We all start somewhere
We all grow up with different ideas about people and money, and for a variety of reasons; some good some bad. But regardless of where our money attitudes begun, we still need to work with them until we can upgrade or repair our past experiences with money.
- If you've grown up in a low-income family with an uncertain financial environment, your initial and unconscious feeling about buying a house and going into long-term debt, would usually be different to a person who grew up reasonably financially comfortable, where mortgages and investing was ‘just what everyone did To get ahead'.
Getting to know your own money style and how that might differ from your partner will help you both make better decisions about money matters together.
Bigger decisions require bigger thinking
When you're getting ready to make a big purchase decision, slow down and make sure you’ve had some good conversations with your partner about how you both feel about the next decision. Discuss how you feel about going into debt to get ahead in life and how you can each support each other in your future plans.
Learn to locate where your own default thinking about money comes from
The bigger your decisions involving money, the more you need to recognise what's your default goto feeling about money, in case it’s about to hijack your thinking at the worst possible time.
What’s your current goto attitude about money?
Which of these statements resonate most with you and are they the same for your partner?
- My parents had to struggle financially so I never want to be in that situation myself. That’s why I hate spending and feel trapped by debt.
- My parents never owned a house so a mortgage is a new thing for me.
- My family said it was rude to talk about money so we didn’t and now I understand I missed learning about some important parts of my financial life.
- My family was financially comfortable so I didn’t really experience money stress as a child.
- My parents were given a deposit for their house from their parents that gave them a head start in life.
- Money and debt is ok for me because it’s just another form of responsibility
- Money is just part of life so you need to learn how to use it
How to begin planning for a major financial purchase – like a house?
Big decisions actually start to stir up our personal feelings about money and value.
- When you're getting ready for a big ticket purchase decision, make sure you start with having some good conversations with your partner about how you each feel about the next decision; getting into debt to get ahead in life, and ways you can support each other.
- Then break the big decision down into smaller key steps so that any potential problems that need attention can be recognised early in the process. This way you can be sure you don’t miss anything and you reduce the chance of feeling lost in overwhelm by too many new responsibilities and choices.
Remember you still have lives to live, jobs to go to and probably children to chase around.
A budget isn't supposed to make you feel bad; it actually helps you spend without feeling guilty. When you’ve allocated money to a purchase you’ve made a budget and you can now spend with purpose.
Seven Time, Emotion and Money Budgets to use when preparing to purchase a property.
Time and emotion budget
How much focus and family time are you prepared to put into getting ready for this major purchase? A few days a week (we still have family commitments) or, we’re putting some serious time into getting this done asap. All big decisions require a level of emotional energy so work out what’s best for you and your family and set a time and emotion budget for your plan.
If you’re about to take out a $500,000+ mortgage for a property over 30 years (whether that’s your home or an investment property), you need to protect yourself and your family from the debt and protect the incomes that are responsible for servicing those debts.
Family Cost of Living budget
As part of the loan application process, you’ll be required to complete a monthly family budget to show you’ve put considered the new financial responsibilities and you can afford them.
Pro tip. When calculating the monthly cost of a new mortgage, also calculate the same repayment at an interest rate of 2% higher. Interest rates will fluctuate over the course of the loan and you need to be comfortable you can afford any rate increase.
If you’re like most people and using a mortgage to help you buy a property, you’ll need to decide how much deposit you can contribute towards the purchase.
If you have a deposit of 10% of purchase price, (and borrowing the remaining 90% of the purchase price) you’ll need to use lenders mortgage insurance (LMI). Add this to your list of things to talk with us about so you can learn more about your options.
If you have a deposit of 20% of purchase price, (and borrowing the remaining 80% of the purchase price) you probably won’t need LMI unless you use a speciality loan.
Stamp Duty budget
Buying a property (also called Transfer of Land) triggers government stamp duty and mortgage stamp duty requirements. You can use the Governments Stamp Duty Calculator here to work out that cost.
When you’re considering buying a property, there’s some expenses you just have to commit to, even if you don't end up buying the property. This money is effectively burnt/ sunk/gone and you may end up with nothing to show for it other than good advice and a warning not to buy a house infected with termites or concrete cancer. Your burn budget is just part of the necessary process of being careful about property purchases. Be preparfed to spend money on a pest and building inspection report, rather than risk the unknown.
Move in budget
Finally, be sure to leave room in your move in budget for those essentials like removalists fees, home insurance, utility connection costs and essentials that you need to have. A fridge and a bed would be a good start, the surround stereo system and media room chairs for 6 may have to wait for a bit.
Your family needs and plans for the future will always change as circumstances do. Getting your foot into the property market is the first step, not the only step.
It costs more than money to buy a property
When you’re preparing for a big budget purchase, break the process down into smaller more manageable steps and set a budget for your time, emotion and money.
This will help reduce any feeling of overwhelm when learning new skills and making very significant financial decisions that will become an important part of your family’s future.