So Sick of Debt

Well, it’s been a big week. I’ve felt unable to post because so many decisions are being made for us at the moment. The end of uni for the year has brought with it a bit of breathing space and time to think. It has also brought a lot more questions about our short and medium-term future.

The next year, my final at university, will bring some changes. Of all things, there should be less stress than there was this year because we have no exams. At the same time though, I need to make sure I am ready to practice medicine the year after, so this is the time to be sure I know what I’m doing.

Financially, I may be able to work a little more regularly. Though I theoretically worked once a week this year, I often missed work because of uni-related issues. This festive season I am working extra shifts in the lead-up to Christmas, and this will probably help us pay for Christmas. Even though we do save in advance for Christmas through our bill-paying account, this year it has been a bit depleted by extra expenses and with only a few weeks to go, there is only $550 in there. Considering both our cars need servicing almost immediately , this money will probably go on that alone. I am confident I can cover the rest of Christmas with additional income.

That leaves an interesting New Year situation.

My priorities will be:
1) Replenish the EF to boost it from $650 to $1000

2) Save throughout the year for a home deposit

3) Pay $130 a week towards car repayments (1.5 times the actual repayment)

4) Any extra income to go on car repayments.

On this basis, we will have saved a decent deposit by this time next year. The thought of holding out on buying a home is very upsetting, but I realise we just can’t afford it. We would be in such a precarious position and it isn’t worth it until I go full-time. We would have no life and no reserves. This way, we can plan ahead and ensure we can pay for all the added extras that go with home ownership (insurances, etc).

I am also focusing a little more at the moment on ways to save money week to week. We are buying a lot of vegies that aren’t getting used, so I need to plan how we can shop for veggies more regularly. We also buy a fair bit of takeaway food, and this has to stop (as much for our waistlines as anything else). I will consider how this will work and implement some strategies after Christmas.

Our home deposit account got a little boost yesterday because my husband got his tax return cheque. In the end we agreed that we would use at least half of it to `live a little’ since we are on a very tight budget usually. By `live a little’, I mean he decided to take his boat out for the day (rare), get a little bit of extra fishing equipment (a couple of lures) and, most importantly, buy another pair of shoes and some durable casual and work clothing. He has been doing it perhaps even tougher than me, as I at least tend to plan out things I want to buy. Meanwhile he is never too sure what I’m doing with the money in the bank and is hesitant to make any purchases without telling me. Of course, he could always get more involved in our finances but it is not something he’s really into. I probably also like the fact that he lets me do things my way. Amazingly he got a real surprise when I showed him the balance of our home deposit account. He tended to think we were living on the edge because there’s always so little in his everyday account whenever he checks the balance! I think he is quite inspired now about what we could do in the future, and it’s nice to be in tune with each other about that.

Anyway, until the money is properly allotted, I decided to at least grab $180 of it to take our home deposit saving over the magic $1000 mark (he agreed it was a good idea). This is a happy medium for me, as I need to see some rapid change in this regard (give my deperation to change our home situation. And its good too because I agree he needs to dress relatively well now (and I’m glad to have a husband who wants to look good where and when we can afford it!). Then, if there’s any money left once he buys his clothes, well stick that in the home deposit account too, or pay a little extra off the credit card.

Since I’ve been very focused on buying a home lately, I thought I’d share with you the rough finances of buying a home in my area (this does not include ongoing costs of being a home owner). I’m also going to cover some of the expenses we will need to be able to cover.

A cheap home in our area will sell for around $300,000. Hopefully for that we will get some airconditioning in the bedrooms and in the living area (this is not really negotiable in our tropical climate). We also want at least 3 bedrooms, plus something that will pass as a study (a nook?, a room?).  It would also be great to have a decent yard, and we think a fence is non-negotiable because we have a small child. We also would like an outdoor/patio area (or an area that can become a patio) to take advantage of our climate. We also need the home to be near hubby’s work and the hospital for my studies/future work. On a loan of $285,000, repayments will be about $420-$430 a week at current interest rates.

Here is the fee/cost breakdown as I see it:
Home: $300,000

5% deposit: $15,000

Stamp duty on sale: $0 (first home owners)

Loan application fee: $700

Mortgage insurance (to protect lender because we won’t have a 20% deposit): $4000

Other fees: $500

Conveyancing (checks on current ownership etc): $500

Building check/pest inspection: ? (haven’t researched this yet)

Rates (property taxes): $1000 (half-yearly figure; ready in advance)

Moving truck hire: $500

As well as these we need to consider the expenses of moving in:

Fridge (secondhand): $500

Washing machine (secondhand): $500

Couch/sofa (secondhand): $500-800

Minor furnishings: $500

Contingency: $500

So that’s $25,000 before we even get the pre-sale inspections done! That said, some of these latter items I might be able to get cheaper or through family. We don’t have some of these household items because we have been living with my father-in-law for 18 months, and we sold a lot of our electrical items rather than have them sit around for 2 years or more. Of course, we never thought about keeping that money for when we needed it again!

I don’t know how we’re going to wait long enough to get $25,000 in the bank, but I guess we can do it. As I’ve said before, we are using the $7000 first home owners grant to pay off our family debt - so we can’t use that to pay our costs of buying. We also expect to get some lump sums in the near future to pay off the credit card, so we will only have our car loan left to pay off once we start repaying a mortgage … whenever that might be! I am realistic too that we will probably run out of patience living here long before we get that much saved (don’t know what the answer to that is exactly), but if we save in advance for these expenses we will be able to buy a home in a reasonably financially responsible way.

Well, I was going quite well yesterday, feeling I could wait out this `save for a deposit’ thing quite nicely. That was until I picked up the newspaper this morning to see the screaming page one headline: `Dizzying heights’. The report was saying how homes in my area had increased in value up to 41% (average 21%) in the past year, and that home prices were expected to increase at similar rates over the next 6 months. AAARGGH! Why didn’t I get serious about debt reduction a little sooner?

I am going to avoid newspapers for a while.

On the upside … oh who am I kidding there isn’t an upside really. There’s only a `get on with it’ side. We will keep plugging away on our savings and try to cope with the multigenerational situation we’re in. Don’t get me wrong, we are really lucky to be able to save while we live here with hubby’s dad. And of course, I’m sure there’s stuff my father-in-law hates about us being here (we moved in initially to care for him because he has bad knees and is developing age-related dementia). But generally speaking, I think he loves us being here, while we often feel the frantic need for some privacy. The reality is though, there are tradeoffs in every situation and this is ours.

I just maybe need to set debt repayment and saving on autopilot and try to move on with preparation for exams. The reality is that even if we found a place tomorrow, we would need to put so much time and effort into the move that I probably would put myself at risk of failing at uni. So, I will take a breath, try not to think about rising property prices and focus on the things I can do something about!

I don’t mean for the title of this post to sound flippant but I really do feel inspired one minute and flat the next when it comes to our finances. All day I’ve felt up and down about our plans to buy a house and how we can stay in our current situation long enough to save the necessary funds to do it. I’ve looked at homes online, checked our bank account and checked my budget from front to back to look at how we could move early. But it just isn’t possible … apart from the cost of buying (mortgage duty, stamp duty, lenders insurance) there’s the cost of moving the gear, the need for a fridge and washing machine (ours are entrenched here in this household we share with hubby’s dad now) and I also want to have the first six months’ rates ready before the move.  And even though we will be eligible for the $7000 First Home Owners Grant, we plan to use that to repay a no-interest debt that we owe to a family member. So if we want to offer a $15,000 deposit, we will probably need another $10-15,000 for duties, costs of moving and to buy a few extras we definitely won’t be able to afford until I start working full-time (eg a couch!).

The end result is, we ain’t moving yet, even though I am really over our current living situation. However, I decided to finish our taxes and when I did, I found that we were due at least another $600 from what we were expecting. Great news!  Suddenly I’m on cloud 9 …

Here’s the thing: I can’t stand to stay here longer than another year, so we want to save our 5% deposit plus the cost of fees/moving in 1 year. That’s $30,000 folks, and I’m not going to pretend I think it will be easy. In fact, everything is telling me it can’t be done. But I am just going to hope it can and will it to happen. Let me tell you how I’ve worked it out. When you divide the year into quarters, we have to come up with $7500 every three months. We can save $420 a week on our tight-squeeze budget (that’s over a third of our income but our budget is pretty tight these days) and over 13 weeks that adds up to $5460. So that means we’re still $2040 off the mark each quarter. I know … it doesn’t look promising.

However, I intend to try to find ways to make that $2040 each quarter - whether by selling stuff I don’t use, making more money or taking advantage of lump sums we receive. If you divide $2040 into 13 weeks, the amount needed is $156 a week, which is a huge amount … enough to make you want a cup of tea and a good lie down! But this is how I am thinking about it: I have three items I don’t use that I can sell on eBay for a minimum of $250 each (a good price). That’s $750 - that’s 5 weeks covered. Also, I just did our taxes and I realised that we have an extra $600 coming back that I wasn’t expecting - that’s another 4 weeks’ worth. So now I only have to come up with 4 weeks’ worth of `extra money’ for this quarter and I will be on target!!! 

Now don’t get me wrong, I’m not silly enough to think that in every quarter I will have luck like this. Defintely October -December will be devoted to passing my exams, not making extra money. But this example shows that there is often money around that you don’t think or now about in advance …

I have also realised that around the time we aim to buy, another financial year will have passed and we will be entitled to another set of tax returns ($2000 back in total  if I’m conservative?). We will also be likely to receive about $1000 in welfare that the Australian Government holds back from every family in case they over pay you - they pay us only about $20 a week under this system but at least there is a guaranteed windfall at the end of the financial year. (I should say at this point - for the benefit of any American readers  - that the Australian Government offers payments of some kind to most families).

Anyway, I digress. The point is that I can see that the last quarter before we buy may also be a successful one because of the payments I’ve just mentioned. So even if my target of $30,000 is off the mark, $26,000 is looking quite possible … it’s amazing what you can do when you make sacrifices. In another post, I’ll detail our budget and how we can manage to come up with $420 a week.  I’ll also talk about the role of an emergency fund in our lives and making decisions about how much it should be.

I wrote yesterday about how you should include things you want in a budget to ensure you stick to it, but I know that that sounds unlikely to anyone that doesn’t use them. Basically a budget just means (at the very least) knowing what you’re going to spend your money on before you get it. The other side of that equation is knowing where your money is coming from and how much it will be. A personal finance book I once read captured the issue of financial organisation perfectly for me when it pointed out that every company in the world - know matter how profitable - has to have a budget. It correlates that most of the people in the world who have real personal wealth - I mean the Warren Buffets and Rupert Murdochs of the world - have a budget of some kind. Granted theirs would look a little different to mine but it can be comforting to keep this in mind. The other thing is that anyone who goes to the teller on payday and grabs $150 for a takeaway,  cigarettes and groceries still has a budget … it’s just not a planned one.

The goal of a budget should always be to get the things you want! The surprising thing is that sometimes it can be tricky to know what that is.  For example, I recently started lusting after an LCD TV. I wanted a nice slimline TV to go on the wall to create more space in our bedroom (so I wouldn’t keep hitting my hip in the gap between the bed end and the TV cabinet. Then, once I started looking at a slimline TVs (about $600 AUS), I start thinking it would be silly to get one that doesn’t have an inbuilt high definition tuner. These START at $1400 but then you need to pay to get it attached to the wall etc etc. So I started working my budget to afford that TV. Once upon a time, if there was room on my CC, I would have just bought it and started the repayment cycle. The interesting thing is that about 3 weeks after I came up with my grand plan, I realised I didn’t really want a HDTV after all. In fact, I was willing to put up with the crappy TV we’ve got for as long as possible. That’s because my husband and I decided we really needed and wanted to save for our own home. The thing I realised later was, if we’d gone out and bought that TV on credit, we’d be $1400 further away from putting away savings for our home. And that’s the problem with credit … the things you want, you often can’t afford because of the debt already hanging over your head.

So, the upshot is that we have put our first $250 into savings for a home in our first week of trying. We saved $150 from our salary/s, put $50 worth of coins in the bank and found $50 from interest we made in a high yield account over the past year. I am so glad we didn’t buy that TV!