Here’s A Prediction That Won’t Capture Your Interest

If there’s one thing that accounting teaches you well, it’s to ask the question “What if …?”

This generally serves us well when we’re talking to other business people and testing scenarios.

“What if you can’t get that major contract? How does that affect your ongoing operations?”

‘’What if the bank won’t provide debt for your expansion?”

‘’What if you don’t get 30% of your debtors collected in the next 21 days?’

And with investors, we still ask questions but one of the biggest is …

‘’What if interest rates go up? How does this affect your ability to fund your investment?”

The reason accountants focus on this question is that even a 1.0% increase in interest rates can cause massive cashflow issues for people.

Imagine if you had a $500,000 home loan debt.

Using the Westpac home loan repayments calculator, for a 30 year P & I loan, a 1% interest rate increase would increase monthly repayments from $1,316 to $1,472 per fortnight.

Not much increase you may think and you’d be right.

Until you realise that over the life of a loan, that adds an extra $121,680 in repayments.

Which you have to fund in after-tax dollars here in Australia.

So people generally think about what would happen to their affairs if rates increased.

But here’s my prediction.

It’s going to be a loooooonnnnnng time before interest rates in Australia increase.

With the level of indebtedness we have in this country it would be political suicide to start increasing them any time soon.

And given that a government will do all it can to keep them low to stimulate consumerism, then it’s not in it’s interest to start raising them.

There are other added factors, such as devaluing the Australian dollar to stimulate exports and trying to increase official inflation, but these are rarely considered at large by the everyday person.

But whilst low interest rates may sound like a mortgage-owner’s nirvana, there are obviously adverse consequences to keeping rates low.

The obvious one is that savers and investors in interest-bearing accounts lose out.

A lesser interest rate means lesser returns for them and therefore less income to live on.

But there are other insidious effects of having a reducing interest rate.

Which I’ll explain in future articles and how this ties-in to your business and other finances.

Either way, let me know at www.sculptaccountants.com.au/contact/.

_______________________________________________________________________________________________________________

Want to become part of our ‘Sculpt” community and be notified of new articles and special benefits? Then join here.

Until next time.

Please Note: These articles are provided for education purposes only and should not be construed as specific advice. Always seek professional advice in relation to your personal and business circumstances.