As we bid a fond farewell to 2021, it’s time to consider how to start 2022 on the right financial foot.
For everyone, 2021 has been a rough year, and our finances have taken a hit as a result. If one of your New Year’s resolutions is to buy a house, getting your finances in order should be at the top of your list.
Here are four simple and easy money resolutions to cross off your list this year:
1. Pay off your credit card debt first
When you have credit card debt burning a hole in your pocket, saving for a house deposit and getting into a healthy financial situation becomes much more difficult.
If you have multiple credit card bills, start with the one with the highest interest rate and pay it off first, or consider a balance transfer (transferring multiple credit card debts onto one card with a 0 percent rate for a set period of time). Because many credit card lenders set the minimum repayment at 2-3 percent of the debt, you’re really only paying off the interest and barely making a difference in the balance you owe, you should try to make more than the minimal minimum repayments.
If you already have some savings, it might be advisable to bite the bullet and use it to pay off your credit card debt.
2. Reduce your wasteful spending
When you have a savings goal as lofty as a house deposit, you’ll have to make some lifestyle sacrifices, such as giving up your habit of ordering Uber Eats when you don’t feel like cooking, or buying a new dress every time you have an event.
Another way to save money is to look into your normal expenses, such as phone and internet, to see if you can get a better deal and save money. Unfortunately, sticking with a provider doesn’t guarantee you’ll get a good deal. In fact, you’ll discover that new clients are drawn in by steep discounts, while old customers pay more. This is also known as a ‘loyalty tax.’
3. Boost your savings
Having a larger deposit (preferably 20%) means you may be able to avoid paying Lenders Mortgage Insurance (LMI), which protects the lender rather than you in the event you are unable to make your mortgage payments.
You can avoid having to pay this entirely if you have a 20% deposit saved. It appears to be a no-brainer, right? To save as much money as possible, put the money you would have spent on Uber Eats or online shopping into savings, consider selling items you no longer need or use, start a side business like Airtasker or driving for Uber, save your tax refund instead of spending it – the possibilities are unlimited.
4. Increase your borrowing capacity
Based on your present financial situation, your borrowing power is the amount of money you can borrow to buy a property (like your income and living expenses).
Having Afterpay debt, for example, can have an impact on your borrowing ability. Because it’s a line of credit, much like credit card or personal loan debt, all those purchases you put on buy now, pay later could really impair your chances of securing a home loan.
Reduce your credit card limits, minimise unnecessary costs, save more for a deposit, have a strong credit history, and incorporate other incomes as additional strategies to enhance your borrowing capacity.
A borrowing power calculator can help you figure out how much you can borrow if you don’t know what your borrowing power is. Keep in mind that it’s merely an estimate, so don’t take it too seriously.
Get in touch with one of our Homestar home loan experts for a more precise figure!
Disclaimer: This article is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered Australian legal practitioner or financial or investment advisor.