High inflation, rate increases and a market correction are what we have had in store this month. However, my net worth was still able to increase by $1,477. I also have secured a wage raise of around $6000 to my salary, which is surely going to help for next month. With this extra pay increase, I will further salary sacrifices to ensure my taxable income is lowered.
My cash flow has managed to level off compared to the beginning of the year. While I track along with my goals I need to keep a close look at my cash flow, to ensure I am not overspending or the increase in the cost of living starts to negatively affect my net worth.
Protecting Yourself Against Rising Interest Rates
Inflation has increased a lot quicker than people had hoped for and with all great things, they eventually end. So has our love of ultra low-interest rates. With the Reserve Bank increasing the rate for the first time since 2010 it will most likely not be the only increase we see. Current experts predict a cash rate of 2.5% by the middle of next year.
Keeping this in mind, it’s time to start to plan on how you will manage an increase that will impact your day to day spending.
Three things I have done include:
- Factor The Rate Rises With my Debts
While I have large amounts of debt, I need to ensure any rate rises will not affect my cash flow too negatively to the point I will not be able to service my debt. Lucky my loans are fixed, apart from my equity builder loan. This leads to the next point;
- Switch Your Rate from Variable to Fixed
An easy way to protect yourself from interest rates is to fix the interest rate early. While it will be harder to find good interest rates compared to last year. It will provide you with the opportunity to budget your home expense for as long as you fix them.
Do know this does come with a negative. Fixing your loan means you will not be able to redraw, have an offset account or pay your loan off sooner.
- Get Rid of the “Bad Debt”
Now is the time to ensure all “bad debt” is paid off and stay away from it. This included car loans without the proper consideration, personal loans, credit cards and buy now pay later services. These are already higher interest rates than what you should be paying, and increases in the base interest rate will only make it tougher later to pay off these debts.
While this is a small list, it will be detrimental to not start planning now for higher costs of living in the future.
Comment below to start a discussion on how you are combating the increases in the cost of living.
One misconception about increased interest rates was that I thought that high-interest rates would equal more income for the government. However, Increasing the interest rate increases the variable interest the commercial bank receives that is deposited at the RBA. As commercial banks lend at a fixed rate but store their money in a variable interest account at the RBA.
More information and an intresting read in regards to increasing intrest can be found: “Why rate rises could cost the RBA and government billions”
Now for the April Net Worth Update:
It’s my goal to reach $1,400,000 by July 2023. I also want to further diversify out of real estate into shares, either by another Equity builder loan or cash purchases. With this goal of reaching 150,000 by July 2022.
Cash reserves: $67,013
Share Portfolio: $111,216
The Market has been spooked by inflation and rate increases, leading to losses across the board.
|Vanguard Australian Shares Index||$63,828||Loss of $3,660|
|Magellan open class||$19,899||Loss of $836|
|JB Hi Fi||$13,396||Loss of $1,328|
|Nearmap||$6,171||Loss of $220|
|Medibank||$5,128||Gain of $8|
|Santos||$2,793||Loss of $22|
I did not see dividend income in January:
This was an overall loss of $6,061
Real estate: Equity worth $755,837, Gross rental income of $1,035
This is a conservative estimate by the bank, and what I would feel comfortable selling if I had to sell tomorrow.
Rental income of $2,020
Rental expense: $1,838
- Mortgage Interest: $907
- Fees: $121
- Lease preparation fee: $33
- Gutter Maintenance: $330
- Insurance: $85
- Council Rates: $362
This month the investment property was positively geared by $182
With the recent lease signing, I have decided to increase the rent of the investment property from $505 to $535 a week. This is in line with the market, while my house rental value would be as high as $600 a week if I was to relist my property.
This increase will see my yield increase by $1,560 a year.
This is updated bi-annually.
Net worth total: $1,252,455
Overall, a change of $1,477 or 0.12% net worth increase.