Singapore air) and redeemed to pay for a trip to Europe. Our local supermarket is Coles, and their flybuys points can be transferred to Velocity.

I signed up for Qantas points and Woolworths Everyday rewards but have pretty much ignored them.

I signed up for a few credit cards over 18 months for the signup bonuses. Leading up to investment property purchases, I avoided credit card applications. I used Credit Savvy to monitor my credit score and took a long break after a credit application caused my score to drop by 50 points. It rebounded within 6 months.

I checked my bonus offers on flybuys before each shop, and found particularly leading up to Christmas some great offers.

Gaining Status

A status offer came up for Virgin. A few trips for locum work easily made me eligible. With family pooling and a few flights for work and fun, I maintained my status.

Redeeming Points on International Flights

18 months into collecting points, I redeemed them all with Singapore air for two return economy flights to Europe. We are a family of four, and it was clear I couldn’t collect points for all 4 of us fast enough. So it halved the price of our flights. Alternatively, I could have used the points for 1 return business flight to Europe. Unfortunately, I didn’t feel I could pull that off and keep the rest of my family in economy!

Now seems a pretty good time to optimise points balances in anticipation of travel becoming a lot easier. Have you tried travel hacking? Post about your frequent flyer Australia experience

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

Personal finance is Self Care

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

How do you look after your own mental health? When you feel under pressure, do you play music, exercise or book yourself in for a massage? All these are valid forms of self care, and important.

Financial self care can have far longer lasting benefits to mental and physical health. How are you going with personal finance?

What is Financial self care?

There is a tendency in society to dismiss interest in money as greedy, self-interested or even sinful. Medical professionals usually enter the profession with altruistic ideals. They like to pretend money doesn’t matter. But money is just a fact of life. How we manage our personal finances can make a huge difference to quality of life now and later.

Financial self care includes forming a budget, tackling debt, paying for insurance to cover disasters and forming long-term financial goals, saving and investing to achieve them.

Just because money isn’t your number one priority doesn’t mean you should completely ignore it.

Unfortunately this is all too common among doctors. A strong income can often give professionals a false sense of security. Unexpected losses of income, such as during COVID-19, a prolonged period of illness, unemployment or a desire to change to a new career or specialty can threaten that security pretty quickly.

High Income Households Experience Financial Stress

An ABS report reassures us that although wealthier households can find themselves in a stressful financial situation, this is usually due to discretionary, rather than essential spending.

These households have more resources to fall back on an can, after all, just sell that overleveraged home.

High earners are less likely to miss meals and suffer other extreme consequences of accumulated debt. They may also have family they can ask for help.

Having to sell your home because you can’t afford the mortgage doesn’t sound like a walk in the park though, does it? It sounds like the cause of many sleepless nights.

Financial Health Can be Hidden

The effects of poor financial management can only become exposed years into the problem. Living beyond our means is easier now than ever. Credit is easily available, often just more expensive the less you can afford it.

Higher earners who spend more than they earn may avoid experiencing financial stress until they want to retire. Their large income will cover a lot of monthly payments, but they fail to get their finances under control or save for the future, beyond government mandated super contributions.

A common misunderstanding is that with a high income, it will all work out effortlessly. High educational achievements do not correlate with high financial literacy. If a household is paying bills on time and the bank account isn’t overdrawn, it’s easy to assume all is well.

But are you saving money, making and meeting financial goals and actively planning retirement savings? Have you sought enough financial education to feel confident in these skills?

It doesn’t matter if you earn $50,000 or $500,000. If both workers save and invest nothing outside mandatory superannuation, their retirement account and income will be in a similar relative position after a 40 year career.

A Comparison of Two Hard Workers

Lets look at a theoretical case study.

John earns just $50,000 annually for his 40 year career.

Jack earns an impressive $500,000 annually for his 40 year career.

I have assumed they both have had 10% super contributions throughout their career (assuming neither are self employed). These hypothetical contributions earned 7% per year real return. We are working with a dream super account that doesn’t charge any fees!

 Super Balance after 40 years of work assuming 7% real return minus tax Retirement

 Super Balance after 40 years of work assuming 7% real return minus taxRetirement Income as if Tax FreeRetirement Income as percentage of Working income
John $50,000 income$719,805$28,79266.5%
Jack $500,000 income$4,542,645  $181,70560%

John has a reasonable $719.805 whilst Jack has accumulated over $4 million dollars!

John receives 66.5% of his post tax working annual income as a tax free retirement income stream after 40 years of work, aged 60+.

Jack is far wealthier with $181,705 annual retirement income. However, this represents only 59% of his post tax working income. On top of this, Jack will need to pay tax on this income as his super balance exceeds the $1.7 million super cap.

Although Jack is richer, he still has to cut his living expenses more drastically than John. There will be a lot of discretionary spending in that, although Jack may fail to recognise it. Jack will presumably have completed some postgraduate training, so will be older than John by the time he has worked 40 years, and is able to retire on approaching 2/3 of his working income.

Advantages of Financial Self Care

As soon as you can create a gap between your income and your spending, advantages occur.

Avoiding Financial Stress

Poor money management has long been quoted as a leading cause of marital conflict and divorce.

Not having enough money often leads to delayed health care. This is less likely to be so extreme in higher income households, but could still result in delays to diagnosis and treatment.

With prolonged financial pressure, particularly if associated with divorce or loss of the family home, depression and anxiety as well as substance abuse are more likely.

Stress is often expressed subconsciously through physical symptoms. Headaches and abdominal pains are common complaints.

Anxiety about money also affects your work. It is associated with higher absenteeism, lower work engagement and productivity.

Savings Compound

Once you can pay expenses in the most cost effective manner, everything gets a little bit cheaper. For example, your car insurance may be cheaper paid annually. There are discounts for paying school fees upfront and you can bulk buy pantry goods when on sale. These all may seem like small savings, but little advantages like this compound over years to become significant advantages.

Ability to Deal with Unexpected Events with Minimum Stress

All the thing we talked about earlier, unemployment and long-term illness cause enough problems. Not having to worry about money would be a welcome relief.

A good sized emergency fund also allows us to fulfil obligations or desires to help care for, and be with (particularly distant) loved ones in crisis.

Income flexibility

A central theme in personal finance is saving some of your earnings from every pay.

If you are saving 20%, you know you could drop your income by 20% and all your expenses are still covered.

This provides quite a lot of options, including dropping hours, changing jobs and starting a new career.

As that 20% grows and compounds over time and starts producing income of its own, your options and flexibility also grow.

Set & Achieve Long term Financial Goals

We have probably all stuck our heads in the sand about an issue we’d rather not tackle. Usually, we feel a lot better once we just get it sorted. Personal finance is a common topic to ignore and hope for the best. With that slightly worried feeling lurking that we should be doing better.

Having even a basic financial plan (budgeting to save and invest 20% and expand the plan later) will give you confidence. A little bit of finance knowledge building will empower you to make your own decision, or keep an eye on the advisor looking after your money.

Taking some time to dream up some bigger aspirations is a worthy goal. It is easy to get bogged down in the daily grind of daily life, and drift along mindlessly.

By taking the time to form dreams and goals, you will achieve far more of the important stuff in life.

The money is just a means to an end to achieve these aspirations.

Helping the Next Generation

I am of the belief that the best way to help your kids financially is by building their financial literacy. Money handouts tend to do the opposite. You will need to invest (time) in some financial education yourself in order to help out your kids.

Debt & Loans

Debt can be good, bad or tolerable. You (and your kids) need to know the difference. Good debt can accelerate wealth and even build intergenerational prosperity. Bad debt uses compound interest in reverse to destroy your finances.

Having great money skills, managing debt well and maintaining a great credit score will qualify you for better rates on home loans.

Avoiding Scams

Not tackling your finances whilst feeling a little worried about neglecting this area of your life can leave you vulnerable to scams.

Doctors in particular, can be quite naïve. They are also known to have high incomes so are perfect targets for potentially fraudulent transactions.

Unfortunately, there have been facebook groups where doctors have recruited colleagues into scams they thought were great investments.

Don’t follow someone else blindly. Read (or listen to) several sources and tread carefully.

If you you want to use a financial advisor you need to be able to afford to pay them (and avoid commission). You also need to choose carefully.

Personal Finance Success is Easier as a High Earner

You absolutely can’t get away with doing nothing, and relying on your high income to provide financial security. You need to build assets over time.

But high earners are not facing the same difficulties the average Australian household earning $85K is. Saving and investing is a lot easier on a high income.

A small percentage of your income will compound significantly over a long time period.

Building Financial Literacy

How to Manage Your Personal Finance as a Form of Self Care

  1. The first thing you need to do is track your spending
  2. Set some short, medium and long-term life and money goals
  3. Next, set a budget to allow savings to be captured (20%?)
  4. Create an emergency fund of at least $2000
  5. Make sure you have adequate insurance coverage (health, life, income protection)
  6. Pay off all credit card debt as soon as possible
  7. Start investing in a sensible, low risk strategy
  8. Consciously note when having savings and investments improved your overall wellbeing.

With student loan debt likely to increasing over time, financial literacy only becomes more important. Try and forms some new habits of financial self care.

It won’t feel like self care initially, but over the long term it’s the most caring action you can do for youself and your family.

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

Budget Direct Review – My Claim Experience

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

Are you looking for a value for money comprehensive car insurance policy? Budget Direct have been around since 1998 and they have built their reputation on affordable cover.

Owning a vehicle is expensive. Expenses include insurance, registration maintenance, fuel and parking. Depreciation is the sneaky, large expense that comes with car ownership.

Everyone wants to minimize costs on a boring expense such as car insurance. But you only know the true worth of an insurance product when you go through the claims process.

Well I just happened to have a minor accident recently. Whilst annoying and inconvenient, no one was hurt and it has provided me with an experience to base my review.

Who Are Budget Direct?

Budget Direct is a direct-to-consumer car insurance provider with a focus on the Australian market. They provide an alternative to traditional insurance providers, and have been running for 15 years. They are one of Australia’s leading auto insurers, and generally offer very competitive rates.

Budget Direct was founded in 2003 by entrepreneur Andrew Barnes who wanted to make purchasing car insurance easier for Australians who at the time had to go through their local agent or broker for quotes. He built Budget Direct as an internet site where people could enter their details and find out how much it would cost them without having to talk to anyone or leave their home.

Budget Direct are underwritten by Auto & General Insurance Company Limited.

What do Budget Direct Offer?

Budget direct offer car insurance which can be:

  • Comprehensive insurance
  • Third party insurance
  • Third party fire and theft cover

Budget direct education area further explains the differences between the types of insurance here.

The company also offer motorcycle insurance, budget direct home insurance, pet and travel insurance as well as Roadside Assistance.

How does Car Insurance work?

-Agreed Value vs Market Value Insurance Policy

Budget, along with other insurance providers, will generally offer “Market value” cover. If you have a new or valuable vehicle, they may be able to offer an agreed value policy. Agreed value means you have agreed in advance how much the company will pay in case the car is written off. Market value, means the value will be assessed at the time of an accident.

– Budget Direct lets you Set a Higher or Lower Excess?

The excess with budget direct can bet set from $600 to $1200.

A higher excess often results in a reduced premium, it’s worth playing with the quote calculator to work out where your sweet spot is.

I am a big fan of Scott Pape’s advise to insure against catastrophe only. If you can tolerate a larger excess, you may be able to get better value for money insurance.

There may be additional excesses against driver younger than 18, non-listed drivers and drivers with a driving license for under two years.

– When you Have to Pay the Excess

If your vehicle is damaged but you’re not at fault (and the insurer agrees), you don’t have to pay the excess. unless you don’t have the other driver’s details. If you are at fault, or if there is no other driver (eg a tree landed on your car), you will have to pay your excess.

You need to be able to provide the at fault drivers details for Budget Direct to waive the excess. If you cannot do this (for example someone hit your car and drove off) Budget direct require you to pay an excess. They have previously refunded the excess when the driver responsible for an accident was identified.

Checking with several other insurance policies, it seems a normal feature to have to pay your excess if you cannot identify the at fault driver.

I’m not sure if you will find an insurance provider that will waive the excess if an accident isn’t your fault, without and identifiable at fault driver. If you do, the premium is likely to be more expensive.

You should have your excess (and more) available for quick access in your emergency fund.

Budget Direct Comprehensive Policy Features

  • Accidental damage to third party property up to $20 million
  • Damage to a trailer towed by the insured vehicle (but not contents)
  • Transport home or emergency accommodation if necessary
  • Hire car when the car cannot be driven if you are not at fault
  • Brand new car replacement from cars that you have purchased new and have less than 5000km on the clock (small print applies, check the PDS).
  • Damage to other peoples property
  • Loss of car, theft or fire

CTP Insurance

Compulsory third party insurance is a legal requirement for all car owners, and provides cover for injury or death of other drivers, passengers or pedestrians. Find out how it works in the different states and territories here.

As Always, Check the Product Disclosure Statement

As with all insurance policies, conditions and limitations apply. Read the relevant Product Disclosure Statement (PDS) and applicable excesses in detail. Use this to compare your shortlisted insurance quotes.

Payment Options with Budget Direct

You can pay for Budget direct insurance annually for the cheapest rate. You pay a small premium to pay fortnightly, monthly or annually.

If you are overdue for payment by at least 14 days, any claims may be declined.

-How to Renew Car Insurance with Budget Direct?

The company send a renewal offer about 30 days before your policy expires. Remember to shop around (you could always outsource this to your teen, with motivation)!

If your renewal is granted it does not require any action – your policy will automatically renew.

-Getting a Quote

A quote is easily organised via the Budget direct website. You will need to know the year, make and model and whether there are non-standard accessories or modifications.

If you have anything rather than a basic unmodified car, make sure the person with an interest in cars makes the phone call! I found Budget direct very detail oriented around my partners modified Landcruiser. For my basic old vehicle, things were far easier.

The company will also want to know how the vehicle will be used, and where it will be stored at night.

You need to be clear on the reasons you use your car, and there are some business uses that are excluded (such as Uber driving or driving tuition).

It is good to note that Budget offer further discounts for new customers and those driving less than 10,000 km per year.

You will also have to declare your claims history. Any history of claims in the last few years will increase your insurance premium, as you would expect.

You will need comprehensive car insurance to cover accidental damage to your own vehicle

Reducing the Cost of Your Insurance

There are a few ways to get a lower premium. Most of the price variables are fairly fixed, and linked to your statistical risk as an individual driver.

  • Low driving km per year
  • Higher age of youngest driver, and excluding drivers under 21-30 from being insured
  • Home owners are statistically lower risk so benefit from lower premiums
  • Increasing age lowers risk until you reach ~ 70 years.
  • Female drivers are lower risk
  • Holding a driving license for a short period of time increases risk, and premiums
  • Postcode – higher density and higher crime areas cost more
  • Older cars are cheaper to insure (will be lower replacement cost so that makes sense)
  • You will pay more for vehicles used for business
  • Parking in a garage is safer than a car port, which is lower risk than on the street

There are factors you can alter to get better value for money.

  • Minimizing add ons such as windscreen protection, accident hire car, roadside assist and choice or repairer
  • Adjusting your excess (larger excess usually means a cheaper policy)
  • Bundle insurance products for discounts
  • Pay annually
  • Change to 3rd party insurance if you have a lower value vehicle

Minimizing Extras to Save on Costs

It feels good for your insurance company to pay for any little thing that happens to your car. A crack in the windscreen may cost around $100. A replacement windscreen may cost around $500.

The insurance company to sort these small costs out of their own costs, they fund it through the extra premiums you pay for this cover. Obviously, insurance companies exist to make a profit so they must collect more in premiums than it costs them to run the company, employ staff and pay out claims.

Logically, you are far better paying non-catastrophic expenses out of your own pocket rather than contributing more towards an insurance company’s running costs and profit margin. Pop the premium saved into your emergency fund, it is very likely you will be better off.

A hire car after an accident is a nice perk. But hire cars in Australia are pretty cheap, and it is probably faster for you to organise it yourself. Again, I wouldn’t pay extra for a replacement car.

Why is Budget Direct so Cheap?

We’re led to believe in life you get what you pay for. It is not necessarily true. So how can this company offer cheaper insurance products than their competitors?

Budget say they can provide cheaper cover because they only insure low-risk drivers. By asking lots of questions, they can identify and exclude higher-risk drivers. They also can keep premiums to a budget price by minimizing company overheads. Is answering a few more annoying questions (and even getting them to call your partner for further clarification) worth saving a few hundred dollars?

Budget direct does offer lower coverage in some categories. Finder compared Budget direct and AAMI car insurance and found AAMI provided more generous

  • Emergency travel and accommodation costs
  • Personal property cover
  • Emergency repairs (repairs needed before authorization by Budget)

When comparing insurance cover, unless money is of no concern it is important to focus on the cover that is important to you. Try not to get distracted by the “nice to haves”.

How likely is you will be stranded and need emergency accommodation due to an accident? Is it worth paying extra?

Budget Direct Car Insurance Review

My Budget Direct Comprehensive Car Insurance Review

-Choosing Budget Direct Car Insurance

I’m the owner of an old car worth maybe $5,000-6,000. It’s in good mechanical condition, without rust but it’s nothing flash and never gets washed! I don’t feel the need to pay extra on car insurance. My car has had comprehensive cover since I purchased it 10 years ago although it’s getting to the point where we may consider downgrading to third party.

I went with budget direct car insurance because they offered great value for money. I was looking for comprehensive car insurance at the best possible price. The cover appeared adequate for my needs.

-The Accident

I had a low speed collision. It was my fault. I rounded a corner into a queue of traffic and couldn’t stop in time. No-one was hurt, but there was significant crumpling of the front of my car and a dent to the back of the other car.

I have not been in a car accident for years, and I wasn’t quite sure of my obligations legally and for insurance purposes.

My car insurance policy was quickly located in my email account to then contact Budget direct by phone.

-Legal and Insurance Requirements

Budget direct staff answered quickly. They were able to answer my questions.

Did I need to notify the police? No, no-one was injured and the road was not blocked. Could I drive the car home? Yes. But budget direct insurance would cover a taxi if my car was undriveable.

-The Claims Process

Budget direct’s staff would call me back later that morning to submit a formal claim once I was home. I ended up submitting the claim on the online portal, which was easy.

A budget direct employee contacted me that afternoon. I quickly had an appointment booked for the damage to be assessed the next day.

Given it was an at fault accident, I had to pay my excess which was easily sorted on line.

The assessor took a few minutes to assess the damage and I could leave to get back to work. I then had to wait for budget direct to give permission for repairs.

-Waiting for Approval

It took around 10 days of wait time for my claim to be approved. Although it took some time to go through their process, they didn’t try and avoid paying the claim at all. The general insurers code of practice allows companies 10 days to provide an outcome to a claim, or advise you of delay. If there are complications such as medical claims these can take a lot longer.

In this time, Budget direct are checking the details with the other driver and their car insurance details. They may examine photos and dashcams.

After that, I had to book in to get my car repaired. Unfortunately, the panel beaters were booked up for a month so I had a significant wait. The car was still driveable, but the air conditioning was no longer functioning :(. The car looked pretty awful for that period of time.

The Repair

The car took around 10 days to get fixed. The panel beaters did mess me about a bit. I had to call repeatedly as they kept promising the car the next day, then delayed.

The panel beater communication was poor and this was frustrating. I’m not sure that the mess around with the panel beaters can be blamed on Budget direct though.

The car repair was excellent. I certainly can’t tell there was ever an accident, and most importantly, the air conditioning works again. We don’t drive a huge amount and have another car and a bus that leaves for work from close to home. I could have easily paid for a car hire, but it didn’t really seem worth it as we still had a family car functioning. I just would have liked to know how long my car would be out of action, so I could plan around this better.

Would I Insure with Budget Direct Again?

I remain motivated by insurance premium cost primarily. My premium will increase at renewal time (I didn’t have protected no claims). But if they continue to offer an insurance policy that is good value for money, I would renew with Budget. Smashing your car is inconvenient and dangerous so should be avoided. On the rare occasion an accident occurs, it is always inconvenient.

I’m not sure if my car being with another insurer would have sped up repairs at all, but I suspect not. In a regional town, it is likely many insurance companies use the same panel beaters. And the quality of work was excellent, it was just the communication of administration staff on the days that made the experience frustrating.

Other Budget Direct Car Insurance Reviews

Budget car insurance won Money Magazines Insurer of the year for 2017-2021. You can also find car insurance reviews at Product reviews, Word of Mouth and Budget Direct. The time to resolution of claim seems very variable.

There are a mixture of positive and negative car insurance reviews. But looking at other companies car insurance reviews, a spattering of complaints is to be expected.

Are Budget Direct Any Good?

Overall all, I would say my insurance policy provided good and value for money cover.

But if you are heavily dependent on your car or have a “pride and joy” type car and have a choice of car repair and panel beaters in your area, it may be worth doing more research.

If you have a preferred repairer, or want the flexibility to go with the repairer who can get the job done quickly, you could add the preferred repairer option to the policy.

The Budget direct policy states:

“However, if we consider a repairer’s quotation is not competitive, or that the repairs would

not be completed to a satisfactory standard, we may decide not to authorise repairs and

offer you the option of having the car repaired by an alternative repairer chosen by us, or

l paying you the reasonable cost to satisfactorily repair the car”

Summary

If you have a high value car you may prefer to insure with an insurance provider who usually insures higher value cars, and can provide a more streamlined process in case of repairs.

For those of us whose cars are just a convenient mode of transportation, Budget direct provides good comprehensive car insurance, with reasonable customer service and great value for money.

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

Saving Money: Avoiding All or Nothing Approach

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest

If wanting to improve your balance, start a little closer to the ground

Have you noticed many of us tend to behave in extremes?

With finances, there is the YOLO crowd that won’t put any money aside and go into debt for expensive and often showy consumer purchasers. They are living life for today, but often don’t think about what they actually value. They risk trapping themselves working lots of hours, with little flexibility for choice when they really want to make a different choice.

On discovering FIRE (Financial independence retire early), many go to extreme lengths saving 70% of their income. These super savers are often highly motivated by an unhappy work environment. In attempting to escape the situation, they take on lots of overtime, as well as a side hustle whilst practicing extreme frugality. The risk is compounding misery and missing out on all the good stuff in between.

Grant Sabatier is probably the most famous of extreme savers who later regretted going to such extremes. His health suffered and his relationships were neglected.

When we finally reach a huge goal we’ve been working towards for a while there is a risk of “Arrival fallacy”. Our brains tend to fantasise that all of life’s problems will melt away just soon as we…. Lose 10 pounds, Get a promotion, reach financial independence….

Only after reaching these goals do we tend to stop, reflect and realise that life is the journey experienced between goals. It’s good to be striving for something, just don’t sacrifice everything else to get there.

I decided at 16 years of age to try to become a doctor (and a good one too). From that moment I worked towards each goal in my way. At 24 I graduated medical school, but that was just the beginning. After nine years of postgraduate training, I passed the final exams to my specialist qualification. I had reached the end of my plan.

I had fantasised about how good this would feel for months, even years. But especially during the hard grind of study over the prior year. It took just 20 minutes waiting alone post exam for a friend for it to hit me. That pesky feeling of anti-climax.

Now what?

Luckily there was plenty of fun to be had in the days post-exam, and then my first “boss job” to settle into. But I admit I missed having an incredible goal to work towards. Once in my comfort zone at work, I wasn’t striving for anything, and without that, I felt a little lost.

I have found more, smaller goals since then. Parenting, sports, investing, taking up a musical instrument and starting this blog have kept my mind busy. I’m far more aware now that I need to be working towards something to feel happy, appropriately challenged and happy.

Is Saving Money Worth It?

Does anyone really want to be financially forced to work unless they love it until 67 years?

Does anyone think a health forced retirement before you have enough wealth accumulated to enjoy an acceptable lifestyle sound appealing?

What about not being able to take time off because you can’t afford it if someone you love really needs you?

Of course not! These situations all sound like they suck!
The reasons people don’t sort out their finances (and save) include:

  • They don’t think about the what if’s, and would rather bury their head in the sand and deny the possibility of the above happening
  • We have all been brainwashed by consumerist marketing. The worst affected think life isnt worth living if you cant buy every latest consumer product
  • They feel despondent, it feels impossible to save money for retirement or other goals. 🙁

Saving money offers increasing degrees of freedom of choice in our lives. The impact is significant as soon as we move beyond spending every bit of our pay each month. Small incremental improvements make a massive difference to your choices and sense of freedom over time.

  • The ability to pay for a small unexpected expense without stress (car break down)
  • No longer needing to waste money on high interest rates credit cards (designed to drown you in debt)
  • The ability to save more money by buying in bulk, paying in advance for discounts etc
  • Can buy better quality gear that ends up less expensive over the long run
  • Can take extra (unpaid or half pay) time off work in an employee
  • Have some flexibility with requirement for income for self-employed (so can reward themselves with a real break!)
  • Can choose to cut hours at work if it suits
  • Changing jobs to a more enjoyable post can occur without financial stress over small changes in pay
  • Can consider a mid-life career change
  • Can retire early if work becomes a drag

What are Money Saving Tips?

If you are new to the site, and the financial independence movement, it’s easy to wonder where to start. If you work through this list and take action where you can, you’ll likely be amazed at how much financial progress you make over the next 5 years. .

  1. Buying less house and car than you can afford are probably the most impactful financial decisions you can make. Avoiding brand new houses, units or cars seems to generally a great financial move.
  2. Focusing on becoming excellent in your career can pay far more than any of these other items. Save 50% of the pay increases.
  3. Minimise “structural expenses”. These are commitments to regular expenses, such as a cleaner or car payment. They are a far bigger deal than the one-off purchases you make. You can absolutely take these on if they truly add a lot of value to your life. Just think very carefully before you add more structural expenses to your budget.
  4. Start automating saving money into an emergency fund before doing the same with investments. Commit to a small amount each pay and increase it with each pay rise. This is the most painless way to save and does add up quickly, even with small pay rises. I just increased my Pearler* automated investment by $30 a fortnight after reducing an expense. It may seem so tiny, but if you do it every time it soon becomes significant.
  5. If you need to grow an emergency fund quickly (or want to start investing faster), consider selling some of your unused stuff. You will get a lot less than you paid for it but most of us probably have a few hundred dollars worth of “stuff” lying around.
  6. Allocate time to go through your spending at least twice per year. Analyse each line item. Is there anything you are not getting value? An accidental amazon prime subscription? A magazine subscription you don’t read often?
  7. Review your mortgage interest rates or rent every 2-3 years. Make sure you’re getting a decent deal.

Can Saving Money be Addictive?

It’s easy to get into a habit of checking your bank or investment account multiple times a day. Money can start to take over. People can be seduced by the “All or nothing” mentality.

The worst are probably converted consumers, rather like ex-smokers! Saving money can become like a religion.

Dangers in going overboard with saving money is:

  • Missing out on highly valuable experiences in your quest for a high savings rate
  • Sacrificing important relationships as you have no other interests, and refuse to socialise (and spend money)
  • The arrival fallacy. It would be so sad to arrive at financial independence and realise it’s not all that you thought it would be. Without hobbies or relationships you have a lot of time to fill!
  • There is always the risk of illness or death far younger than expected. Unfortunately I see it all the time at work. It is a painful reminder that nothing is guaranteed and your time should never be taken for granted
  • Huge “Fuck it” moments. After a months, or years of delayed gratification it’s easy to start feeling disgruntled if you don’t see a lot of progress. When everyone around you seems to be living a higher quality of life, and your sensible investing is moving too slow, it’s more likely you will blow your investments on a purchase you will regret.

How to Stop Obsessing Over Saving Money

You don’t want to be thinking about money all the time. There is a lot more to life you don’t want to be missing out on. If it’s started to become a habit:

  1. Automate your savings and investments. You have heard of paying yourself first. Take the amount you are putting towards savings and investments out of your account as soon as you’re paid. Automating this will help you gradually stop paying so much attention to it. As your investments grow, the increase each time will seem less significant, it gets a little boring. Over time you should gradually stop checking your account so often.
  2. Practice Mindfulness. We are always trying to multi-task everything. Try and be completely present during non-money activities that you value. If you are watching a movie cuddled on the couch with your partner, remove phones and enjoy the time fully.
  3. Get a hobby! You do need to spend a bit of time learning the basics of how to invest, but index fund ETF investing is really simple and evidence based to outperform far more complex methods. Unless this really interests you, it’s then time to find a new hobby. Get obsessed about becoming mastering a new skill or fitness activity.
  4. Have a fun money account. This is money you get to spend on anything you like. It will help you spend a little regularly on things that you value without guilt. If you find yourself hoarding this money, actively seek a way to put it to use in a way that will provide maximum joy.
  5. It is actually quite useful to cut expenses until it hurts. Most people assume they can’t cut expenses (eg gym membership). It’s worth cutting ruthlessly to work out what you really miss. When you notice you have gone a little too far, restart the spending that provides good value.
  6. If trying to increase income, ensure it never causes you harm. Moonlighting may be frowned upon by your employer, and may damage future career prospects. Taking on overtime when you need to be studying is obviously not wise, and working overtime in a job you don’t enjoy isn’t worth it unless very short-term, saving for a specific goal. Consider very carefully the consequences of side hustles and extra work, make sure you confirm with your employer taking on extra work is ok. Ideally extra work should provide more benefits than just money. You should enjoy the extra work, and perhaps learn skills that you are keen to pick up.

Spend Smarter

Try and find new ways to inject extra value into life whilst minimizing costs. Use frequent flyer points to fund holidays. Shop around. Use Cash back.

Saving Money & Maintaining Balance

Many of us spend some years with our heads in the sand about our finances. Working out financial and life goals, and developing a financial plan are challenging. We need to simultaneously invest as if we will live to 90+ whilst also living every year to the full to avoid regrets. It’s easy to become a little obsessed with saving money. This can provide motivation to get over inertia and start making progress. But the road to financial independence is long and windy. Automate everything you can and make sure you focus on the ups, downs, twists and turns along the way. The journey is the best bit.

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

Choose a Mortgage: What is the Comparison Rate?

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

Purchasing a property, and taking on a mortgage, is one of the biggest financial decisions most Australians will make in their lifetime.

Your choice of property will be a large factor in wealth accumulation over your lifetime.

The total price of a property can be doubled (or more) by interest paid over the life of the loan. Luckily we are currently in record-low interest rates, although it is unclear how long this will last.

The interest rate you pay makes a massive difference over 30 years to how much you pay for a property. Should you rely on the comparison rate to make your decision?

No.

Even paying 0.5% extra in interest over 30 years for the above $500,000 property results in an extra $44,000-$65,000 in interest charges over the life of the loan.

But it’s not just the interest rate that’s important. Annual fees act in a similar way to interest and blow out the cost of a loan over the long term. Then there are establishment fees, exit fees, redraw fees, introductory rates and special features such as offset accounts and lenders mortgage waivers.

The result is enormous confusion for first-time buyers and refinancers! A mortgage broker can help you compare like with like, and make recommendations based on your personal circumstances. It is wise to invest some time educating yourself on options given mortgage brokers have a conflict of interest in recommending loans (being paid by the lenders).

Work Out What Kind of Loan You Need First

I find it’s easy to narrow down the options first. Do you need a residential or investment loan?

Need to Borrow More than 80% Loan to Value Ratio?

Do you need to borrow more than 80% of the property’s value (LVR)?

Loan $400,000

Property Value $500,000 = LVR 80%

Deposit Required $100,000 + Borrowing costs ~ 6% property value 30,000 = $130,000

If you work in an occupation considered at super low risk of default, you may be able to get lenders mortgage insurance (LMI) waived.

Different lenders have different eligibility criteria. Accountants, lawyers, judges, doctors, dentists, vets, optometrists, chiropractors and physiotherapists. Nurses may be able to get LMI waived up to 85% loan to value ratio, or discount LMI.

Borrowing over 80% LVR is a higher risk strategy but can suit those trying to get into a rapidly rising property market and investors.

Do you Need a Redraw or Offset?

In these articles, I go through the benefits and downsides of offset accounts and redraw facilities. They are both ways to potentially reduce interest paid. You will have to pay extra in fees (particularly for offset accounts). If you will keep more than ~ $20,000 in savings it is likely worthwhile paying for an offset. The higher interest rates go, the less you need to have in savings to make offsets worthwhile. They are ideal for emergency funds, and as discussed in the articles above.

How Much Will You Borrow?

Please work this out based on the repayments you are happy to make on a monthly basis.

Then check you can borrow that amount with an online calculator.

If you calculate your maximum borrowing capacity first, you will be psychologically anchored to that (usually) higher price.

Mortgage repayments can be significant dampeners of your ideal lifestyle if you over commit yourself. If you want to buy as much house as you can possibly afford as part of a financial plan, make absolutely sure you are buying the right house. And make sure you are happy to make the sacrifices involved in that strategy.

Remember to price in extra insurance needed such as income protection, TPD and life insurance premiums. Unfortunately, these have become far more expensive over the last couple of years, even for those of us with no longer available “level” premiums.

Do You Want Fixed or Variable Rates?

This may come down to the actual rates on offer at the time, so I don’t think this needs to be set in stone before looking at options.

Fixed rates are offered over 1-3 years (and longer, but often at great expense). The bank sets these rates based on all the information available to them. They set these rates to attract customers, whilst obviously maintaining their own profits. Fixed rates are usually a little more expensive than variable rates, although this trend has been reversed recently.

The Reserve Bank of Australia (RBA) review the official cash rate monthly and increase or lower it to manipulate the economy as close to a happy steady state as possible. The banks choose to pass these changes on or not, even increasing rates independently, to maintain profit levels.

Despite this over the long term, variable rates have usually been cheaper than fixed rates. More than half of borrowers who sign up for a fixed rate end up paying more than they would have with variable rates.

People choose fixed rates because they:

  • Believe they can predict interest rate moves (and think they will increase)
  • Have borrowed a lot of money and would struggle to meet repayments if interest rates increased

We were nervous buyers in 2008, on unimpressive salaries at the time. I’m grateful our mortgage broker at the time talked us out of fixing rates then! I think our rate was ~ 8% at the start!

A fixed-rate usually locks you into the loan for a period of 1-3 years, with an exit fee to break the agreement. This provides inflexibility in the case circumstances change, you wish to move or refinance to access equity.

Fixed-rate mortgages also don’t traditionally allow offset accounts. There have recently been mortgages offered with fixed rates and offsets, but to go with these options you will be limited to a handful of loan choices.

It is possible to hedge your bets by fixing part of the loan and keeping another part variable. This can offer the best of both worlds for some. They have more security around repayment amounts but are able to offset emergency savings and future surplus income against the variable portion of the loan.


Our mortgage broker did not talk us out of fixing rates after our most recent investments property purchase. With rates so low, it’s hard to imagine them going much lower. Fixed rates have been offered by lenders at rates lower than variable rates. We ended up going with a mixture of variable and fixed rates for our mortgages.

Comparing Fees

One-off fees are less significant than recurring annual fees. Add the annual fees to the interest payable on the amount borrowed to compare mortgages like with like.

Similarly “cash back” or airline point offers may be lenders trying to distract you from fees and interest payable during the life of the loan. It is the recurring expenses that are most significant.

Compare mortgages over 3-5 years. You should review your lender options 3-5 yearly, and will likely refinance to better options at the time. If you are fixing for a period, compare rates for the fixed period only. You will need to review the loan and compare it with competitors at the end of the fixed rate.

Comparing Interest Rates & the Comparison Rate

I tend to ignore honeymoon low-interest rates, which tend to balloon after 1-2 years. I don’t want to refinance my borrowings after a year. It’s a lot of hassle. I would rather secure a good value loan for 3-5 years (or the fixed-rate term) and not have to worry about it for a while.

What is Mortgage Comparison Rate?

Due to the complexity of loan offerings available, legislation has been introduced to attempt to make it easier. Each loan has to display a “comparison rate” in its advertisement. The idea is that the comparison rate lumps all fees and the interest payable for a loan together so that you can compare like with like.

Unfortunately, I don’t think a comparison rate is that useful for most of us. In fact, they may provide you will very inaccurate information based on your situation.

The comparison rate is based on a standard borrowing scenario – the rates and fees incurrable by a $150,000 loan, repaid over 25 years.

I don’t know anyone who has brought home for $150,000. And most home loans are over 30 years. Most financially savvy households will refinance their loans 3-5 yearly anyway.

A $395 annual package fee is usually the same whether a home loan is for $150,000 or $1,000,000! The interest on the larger loan will be a far more significant part of the equation.

If you are (conveniently) borrowing just $150,000 the comparison rate will be an excellent comparison tool. For the rest of us, we need to do the maths ourselves or ask our mortgage broker for a detailed comparison based on our actual intended borrowings.

Is Flexibility Important?

Life is unpredictable and personal circumstances can change quickly, and dramatically.

It is worth taking some time to consider how important flexibility is in your situation. If you are planning to stay put in a home for 10+ years, with no plans to invest and a low likelihood of needing to move flexibility can be a low priority.

For those with more options on the horizon, avoiding loan discharge fees and prolonged fixed rates are a good idea.

Utilising an offset account instead of a redraw facility will mean extra repayments can be moved to a new home if you end up converting the old one to an investment property. If you pay off the loan (using a redraw) you cannot withdraw to gain access to tax deductibility.

Take your time making the right choice of property and loan. Remember these are some of the biggest financial decisions of your life. Get it right!

Have you recently taken on a new mortgage or refinanced. Comment below to tell us what kind of mortgage you went with and why.

Your wealth accumulation journey starts as soon as you make the first step.

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

Is Installing solar Power Worth it?

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.

Are you wondering whether installing solar power is worth it?

A little internet research provides hundreds of pages of solar power companies reassuring you that it is totally worthwhile. But there is a bit of a conflict of interest there isn’t there?

I thought those considering splashing out may appreciate my consumer’s point of view.

The Aussie Doc household is now on our second set of solar panels. Having just been through the process of replacing our panels, it’s a great time to share our experience.

The Cost of Electricity is Rising

You would have to be living under a rock to fail to notice the headlines complaining about rising power prices. The graph below is data from the ABS on the increase in average household electricity costs since 2009.

In 2011, when we installed our 1st set of solar panels on our 1980 house, the calculations told us it would take around 7 years to break even. We purchased a “cheaper” system at the time, although it certainly didn’t feel cheap! It was a big outlay and we were concerned the calculations provided by the solar power company may prove to be exaggerated.

The significant increase in price since 2011 actually would have shortened the time it took to break even. We were lucky enough to time this well enough to secure a 44c feed-in tariff until 2028 (unfortunately no longer available). We didn’t realise what a huge bonus this was at the time, but feed-in tariffs now are usually 7-16c per KWh.

Initially, we were completely bill-free (or even paid a little from the electricity company!). Over 3-4 years our bills started to creep up, reflecting the increase in prices. The bills were still far lower than our friends until this year when there was a sudden spike in our bill from $300/quarter to $500.

After my brave partner got on the roof to check it out, turns out one of the panels was broken. Discussion with solar companies in the days after revealed that solar panels are far more efficient now than those produced in 2011. Our solar panels were pretty much at the end of their lives after 10 years. But we could replace the system and still take advantage of our old feed-in tariff agreement.

Cost of a Solar Power System

Prices of solar power systems have come down significantly. In 2011, our 4KW system cost around $9000, and this was from a cheaper company. Ten years later, we have had to replace it with a new 4KW system for $5563.

This is a pretty small system to install. We have an advantageous feed-in tariff that we can continue to take advantage of until 2028 as long as we don’t put a bigger system in.

It is also more expensive than many of the prices listed because we chose panels with micro-inverters. Each panel has its own micro-inverter rather than all panels connecting in series to an inverter. The advantage of this is each panel acts independently. If one is broken, the other panels are unaffected. It also means we can monitor the electricity production of each panel, helping to identify and pinpoint malfunction.

Price range online in 2021-

A 6.6KW system will cost $5200-$9000

A 10KW system will cost $8000-12000

Pricing should include panels and installation.

Small-scale technology certificates are rebates offered per panel installed. Your solar panel company will generally organise these and provide a discount on the quoted price. You can work out your STC rebate eligibility here.

The STCs are scheduled to reduce the rebate every year until the rebate completely ceases in 2030. They vary in generosity depending on where you live. These discounts are already included in all the prices above.

Electricity Feed in Tariffs

Feed-in tariffs vary according to your location and energy company. You can review them here. Unfortunately, feed-in tariffs of 40c+ are no longer available.

If you signed up for a fabulous feed-in tariff before 2012, you may be able to continue using this if you have to replace your panels.

For new solar systems, you can find out feed-in tariffs in your area. The price you receive for electricity is now usually less than you pay the same company for electricity. For new installers, it is better to use as much of your own electricity as possible due to this imbalance.

Installation of Solar Power

This should be organised by your solar power professionals. If you need roof repairs, get these sorted before solar power installation day.

We discovered the roof under our old panels had deteriorated. The solar power company we used identified it and gave us time to get it fixed before they completed the installation.

How Many Solar Panels Do You Need?

Look at your electricity bills. What is your daily usage? How large is your roof? What is your budget? Your solar panel company will be able to help you work out the optimally sized system for your situation.

Remember to allow extra if you may purchase an electric car in the future, are getting a pool or spa or have kids that will one day become teenagers!

The Aussie Doc household stuck with a 4KW system to maintain the 44c feed-in tariff. After this runs out in 2028, it is likely we will upgrade our system and add a battery.

Choosing a Solar Power Company

There are a lot of companies selling solar panels. They beat each other down on price, which is great for buying a system at a reasonable price. But it also means many of these companies seem to go broke quite often.

It’s not uncommon for households to realise there is a problem with their solar panels, only to find despite the system still being under warranty the company no longer exists.

For this reason, and the desire to have good quality panels that last as long as possible, look for longstanding solar power companies with a good reputation and customer service reviews.

Find out which solar panels they provide. Are they made by a good manufacturer? How long does the warranty last?

Our solar panels were out of warranty. We brought cheaper panels due to financial constraints at the time but paid in cash. The solar panels provided good value.

We asked for quotes from a couple of local companies. Those that no-shows for the quote can be ruled out immediately.

You can gain an understanding from the solar power company representatives about your options, and cost-benefit. They should be able to provide all this for you. Compare the options available and make your choice.

Is It Worth Borrowing to put in a Solar Power System

With it taking 3-5+ years to make your money back, it is generally not worth going into debt and incurring interest for in my opinion. If you do decide to borrow, Canstar recommends green loans over the other deals the solar power companies offer.

Are Solar Power Batteries Worth It?

There is now a range of solar batteries on the Australian market, including the Tesla solar.

Many households use electricity primarily in the evening when solar panels are not productive. Particularly for those with pathetic feed-in tariffs, the ability to store excess electricity produced during the day to use at night can be powerful in reducing bills.

Others like the idea of being completely off-grid, for environmental reasons.

Many want a battery system as backup during power outages, so they don’t need to annoy their neighbours with a noisy generator.

Solar batteries are still very expensive, and will likely at least double the cost of your solar power system. It is still worth getting quotes with and without a battery, but many will find the expense too great.

Even if you’re not ready to commit to the expense of a battery right now, ask your solar power provider if the solar power system they can install will be “battery ready”. If a drop in battery price occurs similar to the way panel prices have come down, it could soon be very worthwhile installing a solar battery.

Efficient Solar Power Usage

To get the most out of your system (and minimize your bills)

  1. Increase power production – Maintain your solar panels with annual inspection and cleaning to get rid of soot and grime which may reduce efficiency. Position panels to take advantage of maximal sunlight (at the time of day you use more electricity ideally).
  2. Reduce power use – Always to reduce bills. Turn off the LEDs. Fill the dishwasher and washing machine before turning on. Switch everything off standby
  3. Time power use – You will want to use electricity when it is cheaper. For most with solar panels installed in the last few years, that will be using electricity during the day. So time dishwasher and washing machine cycles for daylight hours. For those still enjoying a high feed-in tariff, it’s more efficient to use electricity after dark.
  4. Monitor electricity production. With our 1st solar system, we only realised there was a problem with the panels when we received the quarterly bill. With our new solar system we can monitor electricity production (hourly!) via an app. We have already used this to identify shade that needed to be removed from one of the panels.

I Solar Power Worth It?

With electricity prices continuing to rise, and return on investment often 3-5 years, solar panels are worthwhile for the majority.

Solar batteries are still quite expensive and the cost-benefit will vary. If installing a battery is too expensive at the moment, get a battery ready system.

Solar power is an expensive initial outlay. I don’t think it’s worth going into debt for solar panels. If you do, you are better off with a green loan or borrowing from your mortgage (and paying it back fast).

As well as the financial benefits, it’s pretty awesome environmentally to use solar. Being as self-sufficient as possible means you are less vulnerable to financial shocks and unpredicted price hikes.

Your wealth accumulation journey starts as soon as you make the first step. Subscribe to Aussie doc for a weekly email to keep you up to date on track to your goals.

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

When Should You Upgrade an Old Car?

*This post may contain affiliate links. This mean if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

“I’m not getting old, I’m becoming a classic”

Over the past couple of years, I keep get variations of the question,

“Why is your car so shit?”

Apart from the fact that my friends, family and colleagues have poor manners, I’m not really sure why anyone is that interested in my choice of vehicle. Should I follow their advice or hold on to my old car for a bit longer?

The car is 11 years old, brought as an ex-demo with cash.

It is rarely clean, full of all sorts of things I may need (spare shoes, clothes, kids activities). It has some minor scratches and dents.

In the 10 years I have owned it, I have changed the tyres twice and the battery once. I have serviced it more or less on schedule and never (touch wood) had a mechanical issue.

It’s actually just out of the generous 10 year warranty that encouraged me to buy it in the first place.

The level of interest in the car I drive by in-laws, friends, neighbours and colleagues surprises me.

My Car History

One valuable financial lesson my parents taught me was that cars are just a mode of transportation. They taught that treating a car as a status symbol was silly, and would “keep you poor”.

I was extremely fortunate to have my first vehicle loaned to me by parents for my first year of work, during which I saved up for my first bomb.

It was a 20 year old car, not very reliable and came with plenty of repair bills. I upgraded when it passed onto a better place, to a 15 year old beater. This lasted me a good few years, and when it died I caught the bus for 12 months and saved up cash for my first brand new car.

The personal finance community generally don’t recommend buying a new vehicle.

Vehicles depreciate most in the first few years, making it more efficient to buy a vehicle 3-5 years old.

At the time however, I was wary of buying a “lemon“, and the price difference between the ex-demo and a second hand didn’t seem worth taking a risk.

As a family growing up we always owned old cars. They broke down, and that’s never convenient. But dad had some mechanical knowledge and usually fixed them up himself.

I don’t know a thing about motors. I tolerated two unreliable old cars whilst less financially stable. Now in a strong financial position, I don’t want to deal with an unreliable vehicle.

I bartered hard and refused to add on extras they were trying to flog, despite significant pressure from the salesman. I purchased my new ex-demo car for $20,000 cash as a registrar earning ~$150,000 gross. Which is a touch over Captain FI’s suggestion for a car budget of 2 months net salary. So far so good.

The personal finance community also preaches holding on to vehicles as long as possible. Not every agrees though. Suncorp think exactly the opposite to the finance community, that you should buy a new car every 3-5 years and sell it before it gets “Old”.

Despite the fact my vehicle, according to the comments, looks a bit rough, I’m somewhere in the middle. Once the car becomes unreliable, it’s time to upgrade. I’m hoping to get another 5 years. It’s a Mitsubishi, if it were a Toyota or Honda I would hope for more.

When is a Car Old?

As soon as you drive the car off the dealer’s property, it is no longer new.

When it becomes “Old” is relative. Over $100,000 km is often quoted as a psychological point at which cars are considered old and lose more value. Many people sell their vehicles before this point. Only 31% of car purchasers have owned their previous vehicle for 10 years.

When a car becomes unreliable really depends on the make, regular servicing and vehicle use. A car starts to look old depending on how much you care for the car, wash it and protect it from damage.

Pros of Upgrading Your Old Car

Around a third of people admit to buying a new car because it makes them feel successful. There’s a lot of insecure people around.

People want to display wealth, to imply significance and influence. The wealth doesn’t actually need to be real. Many think they can afford a vehicle if they can afford the monthly payments!

Many of your colleagues, friends, neighbours and family will be impressed with your new purchase, and congratulate you the first time they see it.

Perhaps a better approach is to work on self esteem. Stealth wealth has many advantages.

There are more practical advantages of a new car though.

A brand new car should be reliable, and will be under warranty for a few years.

Even a newer second hand car may be more reliable than an old bomb. It’s easy to buy a lemon though, so get a pre-purchase inspection unless you have great mechanical know how.

A newer car should have better safety features, although the gains in vehicle safety made with new advancements are diminishing. The biggest impact on crash safety came with the introduction of seatbelts.

Some of the newer brands are pure electric, or have hybrid technology. These should lead to lower running costs over the long term, particularly if you drive a lot of kilometres.

Cons of Upgrading Your Old Car

A new car is only new for a day. Even if you love the attention and external validation it brings, these benefits are likely to dissolve in a week or two. As soon as someone you know buys a newer or cooler vehicle, yours won’t look so shiney anymore.

It’s hard to know whether you will enjoy your new vehicle as much as you think you will until you have been driving it for a while. It’s a good idea to rent your potential vehicle to try it out for a bit longer than a test drive. Buyers remorse would be pretty painful after forking out tens of thousands of dollars.

Opportunity cost. By spending $20,000 on a vehicle, you cannot spend it on other things. Invested, that $20,000 can multiply over decades wisely invested. It could slow you down in your acquisition of your first investment property, or in buying a new home. That money could be used to allow you to reduce work hours, and free up your time.

There are extra costs associated with upgrading your car. Insurance tends to be more expensive the newer your car is. There is an extra premium if it is a make commonly involved accidents. If you are looking to keep car insurance costs down, check out my Budget direct Car insurance review.

Your choice of car strategy can make a huge difference to your wealth accumulation over a life time

If you don’t have the money saved to purchase a new vehicle, a loan is necessary. Paying interest on a depreciating asset is making it far more expensive, and increasing the damage it does to your financial situation. Sometimes you are stuck having to take a loan to purchase a vehicle, if you need it to get to work, and there are honestly not viable public transport options available. In this case, a cheap car should be purchased with a minimal loan that is paid off asap. Start saving as soon as the loan is paid off so that you are better prepared when this car needs replacing.

When to Sell your Old Car

Of course this is very individual, based on your own priorities and values.

Someone obsessed with cars is likely to accept the financial sacrifice and trade up more often. Those of us who see a vehicle simply as a mode of transportation will hold on to them far longer.

Personally, I am definitely in the latter camp.

The thought of choosing a new vehicle does not fill me with excitement. In fact, the incredible number of options available is overwhelming. I have simple requirements (air con, reversing camera, wheels…). The choice of vehicle will probably come down to safety features, fuel efficiency and price. If choosing a new vehicle feels like a chore, you are likely to hold on to the old one for longer!

When to Upgrade

This depends on your stage of life and financial security.

If you are on target to hit your goals, and you can save the cash for a nice car that you will enjoy, go for it! But buying your dream car (or even a decent one!) before you have taken steps to secure your financial future will hold you back.

Borrowing to buy a car should be avoided if possible, and minimized if it can’t.

If you are at a stage where money is still really tight, or mechanically knowledgeable you may be willing to put up with a break down here and there. Once the money situation is on track, most won’t want to deal with an unreliable vehicle.

2021 does not seem a good time to upgrade you car. There is a shortage in microchips, and months long waiting lists for new car delivery. Second hand car prices have increased as a result. If you can, avoid purchasing any car within the next 6 months (or more).

Why Do People Care So Much About What I Drive?

Back to the question of why does everyone seem to care so much about my choice to hang on to an ageing vehicle? At work it’s parked in a large car park anonymously. I could probably get away with not owning a car at all, so upgrading seems a bit excessive.

Even Warren Buffett drives a modest car that he brought at a discount!

When people are trying to pressure you into a decision that is completely irrelevant to them, they subconsciously want you to validate their choices in life. I think many feel uncomfortable when others make different choices. It’s more comfortable when everyone follows the same path.

So don’t pester your boss about their ageing car. We all make decisions based on priorities and values, and some of us value almost anything over the car they drive.

Your wealth accumulation journey starts as soon as you make the first step. Subscribe to Aussie doc for a weekly email to keep you up to date on track to your goals.

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

Mortgage Redraw: Tool or Trap?

*This post may contain affiliate links. This mean if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.

Whether interested in finance or not, we make decisions that impact our financial future on a regular basis. Being informed will empower you to make better decisions, and ultimately lead an easier life.

Buying a home is an exciting time, with many decisions to be made. Signing up for the associated home loan is a necessary evil.

“Even the once simple home mortgage now has so many flavours and styles and variations that it is difficult for people to make a decision”

Scotty D Cook

There are over 3000 mortgage products available in Australia. Features, fee structure and eligibility vary between providers. It’s easy to become overwhelmed by the complex options available.

With a series on mortgages, I aim to provide some guidance on the biggest decisions for one of the most significant financial moves you will ever make. Today we look at the mortgage redraw, commonly available with many mortgages.

How does Mortgage Redraw Work?

A mortgage redraw facility is available with many mortgage products. Borrowers may pay extra off their home loan, and “redraw” the extra repayments at a later date if required.

The appeal of a redraw is that borrowers can save money for short-term goals (such as that new car). Borrowers can save ~2.5% in mortgage interest of earning ~1% (pre-tax) interest in a bank account.

Many people use the redraw facility for an emergency fund. They make extra repayments with no intention to withdraw. The extra repayments could be withdrawn to get borrowers through a crisis.

There is definitely a psychological barrier to withdrawing money from your mortgage redraw, so borrowers are not going to accidentally spend this money on discretionary goods and services.

Others will use the redraw facility as insurance against rising interest rates. By making repayments as if the interest rate was 1-2% higher than it currently is, a buffer is built up in the redraw. If interest rates increase, the borrower is already used to the higher payments. If they increase even further, borrowers can use their redraw facility to make up the shortfall.

Fees Charged for a Mortgage Redraw

A basic variable mortgage is generally the cheapest mortgage available (ignoring discount variable loans that offer a seductive “Honeymoon” rate before hiking the rate after 12 months). These generally have no extra features.

A standard variable mortgage or mortgage package will offer more features, but with higher fees.

You will need to decide whether the extra fees are worthwhile in order to use a redraw facility.

Some lenders only charge a fee if the redraw is activated. This may suit those who don’t plan to withdraw, but want to use a redraw as an emergency fund.

Flexibility

Different lenders vary with the flexibility available with their redraw facilities. Some limit the number of redraws per year. Some limit the amount of cash that can be redrawn.

Lenders vary in the ease with which you can redraw cash. With some, it is simply the click of a button to instantly transfer cash from your redraw to your transaction account. Some may find this a little too easy, and want more of a barrier to accessing their emergency fund.

Other lenders require more time to access the redraw. If this is the case, a smaller emergency fund should be kept in your transaction account or credit card.

Can a Mortgage Redraw be Relied Upon?

This is the big issue with redraw accounts.

Once your repayment is submitted, it is up to the lender’s discretion whether they will let you redraw it.

A small proportion of customers have been shocked by the bank limiting the amount of their redraw account when they needed it the most.

It is no doubt bad for the lenders reputation to do this, but they could exercise their discretion should a major economic shock threaten the lenders profitability (or survival).

Commonwealth bank sent a letter to their customers in 2018 stating they had changed their redraw policy. CBA adjusted the amount in redraw accounts to prevent customers redrawing more than they could reasonably repay within the original loan term. This was a minor adjustment.

ME Bank got some bad press for drastically cutting around 4% of their customers redraw balance without notice during the COVID-19 crisis.

Tax Implications of Using a Mortgage Redraw

If you ever converted your home to a rental property, the historical lowest loan balance is the maximum you can apply a tax deduction for interest on.

For example, if your home loan started as $500,000. You are a good saver and pay extra in repayments while you live in the home. Your home loan balance stands at $300,000 when a work opportunity means you move interstate. You decide to keep your original home and rent it out, and purchase a new home near your new place of work. Even if you withdraw your redraw balance (say $100,000), you will only be able to claim a tax deduction on interest for $300,000 of the loan, not the remaining $400,000.

Offset vs Redraw Accounts

Offset accounts are treated the same as transaction account. As long as they are held by an authorised deposit taking institution, the balance up to $250,000 per person is guaranteed.

The money in an offset account also still legally belongs to you, not the lender. The lender has no ability to seize your savings in an offset account in times of financial crisis.

You can also withdraw money from your offset account without any tax implications. In the example above, if the extra $100,000 repayments were kept in an offset instead of a redraw, interest on the full $400,000 loan remaining would be tax deductible should the home ever be converted to an investment property.

The advantage and disadvantage of an offset is the accessibility of this cash. In an emergency, this money can be spent immediately via a debit card, BPay or any other method. Particularly for those with just a single offset, this can be a big disadvantage. Those without great cash flow management can accidentally spend those extra repayments. They can also fall prey to the “Wealth effect” after building up a significant balance in an offset account, there can be a tendency to spend more due to feeling wealthier.

Is a Redraw Worth it?

The savings made by using an offset or redraw depend on the balance you will have in it, and the extra fees paid to have these features. A typical standard variable loan with offset may charge ~$400 per year. If your interest rate is around 3% interest, you would need ~ $10,000 in your offset to make up the fee.

If a mortgage with redraw charges $120 in fees per year, ….maths**

Summary

Both a redraw account and offset reduce the amount of interest you pay on your home loan. A redraw can be a good option if you won’t have enough cash to make a standard variable or package mortgage fees worthwhile.

Your wealth accumulation journey starts as soon as you make the first step. Subscribe to Aussie doc for a weekly email to keep you up to date on track to your goals.

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

Should You USe a Mortgage Broker?

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

*I have no financial relationship with the mortgage brokers mentioned. I have not used them for my own mortgages, they are just examples.

So you’ve finally saved up that first home deposit! Exciting times, the next step is to decide whether you really want to buy a home, and how much you want to spend.

The vast array of options in choosing a mortgage can easily become overwhelming for home buyers.

“Even the once simple home mortgage now has so many flavours and styles and variations that it is difficult for people to make a decision”

Scott D. Cook

Many recommend using a mortgage broker to cut through the confusion.

Mortgage brokers have knowledge, experience and access to a wide range of different loans. They can help narrow down the huge selection advise which type of loan is best for you. And the service is (superficially at least) free to the consumer. Seems like a no-brainer!

Using a mortgage broker is a great idea for many, but as usual, it’s unwise to hand over complete responsibility and understanding to a professional with a clear conflict of interest.

With the extreme complexity of home loans and their fee structures, many will never know if your mortgage broker really had your best interests in mind.

Step 1. Decide How Much You Should Borrow

The first thing you usually come to on a mortgage broker’s website is a calculator to work out how much you can borrow. This is generally not how you should decide how much house you can afford. The higher the loan written, the higher the mortgage broker commission. It is obviously in the mortgage broker’s interest to organise as large a loan as possible.

The largest loan possible may be appropriate for some. Some borrowers are expecting an increase in income in the near future. Others are aware of risks but want to maximise exposure to a good capital growth area as part of their overall strategy.

For others, taking on a manageable mortgage repayment is more important. Make sure you have worked through your own budget and calculated how much in monthly mortgage repayments are acceptable. Take into consideration your top priorities. If the most important thing to you over the next 10 years is travel, make sure you have budgeted for your top priority!

Mortgage Broker Commission Provides a Conflict of Interest

Banks pay your mortgage broker upfront and trailing commissions for organising a loan.

The Royal Commission found loans provided through brokers rather than banks directly were:

  • More likely to interest only
  • Have a higher loan to income
  • Have higher loan to value ratios
  • Incur higher interest costs
  • More likely to default on their mortgages, due to the higher leverage taken

As a result, the Royal Commission recommended a change in the compensation model for brokers. It was suggested a more transparent fee paid directly by the consumer should replace the commission fee model.

The mortgage broker industry objected loudly to this. Consumers were generally unwilling to pay a fee for mortgage broking, and would instead go to the big banks directly. The end result would be a loss of competition. The result of this is usually increasing fees, meaning the consumer would be the biggest loser in all this.

Don’t Worry the Law Now Says that Brokers have to Act in a Clients best interes

Since January 2021 a mortgage broker must legally act in the client’s best interest! I’m unsure how much this actually does to protect consumers, but it is a law most would have assumed was already in place.

Step 2. Decide Whether Using a Mortgage Broker is Right for You

A Mortgage Broker May be Able to Get you More Money

These there are certain situations in which a broker’s qualifications and experience are an important asset to a borrower.

  • If you want to maximise leverage (and have carefully considered the risks)
  • Your credit score is not idea
  • You are self-employed
  • You want LMI waived for a loan over 80% (accessible for ultra low risk borrowers such as doctors, lawyers, accountants)

Brokers have experience dealing with the different lenders and will know which are likely to lend more based on personal circumstances. This will help you target your application for the most likely loan, avoiding pointless credit enquiries damaging your credit rating.

Can a Mortgage Broker Provide a Pre-Approval?

A mortgage broker can give you a rough idea of whether your loan is likely, but this is not a pre-approval. The broker will help you apply to the lender chosen for a pre-approval, and then liaise with the bank to finalise the actual loan once you have purchased.

You May be Able to get Cheaper Basic Loans Online Yourself

If you want a basic, no-frills loan, the cheapest way may be to find this through an online loan provider. These are usually not on mortgage broking lending panels.

You May Want to Stick with Your Bank

If you have a misguided sense of loyalty, stop. Your bank does not reciprocate. But if there are other features you love with your bank that you cannot get elsewhere, you could go directly to the bank. It’s unlikely to save you any money though, the bank just increases its profit margins.

Step 3. Choosing a Mortgage Broker

Check Qualifications and Credit License

It’s easy to assume a mortgage broker with a certificate on display has appropriate qualifications and work experience.

I am surprised to discover I could become a qualified mortgage broker with a 3 day workshop! After this brokers are registered with one of the professional bodies and provided with ongoing educational support on the group. Brokers need a credit license which can be checked here.

The minimum qualification to become a mortgage broker is a certificate IV in finance and mortgage broking. Many brokers have a diploma in finance and mortgage.

Do the checks. If those involved in Melissa Caddick’s scheme had just done some checking, they wouldn’t have lost all their money. In Melissa Caddick’s case, she was supposedly working under another advisor’s AFSL, which is not uncommon. Search online to check the advisor’s license. Make a phone call if you can’t find the information. ASIC only seem to catch up with fraudsters after a few years of stealing clients money.

Minimise and Be Aware of Conflicts of Interest

Is the broker independent or owned by a bank? They are supposed to divulge this information. My own experience (pre-Royal Commission) is this “divulged” in page 135 in size 6 font at the bottom of the page. It’s worth asking the question directly who the broker is affiliated with.

If they are owned by Westpac (such as RAMS) you want to be aware of this potential conflict of interest.

Minimising Commission Motivation

  • Same Commission Broker

Some brokers (eg Mortgage Choice) are paid the same commission no matter which lender they recommend. This reduces the risk of them recommending one lender over another for financial compensation.

  • Cash Back Broker

Others (eg isharebrokers) offer to share the commission with you when you write a loan with them. It is worth exploring in further detail the compensation model for the broker. Do they receive the same compensation for each lender or is there still a conflict of interest? Don’t confuse cashback mortgage brokers with mortgages that offer cash back to incentivize you to loan from them. Immediate cash back (or airline points) should not change your loan preference. It is a gimmick to sell the product. Your long-term mortgage costs are what you should look at when comparing costs.

Are they Experienced in Helping People in Your Situation?

If you have a special circumstance, you will want a mortgage broker is experienced with this situation. If you are looking for an LMI waiver, are self-employed, are a property investor planning to own multiple properties or have poor credit, look for a mortgage broker with expertise in this area.

How Many Options are Compared on Lending Panel?

In order to get one of the best products for your home loan, you will want a broker with lots of options to choose from.

How many loan providers can your mortgage broker compare? How many loan providers have the broker actually written loans for over the past year? This is probably a more accurate representation of the options that are being compared.

Personal recommendations

Online reviews and personal recommendations can help identify potential brokers to choose or avoid. Remember, the recommendations should come from someone with similar circumstances if yours are special.

Transparency

How will your potential present the lender choices? You need to have the options presented so you can make an informed comparison of fees and interest, as well as other features.

Mortgage brokers can be a great ally in finding and securing the best loan for you. But you need to be a little informed about what you are looking for in a loan, in order to make an informed decision. You also need to select your broker carefully to make sure they have the right qualifications, experience and connections to do a great job.

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Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

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