If You Can't Afford it And You Don't Need it Don't Buy It!

by Dominique Schuh

Heavy profit-taking in the major banks and miners hit the Australian sharemarket as market pundits warned the lenders were overbought and house prices faced downside risks. Wall Street edged higher last night, but after slipping 0.3 per cent in early trade, selling accelerated mid-session and the S&P/ASX 200 index crashed through technical support at 5900 points. 

The Australian dollar lost US0.4¢ to US74.90¢ and government 10-year yields were marginally lower despite a 4 point drop in US 10-years to 2.28 per cent.

What this means for you:
Our attention over the next week will be turning towards the Federal Budget which will be released on Tuesday. In the lead up to the budget Australian Treasurer Scott Morrison has been making reference to "good vs bad debt". You may ask what is "good" debt and what is "bad" debt. Basically good debt is an investment in your future like a mortgage for an investment property. Bad debt is debt incurred to purchase things that quickly lose their value and/or do not generate long-term income and generally carries a high interest rate, like credit card debt or the mortgage for your home.
If your bad debt is getting out of control it may be time to go back to basics and do a budget. Take a good look at what you are spending money on and follow this general rule to avoid bad debt - If you can't afford it and you don't need it, don't buy it.