Barefoot Investor says it’s time to call your bank and whine

No one knows where interest rates are headed so Barefoot Investor’s advice is call your bank and whine until you get a better mortgage deal.

No one knows where interest rates are heading

Let’s talk about interest rates.

Watching Reserve Bank Governor Michele Bullock announce the first rate cut in four years reminded me of my kids when I let them watch TV.

“You get one episode … and that’s it!” I announce, like a TV judge delivering his final verdict.

And yet they don’t even get halfway through an episode of Bluey before they start begging for another.

“Just one more! They’re not long enough, Dad! Puhh-leeease!”

(At which point I tend to fold like a cheap Aldi camping table.)

So, will they cut rates again next month, or won’t they?

Well … you’ll just have to stay tuned!

Bugger Bluey, this is like an episode of MAFS, but without the Botox. And in blazers.

Yet, while the rest of the world debates what will happen in 30 days’ time, I think it’s much more interesting to look at what’s happened over the last 30 years.

Let’s take a look at my favourite chart:

Source: Reserve Bank of Australia

Yes I know, this chart tracks every interest rate decision stretching back to the nineties.

However, given most people are going to have a home loan for 25 or 30 years (more if you’re in Sydney!), having a rubberneck at the past doesn’t strike me as the dumbest idea I’ve ever had.

Now here’s what strikes me when I look at this historical chart:

First, current interest rates don’t look that high.

Second, not one person on earth correctly called each rate change in real time (and that includes the people setting them at the Reserve Bank!).

So, where does that leave us?

Well, whenever you see a headline predicting interest rates, don’t bother reading the article. There’s a very good chance they’ll be wrong. Instead, use it as a reminder to check your current home loan rate – then call your bank and whine like my kids.

Remember, there are only two ways to pay off your mortgage quicker: make extra repayments, and lower your interest rate.

Right now the best rates are a smidge under 6 per cent for online lenders like Unloan, which is CommBank’s Jetstar brand. Use that as the basis of the negotiation. (Just remember, negotiating with lenders is like MAFS: Banking Edition: the hotter your financial package, the more lenders will fight to shack up with you.)

Yet what if right now you’re one of those people drinking watered-down red cordial and praying to the interest rate Jesus to deliver you salvation on your repayments?

If you’re barely holding on, here’s my advice:

Panic Early.

Make the hard decisions now. If you need help, see a financial counsellor (1800 007 007) or your bank’s hardship department. Whatever you do, create a realistic plan and begin working on it. Trust me, the Bluey doghouse looks a lot cuter on TV than it does in real life.

Tread Your Own Path!

You’re Out of Touch, Barefoot

Scott,

I read your latest column and wasn’t that impressed with your ‘forget about it’ number of $100. Even though I earn $175,000 a year, I’m the type who hunts for bargains even if it’s just saving a few bucks.

Sure, I won’t fund a house deposit by filling up on cheap petrol or buying half-price snacks, but that mindset has kept me from wasting money on non-essentials – and it’s worked.

If I want to buy something unnecessary (like an omelette maker), I wait two weeks to make sure it’s not just FOMO, marketing hype, or a passing obsession with the perfect omelette.

It would be good to hear about what non-negotiable rules might be more relevant to everyone else who reads your newsletter.

Sarah

Frugality is great if it’s intentional and not just a lifelong habit of financial paranoia, says Scott Pape.

Hi Sarah,

My idea is to create your own money rules that become habits … and that the best way to build habits that stick is to make them part of your core identity.

So I’m guessing part of your identity is that you’re smart with money (though your friends may refer to it as being ‘a total tight-arse’. After all, you’re in the top tax bracket but you’re out there bartering with the checkout lady over dented canned goods.)

But hey, you do you!

Frugality is great if it’s intentional and not just a lifelong habit of financial paranoia. My point isn’t to waste money – it’s to not waste mental energy on small purchases that don’t matter in the long run.

I’m on FIRE

Hi Scott,

I’m 27 and I’m currently aiming to achieve dividend FIRE (Financial Independence Retire Early, i.e. living off income from dividends in the future). I’m fortunate enough to have purchased my own house with help from my family, but my future goals have left me with a few questions. Should I prioritise paying off my house or investing? The ChatGPT number being spit out at me for my desired goal seems absolutely insane ($3m, which might as well be a billion). I’m worried that by the time I reach my goal, I’ll be close to retirement anyway. I wonder if the sacrifices I am making now are worth it, or if I should be taking a more balanced approach and enjoying life along the way instead. What do you think?

Lincoln

Spend your twenties and thirties doing interesting stuff, like travelling, says Scott Pape.

Hey Lincoln,

Let’s play this one out.

You spend your twenties and thirties eating baked beans – without the beans – because every cent belongs to Vanguard. You manage to save 75% of your income, and tell yourself you don’t need a social life because your true friends are compound interest and low-cost ETFs.

Then you retire.

What are you going to do with yourself for the next 50 years?

Hang out at your local Men’s Shed and build birdbaths with the local lads?

Farm chestnut trees? (Oh, wait.)

Or more likely you’ll do what many retirees do who’ve turned off the income tap for the final time:

Stress about every move of the share market.

So let’s talk about the $3m stretch target that ChatGPT suggested for you. The Aussie share market historically has a dividend yield of 4%, which would give you roughly $120,000 in annual income. That will get you an annual holiday at the Ouyen Caravan Park (in a tent).

Look, I admire the FIRE movement for its focus on saving and investing … to a point.

Yet you also have to ask yourself:

Why are you so hell bent on retiring?

Dude, I’ve had yoghurt in the breakout room fridge that’s been at work longer than you!

Instead, I’d really encourage you to change your focus.

Spend your twenties and thirties doing interesting stuff. Maybe start a business. Or do a random job that you really enjoy. Travel. Find a career that you love.

Whatever you do, don’t make your life all about money.

My Bag Men

Dear Scott,

Here is a picture of my boys with their bags full of toys to donate. They saved just under $250 this year, and I let them loose in Kmart. They had a ball and put so much thought into the presents. They don’t get a lot of pocket money compared to most kids, because I’m a single mother, but I’ve tried to instil in them how important giving back is. Thank you for everything you do.

A Very Proud Mum

Off to donate their toys ...

Ah, you got me.

Your letter brought a tear to my eye.

By bringing up hardworking, kind boys, you’re creating a ripple in the world.

You have every reason to be a very proud mum.

You got this!

DISCLAIMER: Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions.

Originally published as Barefoot Investor says it’s time to call your bank and whine