Maybe it’s time to let go?
Maybe it’s time to let go?
This article from Deborah is included in our Reinvention is the new Retirement eBook. Download the full eBook for free here.
Many people can no longer afford property in Australia but as Deborah Kent writes, it may be time to start thinking about becoming an investor instead. It’s never too early to start.
Is owning property in Australia still the “holy grail” that it used be? Are you somehow going to feel empowered by putting that key into your own front door, or painting your room black just for the heck of it like they did on The Block? Homeownership is such an emotional issue, we have all heard our family and friends say: “you need to get into the property market, renting is dead money”.
As a young newlywed many years ago, I felt this same pressure just as others feel it today. You may say houses were cheaper then, and that’s true, but we had our own challenges and drawbacks with only a third of women’s wages being considered and mortgage rates at 17 per cent; a long way from the average mortgage rate today of 3.7 per cent. Did we suffer mortgage stress? The answer is “Yes!” Fish Fingers were our staple diet and I always went to the supermarket with a calculator to ensure I was not embarrassed if I did not have enough money to pay for the food bill.
So why then do I say maybe it’s time to let go?
We have recently seen an unprecedented rise in property prices, effectively pushing first home buyers out of the market. In a recent article which drew on analysis from Rate City, it pointed out that you would need to earn $190,000 per year to stay out of mortgage stress to live in Sydney. This doesn’t account for the 20 per cent deposit needed to get into your first home, which based on Sydney’s median house prices would be around $220,000. All of this would leave you potentially with $800,000 plus in debt. The report also highlighted that one in six borrowers are currently facing mortgage stress and this is predicted to get worse.
For first home buyers this is scary stuff!
Perhaps it’s time to change the conversation to “How do I build wealth? And maybe get into a property one day?”
Here are some tips that I think you should consider:
1. Don’t be afraid to rent. You can usually rent in an area that you would not be able to afford, which is great; however, you need to think about what you do with your disposable income. It’s way too easy to spend money these days on eating out, entertaining with friends, shopping online and taking holidays that can be “paid off” by pressing a button on your smartphone.
2. Do a budget. I know you have heard this before but it works. It’s truly the foundation to saving for your goals. There are many apps now which assist with your budget and help you stay on track by looking at your average spending. Take the example of two takeaway coffees every day; this adds up to $1456 per annum. Consider taking your lunch, the average spend on lunch per day can be $9.50 which again adds up to $2,470 per annum, you could immediately be saving close to $4,000 per year with these simple steps!
3. Think about what is “nice to have” versus “need to have” when you next enter a technology store to look at that Apple watch! You can also apply this to your Foxtel subscription, or that exotic holiday that just popped up on your Facebook page that, hey, you can pay off!
4. One of my clients used to put her credit card in the freezer. You might be thinking right now “that’s crazy”, however this method served her well, it made her hit the pause button and consider the purchase and in a lot of cases she did not go through with defrosting her credit card. Find what road block works for you to make you reconsider your spending.
5. Stress test what you can borrow. Once you have researched what that amount is, look at what the repayments are? Together with your rent you need to save what you would be paying on a mortgage in today’s rates and then look at how much that same repayment would cost you if interest rates went up to say 7 per cent. Factor in other costs such as water, land rates and maintenance. If you can’t save the equivalent of your mortgage repayments and the cost of maintaining the home then you cannot afford to buy.
6. Don’t forget your superannuation. Most young Australians do not pay any attention to their super, yet it will be the biggest asset you own. You have 9.5 per cent currently being put away by your employer, look at some salary sacrifice to assist for the long-term. Make sure your super is invested in the right long-term option for you.
7. While interest rates are low consider other ways to invest, such as shares. There are many options that are simple to get you into the market and on the way to accumulating wealth.
8. Lastly don’t rely on your parents’ inheritance for your future. It just may not be around, we are all living longer and our parents will need their capital to provide for their lifestyle needs.
The conversation is changing, it’s time to take control of your own life! Change your thinking and ditch the online shopping app and download the savings app; you will be empowering yourself to build your own wealth.
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