“Pay yourself first” is one of the rules of Robert Kyosaki of Rich Dad/Poor Dad. Let’s look at how the banks have picked up this idea. Let me tell you a story of Kate to show you the Commonwealth Banks latest way of ensuring they get paid first.
Kate is working hard to save her money in the bank. She is using Mortgage Miser to plan out her expenses and income and is following the plan.
Her home loan repayment of $2,000pm Principle and Interest is coming out on the 26th of the month.
Note: The black line across the graph tracks the flow of cash across the month, with the rise being income and the loss expenses.
Last week she watched her Home Loan go out on the 26th. On the Thursday after she had checked her account and saw a redraw of $16,000. The next day she got paid $3,000 (fortnightly) had the whole lot added directly to her redraw so she could offset it straight away. She checked her balance but saw the redraw at $17,000. Needless to say that was the wrong number and a bit if a shock.
On the phone to the Bank (Which Bank?) and asking herself questions “Did I overspend?”,” Did a bill come in?”, “Is it a bank error?”. No, No and No. All good as the bank have a new policy.
The bank sees her account balance as $19,000. So why can’t she see her $2,000.
Because the banks have reserved that for themselves. They have put a hold on her $2,000 so Kate does not mistakenly spend it and have her account overdrawn.
Apparently this was brought in in February this year.
They will reserve your loan payment for themselves the moment your pay comes into the account. In the end you do not lose as the Principle is still offsetting the home loan and the bank will transfer the payment across themselves on the normal transfer day.
What changes for Kate though is that impact of the hold is a bit more graphical as from the moment her first pay comes in after the loan repayment is made the bank puts a hold for the next payment so it looks like it is gone from your account.
Kate is effectively paying her bank 3 weeks early.
For the Mortgage Miser system how do we record this when the banks have put a hold on it but have not paid themselves yet? Treat it like it is gone.
Mortgage Miser is a cash management system. The moment your first pay comes in mark that as the loan payment date. Your money is lost to you and locked away to the bank.
Note: Although the Running balance drops below positive you end up in the same Net position.
The only way Kate found out was seeing the balance change incorrectly and speaking to the bank directly. Nothing is shown on the Netbank interface but an improvement is on its way.
What to do if you do not want the banks to take your money early. Change banks (with good advice and research). Look for a bank with clear processes and a low fee. Pay them less and save more.
Please consider Mortgage Miser to help you get control of your finances and set you free from the burden of your mortgage.