Sunday 8 June 2008

Getting things ready for the financial new year

Australia's financial year ends on 30 June, so I'm trying to tidy up some odds and ends and start the new financial year on the right foot. On Friday I finished off my assignments for the BTeach subject I was studying this semester, so this long weekend (Queen's Birthday) I have some time free to try getting my accounts up to date in Quicken.

I phoned Comsec margin lending regarding a reduction in the interest rate on offer (10.35%) for fixing and prepaying my loan for the next 12 months. Unfortunately they didn't come to the party, only 'offering' a reduced rate if I had a larger loan balance (which is their standard rate card). I don't really need to prepay too much margin loan interest this FY for the tax deduction, as I had salary sacrificed much more into superannuation this year than usual. So, I'll just leave the Comsec margin loan at the variable rate, paid monthly, and look to sell off some stocks to reduce the loan balance in the next couple of months, and possibly arrange for the stocks in this account to all be transferred to my margin loan account with St George. The combination of a lower rate (as a "gold" client) and getting a 50% rebate of the margin loan trail via YourShare (which isn't available on Comsec loans), means that borrowing from St George margin lending will be 0.50% cheaper than via Comsec.

I'll try this week to negotiate a lower interest rate for prepaying my other margin loan balance (with Leveraged Equities). If they also don't reduce the rate I'll do the same thing - sell off some shares to reduce the LVR and transfer the stocks to my St George account. Leveraged Equities was my first margin lender (more than ten years ago), but they don't offer the best interest rate and all trades have to be done via a "full service" (ie. expensive) brokerage firm on the phone. I much prefer being able to trade directly online, as with my Comsec account. I currently only have managed fund investments with my St George margin loan account, but I think they also allow you to trade shares on the margin account directly online via their DirectShare service. If I move all my margin loans to one provider I will get a rate reduction by having a larger balance. For loans above $250K rates reduce by 0.25%, and for loans totalling more than $500K another 0.25% is knocked off the rate. Therefore, just by merging my three margin loans into one loan of $330K I can save another $825pa in interest costs. There is probably some slight added risk associated with concentrating all my margin loans with one provider, but St George margin lending should be much more secure than some of the smaller, independent lenders such as Opes Prime.

In the past couple of months I've made some simple changes that will reduce costs by around $3,000pa. Some of these savings need to be put aside (for example as "self insurance" to offset the saving made by cancelling our private hospital insurance), but most will go directly to the "bottom line" of my overall investment returns. The next task will be to cut out some expensive habits that aren't very good for me - such as eating confectionery and drinking way too much diet coke. Hopefully keeping track of all my income and expenses in Quicken might also help identify some other areas of waste I'm not even aware of.

Of course some of my biggest expenses are beyond my control - for example the increase in our mortgage variable interest rate from 6% to 8% over the past couple of years had a big impact, especially with DW taking unpaid maternity leave and then returning to work part time until DS2 starts primary school. Hopefully interest rates might be at or close to the peak for this economic cycle, and may start to drop a bit in 2009. We have around half of our real estate loans on a fixed rate for another three years - hopefully when we have to refinance that loan, rates won't be too much higher than when we last fixed two years ago.

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