Summary
Australians are very happy people. According to the World Happiness Report 2017, we rate number nine in the world. Aussies are blissfully buoyed by a high GDP, as well as social support and freedom to make life choices. According to another measure of happiness not mentioned in the report — financial position — if we widget down our household debt, we will be deliriously happy.
Content
Australians are very happy people. According to the World Happiness Report 2017, we rate number nine in the world. Aussies are blissfully buoyed by a high GDP, as well as social support and freedom to make life choices. According to another measure of happiness not mentioned in the report — financial position — if we widget down our household debt, we will be deliriously happy.
Our financial position not only influences our financial well being but also our overall life satisfaction, according to a recent study on Australian household finances.[1] Yet Australia’s high debt-to-income level of over 100 is not necessarily a source of unhappiness.
This is because unsecured debt — credit cards! — not secured debt, such as mortgages, is negatively correlated with well-being.[2] Australian household debt is growing faster than income[3], but mortgage debt — a form of secured debt — makes up the highest proportion of our debt. The Reserve Bank of Australia is taking measures to reign in the home lending and home price inflation contributing to higher mortgage debt levels.[4]
It is the unsecured debt we need to tackle at home. If we widget down our unsecured credit card debt, we should be blissfully happy.
The most important measure of household debt is the debt-to-income (DIY) ratio. Banks use this ratio to determine if you are eligible for a mortgage. To get a mortgage, a borrower’s debt-to-income ratio will be taken into account. exceed 43%. For those who are not yet homeowners, a high debt-to-income (DTI) level will make it more difficult to get a loan.
Your debt-to-income ratio (DTI) is a percentage that compares your monthly debt
expenses to your gross income. The calculation is:
Total Monthly Debt expenses/Gross Monthly Income = Debt-to-Income Rati
Add up all your monthly debt payments — mortgage payments, car loans, credit card payments, insurance, utilities etc. Divide your total debt payments by your gross monthly income. Multiple by 100 to present the debt-to-equity ratio as a percentage.
If your DTI is high, you can reduce debt, increase your income, or both.
Reduce Debt
– Make larger payments on the principle of your loans
– Increase payments to two a month
– Consolidate debt
– Refinance your mortgage
Increase Your Income
- Ask for a raise
- Work harder and earn commissions and bonuses
- Make money from your hobby (e.g., on Etsy)
- Take a part-time job
Finally, stop comparing yourself to the Joneses. Whilst increases in net wealth and net assets make people happier, interestingly, low secured debt is actually less apt to lead to happiness[5]. This may be because high secured debt means you have a house and car and, at least in appearances, financial prosperity.