I was reading an article recently and it spoke about the risks associated with Australian’s love affair with debt.   So, why is this important? There are a number of key factors why we need to stop and consider the risks.

Factor number 1 – Household debt levels in Australia are higher compared to other countries
Factor number 2 – Most people assume that the rise in debt doesn’t exist because it leverages on a rise in wealth, so it all equals out.
Factor number 3 – Situations can change swiftly if interest rates rise and house prices fall.

The recent article from AMP quoted some rather eye-opening statistics.

“While rising household debt has been a global phenomenon, debt levels in Australia have gone from the bottom of the pack to near the top. In 1990, there was on average $70 of household debt for every $100 of average household income after tax.  Today, it is nearly $200 of debt (not allowing for offset accounts) for every $100 of after tax income.”

Debt is often broken down into good debt and bad debt – good debt allows you to build wealth by using other people’s money for investment.  Bad debt is used to purchase consumer goods such as furniture, holidays and credit cards.  We have also seen a rise in “Afterpay” which has significantly shifted the purchasing experience for many who may not be able to immediately finance their purchases.

Getting too far into debt can cause vulnerability and risk to households if economic conditions change quickly.  So, it’s best to review your current situation sooner rather than later to make sure you have the right plans, strategies and safety nets in place to ensure you have the flexibility to shift and protect your financial situation – so you don’t get caught short.

Here are three simple actions you can take today:

1. Know what you owe
   

Getting to know your debt allows you the opportunity to restructure and reassess the best way to shift it quicker.   How long have you had your debt? Are you only paying minimum repayments? Could you be paying more? Is there a better interest rate out there?

This could lead to a conversation with your bank or broker or financial planner to develop a plan to reduce debt quicker and save considerable amounts on unnecessary interest.

2. Create a budget that’s fluid and flexible 

Creating a financial budget which is fluid and has the ability to be scaled down significantly should the worst-case scenario happen.

Illness, injury and unemployment are obvious situations where you will need to massively overhaul your spending habits but significant life events like weddings and welcoming a new child also put stress on the budget.

By reducing your unnecessary spend and debt – you’ll have a budget that’s easier to manipulate if times get tough.  

3. Assess your love affair with debt 

Suze Orman said it best when she said “Bad debt is sacrificing your future day needs for your present-day desires”.

Assessing your love affair with debt is a powerful exercise.  How do you rate your relationship with debt? Is it good debt or bad debt? How many credit cards do you have? How many do you need?

And most importantly, how is your love affair with debt affecting your ability to plan and create a wealth strategy for the future?

I am a Brisbane based financial adviser with clients in Ashgrove, The Gap, Kenmore and Chapel Hill.  I help professionals make informed decisions and take back financial control.   These are just some of the examples of tips I like to share with my clients to help them gain control over their finances and to prepare for planning for their future.  By following these tips, like my clients you’ll be able to ensure that when you engage a financial adviser they will be able to help you with what you need.  I can also help you implement the appropriate tips for you. 

I offer a 30-minute financial review session. In this session, I can review your current financial situation. I can see if I can help you achieve your financial goals and the best (and quickest) way to do so.  You can contact our office on 07 3102 4948 or book a time that suits you via the link below. 

If you would care to share your experience with me, please comment below!