Many Australian households are facing cash flow problems thanks to the COVID-19 crisis. Family incomes have reduced at the same time as costs such as gas, electricity and insurance are going up.
To make it worse, many businesses tend to rely on your inertia, and entice you into fixed contracts that are made worse by hefty fees for late payment.
I'm also hearing reports that kids have been signing up for new streaming TV services during lockdown, lured in by free trials.
Well, as my father always said, "It's the squeaking wheel that gets the grease." So take the initiative and start calling the people you are dealing with to try to negotiate a better deal.
You will be amazed at the results, especially right now. Few are advertised, but there are huge savings to be had, even on big-ticket items like your mortgage - I have heard of people shaving thousands off their annual cost.
Visit your bank or broker in person if you can - it's harder for them to say no to your face.
The real art to these negotiations is to do it when you have the most leverage, which is when your contracts are up for renewal each year.
Try using a free service like GetReminded (www.getreminded.com), where you enter the renewal dates for all household contracts - everything from the mortgage, right down to those little ones like pet insurance and streaming services - they all add up.
GetReminded then sends you reminders before each is due for renewal, avoiding late payment fees and, crucially, giving you time to push your existing suppliers or shop around for better deals.
A Sydney nurse and mother of three, Rachel, decided to take back control and became one of the first users of GetReminded. She tells me that these simple, timely reminders have helped her cap a whole raft of bills.
She estimates she saved her household over $2 000 in the first year by negotiating better deals from all her suppliers as her contracts came up for renewal. After that first year, she now uses the reminders to keep costs down to the lowest possible level by not letting suppliers creep her bills back up.
Below are just some of the savings you can access, if you can make the time and find the confidence to call:
- Mobile phones: Ensure you are not still paying off a handset you already own, or locked into an archaic data allowance - many mobile plans now come with unlimited data, and allow you to add your kids to the same contract so they can stream away.
- Broadband internet: As tech advances, try to get more data and faster speed for the same cost, or drop your cost for the same service, or both!
- Gas and electricity: Call about two weeks before your contract renews, leaving enough time to ring around - and switch companies - if needed.
- One COVID-specific saving is with Foxtel. If the kids have been signing up to new streaming services, buzz Foxtel and get them to lower your monthly fee.
- Every year, challenge your home and contents insurance. Rather than resenting your call, most insurers actually appreciate the opportunity to build a more detailed picture of your needs and home safety, which allows them to cap your costs.
Knowing that you have the best speeds, the most data, the best plans and the lowest mortgage rate is a great feeling.
As renewal dates are spread across the year, it's usually only one call a month and you will hardly ever be rebuffed.
You will almost always save money, and at worst be validated that you have the best possible deal.
Each call you make should give you positive reinforcement and the motivation to make the next call.
Noel answers your money questions
Question:My wife and I are in our late eighties and are self-funded part pensioners with a share portfolio of $600,000 from which we derive our income.
The world is in turmoil at the moment and we begin to wonder whether the capitalist society as we know it now will be mortally damaged and collapse. We wonder whether we should sell all the shares, deposit the funds into three different bank accounts and draw down $40,000 a year to live on.
The funds would run out after 15 years which is far longer than we will be around. Your comments would be appreciated.
Answer: This is an interesting question, and one that gives me the opportunity to restate a major principle of financial maths - if the term is short the rate doesn't matter very much.
If you go to the Retirement Drawdown Calculator on my website www.noelwhittaker.com.au and enter a starting balance of $600,000 and an earning rate of 1 per cent, and indexation of .5 per cent you will find that your money would be expended in just over 15 years. If we change the rate to 3 per cent which may be a reasonable earning rate from your portfolio, if dividends continue to be slashed, the term becomes 19 years - just four years longer.
At your age I think the most important consideration is sleeping well at night, and as you say, your funds should last you for life irrespective of where you invest. You would need to take into account capital gains tax if you do decide to cash the shares in, but if this was an issue they can be sold progressively over time.
Question: I have recently been made redundant, was in a defined benefit scheme which now has moved to an accumulation fund. Considering the current economic climate, does it make sense to wait for some time to decide where to put these funds? Balance is in cash until I decide what to do with it.
Answer: I would not wait indefinitely to invest it - history tells us that nobody is able to accurately predict market movements, and this market could boom if they find an effective coronavirus vaccine, or plunge if the situation gets much worse.
Given the uncertain economic times, you could adopt the proven strategy of dollar cost averaging whereby you invest a set sum on a regular basis, maybe every two months. Just remember it's important to keep enough funds on hand for at least three to four years' planned expenditure.
Question: In 'Making Money Made Simple' you say that your home is exempt from CGT for up to six years if you are absent from it. My son bought a one-bedroom unit, a couple of years ago, and lived in it until he got a job at Hamilton Island as a chef. It was rented out from that date.
He now has a partner and a son, and they have returned home, but are renting as the unit is too small for the three of them. It continues to be rented, and is under the six year period. If he was now to sell this property would he be exempt CGT?
Answer: Based on the information supplied, your son is well within the six-year rule, and the sale should be exempt from capital gains tax. I guess the $64 question is whether there will be any capital gain at all. Most small units don't turn out well.
Question: My wife and I are in our mid-70's and receive a pension and a part superannuation account based pension paid monthly by MLC. Our understanding is that our super funds consist of shares and a cash component. Because of savings and travel cancellations, we are in the fortunate position at this stage of not requiring the super money. Our concern is, that as the cash component is used up, shares would have to be sold in this very depressed market. Consequently, we would be quite happy if it could be ceased.
Answer: If you move the entire fund to accumulation mode, you will be subject to income tax of 15% flat on the earnings of your fund. I think a better option would be to adjust the shares and cash components in your existing fund to a level where you had at least four years planned expenditure in the cash area. You could then instruct your fund, to take the pension payments only from the cash component. Also, keep in mind that the minimum drawdowns have been halved for the current financial year, so your required pension would be much smaller.
- Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. firstname.lastname@example.org