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Want to avoid sinking your entire savings balance into your mortgage? An offset account could be the solution you’ve been looking for.

An offset account is straightforward to set up and easy to understand. It also has the potential to save you thousands of dollars and could shave years off your mortgage.

Got your interest yet?

Yup! But what’s an offset account?

Basically, an offset account is a regular transactional account which is linked to your home loan.

The advantage is that you only pay interest on the difference between the money in the account and the mortgage.

Banks usually offer two types of offset accounts – full offset account, or partial offset account.

A full offset account means that the entire amount in the account is deducted from the principle before you start to pay interest.

In a partial offset account, a reduced interest rate on the mortgage is offered on the equivalent amount in the offset account.

Whichever you choose will depend on the bank and the type of mortgage you have.

How does it work?

Say you owe $350,000 on your mortgage, and have $50,000 in a savings account that you currently use for regular transactions.

If you move that $50,000 into a full offset account, you’ll only pay interest on $300,000 (which is the difference between that amount and the loan principle).

The offset account can then continue to be used for all your daily needs, like receiving your salary and withdrawing cash.

Why else would you consider an offset account?

Well, say for example that you had a savings account with a 3% interest rate and a mortgage with a 5% interest rate.

By allocating money into your full offset account, you’d save more money on interest than you would earn in your savings account.

Additionally, interest on your savings accounts are subject to tax, whereas the interest-saving on your mortgage isn’t.

How much can it save me?

Under the right circumstances, a lot.

Using the example above, if you’re 35 when you take out a home loan, you could shave years off a 30-year loan term just by keeping $50,000 in the offset account.

This means your loan could be done and dusted right in time for your retirement.

Is it right for me?

Of course, there are some additional factors to consider, such as account keeping fees and the minimum amount needed in the account to make it useful.

As everyone’s situation is different, get in touch and we can discuss whether an offset account might be suitable for you.

You can create a personal budget of your own.

Not only will you get to reap the benefits straight away, but the rewards will be much more than $10 to $20 a week.

Here’s how to create your own personal budget in four extremely simple steps using ASIC’s MoneySmart budget planner.

Step 1: Calculate your income

This is the easiest step. Have a look at your pay slips or bank statements to see how much is going into your account on an average month. Make sure you include any rent you might be earning, or interest on savings. Don’t include the income that never makes it into your bank account, like PAYG and super.

Step 2: Work out your expenses

This is slightly more complicated, as expenses change month to month. To work this out, check your bank statements, bills and receipts to see how much you’re spending on things like rent, groceries, transport, medical expenses, utilities and clothing. Remember to include payments you only make once or twice a year, like car registration or insurance, and average them out.

Step 3: Crunch the figures

Once you’ve entered your income and expenses the next part is simple. The calculator will crunch the figures and help you work out how much you have left over to put towards your savings. You should be aiming for about 20% each month. Now, that’s a hard target to hit at first. So perhaps try starting at 10% and then finding an additional 1% in savings each month thereafter. In no time you’ll hit that magic 20% figure.

Step 4: Track your progress

Each month take stock of where you’re at by reviewing your bank accounts and seeing where you could make further cuts – or perhaps where you had a little slip up.

Also, set achievable short, medium and long-term goals to ensure you stay on track.

Consider this

The average Australian wage is $84,000 before tax, according to the Australian Bureau of Statistics.

If you’re taking home $5,500 of that after tax each month, then by saving 20% of that you’ll be stashing away more than $1100 each month.

Now, sure, creating a budget sounds easy on paper, but everyone has their own unique situation and yours might require extra help.

If you feel as though you need assistance in setting up a budget, come in, have a chat and we’ll help create a budget that suits your specific needs and lifestyle.

Are you paid weekly, fortnightly or monthly? New research indicates that how often you’re paid has a pretty big bearing on whether you’re a saver or a spender.

The research, conducted by small business platform Xero, shows that Aussies who receive their salaries weekly are more likely to splash their hard-earned cash than those who are paid monthly due to a term they’ve dubbed ‘payphoria’.

This, in turn, can play a big part when it comes to your ability to save for a home loan deposit.

What the research found

The research analysed the payday habits of 1,000 Australians and found that a whopping 63% of workers claim to have financial difficulties before payday and rely on short-term fixes for support.

In fact, one in three workers have less than $100 in the lead up to payday, resulting in them foregoing luxuries such as coffee and eating out, or even delaying household bills.

“It’s not surprising that when payday does come around, Aussies are experiencing rushes of ‘payphoria’ and are wanting to reward their hard work by spending up,” explains Xero small business advocate Angus Capel.

Hence, the research suggests that the more paydays we experience, the more of these ‘payphoria’ spending sprees we reward ourselves with.

Below is Xero’s breakdown of Aussie savers versus spenders.

Characteristics of savers:

– 70% of Australians identified as savers (despite much of the research suggesting otherwise!)

– they’re more likely to be paid monthly

– they’re more likely to budget and keep track of expenses and spending habits (87%)

– they feel worried if they don’t have enough savings (95%)

– they’re more likely to be married with no children and live in metro areas

– their key financial goals are on financial management such as retirement, having an emergency fund and paying off mortgages.

Characteristics of spenders:

– 30% of Australians identified as spenders

– they’re more likely to be paid weekly

– they don’t want to give up luxuries that come with saving (77%)

– they believe lifestyle is more important than saving for the future (56%)

– they’re more likely to use their income to pay off debts like credit card bills

– they’re more likely to have children under the age of 18 and live in regional areas.

Get in touch

If you think you’re leaning more towards spender than you are saver, then get in touch.

We can provide you with some effective saving techniques that can help put you on the right path to saving for a home loan deposit.