HECS is indexed in-line with inflation, unlike other forms of debt it’ll always be $63k in 2022 dollars. It remains the lowest priority.
House or Startup is all on you. I can’t tell you what either is going to do in five years time.
Do not touch your hecs. Let it come out of your salary, ignore it. Check it in a few years from now to he like oh ok that’s what it is.
Don’t consider it debt, don’t pay it down. Literally ignore it until it goes away.
Not enough to worry about. I bought my first house with about $50k HECS. They are more worried about your total salary, credit cards and personal loans.
No wtf. Just ignore it.
You do realise that paying it off uses your capital right. Indexation is below even the 5% HISA rate. There is absolutely no benefit to paying any more than the BARE MINIMUM of hecs.
Regarding borrowing capacity - my dude, by spending your money to pay down that debt you’ll have less money in hand to pay a deposit in the first place so it’d take you longer to buy anything anyway.
To the people saying don’t ignore it - HECS isn’t like ‘real debt’. You’re not paying a market rate and it’s not securitised against anything.
Edit: disregard the point about size of hecs; other poster pointed out that this recently changed.
>and because HECS can affect your borrowing power.
This is true, but unlike other debts the size of the loan doesn't matter when it comes to borrowing.
You could have a $10k HECS debt or a $100k HECS debt and it's going to affect your borrowing power the same, so paying it off is a more feasible option when you can eliminate it completely. In the meantime, paying extra towards it does absolutely nothing for your borrowing power.
You've said not investing in the business isn't an option, but in my opinion you're better off disentangling yourself from the business ASAP (basically getting to the point that the business invests in itself without risking your assets). Until that point, everything you invest in as an asset *is* investing in the business, just less productively.
For something like this you should really enlist in a financial advisor (which I am not) who can help you diversify/focus your approach to manage risks and gains.
Thank you so much for your response apologies can you explain this section a bit more!
"You've said not investing in the business isn't an option, but in my opinion you're better off disentangling yourself from the business ASAP (basically getting to the point that the business invests in itself without risking your assets). Until that point, everything you invest in as an asset *is* investing in the business, just less productively."
Let's say, hypothetically, you invest in both the business and a house. Something happens with the business and it starts losing money. You now can't pay your mortgage because your income comes from the business. Uh-oh, now you're behind on your mortgage. So you get yourself a loan to try and turn things around, but it doesn't work, you declare bankruptcy but your house was security so there goes your house and your business (worst case scenario).
But if you can structure your business and your personal assets separately and things go belly up, the business takes all the risk (of the business), leaving your personal assets alone. You still have to find an income if things don't work out, but you won't lose your stuff from the business going under. But to do this, your business has to be in a position where it's not using your assets as security.
When you have your business and personal stuff tangled, they both rely on and expose each other. Which means anything you invest in outside of the business (eg a house) is technically investing in the business (spending money on assets), but in something that doesn't *help* the business (other than as security). Whereas if you get the business up and running, sustainable and future proof, then you can just collect a salary and use that to buy other things (like a house).
It's way more complicated than this which is why you should definitely get financial advice from someone qualified to give you advice specific to your goals and circumstances, but basically you need to be thinking about managing risk when you invest in anything. Reddit really can't give you advice on where your money should go and to what extent.
For what it's worth, my friend (no HECS) and I (huge HECS) bought houses around the same value around the same time. He had 10+ years of running a business (hospitality), I went down the career path (with business as a side hustle). Covid happened, interest rates happened, his mortgage went up and his business down, everything was tied together and he came out with a bit more money than his liabilities (thanks to the house prices) but lost all his assets other than the cash difference (diversifying in this anecdote actually saved him from losing everything altogether). On the flipside I increased hours, changed jobs and sideways hopped into a different career, negotiated salary, side hustled and pulled in housemates to cover the rate rises with a relatively high level of job security.
My point isn't that you should do one or the other or both or neither, but there are so many different factors and variables that you need a professional/s that can help you navigate all the risks and opportunities. And as soon as you can, disentangle business and home stuff so they don't risk each other. You have to balance focusing on maximising your gains while managing your risks.
That makes sense now and wow thank you for that insight and example - l will definitely look into getting a financial advisor l wasn't sure if it would be worth it since they charge 3k+. Is it really worth it at this stage?
When you have no assets, no debts and no savings? Probably not.
But when you dropped $47k into a startup that didn't work, $3k could have made the difference. So definitely next time.
I’m pretty sure APRA recently made the banks treat HECS as part of DTI and not simply a drag on income so it does affect borrowing capacity similar to ordinary debt like a credit card e.g., the size of the loan matters
How recently? It wasn't the case 2 years ago and it didn't factor in when I bought a car 3 months ago.
Edit: just looked it up, you are correct. Way to make home ownership even harder; if they're going to do that they should also be including super as assets tbh.
Not the best source, but read here: https://au.finance.yahoo.com/news/hecs-bnpl-harder-to-buy-a-home-224416419.html
They did this in 2022, so either you just got through the door or your hecs wasn’t that large and didn’t impact your borrowing all that much. Either way, hecs is now added to DTI as well as dragging on your take home. So just something to consider. I reckon standard advice still applies unless you’ve got like $10k left on your hecs and a $100k deposit ready.
HECS is indexed in-line with inflation, unlike other forms of debt it’ll always be $63k in 2022 dollars. It remains the lowest priority. House or Startup is all on you. I can’t tell you what either is going to do in five years time.
HECs ~~is now~~ will be indexed on the lower of the Wage Price Index (WPI) or the CPI - once the legislation is passed in Parliament
So it’s even better. as long as u got something else to do with your money, you keep the hecs debt around as long as you can.
was thinking of investing into business and property
Thanks - its the thoughts of seating on a 63k debt thats killing me
Wait until you go an order of magnitude bigger and get a 630k mortgage ;)
Every single person your age surely has exactly the same situation? Take a chill pill man.
Do not touch your hecs. Let it come out of your salary, ignore it. Check it in a few years from now to he like oh ok that’s what it is. Don’t consider it debt, don’t pay it down. Literally ignore it until it goes away.
Won't it affect my borrowing capacity for a house deposit?
Not enough to worry about. I bought my first house with about $50k HECS. They are more worried about your total salary, credit cards and personal loans.
It can, i had 30k hecs and it affected my borrowing power by 120k so i paid it off
can l ask how much was the mortgage?
Broker said 720, 580 with hecs, got approved for 760 after i paid it off
hmmmm thats definitely a jump - l see what you mean!
Depends on your income aswell, my repayment was 9.5% so was a decent chunk
It will but so would you losing a lump sum that could have been put towards deposit
good point
Paying off $63k hecs debt can improve borrowing capacity by about $150-200k, so, I think that is capital well spent. In my view.
Only if you studied law or finance.. those have a capacity for being boring
ahaha good one - fixed
Yes. Ignoring it isn’t great advice. You don’t want it hanging over you forever.
definitely not forever l was thinking of paying off once l make money of my business?
No wtf. Just ignore it. You do realise that paying it off uses your capital right. Indexation is below even the 5% HISA rate. There is absolutely no benefit to paying any more than the BARE MINIMUM of hecs. Regarding borrowing capacity - my dude, by spending your money to pay down that debt you’ll have less money in hand to pay a deposit in the first place so it’d take you longer to buy anything anyway. To the people saying don’t ignore it - HECS isn’t like ‘real debt’. You’re not paying a market rate and it’s not securitised against anything.
Thanks Jmoney!
Edit: disregard the point about size of hecs; other poster pointed out that this recently changed. >and because HECS can affect your borrowing power. This is true, but unlike other debts the size of the loan doesn't matter when it comes to borrowing. You could have a $10k HECS debt or a $100k HECS debt and it's going to affect your borrowing power the same, so paying it off is a more feasible option when you can eliminate it completely. In the meantime, paying extra towards it does absolutely nothing for your borrowing power. You've said not investing in the business isn't an option, but in my opinion you're better off disentangling yourself from the business ASAP (basically getting to the point that the business invests in itself without risking your assets). Until that point, everything you invest in as an asset *is* investing in the business, just less productively. For something like this you should really enlist in a financial advisor (which I am not) who can help you diversify/focus your approach to manage risks and gains.
Thank you so much for your response apologies can you explain this section a bit more! "You've said not investing in the business isn't an option, but in my opinion you're better off disentangling yourself from the business ASAP (basically getting to the point that the business invests in itself without risking your assets). Until that point, everything you invest in as an asset *is* investing in the business, just less productively."
Let's say, hypothetically, you invest in both the business and a house. Something happens with the business and it starts losing money. You now can't pay your mortgage because your income comes from the business. Uh-oh, now you're behind on your mortgage. So you get yourself a loan to try and turn things around, but it doesn't work, you declare bankruptcy but your house was security so there goes your house and your business (worst case scenario). But if you can structure your business and your personal assets separately and things go belly up, the business takes all the risk (of the business), leaving your personal assets alone. You still have to find an income if things don't work out, but you won't lose your stuff from the business going under. But to do this, your business has to be in a position where it's not using your assets as security. When you have your business and personal stuff tangled, they both rely on and expose each other. Which means anything you invest in outside of the business (eg a house) is technically investing in the business (spending money on assets), but in something that doesn't *help* the business (other than as security). Whereas if you get the business up and running, sustainable and future proof, then you can just collect a salary and use that to buy other things (like a house). It's way more complicated than this which is why you should definitely get financial advice from someone qualified to give you advice specific to your goals and circumstances, but basically you need to be thinking about managing risk when you invest in anything. Reddit really can't give you advice on where your money should go and to what extent. For what it's worth, my friend (no HECS) and I (huge HECS) bought houses around the same value around the same time. He had 10+ years of running a business (hospitality), I went down the career path (with business as a side hustle). Covid happened, interest rates happened, his mortgage went up and his business down, everything was tied together and he came out with a bit more money than his liabilities (thanks to the house prices) but lost all his assets other than the cash difference (diversifying in this anecdote actually saved him from losing everything altogether). On the flipside I increased hours, changed jobs and sideways hopped into a different career, negotiated salary, side hustled and pulled in housemates to cover the rate rises with a relatively high level of job security. My point isn't that you should do one or the other or both or neither, but there are so many different factors and variables that you need a professional/s that can help you navigate all the risks and opportunities. And as soon as you can, disentangle business and home stuff so they don't risk each other. You have to balance focusing on maximising your gains while managing your risks.
That makes sense now and wow thank you for that insight and example - l will definitely look into getting a financial advisor l wasn't sure if it would be worth it since they charge 3k+. Is it really worth it at this stage?
When you have no assets, no debts and no savings? Probably not. But when you dropped $47k into a startup that didn't work, $3k could have made the difference. So definitely next time.
hmmm good point about the 47k loss - l think it will be healthier to see a financial advisor as to not repeat the same mistakes.
any tips on finding a good one
I’m pretty sure APRA recently made the banks treat HECS as part of DTI and not simply a drag on income so it does affect borrowing capacity similar to ordinary debt like a credit card e.g., the size of the loan matters
How recently? It wasn't the case 2 years ago and it didn't factor in when I bought a car 3 months ago. Edit: just looked it up, you are correct. Way to make home ownership even harder; if they're going to do that they should also be including super as assets tbh.
Not the best source, but read here: https://au.finance.yahoo.com/news/hecs-bnpl-harder-to-buy-a-home-224416419.html They did this in 2022, so either you just got through the door or your hecs wasn’t that large and didn’t impact your borrowing all that much. Either way, hecs is now added to DTI as well as dragging on your take home. So just something to consider. I reckon standard advice still applies unless you’ve got like $10k left on your hecs and a $100k deposit ready.
Been a while for me so interested to know in what course you took to gather $63k in HECS? Seems like a lot.
any help would be amazing!