There has been a lot of talk about interest rates in Australia lately. This is likely because the official cash rate is at its lowest level since the global financial crisis a few years ago.
The Reserve Bank of Australia governor Glenn Stevens confirmed earlier this month (Feb 5) that the first monetary policy decision of 2013 would see interest rates holding steady at three per cent.
While many people take this as a signal to borrow and make financial investments, the head of technical services for ipac Colin Lewis says this reaction is not always the best idea for your financial strategy.
“We always advocate that you don’t borrow for borrowing’s sake.”
Instead, the financial services expert recommends Australians look at the bigger picture.
would borrowing fit in with your broader goals and objectives?
Mr Lewis explains that you really need to examine where you are in your savings and retirement plan at the moment.
“Put it back into context of what you are trying to achieve – are you on track with a regular savings plan through regular wages and income and so forth?”
If you are hitting your targets simply by appropriately managing your income and other assets then Mr Lewis says it may not be necessary to take on the financial risks associated with borrowing.
“If you’re not – let’s look at some means of getting there. It could mean some level of borrowing or gearing and if that’s the case, why not take advantage of the lower interest rate at the moment?”
However, that is from an investment perspective and should not be a decision that is based solely on the opportunity of a desirable interest rate.
“Take a step back and look at what you’re doing in the first place.”
If you are planning retirement, ask yourself if paying into your super fund and your savings strategy is going to set you up for your golden years.
Having a chat with your financial adviser about how to get to where you need to be may be the
best way to identify areas of weakness and potential solutions.
If an investment fits into this overarching plan, Mr Lewis says then yes, interest rates are a bonus.
However, he reiterates the importance of establishing a broad financial strategy to those who are tempted by the three per cent drawcard.
“Don’t borrow for borrowing’s sake.”