Should you pay off your HECS-HELP debt?

Posted On July 25, 2014| 1 Reply

It’s tax time, between July 1 and October 31, people are lining up to do their tax returns and hoping they’ll get a refund. I’ve done mine and looking forward to some extra cash in the bank. Generally, I like this time of year because it allows you to reflect on the past year’s spending, earning and giving. It also reminds you of the education debt you may or may not have accumulated for your tertiary studies.

Once upon a time, like 40 years ago, tertiary education was free in Australia. The Whitlam government abolished university fees back in 1974 to provide opportunities for middle class Australians to get an education. Then, in 1989 the Hawke Government introduced the Higher Education Contribution Scheme, which has now changed to HECS-HELP (Higher Education Loan Programme) where the government pays the education institution the fees upfront and then the student once earning above $53,345 (2014/15 F/Y) will begin repaying their loan through the ATO on a sliding scale of 4-8% dependent on their income level.

The HECS-HELP is great but in hindsight I wish I had saved for my education so that now I wouldn’t have an debt currently sitting at around $37,000 (original was $44K) over my head or better still I should have chosen a tighter subject, like medicine for example. At least then I’d be working in the area I studied in and wouldn’t have such a hard time figuring what I can and cannot do.

Unfortunately, I didn’t get the right advice. My parents didn’t tell me that medicine, engineering or even a trade might be a more lucrative choice. They didn’t push and steer in any specific direction, instead they allowed me to make my own choices. The school I went to wasn’t all that encouraging and supportive either when it came to helping me make a career choice.
This is good and bad at the same time. I could have used some more guidance even if I assumed at the time that I knew best. I didn’t.

Anyway, $37k that is getting slowly repaid as my income rises. It’s not pretty when I get a bonus and most of it goes to the ATO to cover my tax bill and HECS-HELP. I wish I could strike lucky on Lotto so I could get rid of it. Once can dream, can’t they?

Generally, Australians can use up to $96,000 on HECS-HELP. They start repaying it once their annual income exceeds a threshold which as at 2014/15 financial year it’s $53,345. It’s a good system but it’s still debt.

Until recently I hadn’t thought about my HECS-HELP debt. That was until I received a statement from the ATO showing that even though there is no interest, the debt indexed annually at the rate of inflation which is between 2-3%. To me, that’s like paying interest so I want to get rid of it sooner. Besides in five years time the law might change and they might want the loan repaid up front. For peace of mind, I’m going to make an attempt to pay off my HECS-HELP debt faster.

So should you pay off your HECS-HELP debt?

That depends on your current financial situation. If you have high interest debt that should be priority. If you have a mortgage, pay it off first. If you have investments making more than the rate of inflation, well you know where your money should be. If you have savings and don’t want to be paying your HECS-HELP over the next 10-20 years, you know what you have to do.

The benefit of paying it off quicker is that the government gives you a 5% discount on any amount repaid over $500. So if you make a voluntary payment of $1000, the government gives you $50 off. It’s not much but if you’re making larger repayments the discount does add up.

What do you think? Would you pay off your HECS-HELP debt sooner or just stick to just the compulsory repayments which are subject to your annual income?

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Time: Have you got enough?

Posted On July 20, 2014| 4 Replies

Time is a precious commodity. It’s not renewable. It’s not infinite. Time is something we all have in common.

Time is limited.

We don’t know how much time we have left and yet the majority of us choose to spend it crammed into an office 9-5 five days a week plus overtime in a job we don’t particularly enjoy. In a 24 hour period we’re working 8 hours, commuting 1 hour if we’re lucky, 8 hours sleeping, 2 hours doing miscellaneous tasks like eating, showering, cooking and cleaning. We’re left with 5 hours which are spread unevenly throughout the day leaving us with no time to actually live our lives the way we envisioned when we were kids.

Since becoming a mother my way of thinking has changed. The last three months have been life changing. I have learnt more than I could imagine about motherhood, about life and my little boy. I love spending every day with my son and I can’t imagine going back to the life I led before. A life that involved a daily 3 hour commute, 8.5 hours in the office and little time to do the things I loved – writing, running, spending time with family and friends, cooking, learning, and much more.

I want to laugh more. Live more. Give more. Love more. Be more.

None of that equates to spending 40+ hours a week in the office and another 15+ hours commuting. 56 hours sleeping, 14 hours eating, and another 14 hours on miscellaneous tasks that take up too much time. That’s 139 hours gone. That’s over 82% of my time gone. On what?

Making someone else rich while you work for pay cheque that barely covers your expenses? Being someone else’s definition of ‘normal’? Thanks, but no thanks. I want more.

The idea of finishing school, getting a degree, finding a good job, working for forty odd years and retiring at 65 (or 70) is drilled into us that it becomes difficult to think and more importantly act outside the square. We are constrained by society live as sheep who flock to the imaginary master we have planted in front of ourselves. We work eight hour plus days when many of us could get the job done in four. We get paid hourly, but just because we spend 8.5 hours in the office doesn’t mean that we’ve actually worked for the full 8.5 hours. Take away lunch, a few toilet breaks, a gossip session by the coffee machine, checking Facebook on your ‘dumb’ phone every twenty minutes, reading news.com.au, and exchanging the weekends shenanigans with your colleague, and you’re probably down to about four or five productive hours in a day.

Now wouldn’t it be nice to work 4-5 hours per day and having the rest of the time to do as you please?

Time to make it happen.

What would you do if you had more free time on your hands?

 

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What do you really want?

Posted On July 6, 2014| 1 Reply

Whether you’re on Facebook, Twitter, Instagram or the latest social networking platform, it seems we are all about achieving something. Some days it seems like a race to see who can get more out of their day. We should be called Generation Go Go Go as we’re constantly in a hurry.

It makes me wonder whether all these minor achievements of fitting in yoga, a veggie juice, power walk on the beach and breakfast with the besties by 9am is helping you achieve your goals or driving you slowly insane?

Retire by 35? 40? Or even 45? Is that what you want or is it a goal that you saw another PF blogger announce? You might actually enjoy your job and want something completely different. That doesn’t make your personal finance goal any less worthy.

Are we trying to over-achieve? And in the process are we forgetting what is important to us?

I find it hard to believe that we all want to be nature loving yogis living raw and frugal lifestyles while traveling the world and expanding our social networks. Sure it sounds fun and exotic and envy worthy when you’re comparing lifestyles at your twenty year high school reunion but is that what really tickles your fancy?

If you’re chasing someone else’s dream you’re probably living a very unhappy life and not getting very far. Stop right now.

What do you want? How do you envision your time well spent? What is your ideal day? Week? Month?
What can you do right now to start living your ideal life today?

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Is rent money dead money?

Posted On July 4, 2014| Leave a reply

Rental demand is on the rise and rents are skyrocketing. In some areas of Australia it’s cheaper to buy a house than it is to rent one while in other parts it’s the opposite. But before you decide whether you prefer to rent or buy, you need to figure out whether you want a house or a unit, how many bedrooms and bathrooms, and the location.
Last year, we were looking at a 3bed 2bath house for around $400-$450 per week in the area we wanted to live in. For that price we could purchase a property for $290,000 @ 6% interest over 30 years. For $290,000 we might be able to get a 2bed 1bath unit, duplex or townhouse. We were thinking about it but we decided we wanted to live in a house that had a backyard and double garage.

Houses equal more privacy and more room, but also more maintenance. They are also more expensive to buy especially in the area that we want to live in. Current house prices are between$450,000 – $600,000. Repayments for a loan that size at 6% interest equal $500 – $680 per week depending on your deposit, while the rent is between $400-$500 per week.

My argument was always that it’s better to buy than it is to rent. I still feel that’s true but you can have the best of both worlds – be a renter and a property owner.

Banks will lend more to renters than they do to owner occupiers. So even if you’re renting you can still buy a property or two as an investment. The upside of this scenario is that you can live in the area of your choosing for less but still have your feet on the property ladder with your investments, which if purchased well are making you money rather than costing you money.

But what if you’re only planning on buying your home, paying off the mortgage and living happily ever after? Saving a deposit and buying a property might be a better option, that way every dollar is going on your repayments and reducing the balance of your loan each month. The other bonus is you can renovate however you like and you can’t get evicted (unless you don’t pay your mortgage of course).

So is rent money dead money?

Yes and no. It all depends on your personal circumstances and your future goals.

If you can afford to rent and save for a house deposit, then it’s worth renting until you have at least a 20% downpayment for the property of your dreams to avoid paying mortgage insurance. If you can’t afford to save a deposit you might have a hard time maintaining a mortgage so it’s an idea to start earning extra cash, and stash away as much as possible before jumping onto the property ladder. If you already have a deposit saved up then buying your home instead of renting might be the choice for you.

The important thing is to understanding your wants and your needs. Figure out your one year, five year and ten year goals. Different factors will have a different impact on whether you’re better of renting or buying. Consider your job, travel plans, whether you’re single, retired or starting a family. Weigh up the pros and cons of each choice and go from there. In the end the choice you make has to be the right one for you and your circumstances.

What are your thoughts? Do you think rent money is dead money? Can you have the best of both worlds?

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Could a nation survive without income tax?

Posted On June 29, 2014| Leave a reply

Income tax is a necessary evil in the majority of the world. Rates vary from country to country but it’s common to find rates of income tax between 10 – 45% on earnings.

The purpose of income tax is to fund the governments activities for the welfare state, health sector and infrastructure among others. Although the money doesn’t always go where it’s needed the most.

One alternative to income tax would be the government to act like a business. Businesses need investments to create incomes to support their spending. Why not have the government do the same?

We talk about individual households needing to work for their money, keep to budgets, control their spending, save and invest for a rainy day but we don’t seem to require this of our government. The government is given money every day from individuals and companies to support their spending habits without taking any responsibility for their mismanagement of this money.

When the government runs out or overspends the money, they simply increase taxes or create new ways to tax society. Higher taxes means lower wages and more burden on the individual. Doesn’t seem very fair, does it?

Governments ought to work for their money and make their money work for them.

What do you think? Should the government function like a business and have their money come from smart investing instead of income tax, GST, stamp duties among others?

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