Well, I think I can tick this month's task off the list. We saw our financial planner the other day to see what he thought about our plans to purchase a property. We have a decent deposit saved (or so I thought!) and I had met with a mortgage broker who outlined our borrowing capacity for an investment property or a home to live in. I was starting to get a bit excited, reading finance and property books from the library, spending way too many hours on real estate websites perusing properties for sale, sold and rent and dreaming about what it would be like to finally join the 'I own property' gang.
So I was a little disappointed when our planner suggested waiting and saving for another 18 months. This would give us a bigger deposit, ensure we don't pay mortgage lender's insurance, and cover all those pesky real estate transaction costs. However, he also made me feel quite proud. He said most people need a mortgage in order to force them to save, but we are such good savers we are better off just saving for a bit longer!
My partner and I have agreed that we will continue renting for the foreseeable future, as we love our house and suburb, and could never afford to purchase a house in the area. So in a few years we'll probably purchase an investment property elsewhere, mostly so that we have something to either move into or sell when we retire (we don't want to pay rent in retirement).
The planner was also impressed with my recent dabble into the share market. I think I'll continue to put a little bit into that as well which will hopefully set us up for the future.
We still have a few things to get sorted planning-wise: we still need to finalise our wills, organise power of attorney, and see someone for an income and death insurance review. I'm going to give us a deadline of the end of next month, and will keep you posted!
Wednesday, August 24, 2016
Wednesday, August 3, 2016
This month's challenge: getting the finances in order and planning
So this month's focus is on getting control of our finances and planning for our future. I'm quite good at putting together a budget and recently exported all our transactions from the 2015/16 financial year (mostly in handy categories from our online banking). Once I sorted last year's data (and was quietly horrified by our grocery spending - see month 1 challenge!) I put it together with this financial year's predictions and now have a lovely 2016/17 spending plan/budget.
Which is all very well, but I need to get my partner on board. We are pretty hopeless at talking about finances, so I'm blocking out an evening for us to discuss the budget/projected spending to ensure that it's realistic. This will help us work out how much money we need to regularly put into the joint account in order to cover expenses. It will also help us work out how much we can realistically save a year. This will in turn help us when we go and see a financial planner later in the month! (Booked in - good on me!)
We have a bit of money saved and are keen to see what the financial planner recommends in terms of future plans. We don't really know what to do - there are so many options! We could potentially buy an investment property, buy a home to live in, or invest in shares or a managed fund.
I recently did a great online course at 10,000 girl called the 'Online money makeover'. The course taught me the importance of planning for the future, and also for looking at all the options in terms of investing. It demystified the share market for me and I would highly recommend it. I even set up an online broker account with my bank and bought some shares!
So my partner and I need to figure out our priorities. I'm really torn between staying in our fabulous (and very cheap) rental property, and the urge that I have to own our own home. Buying a home to live in would mean moving suburbs (we currently live in Northcote in inner Melbourne, which has crazy property prices) and all things associated with moving: losing our network of friends at school/kinder/playgroup/sporting activities, moving further away from work (my partner currently rides to work and the public transport options here are also fabulous), losing our fabulous neighbours (who are now good friends), and losing our ability to save money/adding financial stress to our lives.
Anyway, each time I try to book in our budget/planning evening, we're derailed by illness or tiredness. So hopefully next week!
Which is all very well, but I need to get my partner on board. We are pretty hopeless at talking about finances, so I'm blocking out an evening for us to discuss the budget/projected spending to ensure that it's realistic. This will help us work out how much money we need to regularly put into the joint account in order to cover expenses. It will also help us work out how much we can realistically save a year. This will in turn help us when we go and see a financial planner later in the month! (Booked in - good on me!)
We have a bit of money saved and are keen to see what the financial planner recommends in terms of future plans. We don't really know what to do - there are so many options! We could potentially buy an investment property, buy a home to live in, or invest in shares or a managed fund.
I recently did a great online course at 10,000 girl called the 'Online money makeover'. The course taught me the importance of planning for the future, and also for looking at all the options in terms of investing. It demystified the share market for me and I would highly recommend it. I even set up an online broker account with my bank and bought some shares!
So my partner and I need to figure out our priorities. I'm really torn between staying in our fabulous (and very cheap) rental property, and the urge that I have to own our own home. Buying a home to live in would mean moving suburbs (we currently live in Northcote in inner Melbourne, which has crazy property prices) and all things associated with moving: losing our network of friends at school/kinder/playgroup/sporting activities, moving further away from work (my partner currently rides to work and the public transport options here are also fabulous), losing our fabulous neighbours (who are now good friends), and losing our ability to save money/adding financial stress to our lives.
Anyway, each time I try to book in our budget/planning evening, we're derailed by illness or tiredness. So hopefully next week!
Not so frugal after all...
Today I met with a mortgage broker, and the most surprising thing he told me was not that we couldn't afford a house within 10km of our current rental (no surprises there) but that our monthly expenses (excluding rent) were above average. Here I was thinking that we were super frugal, but apparently not!
According to the mortgage broker, the average expenses for a 2 adult, 3 child family is $3,600 month (excluding mortgage/rent). This data comes from HEM - the Household Expenditure Measurement Index, which is quarterly survey conducted by the Melbourne Institute of Applied Economic and Social Research at the University of Melbourne. The HEM is used when estimating expenses when applying for home loans in Australia.
Now, finding information about the HEM online is a bit tricky. To get details and updates it seems you need to subscribe to the official reports. However, I found this table which has the average figures valid from July 2015. This other Living Expenses Calculator is also helpful and based on the HEM; it calls the HEM average a 'basic' lifestyle, while if you say you live a 'moderate' lifestyle it estimates $4900 a month in expenses. Which is well above what we spend - and it made me feel a lot better. Our monthly average expense is closer to $3900 (excluding rent), which is about $300 a month above the 'average' Australian expenditure.
Now all this talk about average spending got me thinking about lifestyle. Some people live extremely frugal lives. I used to be a member of several savings forums (Simple Savings and Cheapskates as well as various savings-focused Facebook groups) and was often shamed by my usually pathetic attempts to save - particularly given the ample income I was earning at the time. Some people survive on below the minimum wage and would never consider buying cafe coffee. I feel proud when I only buy a latte every few days. It's all about priorities for me, while some people don't have a choice.
Then there is the other extreme; lots of people I know buy one or two coffees a day, often get takeaway and buy their lunch, go out for fancy dinners, fly interstate/overseas on holidays, go skiing, regularly buy expensive clothes, household items, technology etc. A lot of these people earn a lot of money but many also have lots of credit card debt and a stressful mortgage!
Keeping up with the Jones's can make life stressful, as can not keeping up! I often find myself saying no to things due to the expense factor. People don't need to know why I'm saying no, although I do often tell them! But it can be a little embarrassing saying no to things.
The perfect example was a surprise weekend in Sydney for my friend's 40th. Her mum organised it and her husband even offered to buy my airfare, but I knew it would be an expensive weekend even so, with the shopping, cocktails and fancy meals that my friend is fond of. So I politely declined. My other friend who went reckons she spent $400 on top of the airfare! A lucky escape for me...
Less extravagant examples of ingrained 'pressure' to spend would be meeting friends for dinner or drinks. I sometimes suggest meeting at someone's house instead if I'm trying not to spend, or just going for a drink rather than dinner. But as it's only a small amount of money I think it's difficult for others to see the problem. We are not poor and yes, we can afford it, but I want to save our money so that we can eventually afford to buy a home.
Sometimes I even feel the pressure to spend on small things like activities for the children. One of my good friend loves taking her kids to play centres, the cost of which quickly adds up with 3 kids and a coffee! So now I limit the pricier activities to one per school holidays. And my son wants to do martial arts lessons with his mates, but at $40 a week (!) I've had to say no. I was astounded when all the other mums at school were talking about signing their kids up. This is probably why I didn't get much moral support when I complained to the Principal about the high cost of the school concert tickets...
So I'm tipping that the majority of my friends and the families living in my fairly affluent area spend well above the Australian average on expenses. It does make it quite difficult to reign in the spending when you are surrounded by people who spend a lot and possibly don't question their spending.
It helps to get my savings inspiration elsewhere, and I've been inspired recently by a blog about extreme frugality and early retirement (but with a quality of life focus) called Mr Money Mustache. Even if you don't want to be as frugal as him, he is seriously inspiring. Have a read!
According to the mortgage broker, the average expenses for a 2 adult, 3 child family is $3,600 month (excluding mortgage/rent). This data comes from HEM - the Household Expenditure Measurement Index, which is quarterly survey conducted by the Melbourne Institute of Applied Economic and Social Research at the University of Melbourne. The HEM is used when estimating expenses when applying for home loans in Australia.
Now, finding information about the HEM online is a bit tricky. To get details and updates it seems you need to subscribe to the official reports. However, I found this table which has the average figures valid from July 2015. This other Living Expenses Calculator is also helpful and based on the HEM; it calls the HEM average a 'basic' lifestyle, while if you say you live a 'moderate' lifestyle it estimates $4900 a month in expenses. Which is well above what we spend - and it made me feel a lot better. Our monthly average expense is closer to $3900 (excluding rent), which is about $300 a month above the 'average' Australian expenditure.
Now all this talk about average spending got me thinking about lifestyle. Some people live extremely frugal lives. I used to be a member of several savings forums (Simple Savings and Cheapskates as well as various savings-focused Facebook groups) and was often shamed by my usually pathetic attempts to save - particularly given the ample income I was earning at the time. Some people survive on below the minimum wage and would never consider buying cafe coffee. I feel proud when I only buy a latte every few days. It's all about priorities for me, while some people don't have a choice.
Then there is the other extreme; lots of people I know buy one or two coffees a day, often get takeaway and buy their lunch, go out for fancy dinners, fly interstate/overseas on holidays, go skiing, regularly buy expensive clothes, household items, technology etc. A lot of these people earn a lot of money but many also have lots of credit card debt and a stressful mortgage!
Keeping up with the Jones's can make life stressful, as can not keeping up! I often find myself saying no to things due to the expense factor. People don't need to know why I'm saying no, although I do often tell them! But it can be a little embarrassing saying no to things.
The perfect example was a surprise weekend in Sydney for my friend's 40th. Her mum organised it and her husband even offered to buy my airfare, but I knew it would be an expensive weekend even so, with the shopping, cocktails and fancy meals that my friend is fond of. So I politely declined. My other friend who went reckons she spent $400 on top of the airfare! A lucky escape for me...
Less extravagant examples of ingrained 'pressure' to spend would be meeting friends for dinner or drinks. I sometimes suggest meeting at someone's house instead if I'm trying not to spend, or just going for a drink rather than dinner. But as it's only a small amount of money I think it's difficult for others to see the problem. We are not poor and yes, we can afford it, but I want to save our money so that we can eventually afford to buy a home.
Sometimes I even feel the pressure to spend on small things like activities for the children. One of my good friend loves taking her kids to play centres, the cost of which quickly adds up with 3 kids and a coffee! So now I limit the pricier activities to one per school holidays. And my son wants to do martial arts lessons with his mates, but at $40 a week (!) I've had to say no. I was astounded when all the other mums at school were talking about signing their kids up. This is probably why I didn't get much moral support when I complained to the Principal about the high cost of the school concert tickets...
So I'm tipping that the majority of my friends and the families living in my fairly affluent area spend well above the Australian average on expenses. It does make it quite difficult to reign in the spending when you are surrounded by people who spend a lot and possibly don't question their spending.
It helps to get my savings inspiration elsewhere, and I've been inspired recently by a blog about extreme frugality and early retirement (but with a quality of life focus) called Mr Money Mustache. Even if you don't want to be as frugal as him, he is seriously inspiring. Have a read!
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