In this article, we take a look at 4 key things you should think about before purchasing your first home, from saving for a deposit to juggling ongoing bills, restricting your spending, and choosing a trusted financial advisor.
If you’re looking to upgrade from a tiny rental apartment to a spacious new abode, don’t worry, we’ve got you covered!
Chances are, if you’re like most working millennials, you dream about owning your own home, but you worry about the financial stress it will place on you and your family. Indeed, saving $10,000 to $30,000 for a house deposit can seem like an overwhelming and often unattainable goal.
How do you get from A to B without experiencing feelings of regret, resentment, or restrictment? And what’s the best way to keep track of your spending, meet your daily financial obligations, and still afford a mortgage?
Let’s take a look….
1. Be honest about what you can afford
Though you’ve probably been dreaming about purchasing a home with a nice swimming pool, a big backyard, and a perfectly packaged interior, the first thing you should think about before jumping into a mortgage is: what can you actually afford? According to financial expert, Miriam Caldwell, one common problem that many people run into is that they stretch their money too far:
“Your house payment should be about twenty-five percent of your take home pay. Do not rely on what the bank is willing to lend you. Do not plan on salary increases either. You need to leave enough money in your budget so that you are able to cover your other costs.”
2. Be financially prepared
Before looking into purchasing your first home, you should make sure that you’re prepared, educated, and confident in your financial status. Buying a home is an exciting milestone, but it can also be intimidating and risky if you don’t know what you’re doing. For example, you should make sure that:
- You know how to budget.
- Your income source is reliable, and you have an emergency plan in place in case you (or your spouse) lose your job, get injured, require maternity leave, or need to stay home to look after your kids.
- Your debts are under control (ideally, you should be debt-free).
- You have a retirement plan in place and a strategy for saving money for the future.
- You have a good credit report/history.
Other things that you might like to consider include: attending home auctions, doing a tour of your local neighbourhood to see what current property prices are like, speaking with a financial advisor or financial institution about finding the best rate for your needs, or looking into financial planning tools and resources.
3. Open a high-interest savings account
When it comes time to actually start putting money away, you should browse around and look for a bank account with a good interest rate. Andy Kollmorgen, a financial journalist and previous employee at ASIC, suggests that switching to a better interest rate could save you hundreds of dollars a year:
“If you’ve a spare $5000 parked in an everyday bank account paying just 0.01% – after inflation, account-keeping and transaction fees – your money will be going backwards. You’d be $361 better off per year with that money earning 7% in an internet savings account or term deposit.”
You could consider opening up a separate bank account, setting up an automatic transfer (weekly or monthly), and trying not to touch your savings unless it is absolutely necessary. If you don’t trust yourself, a smart idea is to open up a bank account that is not accessible via ATM, EFTPOS, or online banking. This will force you to go into your local branch every time you want to make a withdrawal.
4. Use Financial Mappers to supercharge your savings
Financial Mappers is a cloud-based platform that can help you map your budget, expenses, investments, and savings goals. With built-in calculators, graphs, scenario testing, wealth reports, and an easy to use interface, Financial Mappers takes all your information and projects it to the life events that matter to you — like buying your first home!
Disclaimer: Financial Mappers does not have an Australian Financial Services License, does not offer financial planning advice and does not recommend financial products.