All parents want their children to have a happy and successful life. But if most of us reflect on what we were taught about financial management by our own mother and father, chances are this desire wasn’t necessarily evident in the lessons learnt.
Many grow up watching money become an increasingly divisive issue within the family dynamic. And few of us are counselled around the basics like…how to purchase your first home or avoid unproductive (and destructive) credit!
While we might be reluctant to share perceived money mistakes with our offspring, it’s important to encourage open and honest dialogue around financial matters so that children learn as much about what to do as what not to do. Why would you want them to make the same mistakes you did?
So to lead off the lesson on buying one’s first home, here are eleven valuable pearls of wisdom you can impart to your little Grasshopper…
- Know the difference between what you want and what you can afford.
This is something children must learn, lest their parents end up completely destitute. Children will indeed take a mile if you give them an inch…it’s their nature.
They don’t spend all of our money maliciously. And they can only do so if we’re handing it out way too freely anyway, without acknowledging its value.
There’s nothing wrong with telling a child, ‘we cannot afford that’, or in this instance, ‘you cannot afford that’. It’s an observation of your financial reality at that moment in time, not a comment on you as a human being.
- Spend your money wisely
Once you acknowledge your financial reality by determining what you can afford, it’s time to draw up a budget and work out how you’ll save the deposit and associated purchasing costs.
Then there are the additional expenses that come with home ownership, including rates, maintenance, building insurance and body corporate fees for apartment purchasers. Account for all of these, along with a cashflow buffer and remember to always…
- Remain in your financial comfort zone
Maintain a financial reserve, just in case your circumstances change and you find yourself experiencing stormier fiscal seas.
Importantly, don’t wander out of your comfort zone into the depths of debt at this stage of your life, because you can be swept out by treacherous tides of money problems before you know it and, well, why would you want to spend your youth in a spiral of financial woes?
- Weigh up all the options.
Buying a home doesn’t have to be the same (generally) ho hum journey taken by your parents and their parents before them. Traditionally, people would live with their folks to save a deposit, then buy their first (very modest) home that became their retirement plan.
Nowadays though, more young people are doing things differently; establishing an investment portfolio with their first property purchase and becoming ‘rentvesters’ as they climb the corporate ladder and enjoy the spoils of youth.
Sometimes it can literally pay to think outside the square.
- Lower your expectations.
You don’t have to have the home of your dreams in the immediate here and now. The home of our dreams is something you aspire to.
Your first property should be the one that sets you up for a life of financial success. So use your head as much as you use your heart with this one. And don’t be so picky!
- We all have to start somewhere
Start with what you need over what you want. Answer the requirements that will make living in your home comfortable and rewarding on every level. Importantly, you want to be able to enjoy your first property buying experience and sleep soundly at night.
Start with what you can afford. It’s much easier to ascend the property ladder than to have to go down it.
- Your home is an investment
I mentioned it before and cannot stress this enough…your first property purchase should be the one that sets you up for life.
- Account for the future, not just the present
Given this is a lifelong investment milestone; it pays to have a handle on the direction you want your life to take before jumping into your first home purchase.
Whether your plans come to fruition, or whether you end up somewhere entirely unanticipated is another matter entirely.
But you should at least have an idea of whether you intend to meet someone and settle down or remain single and travel the world. Logically, where you plan on going down the track will have a bearing on the turns you take right now.
- Strive for potential over perfection
If you’re prepared to purchase something that requires a little TLC, not only do you have the opportunity to make your own personal mark on the property, you can also add value and increase your equity.
It just takes a bit of vision and a willingness to ‘get your hands dirty’. But this is a great strategy for first homebuyers to consider. You’re far better off paying less at point of purchase and having to put in some elbow grease, than paying for someone else’s hard work.
- If you don’t ask, you don’t know.
One of the most valuable lessons you can teach your child is how to become an effective negotiator. This isn’t just a skill that will assist them financially, but in all facets of their life and relationships, because it’s about problem solving and working with others.
- Don’t be afraid to seek help.
First homebuyers (or any purchaser for that matter) are well advised to obtain building and pest inspections from properly qualified professionals and have the property thoroughly checked over by your solicitor for any issues.
You could also consider obtaining an independent valuation or engaging a buyer’s agent for extra peace of mind.
Critically, how you structure and obtain finance for this initial property purchase will have a future bearing on every single credit application you make and commit to, as well as how much lenders will be prepared to offer down the line.
As such, a mortgage broker who understands that your first home is a lifelong financial commitment should be a key player on your team. So when they’re ready to fly the nest, don’t forget to tell your kids about Trilogy Funding!
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).