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14 Things You Should Know Before Buying Your First Home

Posted on February 12, 2019
Get the right home and mortgage for your with these tips

Buying your first home is an exciting and daunting experience. There’s the fun part, house shopping and looking for your dream home and all the excitement that comes with owning your very own place. And then there is the slightly more scary side of signing a 20 or 30 year mortgage and taking a big step into #adulting.

I remember how overwhelmed and stressed I felt when we were in the process of buying our first home. It happened to be the weekend before my last CPA exam. We had decided to hold off looking at a home until my exams were over so I could concentrate on studying. It was a well thought out, mature plan. Unfortunately that reasoning went out the window and instead of waiting we went house hunting the weekend before my exam when we found a home we liked that was having an open home (it was a hot market, yadda yadda).

 

Instead of studying, we hopped in the car that Saturday with my (now) In Laws and looked at 7 homes that day. The 6th being the one we put a deposit on later that afternoon. It all happened so fast. We saw the house around 3.30pm and by 5pm we were in the realtor’s office paying our $1000 deposit. It was one of the most stressful weeks of my life. I remember the sheer fear of signing my life away on the dotted line, both on the property and the mortgage documents taking away my freedom for potentially the next 30 years of my life.

Looking back there were some things we did right and a lot of things we did wrong. Of course at the time, filled with excitement and the impending doom of not being able to find a house in our price range and the FOMO we jumped at the chance of getting a home in our budget.

Thankfully it all worked out – I passed my final CPA exam and we managed to buy our home before house prices in Sydney sky rocketed not long after. But we were lucky. With no Emergency Fund in place we could have opened ourselves to a visit from Mr Murphy.

Your home is most likely going to be the biggest purchase of your life so it’s not a decision to take lightly. Your best bet is to prepared and plan ahead! Here are 14 Things To Know Before Buying Your First Home.

1. You should aim to have an Emergency Fund of 3 months expenses saved 
Before buying your first home it is important to have a sizable Emergency Fund, ideally 3 months of expenses or more (Dave Ramsey would be proud :)). This will ensure that when your car dies, your hot water system goes or if you have an unexpected job loss that you are prepared financially to weather those storms as they come up relatively stress free.

Life is stressful enough without having to worry about every little thing that breaks or needs to be repaired or replaced. And as a soon to be home owner you should get ready for things to break and need replacing 😉

Of course you might not know exactly what your expenses are if you are moving out for the first time but a reasonable estimate tweaked as you go is better than nothing!

2. Shop around for mortgage rates and low fees
Before you apply for any mortgage shop around for the best rates. Don’t forget to check if there are any establishment fees or monthly fees. Ideally pick one that has no monthly fees, I personally refuse to pay for the privilege of paying a mortgage. To get you started Canstar offers a comparison tool for over 100 lenders.

Related Post: Check out My Top 5 Personal Finance books for what books you need to read to get your finances in order!

3. Get a home loan with a 100% Offset Account
Offset accounts are a great way to reduce your mortgage interest bill without having to actually pay the money on your mortgage. When you are picking a home loan make sure to find one that has a 100% offset account to save you on your monthly interest bill. This will save you some serious cash so don’t glaze over this tip.

The way it works is, any money you have in the offset account linked to your mortgage will offset the interest you pay on your mortgage. So if you had a $200,000 mortgage and you had $10,000 of savings in your offset account, the interest on your mortgage would only be applied to $190,000 of the mortgage not the full balance.

With saving accounts interest rates around the 2.8% mark versus mortgage rates around 4% it is a great way to get more bang for your buck. An added bonus, as the interest savings on your mortgage are not income, they’re tax free savings!

Financial Minimalism Course : How to Set Yourself Up on a Path to Financial Freedom

4. Aim for a 20% deposit to avoid LMI
Having a 20% deposit does two things when buying your first home.
a. It allows you to borrow less money and pay less interest over the life of the mortgage. This alone adds up to tens of thousands of dollars saved.
b. It allows you to avoid paying Lenders Mortgage Insurance (LMI) which is insurance that covers your bank from you defaulting on repayments (it does not cover you!) – and it is not cheap! LMI on a $650,000 home with a deposit of 10% would set you back $14508. This is often added to the mortgage balance unless you have the money upfront and will end up costing you $24,918 over a 30 year loan term. The more you can save ahead of buying a home to avoid paying LMI the better!

5. Do your research 
Before buying your home you need to do your research. Learn about the area, is there anything you don’t like? Think about why you want to live in that area and if it is suitable for your lifestyle. Look at online listings months ahead of buying to get an idea of what is out there and what you can get for your money, you don’t want to over pay. By looking at a lot of listings you will get an idea of what you do and don’t love in your home.

6. Renting is not dead money
I previously considered rent money as dead money but have since learned that this is not always the case. Renting and saving up for a home deposit is preferable to buying a home you can’t afford and potentially losing it. Saving up for a home and your Emergency Fund takes time and determination and if that means you have to rent a little longer – so be it.

Renting can also help you make more intentional purchasing decisions. Consider renting for 6 months in the area you’d to buy in before you actually buy to get a real feel for if this is an area you want to live for the next 5 + years. Learn what you do and don’t want in a home so you can buy the right house for you. Buying a house is expensive, as is selling one so you want to make sure you are making the right long term decision for you!

Don’t think of rent money as dead money but as money well spent to make sure you are making an informed, intentional decision for your biggest asset. Of course whilst you are renting save any extra that you can on top so you can afford to buy a home one day in the not too distant future 🙂

For more tips on your mortgage check out 14 Realistic Tips to Pay off Your Mortgage Faster 

7. Don’t spend more than 25% of your combined gross income on your mortgage repayment
Buying a home with a repayment that is more than 25% of your gross salary (that is after tax) can put a huge financial strain on your budget. By keeping it to 25% of your after tax salary, or as close to that as possible, you give yourself room to cover unexpected costs, and changes in life. Things such as a new baby, a child starting school, a partner wanting to go back to school or needing to upgrade a car are much more affordable when you have room in your budget that isn’t eaten up by a huge mortgage repayment.

8. Know your budget
Before you even look at home or mortgages and what you can afford do a budget. You need to know how much is going in and how much is going out before you can know what mortgage you can afford. Speak to friends and family if you need advice on how much to budget for things like utilities and groceries.

Make sure you add in for those often forgotten budget expenses that might not come up every month like clothing, dental, gifts and car expenses. And don’t forget to make sure you still can save money after paying for all your expenses and mortgage. Ideally you want to still have 10% of each pay check to put into saving or investing. When you know what you can put towards your mortgage, staying close to that 25% goal or less you can look at what you can afford to borrow.

9. Allow for repairs in your budget
A good rule of thumb I learnt from Mr J Money at Budgets are Sexy  is to allow for repairs on your home annually at 1% of your homes value.  So if your home is valued at $600,000 you should be putting away $6000 annually for any repairs, maintenance or upgrades. That’s $500 a month!

Even at a minimum, you should be allowing $100 a month just to cover costs like small repairs, pest sprays, cleaning, gardening costs and that excludes any upgrades you might want or need.

10. Budget in a buffer for potential rate rises
What your interest rate is today isn’t necessarily what you will be paying next month or in 10 years from now – 30 years is a long time! Know that your rate could go up or down.

This graph below from Trading Economics shows the Australia interest rates all the way back to 1995. Just 10 years ago in 2008 they hit 8%. Ouch!


source: tradingeconomics.com

When I first got my home rates were around 5.4%, they are now at 3.9% thankfully my repayments went down over that time period by more than $100 a week, but can you imagine if they had gone up $100 a week in that same period?

A good rule of thumb when calculating your home budget is to make sure you factor in an increase of 2% on your home loan interest rate. So if you are looking at a mortgage at 4% make sure you can still afford to pay it if it increased to 6% on your current income level. And as mentioned above, ideally at only 25% of your total combined after tax household income.

11. This may not be your forever home
A lot of people get stuck on the concept that this is their forever home which can lead them to hold onto a home that is financially crippling them. By all means houses come with attachments and emotions, I am not immune to that I love our humble abode, but be prepared to downsize or sell up completely and rent for a small period if the need ever arises.

12. You CAN pay your mortgage off sooner than 30 years
Just because your loan term says 30 years doesn’t mean that you need to drag it out that long. Aim to pay off your home within 15-20 years. At least by the time you are 50, giving yourself 15 years to focus on your retirement – but of course, the earlier the better. Check out some tips on how you can pay off your mortgage faster here.

13. Think about the true cost of space 
It’s amazing how many people will go out of their way to tack on a $100 a week repayment for the next 20 to 30 years to accommodate once-a-year guests. Or get a more expensive house for the extra storage space rather than just decluttering and having a garage sale. The costs of these do add a lot onto your mortgage so really consider how much you are willing to pay for them. You could be paying an  additional $5000 a year, every year to house clutter that you don’t need.

14. Consider the hidden costs
When buying a home there are hidden costs. Sometimes it is something you missed when you were looking at it. For us it was a leaking shower and the space behind the fridge that had not been plastered fully. There are always surprises which may not have been identified at the initial inspection or the building inspection and can end up costing you more than you were expecting.

Then there are the other costs that might just cost you not only money but your time. If you buy the home with the huge back yard are you going to be willing to spend 2 hours every fortnight mowing it? Or are you willing to pay someone $50 to do it for you? Three and a half bathrooms may sounds like a luxury but will you have the time each week to clean an additional set of bathrooms? Will you be able to afford the cost of hiring a cleaner to help out? Can you afford the cost of replacing carpet, or tiling or paying a painter for all that extra space when it comes time for renos? And consider if you are willing to pay the higher utilities bills to have extra space to heat and cool.

The mortgage is by no means the only cost you need to consider so it is important to think of the bigger picture before running with your heart at a home.

[Photo: Dan Gold @ unsplash.com]

This weeks Comment question: Do you have any tips to add when buying your first home? Let us know in the comments! 

If you found value in this post I would be super appreciative if you could share it with others who might also find value in it 🙂

 

Budgeting Freebies

52 Week Savings Challenge – Save $1820 in a year!

Posted on January 2, 2019
Kick Off Your Savings With this 52 Week Savings Challenge!

Minimise With Me: 52-Week Savings Challenge

If you want to kick start your savings account join the Minimise With Me: 52-Week Savings Challenge and get your free Savings Challenge Printable Tracker and start your new savings habit today! Saving small amounts of money can seem like it’ll never get you to your goals and like it isn’t worth the effort but it’s important to remember that saving can start with just $5 a week and is a habit that can be built up over time.

The key is to make it a regular habit so you build your savings muscle. Eventually, it will be an automatic behavior and you won’t know why you didn’t start it sooner!

To help you get started and find some savings in your budget, here are 10 Tips to Jump Start Your Savings Fund.

Start with one or two of the savings options below, or come up with your own and add one as you move through the year. The more you pick or add to the list, the quicker you will build up your savings balance! These don’t have to be enormous life-altering behaviors like moving back home or never having a night out for the foreseeable future. The smallest habits can add up to a big amount of spare cash you can save!

10 Tips to Jump-Start Your Savings Fund

1. Bring your lunch from home: Savings $10/day

2. Skip the coke at lunch and bring a water bottle from home: Savings $3.80/day

3. Bring coffee from home in a stainless steel travel mug: Savings $4.40/day

4. Sell something you no longer need: Savings $20/week

5. Skip the bag of chips on your afternoon tea break and bring your own snacks from home: Savings $2.50/day

6. Call up a bill provider like your electricity or mobile phone provider and ask for a better deal: Savings $5/week

7. Skip going shopping on your lunch break: Savings $15

8. Invite friends over for dinner and ask each friend to bring a plate instead of going out for dinner and drinks: Savings – Ubers, alcohol, dinner $100

9. Reduce your grocery bill by meal planning. Check out some extra tips to save on groceries here. – Savings $10/week (I’m talking minimum!)

10. Cancel any subscriptions you are not currently watching or using: Savings $10/month

Want More Savings Tips?

For more tips on how you can save money don’t forget to sign up for the Minimise With Me Mailing List and get access to your free copy of my eBook: 101 Ways to Save Money Whilst Living Awesomely” for even more ideas on how you can add to your savings challenge fund each week.

Let’s Get Started!

Now that you have your tips to get started let’s get into the challenge!

Here it is, the 52-Week Challenge Printable check out the PDF and download your own copy to print and mark off as you save!

grab your free 52-week savings challenge tracker printable

What savings tips do you have that can help others on the challenge? Share them in the comments below 🙂

Good Luck, Minimisers!

Budgeting

How to Plan a Debt Free Christmas

Posted on November 27, 2018
Check out these 8 Ways you can Plan a Debt Free Christmas this year!

Christmas is a time to be with loved ones and make memories together. But often before you know it, the end of the year has crept up again, and you are facing the stress of thinking about how you are going to afford to buy everyone gifts.

With pay options like After Pay and Zip Pay on the radar, it’s even more tempting to just ignore the impending budget hit and charge those gifts and leave the worrying about paying them later. Or not worrying at all and ignoring your growing credit card debt until it becomes a bigger problem.

According to a new forecast of Reserve Bank of Australia (RBA) data analysed by finder, Aussies borrowed a combined $29 billion on credit cards in December 2017. That breaks down to an equivalent of $1,727 in purchases per card. This is up from the $1,666 the average cardholder owed in credit card debt after the Christmas period in 2017.

These are pretty worrying statistics with 5% of Australians admitting to taking more than 12 months to pay off their Christmas credit splurges! Think of the interest! An average $1727 spent per person at a 22% interest rate paid off over two years adds an additional $375 in interest payments.

Table above shows Total payable inclusive of interest on $1727 borrowed at 22% over 4 and 2 years, respectively.

Christmas shouldn’t and doesn’t need to be a time of financial stress or an excuse to go into more debt. With a little planning we can take the stress and financial sting out of Christmas and plan a Debt Free Christmas. And a little planning and effort can go a long way!

How You Can Plan a Debt Free Christmas

1. Make a promise to yourself that you won’t be going into debt for ANY gifts
Let’s all take a moment and think about this. If you don’t have the money in cash to buy gifts and are going into debt to buy them, you can’t afford it. This goes the same for if you don’t have an Emergency Fund of at least $2000 saved up. Until you acknowledge this you will continue in a debt cycle and never catch up.

Family may be upset at your lack of generosity, but it’s important to stop digging your financial hole more into the ground in order to keep others happy. And besides, family and friends should always want to support you in achieving your goals! And as Dave Ramsey says, Live like no one else, so you can live AND GIVE like no one else 🙂

It may take having a year off buying anyone gifts to get onto your feet and build up a small Emergency Fund and pay down some debt but it’s a necessary step in order to change your financial situation. And don’t fret I will give you some tips on how to still give gifts below 🙂

2. Save ahead of time with Sinking Funds
The number one thing you can do to have a debt free Christmas is to save ahead of time with Sinking Funds. This means saving up a little each month rather then trying to scrounge dollars at the 11th hour. The best time to start is January. This will give you 11 months to save and you will have your total budget by Dec 1st.

Every January I want you to set your Christmas budget. How many people do you have to buy for? What are you going to spend? What do you need for Christmas meals/entertainment? Divide that total number by 11 and put this away every month. Check out this Christmas Gift List to help you get started. When Christmas rolls around you will have the cash ready to go without any temptation to reach for that credit card.

3. Shop early
Don’t leave your Christmas shopping for a week or two out. Take advantage of earlier sales like Toy sales or Black Friday deals in late November. When you leave it to the last minute you don’t allow yourself time to shop around for the best deals, which can save you serious cash! Shopping early also gives you ample time to check reviews and ask around for other people’s recommendations to make sure you are buying a good quality item.

4. Shop second hand
Before buying brand new check for second hand items that can save you money. I just bought a second hand Wii game in very good condition for $26 and saved myself $20. Sometimes you can find second hand items for half the price or less that are brand new with tags attached or like new.

5. Have a Cris-Cringle
A great way to save money is to set up a Cris-Cringle and buy one gift rather than a gift for each person. Not only can this save you money, and allow you to buy a more quality gift but it will save you time shopping for multiple gifts. A friend of mine’s family has a $75 budget and each person makes a list of three items within the budget they would like which means that you can by a gift that will truly add value to your loved ones life!

6. Gift frugally

If you are really short on cash and considering going into debt to buy gifts STOP. Just because you don’t have much money doesn’t mean you have to resort to going into more debt. Get creative and think about what home-made gifts you can make or consider gifting your time!

  • Can you draw a portrait for your loved one?
  • Are you handy and can offer them some of your time to help with repairs?
  • Can you offer free babysitting?
  • Are you a good baker and can bake some cookies or put together a yummy hot chocolate pack?
  • Or make some DIY beauty products?

Think outside the box. Gifting a hand-made gift can be more appreciated than the store bought one.

7. Get Hustlin’
If you are short of cash spend the month leading up to Christmas hustling for some extra cash.
Here are some ideas to help you bring in some extra cash to put into your Christmas budget:
• Start dog walking
• Babysit for cash
• Check our Air Tasker for some odd jobs you can do
• Sell your unwanted clutter on eBay, Facebook Marketplace or Gumtree. Read how I made $5000 selling mine here
• Rent out a room on Air BNB for the weekend
• Ask for extra hours at work for the holidays
• Cut your expenses: review your mobile phone plan, lower your grocery budget and start Meal Planning, find frugal ways to have fun to save on entertainment, check your mortgage rate and ask your bank for a better deal

8. Aim to save when it comes to food
Christmas isn’t just about the gifts, the food can add up especially if you are hosting. Here are some tips to plan a debt free Christmas and save money on food:

• Shop at Aldi. I’m a massive fan of a lot of Aldi’s range it’s a great way to save.
• Take advantage of specials. In the lead up to Christmas browse the supermarket catalogues and buy non-fresh items on special that you will need for Christmas.
• Ask everyone to bring one dish to help share the cost of food on the day. Make a list of what you need and ask around who can help make something. Every year I make a pavlova to bring along to Christmas lunch and dinner.
• Rotate Christmas with your family. Spread the cost of Christmas by rotating who hosts it each year. It also means instead of hosting Christmas every year you might only need to host it once every 3-4 years. Think of the reduction in stress levels 🙂
• Spend time estimating food as best as you can. Try not to go crazy and buy food for 50 when you are only having 30 guests. Take note each year or how much food was left verses what you bought for an indication of what you will need next time.
• These tips on How to Save on Your Grocery Budget will help your dollar go further too!

And there you have it Minimisers, 8 tips to Plan a Debt Free Christmas!

This weeks comment question:What are your tips to save money at Christmas and celebrate Christmas Debt Free? Let me know in the comments

[Photo: Tyler Delgado @ Unsplash.com]

If you found value in this post I would be super appreciative if you could share it with others who might also find value in it 🙂

Budgeting

My Top 5 Personal Finance Books

Posted on November 6, 2018
Check out my Top 5 Personal Finance Books to get you started on your financial journey today.

Today I wanted to share with you my My Top 5 Personal Financie Books. I am a huge fan of reading and although I don’t get a lot of time to catch up on my wish list of books to read I do try and get around to reading one book every month. It’s not a huge number and nothing to brag about (I’ve seen some people on Insta do 12 a month… WHAAAAT) but I do make an effort to learn and grow and one of the best ways I have found to do that is to read a lot of different books.

Over the past handful of years and as I discovered new passions like Simple Living and the F.I.R.E movement, I have come across many amazingly educational and helpful books across many topics ares: Minimalism, Finance, Consumerism, Millionaires and Simple Living to name a few of my favourite subject areas. As an Accountant and CPA it wouldn’t come across all that strange for me to love reading about Personal Finance but I think there are so many amazing books out there now that anyone can learn from and enjoy and I promise you they will not put you to sleep. Far from it, I think they will do wonders to motivate you to pay down debt, develop new spending behaviours and learn about the big world of personal finance without having to take a three or more year degree.

And so here I will share My Top 5 Personal Finance Books with you in the hope that they will add value to your life and inspire new habits and help you on a path to financial freedom and building wealth!

**This post contains affiliate links. If you make a purchase of a product from the links in this post I will receive a small commission, at no cost to you. This allows me to keep my blog advertisement free and support the running costs of my blog. I only recommend products I believe will add value to others and that I love myself.**

My Top Five Personal Finance Books

5. I Will Teach You to Be Rich, Remit Sethi

I am a huge fan of Remit’s after a friend recommended me his material and loved his in your face attitude and unapologetic views on spending in his Book I Will Teach You To Be Rich. He goes as far as having a Stupid Mistakes Fund for unexpected expenses like fines and explains how you can prepare for big life expenses like weddings by thinking well ahead and saving up over the longer-term. He delves into his investment choices and why he believes index funds outperform their higher fee counterparts. And gives valuable advice on how to haggle on cars and other big purchases ‘like an Indian’ without wasting your time. If you’re someone who prefers a less prescriptive finance guru who doesn’t spout cut up your credit cards and count every last cent and someone who has a bigger picture approach to finances that won’t make you cut out your daily coffee, this book is for you.

4. The Millionaire Next Door, William D. Danko

Like most people, I am fairly fascinated by millionaires so when Mr J. Money at Budgetsaresexy.com recommended this one I had to satisfy my curiosity – How do Millionaire’s live (do they know things let’s find out – Bojack Horseman anyone ;))? Don’t we all want to know that?

This book was based around research conducted over 20 years about the spending habits of millionaires from their car buying habits, where they live, how they invest, what they wear and so on. It also delves into ‘entitlement syndrome’ and how to raise self-sufficient kids who don’t expect everything handed to them on a platter from the bank of Mum and Dad. Great for any Mum’s and Dad’s out there!

It also details the spending habits of PAWS and UAWs (Underaccumulators of Wealth) and the difference in their spending behaviour. If you are keen to achieve millionaire status, or just are a little curious about how your undercover millionaire lives their life check out The Millionaire Next Door.

3. Your Money Or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence: Fully Revised and Updated for 2018, Vicki Robin and Joe Dominguez

This was the book I was looking for my whole life, and I only just finished listening to it THIS MORNING. I heard Mr Money Moustache mention it as a top recommendation a few years back but it took me this long to get a copy and read it. But it was well worth the wait.

Your Money or Your Life was originally published in 1992 but was re-released in 2008 and 2018 with the addition of a foreward by none other than Mr Money Moustache himself, to be more relevant to today’s financial climate. If you are a finance nerd who loves spread sheeting, tracking every dollar and aspire to F.I.R.E. (Financial Independence, Retire Early) this is a book that can give you a thorough plan.

It’s based around the 9 steps Vicki and Joe used to become financially independent and the concept of trading your life energy for money. And has some amazing crossover if you love topics on Minimalism, Side Hustling and Frugality. This book touches on everything you can think of: how to invest your money, aligning your values with career and investing, ways to save money and live a more meaningful life and earning more. It provides you with the tools to track your income vs expenditure and your passive income as well as calculating your Net Worth.

If you are keen to make your money work for you and get your time back and want to get even nerdier with your budgeting approach and learn about investing this book is a great place to start.

2. The Total Money Makeover, Dave Ramsey

I first heard of this book about three years ago now and was the first personal finance book I read on my finance book binge. As I read it something just clicked inside of me, as if Dave was saying the words I had been thinking all along – I hate debt and I want out! His reference to #gazelleintensity just described my attitude to debt in a matter of two words – RUN FOR YOUR LIFE.

The Total Money Make Over is based on the 7 Baby Steps and give a clear cut plan on how to get out of consumer and mortgage debt and build wealth. If you are sick of living week to week and can’t take the stress of another financial emergency this book could seriously change your life.

Dave has some amazing principles on spending and approaching debt that can unwind you from even the most stressful financial situations without the need for bankruptcy but definitely with a bit of sacrifice – on a rice and beans level. If you are sick of debt please read this book today, you won’t be able to put it down.

1. The Barefoot Investor, Scott Pape

As an Aussie lover of finance, there was no way I could look past our own homegrown finance guru Scott Pape with his recent book The Barefoot Investor The Only Money Guide You Will Ever Need. If you want a finance book which won’t bore you and that can get your partner involved in the conversation this is it! The Barefoot Investor is based around Date Nights with your partner where you tackle different financial areas from Health Insurance, Superannuation, your Mortgage, growing your Wealth and Retirement.

A great one for people who get the chills thinking about budgeting, Scott’s bucket system is simple and easily implemented by even the most novice people. If you are an Aussie as well you can’t go past a recent book that focuses on the Australian related finance space and there is not one 401k or Roth IRA section for you to skip over 😉

And there you have it guys My Top Five Personal Finance Books to get you started on your #debtfreejourney and path to building wealth!

What are your favourite Personal Finance Books? Let me know in the comments, I am always keen for new recommendations! 🙂

[Photo: Sharon Mccutcheon @ Unsplash.com]

If you found value in this post I would be super appreciative if you could share it with others who might also find value in it 🙂

Budgeting

13 Realistic Tips to Pay Off Your Mortgage Faster

Posted on October 30, 2018
Paying off your mortgage doesn't have to be miserable. Check out these realistic saving tips to pay off your mortgage faster.

I’ve listened to hours upon hours of financial advice from finance gurus like Dave Ramsey, Scott Pape and Chris Hogan and the one thing that gets repeated again and again is the importance of paying off your debt so you can start building wealth. This is simply because when we don’t have any repayments we get to keep our pay cheques. Sure there are still bills to pay bills will always be there, but when you have no debt: no credit card repayments, no monthly car repayments and you own your home you have more of your pay to keep and to make your money work for you. And with the most recent rise in mortgage interest rates which are predicted to keep going up after a long stint of interest rate drops, it’s extremely important to try and pay off your mortgage faster whilst the times are good.

Let’s imagine this following scenario.

You buy your first home when you turn 30. With a 30 year mortgage term you are going to be putting a large chunk of your pay, often more than 25% of it towards towards paying off that mortgage until you are 60.

Imagine if instead of paying your mortgage off in 30 years you could bring it down to 15 years and own your own home by 45 instead of 60. And if you buy your home later in life, or through other circumstances you didn’t get to pay off as much of it as you would have liked, think of how great it would be to own your home before retirement. Future you is going to be super happy with you.

There are many financial and lifestyle opportunities that open up when you not longer have to pay off a mortgage. These include:

  • Being able to reduce your workload from full-time down to part time, or completely changing careers to something you love even if it doesn’t pay as much as your last job.
  • Being able to retire early
  • Eliminating a house or rent payment altogether from your budget
  • Being able to travel to your dream destinations
  • Having the extra cash to help your kids with college
  • The freedom to spend more on you

Who wouldn’t want those things!

But I want to have a life now!…

I often hear people say they’d rather enjoy their life whilst they are young then worry about debt later if at all, but this doesn’t have to be a one or the other scenario. Paying off your mortgage doesn’t mean having no life for the next ten to fifteen years. It’s certainly possible to find a balance between enjoying life and paying off your mortgage. It certainly won’t be without it’s sacrifices, but if you get a little creative and focus on some savings methods that don’t require you to miss out on anything such as making sure you are getting the best interest rates available you can get that mortgage paid off with much less pain than you think. Let me help you with how.

Check out 13 Proven Ways to Pay Off Your Mortgage Faster so you can have a life and be debt free – house and all much sooner!

**This post contains affiliate links. If you make a purchase of a product from the links in this post I will receive a small commission, at no cost to you. This allows me to keep my blog advertisement free and support the running costs of my blog. I only recommend products I believe will add value to others and that I love myself.**

13 Realistic Tips to Pay Off Your Mortgage Faster

  1. Make extra weekly repayments

Unless you want to spend the next 30 years or so with a mortgage, and paying for your house three times over with interest added on top, don’t settle for paying the minimum repayment on your mortgage. It is as it indicates, only the minimum you should be paying. Every little bit extra you can throw on top adds up.

Even if you don’t have much to add to your minimum repayment minimise what you can in your budget and redirect that money to your mortgage. Check out these tips to save money and my eBook 101 Ways to save money for ideas on how you can free up some money in your budget to pay off your mortgage faster.

On a $400,000 mortgage at 4% with a 30 year term, and extra $20 a week shaves off $26,367 in interest and 2 years and four months. Throw $50 a week on top of the minimum and that increases to a saving of $57,555 and 5 years and 3 months! Those are some serious time and cash savings! You can calculate your own repayments with this awesome calculator here.

Don’t forget to pay your mortgage weekly, over monthly to save again on your monthly interest.

Financial Minimalism Course : How to Set Yourself Up on a Path to Financial Freedom

2. Utilitise all extra money
One of the best ways to pay off your mortgage faster is to utilise those lump sums. Instead of buying a new TV with your tax return, bonus or any other sums you come into, take that chunk of cash and use it to smash down your mortgage term. Tax returns, bonuses, inheritances, gifts and so on can go a long way to reducing your mortgage balance.

Again life doesn’t have to be miserable to get ahead, if putting all your bonus feels too torturous, that’s fine you can still treat yo’self a little, take 10% to spend on something you want or need and put the other 90% on the mortgage. Or work out a split that works for you and make it a habit. Keep in mind that it’s helpful if you can throw any lump sums you get onto your mortgage as early as you can. This will knock the interest bill down much faster.

Check out how the Debt Snowball can help you get debt free faster! 

3. Avoid adding to your mortgage

It can be very easy to gradually increase your mortgage over time. You start with your first home, five years later and with a couple of kiddies you decide your humble abode isn’t big enough and you take on a bigger mortgage. Next you’ve refinanced your mortgage for a new car and a kitchen and bathroom reno. Before you know it your mortgage is more and more difficult to get on top of. Refinancing can be a slippery slope where it become too easy to just refinance every must have into your mortgage and make it that much harder to pay off.

Instead, save up cash to pay for repairs or upgrades to your home or at least make sure that your new mortgage repayment is still within the 25% of your after tax income range. With that threshold in mind you can avoid letting your payments get over your head.

4. Sell your unwanted stuff 

If you are finding your home is getting a bit cluttered, make some space and some extra cash to pay off your mortgage faster by selling your unwanted stuff. You’d be amazed by what money you can bring in from treasures collecting dust in your home. Check out how I made $5,000 selling my unwanted clutter here.

5. Stick to a budget.

“A budget is telling your money where to go instead of wondering where it went.”
― Dave Ramsey

Wise words from Dave Ramsey. If you don’t know where your money is going you aren’t going to be able to spend it with intention. By sticking to a budget you can make sure you are spending money more efficiently which leaves more to throw onto your mortgage. You can then go even further once you’ve got the hang of a budget, and transfer any spare cash in your monthly budget that you didn’t end up spending such as unspent grocery money to put on your mortgage. Every dollar counts.

6. Get creative with fun

Having a goal to pay off your mortgage doesn’t mean that life has to be boring. Find free or affordable ways to have fun and stretch your dollar. Make a three course meal at home instead of going out. Look for vouchers and online deals for activities to get buy one get one  free offers or other discounts. Go for a walk with a friend instead of getting a coffee. Ask family to buy your kids memberships to the museum or zoo in place of other gifts so you have free entertainment all year. Learn to appreciate things in life other than shopping and eating out. There is plenty of free fun out there to be had 🙂

7. Take advantage of Mortgage Offset Accounts

Offset accounts are a great way to reduce your mortgage interest bill without having to actually pay the money on your mortgage. When you are picking a home loan make sure to find one that has a 100% offset account to save you on your monthly interest bill.

The way it works is, any money you have in the offset account linked to your mortgage will offset the interest you pay on your mortgage. So if you had a $200,000 mortgage and you had $10,000 of savings in your offset account, the interest on your mortgage would only be applied to $190,000 of the mortgage not the full balance.

With saving accounts interest rates around the 2.8% mark versus mortgage rates around 4% it is a great way to get more bang for your buck. An added bonus, as the debt savings are not income it’s tax free savings.

So let’s say continuing from the example above, you had $10,000 saved for an Emergency Fund and your mortgage rate was 4%. By letting that money sit in your offset account, you would reduce your interest bill by $400 a year. If you had put it in a savings account paying interest at 2.8% you would have only made $280 in interest and would have to pay tax out of it.

If your current mortgage doesn’t come with an offset account shop around for a better home loan that does include it so you can tap into those amazing savings!

8. Review your interest rate regularly
There are huge savings to be had from your interest rate alone. If you aren’t checking yours against your banks competitors regularly you are potentially missing out on savings of thousands of dollars per year and tens of thousands over the life of the loan.

A $400,000 home loan with a 30 year term at 4% is $440 a week versus $467 at 4.5%. If you were paying the higher rate you would be missing out on a whopping $1404 a year in interest savings. And if you are paying a much higher rate then advertised you are losing out even more.

If you find your banks rate isn’t a competitive rate or they are offering new customers a better deal call up and ask them for a better interest rate. Do your research first. If they won’t budge, consider switching banks. Don’t reward banks that are doing their best to rip you off. Finding a mortgage that is a better rate let’s you pay off  your mortgage faster without you having to cut back your budget to do so.

And if your bank charges you a monthly fee for your mortgage if might also be worth changing. A $10 monthly fee might not seem like a drop in the ocean but if that $10 monthly fee was invested at 8% over the same 30 year term you could have had $15003. Doesn’t sound so small now 😉

9. Get motivated

One of the most helpful things that will help you pay off your mortgage faster is to get motivated and in a mindset to smash that debt. Even if you don’t know anyone who can support you in person you can always find others who are tackling similar goals in trying to pay off their debt. These are just a few ways to get yourself motivated to tackle your mortgage and help you stay focused in your financial goals:

  • Take notice of the interest you are charged each month. Instead of feeling bad about how high it is, watch it decrease month to month.
  • Calculate how much of your original mortgage you have now paid off as a percentage. (Original Mortgage-Current Balance)/Original Mortgage = What % you have paid off.
  • Print off a Mortgage chart at Debt Free Charts to colour in each time you hit a new goal.
  • Look at how much interest offset you are receiving each month thanks to your offset account. This will also encourage you to save rather than spend your money so you can save on even more interest 😉
  • Check out Dave Ramsey’s #debtfreescreams segment on YouTube for inspiration and to see how other people just like you finally paid off their debt or mortgage.
  • Get some support behind you. Find a friend, family member or your partner so you can hold each other accountable and motivated each other.
  • Check out the #debtfreecommunity on Instagram for other people who are in the process of repaying their debt tips, advice and motivation to keep you on track.
  • Read books like Scott Pape’s The Barefoot Investor and Total Money Makeover by Dave Ramsey to help you with developing a plan to tackle your debt.

10. Increase your income
Find out what you need to do to increase your income outside of side hustling and doing overtime. If you complete a course can you get a promotion? Can you get a new position with further study? Can you smash your KPIs at work and get a good raise or make the EOY bonus? Maybe you could find a better paying job if yours doesn’t offer any salary increases or opportunities for a promotion and negotiate a much higher salary at the interview.

11. Get #Hustling.
If getting a raise from work isn’t on the table at this moment, get creative and find ways to bring in more income. Other than selling your unwanted stuff, there are many other options to bring in more money. Consider taking on more overtime when you can, or take on a second job, even if it is just temporarily. It doesn’t have to be something mind numbing, use your talents. If you are an artist or good at crafts sell your work on Etsy, if you are a teacher or can teach anything you can tutor or coach on the side. Pick up some work on sites like Airtasker if you have some spare time or rent out a spare room on Airbnb to bring in some extra cash. You can even get paid good money for walking dogs, talk about winning if you love the outdoors and dogs!

The more you earn the more you have left over after expenses and can inject that straight into your mortgage.

12. Stop lifestyle creep
Do you remember a time when you easily lived off a small wage in your early 20s? With each pay rise you grew accustomed to earning that higher amount in a matter of a few weeks. Before you knew it, it seemed like your pay rise had disappeared and you didn’t have any extra to save or pay onto debt.

Instead of allowing lifestyle creep to happen, give yourself a reasonable amount to spend each month and resist increasing it each year. You’d be surprised how quickly you get used to spending a limited amount once you develop the habit.

The next time you get a raise, instead of absorbing it into your lifestyle and increasing your spending allowance, I want you to take the exact amount or your new raise each pay period and add it to your mortgage repayment. By all means if your bills increase since them update your budget to reflect that but anything left over can go straight to the mortgage. With each year and each pay rise your repayment should continue to grow!

13. Determine if you can afford your mortgage
If your mortgage is more than 25-30% of your after tax salary you are inevitably going to have a limit on how much extra you can add to your mortgage to pay it off earlier. If you’ve tried all of the above tips and still are struggling to make ends meet or are worried about how you will meet future repayments or interest rate rises this might be the time to consider whether you can afford your current home.

If you do the math and realise that you are can’t afford your keep your home, selling it might be a blessing in disguise and a fresh start. You can use any left over cash from your home to pay off your mortgage and potentially other debts you have and rent an affordable place for a year or two. You can then use that time to save up for a house deposit and start again in a couple of years with a much more manageable mortgage.

Being stressed to the eyeballs day in day out to keep your home is no way to live. And in the mean time whilst you save up for a new home, you can work on getting your income up ready to help you tackle a new mortgage in the not too distant future.

This weeks comment question: What are you doing to pay off your mortgage faster? Let me know in the comments below 🙂 

[Photo: Bethany Opler @ Unsplash.com]

If you found value in this post I would be super appreciative if you could share it with others who might also find value in it 🙂

 

 

Budgeting

Why you need to track your Net Worth

Posted on July 1, 2018
Do you Track Your Net Worth? If you don't you are missing out on valuable information on your finances.

About a year ago, I stumbled upon J Money’s blog Budgets Are Sexy, a now favourite finance blogger of mine who openly tracks his Net Worth on his website. I was instantly amazed at how he tracked everything and monitored his families financial progress month to month, year on year.

At the time of discovering his blog I wasn’t tracking my Net Worth and hadn’t really ever given much thought to it. I figured as long as we were ahead on paying off our mortgage and avoiding adding any other debts and had enough to cover our bills each month we were doing okay. And maybe we were, but I’d seen a whole new way of tracking finances and I wanted in!

Of course I knew our rough debt and savings balances and checked our Superannuation balances when we got our bi-annual statement, but I didn’t know month on month how much our Net Worth had increased or decreased.

Since then, May 2017 I have been recording our Net Worth figures each month, and was amazed to see that over that 12 month period our Net Worth had increased by 13%! It has been a huge motivational tool for our finances as we watch our debts slowly decrease and see that Net Worth figure slowly inching up each month.

And the most awesome part of it all is it is not a time consuming process. It takes a whole 10 minutes a month! That’s it! Which is totally worth it to know where you are at financially and how you are tracking towards each of your financial goals!

If you have been considering recording your Net Worth and weren’t sure how to get started, I am writing this post for you! Check out my Beginners Guide To Tracking Your Net Worth!

Why you should track your Net Worth

Before we start any goal we need to work out our why, that is, the reason behind the effort we need to put in. So many of us go to work for forty or more hours, week after week and have no goal or plan for the money we bring home. It just slips through our fingers, somehow every last dollar is spent, often without any idea of where it went. Month after month, there is nothing left over to save or invest for your future. Retirement is something that is put on permanent hiatus until 40 or 50. Which may not seem like a big deal but you are losing a good 2 to 3 decades of growth you will never be able to get near once you leave yourself only a decade to build your wealth. The time to start building wealth for your retirement is now, or as soon as possible.

By tracking your Net Worth your spending habits are right in front of you in black and white on the page. If you spend all your pay check you’re $0 bank balance will make it blatantly obvious that you have nothing to show for your hard work. If you are swimming in debt and your Net Worth seems to be going backwards, not forwards again you will see that you are not building wealth but doing the complete opposite. Until you see the numbers staring you in the face it can be hard to see where you are financially and what your financial goals are. Having your assets and liabilities laid out in front of you can help you identify the need to change your current spending habits and create a more secure financial future. It can help us to start being more intentional with out money and motivate us to make better choices.

Now think about your why and make a list of the top three reasons you want to track your Net Worth.

Some reasons to track your Net Worth could be:

  • To grow your wealth so you can retire comfortably in the future and not be stuck working until you are 70 or older
  • Enable you to keep track of your debt balances so you can work towards paying them off faster
  • Set targets to aim for to help motivate you save and pay down debt

Now that you know your why for tracking your Net Worth we can get started on How to Track Our Net Worth.

 

How to Track Your Net Worth

There’s nothing scary when it comes to tracking your Net Worth and you’ll soon wonder why you weren’t tracking it all along. All you need is a simple accounting rule:

Net Worth = Assets – Liabilites

That is really all you need to know to get started. When we track out Net Worth we simply need to list our assets and liabilities and the difference is our Net Worth. If your Assets are higher than your Net Worth you have a positive Net Worth, if your liabilities are higher than your assets, you have a Negative Net Worth. Now I will go into a little bit about what Assets and Liabilities are and how they differ.

Assets:

Assets are all the things that make you money and that can be sold off for cash. They include things like savings accounts, term deposits, Superannuation or retirement accounts, property, vehicles and stocks or bonds.

Of course you may have other assets like jewellery, art, tools, furniture etc but we are going to ignore those for simplicity as their value isn’t as easily estimated or guaranteed. We just want to focus on the most liquid assets (that’s just accounting speak for assets that are easy to turn into cash!) that we can accurately estimate their current value.

Liabilities:

Liabilities are the things that cost you money and involve you paying money to someone else. These include mortgages, student loans, cars loans, personal loans, credit cards, pay day lenders, after pay, overdrafts or anyone else you owe money to.

What to Include in your Net Worth Calculation:

As described above, we are going to list any Assets and Liabilities at their current balance at the end of each month to calculate our total Net Worth. That is the balance at the 30th or 31st of the month, depending which month you are in.

ASSETS

Here is a list of Assets you might include in your Net Worth Calculation.

CASH

Bank Accounts – List all  your bank accounts and any term deposits at their current balance. This might include your Everyday transaction Account, Emergency Fund, Savings Accounts etc.

PROPERTY

House & Land – List any land or property you own at the current market value. For a more accurate estimate you can contact a real estate agent in your area for a market appraisal or you can do an estimation based on what similar homes in your area are selling for.

Vehicles – Use a car valuation website like Drive and Kelly Blue Book to get the current value of your car. Be sure to review the odometer reading of your vehicle and adjust the valuation if your vehicles odometer reading is higher than the valuation odometer reading range.

I like to be extra cautious and take the lower private sale value of my vehicle and take off a further amount of say $1000 if I know that my car is not in excellent condition. It doesn’t have to be an accurate estimation of course, but you want it to be a reasonable estimate of what you could sell the vehicle at today.

INVESTMENTS

Superannuation/Retirement Accounts – List your Superannuation or Retirement Accounts and your current balances here. 

Stocks & Bonds – Here you will again list the market value of any current stock or bond holdings you have. This is a great way to monitor how they grow over time.

LIABILITIES

Mortgages – List any mortgages on your home, land or investment properties that you have at the current balance of the loan. This will offset the value of your asset to show you what Equity you have (e.g. your current home value less what you still owe on your mortgage).

Credit Cards – List each credit card you own and the end of month balance of each. Your current balance will be listed on your online log in portal or your most recent credit card statement.

Car & Personal Loans – Check you car and personal loan account for the current balance of your loan. Don’t forget to include the vehicle’s current value in the asset section to offset the loan balance to give you your vehicles true Net Worth.

Student Loans – List your current student loan balance/s.

For any Aussies reading this, HELP-DEBT is wonderfully difficult to know what you owe month to month as you only get a statement once a year with your tax return. For our Net Worth calculation we just took the HELP debt balance to be the prior June 1st balance which you can find on your most recent HELP-DEBT statement and just carried that across for the year until we had the new updated statement.

Other Credit: List any other debts you have here. These may include After Pay balances, overdrafts, pay day lenders any money you owe to friends or family or anything else.

For help on how to minimise your debts once and for all check out: How the Debt Snowball Can Get You Debt Free Faster

Once you have all your assets and debts listed you can now calculate your total Net Worth for the month by taking away the Total Assets from the Total Liabilities.

If you want even more simplicity, this Net Worth Worksheet available in my Etsy store will take any work out of preparing your own Net Worth file. Simply enter your relevant categories and figures and the worksheet will do the rest for you!

Don’t forget to set a reminder on your phone calendar or in your planner to do this at the end of every month, or as frequently as you like so you remember to do it and build the habit!

You’ll be just as excited as I was to see how you had progressed in 12 months time. And there is nothing that will help you stay motivated to eliminate debt and grow wealth more than tracking your Net Worth!

This weeks comment questions: Do you track your Net Worth? What made you start tracking it? And do you find it helps you stay motivated with your budget and financial goals? Let me know in the comments!