S1: Hello and welcome to It All Adds Up the podcast
S1: where we chat about money, how to get it, how
S1: to spend it and how to invest it. I'm money
S1: editor of the Sydney Morning Herald and The Age newspaper's
S1: Dom Powell .
S2: And I'm senior economics writer Jess Irvine. And this week,
S2: we're continuing our special series, focusing on real life budgets
S2: and how you're tackling the rising cost of living.
S1: Yes. And last week we had a lovely question from Jewel,
S1: our first caller in to the podcast, if you can
S1: really call into a podcast. And she had some questions
S1: about affording her first home. And this week we've got
S1: a question from listener Clare, who was facing some pretty
S1: steep rises on her cost of living and a mortgage
S1: cliff like so many of us are. So let's have
S1: a listen to what Claire has to say.
S3: Hi, Jason. I'm Claire. I'm a single mom of a
S3: five month old. I work full time. I'm on maternity
S3: leave at the moment. And I just wanted your thoughts
S3: and ideas on where I'm at with my budget. So
S3: I've recently paid off a $5,500 loan that I use
S3: to pursue IVF. I'll have childcare costs when I go
S3: back to work for my little one in April or May,
S3: so I'll need to start paying for childcare. And I
S3: also come off my low interest fixed mortgage of 1.89%
S3: for my apartment. It's a loan of about $600,000 in September.
S3: So I've got these changes coming up and I just
S3: really appreciate your thoughts and reflections or any insights. And yeah,
S3: thanks very much for your work on the podcast so far.
S1: Thanks for that, Claire. And yes, ouch. Couple of sort
S1: of big costs that are coming in there. Obviously, child care,
S1: a pretty big one and coming off a very low rate.
S1: 1.89 is super low. So that will be a very
S1: big switch once she rolls off her mortgage. Just you've
S1: got to look at Claire's budget. What do you think?
S2: Yeah, I think it is very similar to my own budget,
S2: not least of all because she uses my money with
S2: just a tracking system. But yes. Yeah. Same situation of
S2: being a single parent with a mortgage of about that size.
S2: I locked in at 1.84% for two years, so I
S2: hit my mortgage cliff on June 30. And to be honest,
S2: I feel a little bit uncomfortable knowing, planned and prepared
S2: for it. But it's just this very uncomfortable feeling of
S2: staring down the barrel of that mortgage. Cliff And Adam,
S2: I think you fixed in as well did Yeah.
S1: I'm I'm slightly worse I'm at 2.79 but I've got
S1: that until April 2024. So I'm really hoping that by
S1: that point that Phil Lowe starts to think about putting
S1: interest rates back down again. But that's me being incredibly optimistic.
S2: Yeah, well, I mean, that is that is of what
S2: the sort of market pricing is, is for rates to
S2: sort of hit the roof this year and then come
S2: back down again next year. But who knows really what
S2: will happen. But yeah, I did have a good look
S2: through Claire's spreadsheets and worksheets that she sent me. And
S2: first of all, she's doing an amazing job. And I
S2: think if anybody's in the situation of facing the mortgage cliff,
S2: the best thing you can be doing is, you know,
S2: having visibility around where your money is going and tracking
S2: it in some way and not just putting your head
S2: in the sand and sort of just hoping for the best. So, yes,
S2: I mean, the good thing for Claire is that she
S2: has that full time permanent job in a relatively sheltered
S2: or a sector that shouldn't be too affected. If we
S2: do hit some harder times that she will return to
S2: when she's finished on her parental leave. I did look
S2: through and she was prior to the leave making extra
S2: repayments on the mortgage. So many people will find that
S2: they are ahead of what they work, their minimum repayments,
S2: you know, that they were paying in. So there is
S2: about a $1,000 per month buffer there that she was
S2: chipping in. So, you know, and we'll go through the
S2: figures later, but that might be about what she's required
S2: to pay extra in interest per month anyway. You know
S2: she's got this great savings history of paying off that
S2: IVF loan. So it does look like Claire is running
S2: herself a surplus. So she's she's able to save money
S2: and she's also provisioning in her budget for the big
S2: surprise expenses that hit people like car expenses, strata fees.
S2: She's putting aside monthly amounts for that, which I love
S2: to see in budgets. People sort of anticipating those big expenses.
S2: But yeah, there's definitely some huge costs that she's staring
S2: down the barrel of child care thing. One in particular.
S1: Yes. I mean, I had to look at the budgets
S1: as well and put mine to shame, I'd just like
S1: to say. But it doesn't take much to put mine
S1: to shame. So, you.
S2: Know, no shade. But, you.
S1: Know, it's it's shame. It's allowed to be shame. It's
S1: all right. But no, I was very impressed. But I
S1: did think that, yes, you know, she doing a great
S1: job in provisioning for everything that sort of, you know,
S1: life can throw at you. She had sort of, I think,
S1: for different little sort of Future Fund savers for for
S1: various different things, which I think is great. But yes,
S1: you're right. Childcare costs a big one.
S2: Yeah. Look, it's massive. And I think overall, you know,
S2: when we're hitting the mortgage cliff and the childcare costs
S2: at the same time, this is going to really stress
S2: the budget. Oh my gosh. Are so my child is
S2: now eight. Back in the day, you know, he went
S2: to daycare sort of. And when he was less than
S2: one and we were there for a couple of years
S2: and we were paying for long daycare center in the
S2: inner CBD and I think it was about $150 per day. Wow. Oh, really? Yes. Oh,
S2: my gosh. Which there is. The government has a childcare subsidy,
S2: which has changed since I was there. We used to
S2: have this situation where we'd maxed out the subsidy and
S2: then we would be paying full freight for a for
S2: a couple of months of the year. That's sort of
S2: since been rejigged. But yeah, that is not uncommon and
S2: I expect it is much higher and probably creeping towards
S2: the $200 per day for some of those CBD long
S2: care where you can go from sort of 7 a.m.
S2: to 6 p.m. or whatever those those hours are. So
S2: and you're not allowed to pay for just a little
S2: bit of the day, you just need a few hours,
S2: you pay for the full day and you pay for
S2: the days when your child is sick and actually unable
S2: to attend the centre and you are unable to work.
S2: And yes, there are a lot of those days because
S2: kids go to daycare and they get sick all the
S2: time and then they make you sick, so. Just sort
S2: of to put a little word of warning out there
S2: for Clare and others who were sort of in. It's
S2: a really tough time to navigate and it's a time
S2: when it's probably going to be hard to save much money.
S2: You're sort of treading water just to afford those those
S2: childcare costs. So in terms of preparing for that, you know,
S2: you know, actually finding a place is a whole other thing.
S2: And I presume Clare is, you know, researching that, making
S2: sure that you're registered for the childcare subsidy and having
S2: some understanding of what you can get back on those costs.
S1: Yeah. So for anyone who isn't aware, your family, if
S1: your family incomes between zero to around $70,000, your childcare
S1: subsidy percentage is 85%. But if you're over 72000 to 177000,
S1: it's between 85 and 50% your subsidy and it goes
S1: down by 1% for every $3,000 worth of income that
S1: your family earns. So it's sort of I guess it's staged,
S1: you know, for those higher income earners.
S2: Yeah. And that should increase from July one, I think
S2: it is. The Labor Government has announced some changes to
S2: that as well to make it slightly more generous for people.
S2: But those are the current rates that apply and it's
S2: not hugely more generous, although I get some billions of
S2: dollars in aggregate and it's.
S1: Still not it's still not free.
S2: It's still not free. There is a review of there's
S2: a Productivity Commission review and there's an early years strategy.
S2: And there's a really compelling argument that spending taxpayer money
S2: in this area yields benefits, you know, and higher taxes
S2: in the future because you get good child outcomes from
S2: at least some exposure to that early learning environment. So yeah,
S2: unfortunately at the moment it's still expensive. We haven't made
S2: it easy for families and yeah, for Clare to sort
S2: of be looking at how many days she's going in
S2: and what the price is and what the potential subsidy
S2: is and trying to figure out how that fits into
S2: the budget. That's something to definitely try and get ahead of,
S2: at least in a planning sense. Yeah.
S1: Absolutely. And that might mean that she has to put
S1: a little less into those sort of, you know, Future
S1: Fund savers that we were talking about, maybe to sort
S1: of scale those down a bit. So you're not contributing
S1: nothing but you contributing, you know, maybe 50 bucks less,
S1: each sort of thing.
S2: And then particularly on the more discretionary ones, like a holiday,
S2: she's got a holiday fund. Some of the ones like,
S2: you know, strata fees. Yeah, unfortunately. But yeah, we'll get
S2: to some of the nice things that might have to
S2: go at the end. But yeah, let's get to the mortgage.
S2: So this is the one that, you know, we're both
S2: facing down, although mine's a little bit more imminent. So
S2: what do you think's going to happen to interest rates?
S1: Oh, is that, is that the million dollar question? Is
S1: this where I get to become Phil Lowe successor? I mean.
S2: It's about the sort of $1,000 per tax on the
S2: average mortgage.
S1: Really? Well, funnily enough, so I was looking the other
S1: day because I was thinking about what my interest rates
S1: might be looking like once I get off my loan.
S1: And right now I was it's looking like something like 6.2%
S1: on like an average variable interest rate, which is crazy.
S1: Like that's, that's more than double what I'm on at
S1: the moment. I mean, I've got until April 20, 24.
S1: I'm crossing my fingers and toes to hope that things
S1: start to look a little bit sort of calmer then,
S1: and I might be able to get on to a
S1: maybe a four.
S2: Ish.
S1: Four or five ish percent.
S2: You can dream.
S1: I will dream. And I do dream every night of
S1: a 4.4 to 5% interest rate.
S2: Yeah, I can. So I'm fixed, but I have a
S2: small proportion of my loan on variable, but it's where
S2: I park my emergency fund, so it's completely offset and
S2: I don't actually incur the interest, but I'm able to
S2: check in and go, what is the sort of variable
S2: rate of interest that my bank is charging and that
S2: I'm likely to revert to? And it's currently 5.74% depending
S2: when you're listening to this. We're expecting at least another
S2: one or two more rises. So they're likely to revert
S2: me to something with a six plus percent from a 1.84.
S1: This is what Claire can expect as well. When we
S1: come around to September, she's probably going to be looking
S1: at a six point something interest rate, which, you know,
S1: is three times the amount that she was on, which
S1: is a massive, massive increase. So like, I think we've
S1: done some calculations or you've done some calculations just in
S1: terms like what's what's that sort of increase a month
S1: looking like?
S2: Yeah. If you really want to freak yourself out or
S2: get prepared for this or do both at the same time,
S2: I'm Google Money Smart mortgage calculator and it has a
S2: handy little tool there where you put in how big
S2: your home loan is, your current rate. You know, if
S2: you're on a 25 or 30 year term and it
S2: spits out your monthly repayments so you can have a
S2: little bit of a play. And currently Claire's looking she's
S2: probably paying about 2200 per month on her mortgage, the
S2: minimum sort of required that would be if. It rolls
S2: off to a 6% interest rate that rises to about
S2: $3,600 and she'll be needing to find an extra $1,400
S2: per month.
S1: That's a lot of dough.
S2: At the same time that you've got the childcare costs
S2: kicking in. So you know, who knows, by September, that's
S2: when she is rolling off. Having said that, you know,
S2: the 6% and the sort of, you know, what I'm
S2: on is sort of the it's the sort of top
S2: shelf or it's the one that they put you on
S2: if you've been a loyal customer for a while. It's
S2: not the really great new rates that you can get
S2: by being a new customer. And one of the it's
S2: not an endorsement, but I do like to check the
S2: website of Tick Tock loans. TikTok. Not the dancing app.
S2: Not the dancing app. I like to check that one too.
S2: But Tick Tock is currently advertising an interest rate of
S2: variable of 4.56. So that's compared to my variable rate
S2: of 5.74, which is about 1.2 percentage points cheaper. Yeah.
S2: So there are better deals. And if you particularly if
S2: you are locked in with one of the bigger lenders,
S2: just be aware that they're probably going to pop you
S2: on a right that is not competitive and it is
S2: definitely time to be shopping around.
S1: My current homeland is with one of the sort of
S1: the newer lenders, the neo bank lenders, so to speak.
S1: And yeah, they're great because they don't have the overheads
S1: that the other banks do. So they can offer these
S1: really competitive rates, but they also can and like everyone's
S1: doing this because I don't know if anyone's been reading
S1: the finance reports from the banks this week. This is
S1: very business journalist, nerdy business journalist thing to do. But
S1: apparently the mortgage market is incredibly competitive. They've been. The
S1: Bendigo Bank CEO said that it was like crazy, like
S1: she was like, I've never seen anything like this. So
S1: there are banks are out there, they are desperate for
S1: a business and they are giving big fat cashbacks like
S1: just obscenely high, like five $6,000 in some cases. So
S1: this is something else to think about when you're refinancing,
S1: which may well be that not only can you sort
S1: of go to one of these sort of smaller lenders
S1: that might be able to give you a competitive right,
S1: but they're also then going to give you five grand
S1: as well?
S2: Yeah, if you can handle all the paperwork involved, if
S2: you switched every six months, you could offset the impact
S2: of the higher rates by sort of getting those juicy cashbacks,
S2: although that may affect your credit rating, that you might
S2: not be able to play that card too many times. Yeah.
S2: And with the the neobanks or the smaller lenders, it
S2: can be a little bit more tricky if you're self-employed
S2: or you've got sort of circumstances where you can't just
S2: immediately lodge the payslip to show easily he's the income.
S2: So it's not an option for everyone. But if you
S2: do sort of have the income, you can substantiate quite clearly.
S2: And importantly, if you've got enough equity in your home,
S2: which is something we might mention as well for the
S2: mortgage prisoners out there. Do you want to explain what
S2: a mortgage prisoners?
S1: Yes. So, I mean, you considered a very dramatic term,
S1: but you're considered a mortgage prisoner if your equity in
S1: your home has fallen below 20%, so it might not
S1: of it might have been above 20% initially when you
S1: bought the place, but the value of the property might
S1: have dropped or or anything you might have happened and
S1: it's fallen below that 20%. So you now face lenders
S1: mortgage insurance if you refinance, which means the whole sort
S1: of process of refinancing becomes more expensive when the whole
S1: idea is that it's supposed to be cheaper. So it
S1: becomes sort of like financially unviable to leave your your mortgage, Right.
S1: So therefore, you sort of trapped in it.
S2: Yeah. I mean, and you can if the savings on
S2: the interest was going to be very substantial, it might
S2: be worth paying the lender's mortgage insurance, which can sort
S2: of be amortized into your payments across the the length
S2: of the loan in some cases. So it's worth investigating.
S2: It's going to be a bit tricky. You know, I
S2: would say reach out to a mortgage broker or just
S2: walk into a bank in like we did in the
S2: olden days and have a chat about what your options
S2: are and start to have that chat. I would say
S2: at least two months out from when your fixed rate
S2: is ending, you want to know from your lender what
S2: right are you going to put me on? Or at
S2: least what is it now? And you know, if rates
S2: go up, what will be added to that? So you
S2: can start to shop around and look at all those
S2: usual sites that can sort of compare the market, find
S2: a right city and get an idea of what those
S2: competitive deals are. Because you're right, Tom, You know, we
S2: still have this vision of the banks of, you know,
S2: they're there, they're not doing deals. They're charging around high rates.
S2: But for new customers, there really are some competitive write
S2: out there. And you want to make sure that you
S2: get one of them. Yeah.
S1: And like basically just never take anything at face value. Right? Never,
S1: never take the first number you're given, you know, when
S1: when these sort of things come along because there's almost
S1: always going to be either from that lender or a different.
S1: Linda a better offer.
S2: Yep. And even if you don't switch, call your current
S2: lender and say, Hey, you've just put me on this
S2: vastly inflated rate. Can you can you do better place?
S2: Otherwise I will walk away, you know, to treat a
S2: mean ticket That's.
S1: It's like in love like in finance. So sort of
S1: looking at Clare's budget in terms of things that she
S1: spends money on. Jess, you've actually identified some areas in
S1: in Claire's budget where, you know, you think she might
S1: be able to trim some costs to be able to
S1: close that gap for when she hits this mortgage cliff.
S2: Yeah. So I think once you factor in the higher
S2: mortgage repayments and the childcare costs, we could be a
S2: little bit close and there's going to be a need
S2: to look at the more variable or discretionary purchases as
S2: we all are. And some of those things can include
S2: things like eating out. So there's a couple of hundred
S2: bucks some months for eating out in the budget or
S2: in what we're observing in the spending. For Claire, sometimes
S2: there's Ubers, you know, going to to wherever we're going. And,
S2: you know, she's got the same problem that I've got,
S2: which is home decor, which I suspect means she's going
S2: to Kmart too much, which I used to do is
S2: you just go on a little trip and you just
S2: want some more pillows or candles or whatever it is.
S2: So maybe there's there's a 100 or something bucks a
S2: month going on that, you know, there's there's also like
S2: a bit of skincare spending, you know, And I'm like
S2: not about about like don't spend any money on yourself, but.
S2: This is the time where we're sort of investigating the
S2: cheaper options. We're not walking into Mecca, we're walking into
S2: Chemist warehouse somewhere, not doing the top brands. We're sort
S2: of understanding a tub.
S1: Of a tub of Vaseline. That's good for your skin, right? Yeah.
S2: Moisture. A set of film face cleanser. I'm like, but like,
S2: we're trying. The store bought shampoos where, you know, we're
S2: not turning our nose up at some of the home
S2: brands in the cheaper options. So that's where we can
S2: just do a little bit more of the finessing, you know,
S2: around going out. And I think to be honest with you,
S2: you know, if you've got the big mortgage, it's probably
S2: going to mean I hope you had your post-COVID holiday
S2: already because we might not be having one of those
S2: in the next year or two. And, you know, that
S2: sounds sad, but if you're looking for ways that you
S2: can cut your discretionary spending, I think that some of
S2: the big ticket items people might be just staycation ing.
S2: If you're meeting up with friends, we're going for a
S2: walk in the park. We're not going out for dinner.
S2: So some of those little changes like that just to
S2: flag that, they are things that you can tinker with
S2: and you know, in ordinary times, I'd love to see
S2: those in everybody's budgets. But when we're battening down the
S2: hatches and preparing for this massive mortgage cliff, the big
S2: pain that is coming, there are some of the little
S2: tweaks that we can make that really do add up.
S1: Yeah, absolutely. And that's the name of the podcast. It
S1: all adds up.
S2: I just realized it all adds up. Mike dropped that and.
S1: But yes, look, I think in conclusion, Clare has a
S1: very solid looking budget and she's doing a great job
S1: squirreling extra bits of cash away. But you know, these
S1: childcare costs that will be coming through the mortgage, significant
S1: increase in the mortgage repayments will be coming through will
S1: mean that she'll have to start trimming some costs here
S1: and there.
S2: Yeah. And I would say get on that money Smart
S2: mortgage calculator today everyone, and start playing with your numbers
S2: and getting some idea of what that hit is going
S2: to be. We don't know exactly what's going to happen
S2: to interest rates, but running some scenarios and figuring out
S2: what is in my budget that can go overboard when
S2: that comes. So the key takeaways, I think for Claire,
S2: you've got those childcare costs coming at you and that
S2: is going to eat up a big chunk of your
S2: what was formerly your savings. So just be braced for that.
S2: It won't be forever. Eventually kids go to to school
S2: and if you go to a public school, you will
S2: feel that relief of thousands of dollars a year streaming
S2: back into your budget. And again, with the mortgage cliff,
S2: you know, we've got rates going up. They won't keep
S2: going up forever. And hopefully we will get to a
S2: point where we've got on top of inflation and interest
S2: rates can start to come back down again. And that
S2: will relieve the pressure on people. But there's definitely this
S2: pinch point coming for at least the next sort of
S2: 6 to 12 months where we will have to batten
S2: down the hatches and look at some of the discretionary spending.
S2: And I think that if Claire continues to keep a
S2: really close eye on her expenses, that that she'll be
S2: well equipped to do that.
S1: Thanks, Clare, for calling in with your budgets and some questions.
S1: We loved hearing it and thanks everyone else who's been
S1: sending in their their budgets and questions. It's been great
S1: to read. We're working through it slowly. And you know,
S1: you'll be hearing someone new next week with with some
S1: more questions about a whole bunch of different stuff. So
S1: thanks so much for listening, as always. And we will
S1: see you next week.
S2: Thanks for listening. See you next week.
S1: This episode of It All Adds Up is produced by
S1: Chee Wong. The information discussed is general in nature and
S1: does not take into account your personal financial situation, goals
S1: or objectives. You should always do your own research or
S1: get professional advice before making any major financial decisions. If
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