Improve your finances: how to tackle debt

Jess: Welcome to the webinar, Improve Your Finances, How to Tackle Debt. Our presenter tonight is financial advisor Nicola Beswick. So, this presentation is accurate as of the 14th of November 2023 and the content provided in this presentation serves as a general guide. It is essential to consider your individual circumstances and consult with the appropriate professionals for specific advice.

And just an acknowledgement of country. So, in the spirit of reconciliation. MS plus acknowledges the traditional custodians of country throughout Australia and their connection to land, sea and community. We pay our respect to their elders past and present and extend that respect to all Aboriginal and Torres Strait Islander peoples today.

Nicola: So as Jess mentioned, I'm here to talk about specifically tackling debt, particularly at this current point in time with high cost of living, et cetera, and the pressures that are coming on with households. So, my name is Nicola Beswick. I am a senior financial advisor at FMD and I also chair a wonderful organization called the Pro Bono Financial Advice Network.

We're very fortunate to partner with the multiple Sclerosis community and particularly MS around helping people that can't afford advice and have gone through a health crisis get connection with an advisor that could help us. So, I'm here today to talk about this on behalf of them. I also do a few other bits and pieces in my life like helping with the Financial Planning Association and so forth generate and encourage people to join the industry and help other people like yourselves.

Before we do carry on though one really important thing here is to remember that everything, I talk about today is general in nature and these are some tips and tricks and thoughts around how you could consider managing your expenses and your debt. If there is something that's really, really specific to you that you want to talk about with your situation, I do recommend that you do that you get some specific advice and connect with an advisor to get some assistance in that. It's the best way for everything and make sure you're getting the right information that is specific for you.

So, before I begin we all know that we are undergoing some massive expenses cost of living has risen and we've also got so many other challenges, particularly high interest rates on debt and also cost of living pressures. We've seen really over the last few almost a couple of years now, and particularly last year, this really, really impacting the cost of living and that what the RBA have been doing to really try and tame inflation that has come out with various actions that have happened.

You think about what's been happening overseas. And then also COVID and all those bits and pieces. So that's really how and created this issue that we're seeing now with inflation and that impacting cost of living.

So, what the RBA has really done is, and we all know this because we've most likely seen it on the news some in some shape or form, is that the cash rate the amount that it takes to borrow and repay has risen significantly, particularly in the last 12 to 18 months. And this chart really shows what has happened over, you know, that last couple of decades where we've seen cash rates really come up and come down and come up again and then really gradually come down and around the global financials crisis back in 2008 200. We saw cash rates and interest rates really drop off. So, you can see that decline there. But what has now happened, as you can see in this chart, the interest rates have dramatically increased. And over the last period of time we have not been immune by this, by the RBA putting up official cash rates. And again, last, earlier this this month, they did it as well. I think it was just almost last week where we had the, the announcement with the RBA putting up the cash rate again. So, this has had a massive, massive impact on people and the way that they're managing through this current time. Particular things that we've seen with it has really dependent on people's situation.

So, people with money in the bank, so savings and so forth, we've seen interest rates increase. So, people are actually getting more return, so a return of interest on the savings in term deposits. But if you are someone that's borrowing money so whether you've got a home loan, a personal loan or other debts, like car loans, sometimes those repayments have increased and it's because the interest rate on part of that repayment has increased significantly as well. And that is due to that steady increase that we saw on that chart previously. So that is really how it impacted people particularly because wages, costs and the income that we're getting through to us hasn't actually moved that much either. So, we're trying to cover our expenses that have increased with essentially the same income that we had a number of years ago. So, it’s really taken the toll. People, and we've seen this quite commonly as well people that are renting, rents have increased and that is again generally because of the expenses associated with that loans that we've seen. But everything else has still increased. So, food. petrol, oh gosh, just the general day to day things everything we've seen has increased and again, that has really put a lot of pressure on people over that period of time. So, it's, it is a real concern sometimes because I know a lot of people are feeling this.

So, how do we counteract this? How do we manage this increased pressure with what we've got coming in? This is really the crux of what we wanted to talk about tonight. It is about how do you manage debt at this point.

Now, essentially, it is something that sounds complicated but it's when you break it down can be quite manageable. So, the first thing that you really want to do to try and manage debt is to get an idea of what income you've got coming in from where and understanding what money goes out. So where are you spending your money? If you have an understanding of what money is coming in and what money is going out, then you can get an idea of what your expenses are. If you look back and have an idea and you see various trends and you go, actually I can stop doing that, that can help increase income and give you a little bit more extra for things that you really want to do.

But before you can actually do that you've got an understanding of what, where your money is going. You then can set a budget. So, finding an idea of what you actually spend your money on and making sure that you have a key idea as to setting realistic expectations as to what you want to spend your money on. So, getting a breakdown of what's important, what's essential, what's nice to have, that really helps. And then Once you've got that data and that information and an idea, you can then track your spending against that budget.

So, what we're doing is firstly getting an idea of what's coming in, what's going out, having a look at your history through bank accounts and things like that, getting an understanding of what you've spent your money on, and then putting together a plan as to where you actually want to spend your money. Using the information from the past to help set a realistic budget now and then continuously tracking your spending against that budget that you've sent. It's not about putting something in place and feeling like you have to stick to it and really it's almost concerned if you're going, you know, over a little bit or under. Just adjust things, you know have an idea and then continuously evolve over time. What you might find then is that buffer that we're all looking for from a savings perspective and you can then help build up other cash offers that you may need. So, I've talked about how you set up and track your expenses. This is where you can really go online and try and find some really, really interesting and useful documents. So, apps that you can have on your phone. There's a whole range of them there. These are some of the key ones that I'm aware of that may be really useful. Money Smart website, so this is a government website. They have a budget planner that if you go to this link, they will be able to go in and help track. Or you can use what I have and that's a lovely good old excel spreadsheet and that's a screenshot there for you to have an idea of what it looks like so you can actually get an idea of what things are. And this I may try and send through so you can have it linked up and share and available for you if you are handy with excel sheets. So, this is us giving you an idea of how you may want to set your budget and putting this all into place.

Now once you've set your budget and you've got an idea of potentially any kind of surplus that you may have in place, so this is again that tracking piece if you understand exactly what it is when your money's going and if you're able to tailor things then you can look at potentially maybe structuring your finances to better build yourself a safety net.

What I quite like to do is set up bucket accounts. So have separate accounts for different things. The first bucket is that day to day expenses. So, this is where money comes in, money goes out on that general day to day side of things that we all have with the cost of living. But then what you may want to do is set up a couple of other buckets that help and direct x amount depending on what your surplus may be to try and help build a buffer for whatever reason. So here I've got three examples. I've got bucket number two, which is savings. You know, having a little bit of a cash savings there for whatever you may want to do. It might be you know, oh gosh, holiday something really important that or special that you've been wanting to say for or something a bit more longer term.

The third bucket that I've got there is an emergency fund. When I talk about an emergency fund, I'm thinking about having access to some cash that's squirreled away for whenever you may want to need to fix something. So, if a car needs to be fixed there's been like a tyre that needs to be changed and you have to replace that, or if, you know, the good old one, hot water cylinders blow up and you know they're quite an expensive thing to replace. You've got this money set aside there to help fund that in an emergency. This is the little bit of money that you're building over time so as things come up you go that's what I've been saving for.

The more important thing and also really, really, I think, appropriate is having a splurge fund. So, this is the fourth bucket that I've got there. If you have a splurge fund bucket, that means you go, you know what, I want to go out for dinner. It's not in my ordinary day to day expenses thing, but I've got a little bit of money here that I can do that. And so that's what that is for. This is the bit where we really want to try and enjoy life, make sure that you're not being, you're not, you're doing those things that you want to do. It's about actually having that ability to, at some stage, take funds out and actually go, this is what I'm going to spend and, and enjoy and know that that's where some of this hard earned money is going from.

So hopefully, with the budgeting and getting a tracking, you can put in place various amounts going into each of this. Now everyone may be different, you know, everyone's situation is different and how much you may have going into each of these buckets will be different. So, I haven't put any specific amounts there so it's really important to maybe look individually, for all of you listening, is set goals or targets as to how much you want to maybe get into a savings fund, into an emergency fund, and then continue to work towards that over time.

Now, what you may also find is if you have saved a significant amount of money, particularly through this, is looking at how do you make this money work harder for you, particularly at this point in time. So, there's just this all depends again on everyone's very specific situation, but a couple of things here that are potential considerations. For people that have mortgages you may want to consider using any surplus cash that you've had in savings account to put into an offset account to help bring down the amount of interest you're paying on a loan, but still have access to that capital if you ever needed it. So that cash fund there. There's a really, really easy way to almost get the best of both worlds. Reduce your expenses from interest, but then also put that money to work for you.

Now you may find yourself in a position where you do actually have quite a lot of savings, you don't have any debt that you need to kind of consider repaying, or you're thinking about your position long term, you may want to look at other options. This is where we start thinking about, do you look at investing some of that cash? Again, this is a very high level overview, but there are different options in terms of how you could invest. You may want to invest in something for the short to medium term, or even the longer term. It's about getting the right investment and perking the right investment that fits that time horizon that you all have, particularly that, that savings. There is no, I guess nothing worse than putting money into something like the share market and particularly because it's quite volatile at the moment. Just to see it drop down and then go, I actually really needed that because you're wanting to go on a holiday in three months. What you want to do is look at why you've got that money and if it's for something for the longer term, that's where things like shares could be really, really important. But if it's something for the short term, you want to look at something that may be a little bit more conservative or stable. So, term deposits and things like that. So again, not just going, this is doing really well, let's go into that. Getting an understanding as to where your money, what you want that money or that savings to do.

We talked about budgeting, getting an idea of where your money is going to, how do you track it, and then what to do with the savings that you've accumulated. But the other part of the equation is looking at where your expenses are. So, do you and how do you manage your expenses? Particularly at this point in time, we're finding that mortgages are generally one of our biggest expense and particularly the interest that you pay on a mortgage. Same as with personal debt, so credit cards, loans, and things. So, what you really want to do is make sure that you're getting the best interest rate deal. You know, trying to understand and look at what your ability is to have a loan and, and how you repay that is really important. So, getting an idea of what your interest rate is, having a look at what the options are with other banks and then how do you look and make sure that you've got the best deal.

So, getting that information, being armed with how you can what you're paying, what potential options are, is a really good start before you go and approach your bank and ask for a discount. Now, if the discount's not going to come and the bank's not going to help, then, you know, go to another bank, get offer, and you might actually find that your existing bank is willing to give you that deal as well. It's worth the effort if it works. Otherwise, you may find that switching banks would be easier to help save. There are mortgage brokers out there that can help you with this so finding someone that can do all this legwork for you may also be an option to take some of that stress in terms of this process out.

Now when we look at situations where people may have other debt attached, so credit cards, personal loans and things like that. There are various strategies that can be put in place as to how you repay that down. So, got a couple of ideas here really, again, becoming aware of what the debt is that you have. So, credit card debt, what's the interest rate on that, what is the amount that you owe, etc, etc. Putting a little kind of square and saying, okay, I need $5000 and it's paying 10 percent interest that I'm paying. Do I pay that off first or do I go for something that is $50, 000 at 5%? Now, there's no easy way of distinguishing which ones work. You might go for the lower loan and pay that down because it's always nice when you feel like you've achieved something. And then you can put a bigger amount onto that second one. Well, you might find that you want to pay the loan down that's got the higher interest rate. Again, it all varies depending on what your overall situation is but putting that plan in place and redirecting and paying that kind of debt down with any kind of surplus income that you may have means that you can then get to that savings rates a lot sooner and a lot quicker, which is ultimately what we try and do.

The other things that you can look at doing is really understanding what it is that you're paying or where your money is going. So, once you've got all of that information and you've gone right from the start and got an overview of where your money is going, what can you do to consider reducing your expenses.

Things like making sure that you're getting really good deals on your insurances. You're shopping around for the really good deals with things like energy costs and so forth. Not paying for screening services, for example, that you may be using and well, you may be paying for and not using. And also considering the nice to has versus, you know, can I eat at home five days a week and only go out twice a week as opposed to eating out five days a week and eating at home two days a week. Those little things can really have such a profound effect on reducing your expenses and giving you more and more savings capacity or capacity to help pay things down quicker.

One thing I would also say is please stay away from the buy now pay later type sites. The interest paid on, that you have to pay on those things can be quite high and can have such a huge detrimental impact on people's overall situations, particularly in the future when you have to pay these things. So, you know, trying to stay away from using that and, and particularly not getting tempted to buy new items is a really, really key thing. Yeah.

There, as you go and have a look through what you're spending your money on, you may actually be surprised as to what you can do to really reduce those expenses and free up surplus cash to help make things easier in the future.

But the other part of the equation is looking at how you increase your income. So, this is the money that's coming in and these are probably some really, really key things to consider. And I'm not going to go into detail within tonight I think it's looking at things like Centrelink, you know making sure that you check the box if you're eligible for any kind of concessions. So, concession cards are really, really important and can be quite handy with you know reducing your expenses. Do you qualify for any disability support pension age pension and making sure that if you do currently have a payment from the government, that your situation, your financial situation is up to date. It's amazing how often our financial situation changes, and we don't update Centrelink and that means that you may not be getting more, as much as you're entitled to because they've got old data. So, getting that information and having a look at that and updating things is really useful. You can do that directly through an online Centrelink, MyGov, so that's a really good handy thing.

Now if you're trying to save for some high tech, really expensive items, or things that are really related to your illness make sure that you're accessing what you can through the NDIS or My Aged Care, because that can really help mean that if you need a particular piece of medical equipment, it might be covered by these systems there, and that could be a really, really useful way to go, actually, I do not need to pay for that out of my savings or any other money that you've got.

Then also looking at your superannuation if on the assumption that you have some, you know, making sure that you are across that. Do you consider, again, accessing this to help with your income and ensuring that you're meeting the expenses? Very tricky because there's a whole range of different reasons or scenarios as to why you may want to do that. So, getting across that and understanding what superannuation you have can be important and help increase your income. But then also looking at insurances. So, do you, within your superannuation account, for example, have any income protection insurance? Do you have any total and permanent disability insurances in place? And getting an idea of that can really then go, oh I can set myself up to do X, Y and Z because all of a sudden, I may have this extra income coming in to help with things. So, getting across that and understanding what you, what you may have, that's really, I say easy to do. All you need to do is go into your superannuation account and look for these specific things within your accounts. You may even find it easier to get the superannuation account provider a call and ask them the specific questions because they'll be able to look online and give you the information over the phone.

The other thing that may be useful with this is to make sure that you don't have any money that is unclaimed. You know, it's amazing how many of these little different things have happened, you know, may have multiple superannuation accounts all over the place. Getting an understanding of that and going on to, I think, this Money Smart website is really, really useful as well can then help get an idea of Is there anything out there that you may have that you didn't realize you did? So again, a useful tip to look at potentially increasing your income and helping with that repayment of things.

But finally, I think this is a really, really important thing to consider is if someone is, and if you are really struggling with your debt and feeling overwhelmed, is get in contact with someone with someone that's really, really specialised in this area to help. So, the National Debt Helpline, a helpline here, there's a website or things like that you can actually go in, and they might be able to help navigate any kind of specific situation that you're in and help with minding that. You may also you know, look at other kind of services. Again, if you go to the Government Money Smart website, that will be able to help you with those types of things.

So hopefully that all helps and gives you a little bit of an overview as to how you can manage things. As I've highlighted, it's really about getting that information first, getting that understanding of Where is your money going? What are you spending money on? And then making a plan as to redirecting and paying down specific things that you have, or you may have. Then also considering your savings and redirecting that as to where you are putting your money and building that term, well term, that long term perspective. So, I shall end there and see if anyone has any questions or anything like that they may want to ask.

Jess: Great. Thank you so much for that, Nicola. What would you sort of say when people feel quite ashamed of having debt or not being in control of their money, or maybe hesitant to reach out to a financial planner because they think they're going to be judged or feel really embarrassed? Like, is it something that you're just used to dealing with?

Nicola: Absolutely. It's, you know, everyone's financial situation are so different and our job is financial advisors and financial counselors as well. So again, they can help in certain areas. We are trained to make people feel comfortable and not ashamed of their situation. You know, we all go through different things, ups and downs, and it's all about making sure that you're talking to someone and they're not and they're giving you that time and that space to be able to have an honest conversation and help. It's, it's amazing. What just that conversation can do with people and help manage things. It's about finding, I guess, the right person and the person that you connect with as well through this, through that journey.

Jess: Absolutely. Well, thank you so much for that that Nicola. That was, you know, really great. Some really good tips there. So, thank you again. And so, here's just some of the other supports that we offer here. You know, even things like the MS Social Work Advisors. So, they often talk to people as a bit of a gateway before sometimes people seek financial advice sometimes it can be, you know, helpful for people to even just admit that they have debt. And then sort of how they can sort of tackle that problem and get a bit of a plan together. So, we have resources on our resource hub. This webinar will be uploaded and available online. And finally, if you need any support, if you've got any questions, you can get in touch with Plus Connect on our details there.

So, thank you again, Nicola, and thank you everyone for joining tonight.

Nicola: Pleasure. Thank you for having me.