Melbourne local Sarah, 43, is a single mother, who works full-time, enjoys an active social life, and loves to travel. She purchased her owner-occupied home in 2009 from Mortgage Choice broker Caroline Jean-Baptiste.
Keeping up appearances
The Mortgage Choice Financial Fitness Whitepaper found that like 35% of Australians, Sarah was spending thoughtlessly to maintain a lifestyle and had accrued credit card debt and a personal loan. Like many people, Sarah didn’t have a clearly defined budget or savings strategy and was living pay cheque to pay cheque. It wasn’t until she saw that her sisters were making more responsible choices with their money and getting ahead financially that she decided to get financially fit.
Sarah decided to buy an investment property in early 2018 and sought professional financial advice, subsequently creating a Self Managed Super Fund (SMSF). Sarah once again approached her mortgage broker, Ms Jean-Baptiste for an investment property loan that best suited her needs.
Sarah also spoke to her mortgage broker about how to pay off her existing home loan faster. She then had a clear idea of how many repayments she needed to make in order to pay off her existing home loan by retirement. Sarah also decided to start growing her savings in her offset account.
Ms Mudford decided to audit her bank accounts and credit card statements. She realised she wasn’t putting much thought into how she was spending her money, which meant it was difficult to stay within her limits and save some each month.
“I always made sure there was enough to cover bills and loan repayments but I never really had a savings goal so I ended up spending, without much consideration,” said Ms Mudford.
Sarah then decided to limit the use of her credit card to planned expenses, which she had already budgeted for. She set up automatic payments for bills, saved a portion of her income and set aside an amount for holidays and entertainment.
Sarah said, “I thought about what was most important to me and realised I needed to make some practical changes to my lifestyle. Instead of going out a few times a week, I cut back and started hosting dinners at home once a month and chose to take less extravagant holidays. I also had to cut back on luxuries like massages and I used to drink Veuve Clicquot champagne, today I drink Prosecco.
“I became more conscious of my spending. My savings were automatically transferred into a separate account each payday, which meant they were not easily accessible and I was not tempted to spend. I learnt to ask for a discount and started to actively seek better rates on insurances and other financial products.
“Surprisingly, starting new habits wasn't as hard as I thought because I planned a budget in a way that gave me enough cash to live my life. Yes, I went out less but was still able to maintain a social life and remain connected to my friends. The difference is that we now find cheaper ways to see each other.
“I am passionate about travelling so I decided to increase my income by getting students in to rent spare rooms in my home. I housed students for one year and was able to pay for a holiday in full and have extra funds to put some funds into my home loan offset account. I also made extra repayments on my home loan.
Being financially fit is worth the sacrifice
Speaking about her newfound financial freedom, Sarah said, “I know a lot of women who feel overwhelmed and think they need to be a maths genius to manage money but it's not as overwhelming with the right help and strategy in place. I now feel in control of my finances, which is really empowering.
“Speaking to professionals helped me get my head around the jargon and get on top of things. It's so helpful to have an expert you can call on. I believe my broker’s advice reduced the hassle factor and thousands of dollars when the time came to purchase my investment property. She took away all the worries I had about securing the right loan with the right lender.
“Today I feel so much more confident about my financial future. Previously I had debt and at times felt anxious about money and meeting financial commitments. I have now been able to reduce my home loan and I am at ease knowing I have money saved and enough to live the life I want to live. I'd say I am at least $20k better off.
Advice to younger self
“If I could give my younger self advice I would say: take control of your finances early on and create good money habits. Set aside funds for bills and savings and then only spend what's left. With the right advice it takes less than five minutes every month to make sure everything is on track,” concluded Ms Mudford.
Sarah is now the proud owner of an owner-occupier property,an investment property and has paid off her credit card and personal debt. She also has a healthy SMSF and savings account. With these achievements to her name, she now feels that being financially fit is well worth sacrificing Veuve Clicquot for Prosecco.