Budgeting to survive the tough times ahead

Harry Pontikis

The increase in interest rates and fears about rises has dominated the news, illustrated by frightening tales of debt-laden homeowners and the prospect of a financial Armageddon. For those who consider themselves to be on the financial edge, here are 10 chocolate coated tips to cope with the latest rate rise - and any more that more than like will come.

1. Dont panic by bad news and be rushed into making a decision based on reporters knee jerk reactions to the interest rate rises. Everyones financial circumstances are different and there are often quite straightforward solutions to problems. You need to be aware that the opinions of experts are often just that. For example, while many experts are talking about another interest rate rise before the end of this year, others are suggesting rates could fall next year.
2. If you are feeling pressured by your mortgage and other debts, consider ways to reduce the payments. One thing worth checking is whether you already pay more than required or by consolidating your more expensive debts (personal loans and credit cards) into your home loan, you could halve your monthly repayments.
3. If you are on the brink of making any investment that involves borrowing a large amount of money, either for a home or an investment property, subject yourself to a stress test. Check your income to assess how youd cope if interest rates were much higher at the end of this year by sitting with a Chocolate representative and going through various what if scenarios.
4. If you are tempted to borrow money to invest in the share market, perhaps because the price of some stocks has fallen, dont rush into it. Always regard such investing as a long-term strategy. Make sure to check if you could afford the interest payments, should rates increase again. (another good time to sit with a chocolate Lending Consultant and go through scenarios)
5. Consider positive gearing for share investments, especially during volatile times. This means limiting your borrowing to a point where your investment portfolio will pay for itself. That is, the portfolio is self-sufficient because dividends cover the interest payments.
6. Dont be distressed if you recently put money into a term deposit at a lower interest rate. If it is an investment where you reinvest the income when the term deposit rolls over, the income will be reinvested at higher rates. This will boost your long-term return. When interest rates are volatile, consider shorter-term investments that offer the best rate. But make sure you roll these over when they mature to an equally attractive investment.
7. If possible, keep some money in a cash fund for an emergency. Leaving it in an offset account may be the best way to save money on your home loan at the same time.
8. Have a budget - and then try to beat it. You can save a lot on petrol if you have a fuel economic car. Always shop around for large items like televisions, computers or white goods. There can be huge price differences at different stores - and dont be shy about haggling.
9. If there is no money left over at the end of the month, consider locking in your current home loan rate to ensure you dont get pushed over the edge and cannot afford to meet repayments with any future rises.
10. Avoid expensive credit cards unless you plan to pay off the balance within the interest free period. Where you cant rid yourself of a sizeable credit card bill, consider converting to a lower-interest debt by setting up a cheaper interest line of credit linked to your mortgage. But make sure you pay it off. Or opt for a cheaper credit card, perhaps one that charges little or no interest on debt transferred from another card.