Getting their home deposit over the line

Saving up a 20% deposit is one of the biggest barriers to home ownership, and the continual climb of property prices can push it even further out of reach for younger Australians. Here’s where a bit of parental charity can make a major difference.

If you can assist with your child’s deposit, it can be just what they need to escape the rental market and jump onto the property market instead. You don’t have to give the full amount – even a partial contribution can help reduce their loan-to-value ratio and save them from having to pay Lenders Mortgage Insurance.

From here, a whole host of possibilities are unlocked. Owning a home could help with goals like starting a family or funding their retirement down the track. And as your child builds up equity, they might even be able to leverage it to start a property portfolio.

Getting ahead on their mortgage

If your child already has a mortgage, a modest financial gift can be deposited in their offset account or go directly towards paying down the principal. Either way, any extra repayments will help reduce the balance on which interest is charged.

And if your child can keep up the momentum and pay more than the minimum required each month, they might see their interest payments steadily deflate over time. This can ultimately save them thousands of dollars and shorten the life of their loan by years.

Paying off higher education fees

While HECS-HELP debt might be more tolerable than other types of debt, given that your child’s income determines when and how much they pay, it’s still not particularly pleasant. And with indexation tied to inflation, it can linger in the background for much longer than your child is comfortable with.

If you’re able to help whittle it down, you can free up your child’s cash flow and make it a little bit easier to navigate the rising cost of living.

It might also lower some of the hurdles to buying property if that’s in the cards, as lenders tend to include HECS-HELP debt in their serviceability tests (though recent changes give them leeway to disregard it if it will be paid off soon).

Help them start investing

It might not be as immediately helpful as some of the other options on this list, but investing is one of the most effective ways to beat inflation and grow your savings over time. If your child hasn’t tried their hand at it just yet, offering a small sum to get them started can give them the motivation they need to turn it into a lifelong habit.

Don’t neglect your own needs

Giving your kids smaller gifts sooner can give them a meaningful headstart in life, and there’s a joy in being around to see them put that money to good use. But you’ll also need to be mindful of the potential impact on your own lifestyle.

Will you have enough savings left over to secure the retirement you want? Are you still confident in your ability to manage surprise expenses? Will your Age Pension be affected? These are all things you’ll have to discuss as a family before you make any decisions. And if you’re looking for personalised advice, consider reaching out to a qualified financial adviser.

Ideally, your super and savings should be funding all the things you were dreaming about doing as a retiree, not getting eaten up by your mortgage, personal loan or credit card. But even if debt is going to play a bigger role in your post-work years than you hoped, there are strategies to help make things more manageable.

Revisit your mortgage arrangements

Your mortgage may be the biggest source of budgetary strain, so if you can reduce your monthly repayments even a little bit it might make managing your cash flow easier. Scan the market for an idea of what other lenders are charging, and if you believe you’re currently paying more than you need to be, it might be worth switching.

That might mean refinancing to a different lender or leveraging your market research to secure a lower rate with your existing one. You might even be able to switch to one of your lender’s cheaper loans, but that might involve parting with certain features (such as your offset account).

Put together a budget

Keeping a budget is good practice no matter your circumstances, but it can be particularly helpful when there’s debt to tackle. Start by calculating the income you receive from all sources. Once you have a ballpark figure, you can estimate how much you can afford to spend, how much you can save, and what you can direct towards paying off your debt.

While some people find success with budgets that account for every dollar, others might prefer a looser approach. You don’t need to tighten your purse strings so much you close yourself off from all things enjoyable; you just need a clear picture of where your money is going each month and a willingness to make a few sacrifices.

Consolidate your debts

Between the different interest charges and varying fees, having multiple debts can be a headache to manage. One potential solution is to roll all your debts into a single loan so you only have to budget for one recurring repayment rather than several.

People often choose to consolidate their debts into their home loan, as the interest rates on home loans tend to be lower than those on credit cards and personal loans. Just keep in mind that doing so will decrease the equity you have in your home.

Think about downsizing

If your children have moved out and you and your spouse no longer require a large home to accommodate them, you can think about selling your property and purchasing a smaller one. The benefits here are twofold: it might allow you to pay off the remaining balance on your mortgage, and if you’re 55 or older and meet certain eligibility criteria, you and your spouse might be able to use part of the sale proceeds to make a tax-free contribution of up to $300,000 each to your super.

Delay retirement for a little bit

Finally, you might consider putting off retirement for a few years so you can spend some more time lowering your debt levels. The more you can chip away during your working years, the less vulnerable you may be to interest rate fluctuations when you retire. And if you can free up enough money, you might be able to retire with more confidence that you’ll be able to do all the things you originally planned (as well as manage any surprise expenses).

Fortunately, there are plenty of ways you can shift gears mentally to get a better handle on your finances. Let’s take a look at just a few below.

Set up barriers to minimise overspending

New banking technologies have reduced managing and spending your money to just a few taps of the finger or a wave of a card.

While this has certainly made things more convenient, it has also eliminated many of the barriers that often kept us from overspending. For some people, the solution might involve introducing some new barriers.

For example, if you struggle with impulsive spending, consider quarantining your savings by keeping them with another financial institution. You could even go a step further and refrain from activating your account’s card or downloading the app — that way, your money will only be accessible via online banking. The idea here is to create enough extra work for yourself that you won’t be tempted to dip into your savings too often.

Think of your mortgage as a savings account

It’s easy to think of your mortgage as a drain on your finances, but it might be helpful to think of it as a kind of savings account instead. Every time you chip away at the loan principal you contribute to the equity you have in your home, and this equity will be accessible if you decide to sell down the track.

And by making repayments above the minimum amount set by your lender, you can potentially save on interest and shave years off the life of your loan. This can be more advantageous than keeping your money in an interest-earning account, since financial institutions tend to charge higher rates on mortgages than they pay out to savers. And unlike the money you would earn from a savings account, you won’t have to pay tax on the interest you save.

One way to trick yourself into paying down your loan faster is to switch from monthly to fortnightly repayments. If you then pay half your monthly repayment amount each month, you’ll be contributing an extra month’s worth of repayments each year at minimal cost to your budget.

Put your savings on autopilot

Willing yourself to save more can be an uphill battle, but you can make things a whole lot easier by outsourcing part or all of the job to technology. Automating your finances can help reduce mental load and ensure you’re consistently setting aside enough money for a rainy day. Here are just a few possible ways to go about it:

• Set up direct transfers to your savings: Arrange to have your salary deposited directly into your savings account and draw on it as needed to cover your budgeted expenses. This way your money is constantly working to earn you interest (or save interest if you’re using a mortgage offset account).
• Automate your bill payments: If you haven’t done so already, think about setting up automatic payments for utilities and any other bills, so you can avoid the stress and fees that come with late payments.
  Consider micro-investing or round-up apps: These days, there are a number of apps that round up the card purchases you make to the nearest dollar and either invest the difference or put it towards your savings.

Put 24 hours between you and expensive purchases

Most of us have made impulse purchases that we later regretted, either because it blew out our budget or clarity set in and we realised we didn’t even want or need the item in the first place. It’s in these situations that we fall victim to something called the present bias. When deciding between splurging our money and saving or investing it, we often choose the former because it’s so immediately rewarding — even if the sheen of whatever we bought wears off pretty quickly.

Next time something expensive catches your eye, commit to waiting 24 hours before you actually buy it. If after 24 hours you still want it, then chances are it’ll bring some benefit to your life and may be worth the hit to your savings. But if the excitement around purchasing that item has subsided, then that can often be a good sign that you should give it a miss.

Cultivating habits like these might take a while, but it can get easier to stay motivated once you start seeing progress and your financial position improves. Stick with it and don’t forget to celebrate those small financial wins along the way.