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“Equity Mate”: Why Borrowing Against Your Home Isn’t Always a Smart Move 

ByRobert Goudie Updated on Debt, Education, Investing

Remember that old ad with the guy proudly polishing his boat while his neighbor asks, “How do you afford all this?” His response—“Equity, mate”—has stuck in the Australian psyche for decades. 

It was clever marketing, no doubt, but it also captured something deeper about our relationship with debt. Borrowing against home equity has become so normalised that many Australians now treat it like a credit card. Banks, property spruikers, and even governments have encouraged this mindset. But is it really as harmless as it seems? 

Why Borrowing Feels So Easy 

Banks have done a brilliant job of making debt feel accessible, even casual. With features like offset accounts and redraw facilities, accessing large sums of money has never been easier: 

  • Offset Accounts: These reduce the interest you pay on your mortgage, but they also act like a savings account you can dip into whenever you want. 
  • Redraw Facilities: If you’ve paid extra into your home loan, you can pull that money back out at any time. It’s convenient, sure, but it can also be a trap. 

And let’s not forget the rise of 40-year mortgages. They make repayments look smaller, but in reality, they keep you in debt much longer and result in paying far more in interest. 

The Risks Behind “Equity, Mate” 

Borrowing against home equity might feel like free money, but it comes with real risks: 

  1. Vulnerability to Interest Rate Hikes: The more debt you carry, the more exposed you are to rising rates. And as we’ve seen recently, rates can climb quickly and significantly. 
  1. Lifestyle Creep: Tapping into equity for non-essential purchases—like holidays, renovations, or even new toys—can lock you into years of repayments. 
  1. Market Dependency: If the property market dips, your equity shrinks, but your debt doesn’t. 

It’s easy to overlook these risks when banks and marketers are telling you to “put your equity to work.” But the reality is, debt always comes with strings attached. 

Debt Isn’t the Goal—Freedom Is 

Let’s flip the script. What if the goal wasn’t to leverage every last cent of your equity but to become debt-free as quickly as possible? 

Being debt-free isn’t just about the numbers. It’s about: 

  • Peace of Mind: Imagine not having to worry about repayments every month. 
  • Flexibility: With no debt, your income is yours to spend, save, or invest as you see fit. 
  • Security: Debt makes you vulnerable. Freedom from debt makes you resilient. 

In the past, most Australians worked to pay off their mortgage within 15 to 25 years. Once that was done, they could focus on saving for retirement or simply enjoying life. Somewhere along the way, we lost sight of that. 

How Banks Benefit From Normalised Debt 

Here’s the thing: banks don’t want you to be debt-free. Debt is their business model. The longer you’re in debt, the more interest you pay—and the more profit they make. 

That’s why redraw facilities, offset accounts, and longer loan terms are so heavily marketed. They make borrowing feel safe and easy, but their ultimate purpose is to keep in debt for longer. 

Building Wealth Without Debt 

You don’t need debt to build wealth. Consistency, patience, and smart investing can take you just as far—without the stress. 

Here’s how to do it: 

  1. Save Regularly: The earlier you start, the better. Even small amounts add up over time. 
  1. Use Super Effectively: Salary sacrificing into super is one of the most tax-effective ways to grow your wealth. 
  1. Invest in Growth Assets: Shares, ETFs, and other growth investments can help your money outpace inflation and build long-term wealth. 

Debt can feel like a shortcut, but the long game—done right—is just as powerful. 

Final Thoughts 

“Equity, mate” might make for a catchy ad, but it’s not a philosophy to live by. Borrowing against your home is a decision that should be made carefully, not casually.

The alternative? Aim for financial freedom. Work towards paying off your mortgage, building wealth sustainably, and living life on your terms—not the bank’s.

Being debt-free isn’t boring. It’s empowering.

The information provided in this article is general in nature only and does not constitute personal financial advice. 

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Your wealth during the COVID-19 pandemic

Your wealth during the COVID-19 pandemic

Updated on COVID-19, Finance, Investing

There isn’t a single person in the world who hasn’t been impacted by COVID-19. As new case numbers start to slow in Australia, so too is our economy. This time presents new challenges as everyone gets used to a “new normal” and figures out the best way to weather the coming months. This article provides an overview of different measures the Federal Government has announced to support individuals and businesses, current market performance and what you should be thinking about when it comes to your finances and continuing to build long-term wealth. Government support for individuals and businessesThe Federal Government has announced two economic stimulus packages and the JobKeeper Payment to support individuals and businesses. An overview of the Federal Government’s measures announced to date is detailed below. Support for individualsThe Federal Government has announced a range of measures to help individuals. Eligibility to access these measures is determined on criteria such as your employment status or loss of income due to COVID-19. Some of the key measures include: two $750 payments to social security, veteran and other income support recipients (first payment from 31 March 2020 and the second payment from 13 July 2020); access to the JobKeeper Payment from your employer (if eligible) equal to $1,500 per fortnight; a time-limited supplementary payment for new and existing concession recipients of the JobSeeker Payment, Youth Allowance, Parenting Payment, and Farm Household Allowance equal to $550 per fortnight; early release of superannuation funds (see overview below); and temporarily reducing superannuation minimum drawdown rates (see overview below). Full details about the Federal Government’s measures to support individuals are available on the Treasury website. Early release of superannuationEligible people will be able to access up to $10,000 of their superannuation in the 2019-20 financial year and a further $10,000 in the 2020-21 financial year. To access your super early, you need to meet ONE of the following five criteria: You are unemployed You are eligible for the JobSeeker payment, Youth Allowance for jobseekers, Parenting Payment special benefit or the Farm Household Allowance You were made redundant on or after 1 January 2020 Your working hours have reduced by at least 20 per cent after 1 January 2020 You are a sole trader, and your business activity was suspended, or your turnover has reduced by at least 20 per cent after 1 January 2020 If you are considering early release of your superannuation, you need to consider what the potential long-term impacts may be to the growth of your super fund and retirement income. While $20,000 may not seem like a lot of money now, it could have significant compounding value if left in your fund. Understandably, people may not have any other choice to support themselves financially. Make sure you speak to a financial professional to understand your risks and if this is a suitable option for you. If you are eligible, you can apply for early release of your superannuation directly with the ATO through the myGov website. Temporarily reducing superannuation minimum drawdown ratesThe temporary reduction in the minimum drawdown requirements for account-based pensions has been designed to assist retirees who do not wish to sell their investment assets, while the value of those assets is reduced. The minimum drawdown rates have been temporarily halved. Support for businessesThe Federal Government has announced a range of measures to help businesses facing financial difficulty. Eligibility to access these measures depends on factors such as your turnover and how much your business’s revenue has decreased due to the COVID-19 pandemic. Some of these measures include: increasing the instant asset write-off threshold for depreciating assets from $30,000 to $150,000; allowing businesses with turnover below $500 million to deduct 50 per cent of eligible assets until 30 June 2021; PAYG withholding support, providing up to $100,000 in cash payments which allows businesses to receive payments equal to 100 per cent of salary and wages withheld from 1 January 2020 to 30 June 2020; and temporary measures to reduce the potential actions that could cause business insolvency. Full details about the Federal Government’s measures to support businesses and eligibility criteria are available on the Treasury website. How the banks are approaching home loansBanks have announced that homeowners experiencing financial difficulty can pause their mortgage repayments for between three and six months. It’s important to remember that, in most cases, interest will still be capitalised and added to your outstanding loan balance. When payments restart, your lender may require increased repayments, or the term of your loan may be increased. These are important factors you need to discuss with your lender. What should you focus on when it comes to personal finance?While it can be tempting to sell all your investments now as the market declines, this locks in your losses and puts your wealth in a weak position. If you haven’t already defensively positioned your investments, speak with a financial adviser about how to best adjust your investing over the coming months. You should also consider how to maximise your returns as the market recovers. Investing and building wealth is a long-term game. As such, you should be investing with a long-term time horizon in mind. What should I do next?During this time, you may face some challenges with your finances. Your ability, however, to understand the options available to you and what the current period means on a long-term basis is key to getting through this challenging time productively. Further, making well thought out decisions now will give you the strong foundations you need in your health and wealth as the world recovers and embarks on a new period of growth. Before you make any big changes to your financial situation, speak to us to obtain personalised advice for your unique situation.   This is general information only

6 steps to a Happy New Financial Year

6 steps to a Happy New Financial Year

Updated on Budgeting, Education

The new financial year provides an opportunity for a fresh start for your finances. Make this the financial year you get on top of yours… for good!  We’ve broken it down into six bite-sized, manageable steps for you to tackle over six months, because real change takes time! The below is a suggested path to a New Financial You, however, you can choose your preferred order and pace. July: Goal Setting What is it that you want? I mean REALLY want? As with any goal, your financial goals should be SMART – Specific, Measurable, Achievable, Relevant, Timely. Whether you’re wanting to build an emergency fund, get out of debt, or save for a specific goal, write down your goals in detail and then revisit these regularly to remind yourself of what you’re working towards. August: Set your Budget A budget helps you see what’s coming in, what’s going out and most importantly how much you have to allocate towards your goals. There are plenty of free templates online so find one that works for you and add in your personal income and expenses.  Tip – Go through your last three months’ bank statements to get details of your spending. September: Set up a Savings Plan You can do this by working out how much money you need for a particular savings goal and by when, then breaking it down into regular amounts to be set aside. Example – If you want to save $2,000 for Christmas by December 1st, you’ll need to set aside $154/week from September 1st. Tip – Automate savings by setting up a regular transfer. October: Super Check It’s time to health check your superannuation:  Make sure your contact details are up to date to ensure you’re not missing out on important correspondence. Do you have a current beneficiary nomination in place? A valid beneficiary nomination will direct your super fund on how you would like your super benefits to be paid, if you were to pass away. How much is your super costing future you? There are a whole range of fees that might be funded from your super, including administration, investment, and adviser service fees, all of which will have an impact on your retirement savings.  Do you know how you’re super is invested? Is it Conservative or Growth? How well has it performed over the long term? Some important things to consider when choosing an investment option include your life stage, investment horizon and comfort for risk. November: Insurance Review There are a range of insurances that offer financial security for you and your family, including:  This month, get to know your current insurances and consider whether the types and amounts are suitable for your needs. December: Estate Planning Estate Planning involves documenting what you want to happen in the event you pass away or become incapacitated. It might include Wills, Powers of Attorney, Health Directives and Guardianship nominations.  If you don’t have these in place already, it’s time to build out your Estate Plan.  If you do, it’s time to dig these out for a review. Congratulations, you made it!  If you’d like some extra support on your journey, reach out to your Financial Adviser today for help with achieving your financial goals!   The information provided in this article is general in nature only and does not constitute personal financial advice.  

Economic Update: October-December 2020

Economic Update: October-December 2020

Updated on COVID-19, Economy, Investing

COVID-19 update Finally, some good news on the COVID-19 front: several vaccines have been rolled out in a number of countries. While a huge step forward in bringing the pandemic under control, it comes at a time when, globally, more people are being infected with the coronavirus, and more people are dying from it than at any previous point in the pandemic. There is a long way to go before victory can be declared. Meanwhile, Victoria squashed its second wave of COVID-19 infections, sparking a bounce in its economy as it enjoyed an extended period of no community spread of coronavirus. Unfortunately, the virus found a way back into both Victoria and NSW, kicking off fresh border closures and holiday chaos. The local view As was widely anticipated, the RBA cut the cash rate target by 0.15% to 0.1% in November. While welcomed by borrowers the cut put additional pressure on net savers by making it even harder to find low risk income yielding investments. Some are turning to peer-to-peer lending platforms, or even high yielding shares, which may partly explain the strong recent performance of the ASX. The official unemployment rate in November was 6.8%, the same as in August. However, using a different methodology, Roy Morgan calculated unemployment to be 11.9% in November, with a further 9.1% under-employed. While hardly cause for celebration, this was the first time since the pandemic began that both figures showed a month-on-month drop. The world stage The US election delivered a change of president, with markets responding positively as the result became clear. As the year came to a close, a sigh of relief was heard from millions as the US Congress approved a coronavirus relief package worth $US892 billion ($1.18 trillion). The package includes $US600 payments to most Americans. After years of negotiation and with just days to spare, the UK and EU managed to agree on a BREXIT trade deal. While it will keep the goods flowing between the UK and Europe, the agreement doesn’t cover the huge services sector. The markets It was a good quarter on the markets with the main global and US indices zooming past pre-COVID-19 levels. The MSCI All-Country World Equity Index rose 13.4%. The Australian market followed suit, with the S&P/ASX200 rising 13.3%. However, the Aussie market has yet to return to its February high. In the US the S&P500 rose 11% and tech stocks continued to attract buyers with the NASDAQ up 15.5%. The A$ gained strength rising 8.2% against the greenback. While partly due to a weakening of the US$, the A$ was also up 2% against the British Pound, 3.4% against the Euro and 5.6% against the Yen. The outlook Beyond direct health effects much of COVID-19’s economic impacts have been due to fear. It will take many months, but as vaccines are rolled out, and provided they bring the pandemic under control, much of that fear will dissipate. As it does economic activity should pick up strongly. Less likely to see any positive developments in the immediate future is the tense relationship between Australia and China. Australian coal miners, winemakers and barley growers will continue to bear the brunt of the dispute. Fortunately, China is still highly dependent on Australian iron ore, the price of which has soared by 78% since the start of the year. For current market conditions and further economic analysis, contact our financial advisers. We’re here to help!   The information provided in this article is general in nature only and does not constitute personal financial advice.

Investing for income 

Investing for income 

Updated on Education, Investing

Share markets are renowned for taking unexpected downturns and while history shows that markets eventually recover, this rebound in value can occasionally take time. Investors concerned about this risk might consider a stronger focus on income-generating investments. These can range from those that have no potential to lose capital value to ones with a higher risk of capital loss. Outlined below are some options.  Investments with no ‘growth’ component   The following will give you back what you put in plus interest:  Online savings accounts pay a higher rate of interest because there is less cost involved in managing these accounts. The customer “does all the work” meaning the bank doesn’t need to allocate staffing resources. Interest on these accounts can vary substantially between providers and there can be enticing offers of extra or bonus interest for new customers or if you maintain a certain balance. The best advantage of these accounts is that you have access 24/7 to your funds.  Cash management trusts are investment products which pool the deposits of other unit holders for investment in cash securities. Interest is calculated daily. There are no entry fees but most charge management fees. They frequently have minimum withdrawal amounts and may require notice to withdraw funds, however the trustee can decide to restrict withdrawals if it deems this is necessary in the best interests of the trust investors. CMTs are good for holding cash that is not needed for everyday living but offer easier access than term deposits.  Term deposits can pay a higher interest rate than cash management trusts, although in more recent years, rates on term deposits are close to those offered for online savings accounts. The downside is that your funds are unavailable for the deposit term and penalties apply if you withdraw your money before the term expires. Terms range from three months to several years so you can choose the timing to suit your needs. Income can be paid regularly or at the end of the term.   Investments that adjust in value to interest rates in the market:  Fixed interest managed funds invest in bonds and bank bills, known as debt securities. Like cash management trusts, they pool investors’ funds to provide access to investments at the big end of the market. These are often used as the fixed interest component in a portfolio. They can have a wide range of fees depending on the underlying investments and may have a small growth component.  Convertible notes are offered by companies and unit trusts. They can offer a good interest rate and at the end of the specified term the investor can choose to convert the notes to shares in the company or get their cash back. These are frequently traded on the stock exchange. The sale price depends on the market interest rates and market attitude to the company.   Hybrid securities are investments that combine the elements of debt and equity. They are offered by companies that borrow from their investors and pay back the interest. However, if the company disappoints the market the underlying value can reduce. These securities generally have long terms (eg. 50 years) and can only be sold on the stock exchange if there is demand.  Investments that have a growth component plus good income potential:  Some Australian shares regularly offer fully franked dividends and also give you access to the tax benefits of imputation credits. To get the most from shares they should be held for the long term.  Listed and unlisted property trusts are investments that pool investors’ funds to purchase real estate, usually commercial property. Depending on the types of property investments held, they can provide a higher level of income, some of which may be tax-free or tax-deferred. Listed property trusts are traded on the Australia Stock Exchange and provide more liquidity than unlisted trusts.  The answer – a balanced portfolio  For most investors the best solution is to have a ‘balanced’ portfolio – that is, a selection from each of the different market sectors. This should be tailored to the individual’s needs, providing the level of income required at an appropriate level of risk.  To determine what suits your circumstances and needs best, consult with a licensed financial adviser.  The information provided in this article is general in nature only and does not constitute personal financial advice.  

Are you investing or gambling?

Are you investing or gambling?

Updated on Investing

The potential financial results of investing can feel limitless, and it can be tempting to think that just one stock pick could make you an overnight millionaire. Yes, stock-picking can have a place in your investment strategy, but if you’re using a “get rich quick” mentality, you may be gambling, not investing. What’s the difference? One of the key differences between investing and gambling is process and strategy. If you don’t have a process and strategy in place, it is a sign that you need to establish or refine your plan. Further, gambling focuses on emotions such as hope. Investing, on the other hand, is all about strategy. With a clear strategy, you know approximately how much your investments will grow and over what time horizons. How do you know if you’re investing effectively? If you’re unsure whether your current investment approach is working to realise your goals, think about your investment process and how many of the below five elements are included in your approach. Completing no research If you’re not completing any research and putting money into assets based on tips from friends or what you see on social media, you’re exposing yourself to increased risk and not doing enough due diligence. Investing in micro-cap stocks only Micro-cap stocks typically have a market capitalisation under $500 million and are ranked from 350 to 600 on the Australian Stock Exchange. With a relatively small market capitalisation, buying stocks in these companies can be cheap. The downside, however, is that these companies are usually in their infancy and experience volatile price fluctuations. There’s a place for micro-cap stocks in your investing. However, if you’re putting all of your money into these companies, you’re likely exposing yourself to unnecessary risk. Investing with short time horizons Putting all of your money into short-term investments or activities such as day trading is an indication that you’re too focused on short-term gains without a long-term strategy. There’s a place for short time horizons in your investing, but only once you’ve mastered the foundations such as establishing a long-term plan and ensuring you have adequate cash buffers. Lack of diversification If all of your money is invested in one asset class, you’ll be over-exposed to volatility in a single market. To ensure your money grows consistently over time, your money needs to be balanced across a range of asset classes and sectors. Having no investment strategy If you don’t have an investment strategy, your investing won’t be as effective as it could be. To start putting together an investment strategy, you need to think about things such as: building up adequate cash buffers; how much money you need invested to live comfortably off your returns; and when you anticipate you’ll start drawing an income from your investments. Moving forward with a long-term wealth strategy Investing in different asset classes such as equities, commodities, and fixed-income assets is a great way to build long-term wealth. To build this wealth, however, you need a strategy and process to follow. If you’re unsure how to develop an investment strategy, be sure to seek qualified financial advice. Investing in this advice now can reap great rewards in the years to come, ensuring your money is working to help you realise your financial and lifestyle goals sooner. Contact us to get started.     The information provided in this article is general in nature only and does not constitute personal financial advice.

It’s time to get focused on super in your 40s

It’s time to get focused on super in your 40s

Updated on Budgeting, Education, Finance, Investing, Retirement, Superannuation

Typically your forties is a time of established careers, teenage kids and a mortgage that is no longer daunting. There are still plenty of demands on the budget, but by this age there’s a good chance there’s some spare cash that can be put to good use. A beneficial sacrificeAt this age, a popular strategy for boosting retirement savings is ‘salary sacrifice’ in which you take a cut in take-home pay in exchange for additional pre-tax contributions to your super. If you are self-employed, you can increase your tax-deductible contributions, within the concessional limit, to gain the same benefit. Salary sacrificing provides a double benefit. Not only are you adding more money to your retirement balance, these contributions and their earnings are taxed at only 15%. If you earn between $90,001 and $180,000 per year that money would otherwise be taxed at 39%. Sacrifice $1,000 per month over the course of a year and you’ll be $2,880 better off just from the tax benefits alone. It’s important to remember that if combined salary sacrifice and superannuation guarantee contributions exceed $25,000 in a given year the amount above this limit will be added to your assessable income and taxed at your marginal tax rate. What about the mortgage?Paying the mortgage down quickly has long been a sound wealth-building strategy for many. Current low interest rates and the tax benefits of salary sacrifice, combined with a good long-term investment return, means that putting your money into super produces the better outcome in most cases. One caveat – if you think you might need to access that money before retiring don’t put it into super. Pay down the mortgage and redraw should you need to. Let the government contributeLow-income earners can pick up an easy, government-sponsored, 50% return on their investment just by making an after-tax contribution to their super fund. If you can contribute $1,000 of your own money to super, you could receive up to $500 as a co-contribution. Another strategy that may help some couples is contribution splitting. This is where a portion of one partner’s superannuation contributions are rolled over to the partner on a lower income. Your financial adviser will be able to help you decide if this strategy would benefit you. Protect what you can’t afford to loseWith debts and dependants, adequate life insurance cover is crucial. Holding cover through superannuation may provide benefits such as lower premiums, a tax deduction to the super fund and reduced strain on cash flow. Make sure the sum insured is sufficient for your needs as default cover amounts are usually well short of what’s required. Seek professional adviceThe forties is an important decade for wealth creation with many things to consider, so talk to us and we’ll help you make sure the next 20 years are the best for your super.   This is general information only