Tips for Preparing A Budget To Buy A Property

Intro­duc­tion

  • Ima­gine buy­ing a house without pre­par­ing a budget?
  • Under­stand­ing your own fin­an­cial pos­i­tion is crit­ical when plan­ning such a large cap­ital outlay.
  • Your fin­an­cial pos­i­tion is unique, so you need to take time in pre­par­ing a budget.
  • This will give you a true pic­ture of your fin­ance situation.
  • Don’t rely on estim­ates from Bankers or Brokers, make sure you have all your fig­ures at hand when required

Where to Start

Firstly, your Budget needs to show income and expendit­ure for each month sep­ar­ately. This will allow you to plan for sur­pluses and defi­cits along the way.

http://realestatesevenhillsnews.com.au/wp-content/uploads/2014/10/Budget-needs-to-show-income-and-expenditure-for-each-month-separately.png

Secondly, the budget you use needs to be either down­loaded to your hard drive or placed on a USB. This will allow for easy updates at any time. ( Note: Most budget plan­ners avail­able from Fin­an­cial Insti­tu­tion web sites can­not be down­loaded, so every time you start to use them you need to re enter all your data. )

Thirdly, from your hard drive your budget is avail­able at any time and can be used in the future for other plan­ning needs.

Tips for Preparing a Budget piggy bank

Tips on Budgeting

Lis­ted below are some guidelines to assist with shrewd budgeting:-

  • Com­pil­ing of Data – This needs to be a com­plete list of all income and expendit­ure for the last 12 months. Most of this inform­a­tion can be taken from credit cards, store cards and bank statements.
  • List all Expenses – Most expenses will be lis­ted on the above state­ments, but you will have to con­sider all cash related expenses also. On the sur­face this may not appear to be much but con­sider 10 cof­fees a week is $30 or $1,500 a year. All such items can add up. Don’t for­get birth­days, Christ­mas and holidays.
  • Credit Cards – When credit cards are used for pur­chases, list the items pur­chased in your expendit­ure. Do not include the pay­ment of your credit card as an expense as the items will be included twice.

The only time credit card pay­ments should be included is when you are pay­ing down more than the pur­chase amount for that month. Then only include the extra.

  • Credit Card Lim­its – When an applic­a­tion for fin­ance is assessed, the value of your credit and store card lim­its are taken into account even if the lim­its are not used. The pre­sump­tion is that unused lim­its could be used after the home is pur­chased and in turn adding to your repay­ments. Also unused lim­its can reduce your bor­row­ing capa­city. Every $10,000 of credit limit you have will lower your bor­row­ing power by about $35,000. This will vary from Insti­tu­tion to Institution.

Action required

            Check all credit card lim­its and reduce unne­ces­sary debt. This is espe­cially so if your

bor­row­ing limit is equal to or less than required.

  • Future Fin­an­cial Changes – Future changes to your cir­cum­stances could affect your cash flow. Try and build any of these known changes into your budget so you know that future changes could be met. Some examples would be:-
    1. Edu­ca­tion costs increase as chil­dren get older
    2. Pro­posed alter­a­tions or addi­tions to your new home.
    3. Increase in fam­ily members
  • Build in a Rate Cush­ion – To ensure that you can absorb interest rate increases in the future, when doing your budget­ing use an interest rate of 2% above the cur­rent vari­able rate.

       If pos­sible use the higher rate as your repay­ment fig­ure so that a fin­an­cial buf­fer can

be built up in the loan a/c.

  • What if you have sur­plus funds – Sur­plus funds placed in a Bank a/c will earn little interest, and the interest is tax­able. Look at set­ting up a redraw facil­ity on your home loan. This will achieve the following:-
    1. Sur­plus funds are off­set against your loan a/c. This reduces the loan a/c value and thus reduces the interest charged.
    2. At the same time the Limit on the a/c is not reduced, so in fact a credit is being built up inside the loan a/c.
    3. This credit (The dif­fer­ence between the a/c limit and the a/c bal­ance ) can be with­drawn at any­time.  Note: Depend­ing on the type of a/c, some banks will charge a fee for with­draw­als. Check this out first.
    4. These credit funds can be used at your dis­cre­tion, but here are some tips:-
  • Use for emer­gency situations
  • A good way to save for a long term goal like a hol­i­day. Place the sav­ings in the loan a/c and with­draw when required. This will reduce interest charged on the loan a/c.
  • If sur­plus funds are not required long term and left in the loan a/c, the loan will be repaid earlier than required. This will save on interest paid.
  • Ded­ic­ated Bank A/c – After com­plet­ing your budget you should be able to cal­cu­late what the aver­age monthly expendit­ure is. Place this amount in a sep­ar­ate bank account and only use these funds for the items included in your budget. This should ensure you don’t get off track.

keeping the house budget aflot

I admit it. This pro­cess requires some self dis­cip­line, but hav­ing con­trol of your fin­ances is the first step to a suc­cess­ful outcome.

  • Will our qual­ity of life change?

Now is the time to con­sider the fol­low­ing points in rela­tion to your pro­posed fin­an­cial situation:-

    1. Will your new repay­ments affect your cur­rent qual­ity of life?
    1. Could you increase your qual­ity of life by redu­cing the cap­ital cost of the prop­erty? ( This does not mean tak­ing short cuts but spend­ing less on the property )
    1. How would you be affected if some of your planned income ceased? Reduce the income stream in your Budget and see the affects

Budget­ing is an integ­ral part of the pre­par­a­tion pro­cess for buy­ing a home. As stated earlier, your fin­an­cial situ­ation is unique so the bet­ter you under­stand it, the bet­ter the res­ults when buy­ing a property.

About 

Hav­ing spent 23 years in the Fin­an­cial Plan­ning Industry, Geof­frey was
look­ing for­ward to retire­ment. It was then that some friends asked him
how they should go about buy­ing a house.
This star­ted 3 years of research into all aspects of plan­ning and pre­par­a­tion when buy­ing real estate from an out­siders point of view.
All the research, hints & tips, ebooks and soft­ware pro­grams developed from this research are now avail­able at www.hobig.com.au
Con­tact Geof­frey dir­ect on 0448 843 214
or E: geoff@contentssecure.com
Home Buy­ers Inform­a­tion Guide

seven hills real estate agent NSW
Cnr Federal Road Prospect Highway Seven Hills NSW 2147 Australia