Let's not sugarcoat it; budgeting is not fun!
In fact it was Mason Cooley, who was once known for his aphorisms, that said, "a budget takes the fun out of money."
While we can agree that budgeting isn't the most desirable task, it's something we have to do at some point to achieve a financial goal. In saying that, different financial goals require different budgeting techniques. For this article, REIF's Finance Specialists put their heads together to create our top five budgeting hacks for first home buyers.
Hack Number One
Hack Number One pretty much goes without saying. Once determined, it will set the foundations for the following hacks to take place. To establish a budget you will first need to determine your income versus expenses.
Yep, that's right. Your money coming in and your money going out. To determine your expenses, you'll need to refer to the essential items that you pay for to support your living. Examples include bills, debts, groceries, medications and basically anything imperative to supporting your living.
Once you've subtracted your expenses from your income, you should be left with a remaining figure. That figure can be put towards whatever it is that you're budgeting for. In this instance, the deposit required when buying a house. In saying that, it's important to put aside a small proportion of that for a 'rainy day,' and the occasional luxury item.
Hack Number Two
The 'rainy day' funds we discussed above is something that we like to call a wart chest. That is a set allocation of savings put aside for if the unforeseeable should occur.
We'd recommend allocating at least 5% of your earnings into a separate savings account. This war chest can give you peace of mind and ensure that your finances are not strained during testing times.
A war chest should be comprised of at least six months savings. To learn more about how you can establish a war chest, check out this article that we wrote earlier this year.
Hack Number Three
The next hack we recommend for first home buyers is to understand your needs versus wants. These are often referred to as you necessities and luxury items. Following Hack Number One, your necessity items are essential items that need to be paid for out of your income to support your living.
Once you start to determine how much of your income goes towards the necessity items, you need to work out where you can cut back on luxury items. Examples of luxury items include takeout, alcohol, shoes etc. The more that you can cut back spending on luxury items and invest that money into saving for a deposit, the sooner that you can manifest your first home ownership dreams into a reality.
Hack Number Four
Next, you should set yourself some realistic goals. By now you should have determined how much you need to fund as a deposit and have a rough idea on what your home loan repayments could look like.
As we've mentioned in a few of our previous blogs, it's best to use the SMART goal formula for financial related goals. That's because it allows you to measure where you are and where you need to be. To see how you can apply the SMART goal formula, click this link.
An example of a SMART goal in relation to buying your first home is outlined in the example below. As you can see it fulfils the criteria of being specific, measurable, achievable, realistic and time sensitive.
In order to save $20,000 as a deposit for a first home, I will need to save $257 from my income each week into a separate savings account for next 18 months.
Hack Number Five
The final budgeting hack to buying your first home is strategize and review your goals. Now that the foundations have been laid, all that's left to do is get pen to paper and strategize how you're going to achieve them.
An easy way to measure and pursue your game plan is to create a schedule and regularly track your progress. Your game plan should round up your income, expenses, savings and goals all in one. All the parts that make up your budget. It should be comprised of phases that you tick off as you go.
Happy To Help
To see how you can get into your first home sooner, feel free to consult with our specialist team of finance and property experts. The team at REIF are always happy to help and support you through the journey of home ownership and beyond. To learn more, check out our free eBook below. Alternatively, to chat to a specialist reach out on the details listed.
Ph: 1300 130 932
Email: clientservices@reif.com.au
We explore this topic on our eBook 'Guide To Buying Your First Home.' You can check it out here for free!
