Why Have a Budget?
Most people don't realise just how much they spend. It's really easy to blow a few hundred dollars on a night out; dinner, drinks, cigarettes. Even buying a couple of cups of coffee per day and lunch can add up quickly without you really knowing.
We all enjoy some of these things, so a budget is not about never doing these things, but rather it's about allocating an amount we can actually afford to spend on them while still staying within our budget.
A budget is just a plan to get you where you want to go
For many people their plan is to buy a family home, for other it might be to travel or to support family overseas.
On an average income you can't do it all at once. People come to us thinking they would like to buy a home but due to their debts they are not in a position to save for a deposit or pay off a home loan. Having to clear built up debt may put them 10 years behind being able to buy a home.
If you are serious about saving to buy your own home you need to have a budget
Let's run some numbers to see how budgeting for a home loan works
For our example we'll look at purchasing a property worth $700,000. You are going to need a deposit and legal fees which would be around $70,000. The loan repayments, water rates and home maintenance are going to be around $850 per week (based on 2017 interest rates)
If you are currently paying $450 per week rent, that means your costs are going to be $400 per week more.
So let's do your budget so that you put that extra $400 per week into savings. If you cannot live on what's left of your pay for 3 or 4 years, as you save, then you cannot afford to make the payments on a home loan. But! If you can, you will have your deposit together in under 4 years and will have demonstrated your ability to live with a home loan.
This is the exact thing a bank will look at when assessing your eligibility for a home loan
Have you demonstrated the ability to do this? They call this genuine savings.
If a couple has a good credit rating and no other debt, they would need a combined income of around $110,000 to do this relatively comfortably.
When you do your budget in Money Buckets, add your rent, surplus and other loan payments together to see what you have available to make a home loan payment, if you had no other debts.
We break your budget into weekly, fortnightly, or monthly spending money and regular bill money so that you get an idea what you can actually spend. Try and work the budget plan the same as your pay cycle so you can allocate it every pay day..
If you start out too tight and find it's not liveable you can always go back to your budget on this website and adjust it.
But if you are using real numbers and there is not enough money, something must change in what you are doing or the debts and interest will just keep building up until everything eventually falls over.
If you find yourself in this situation, or you are already in this situation you can always call Fast Debt Help on 1800 852 010 for your options.
If you find yourself in a surplus position and would like to talk about a home loan, call 1800 852 010 and ask for Starlight Home Loans
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