Creating strong saving habits: your path to your dream home
In the pursuit of a fulfilling life, beyond just satisfying short-term wants like the latest TV or trendy clothes, you might also have a dream of owning your own home. Owning a home is a big commitment, but it’s also a great achievement.
Essential preparation for home ownership:
- Knowing what you’re trying to achieve in the short, medium and long term.
- Creating a budget and understanding your fixed commitments (must haves and nice to haves), so that you can focus on where you’ll allocate your hardworking income.
- Making sure you pay your rent on time – it’s essential for a clean credit history and good practice for when you have a home loan.
- Gradually building up a good amount of savings.
How it works:
- Imagine a couple who put $800 each week toward rent and $200 into savings. In total they make weekly commitment of $1,000, plus their KiwiSaver contribution (usually 3% of their salary).
- By using a mortgage repayment calculator, they can see what kind of loan this commitment will support. For instance, if they had a $550,000 mortgage with an estimated 9% interest rate over 30 years, their weekly mortgage payment would be around $1,021.
This example is simplified. In reality there are other costs that home owners have to pay e.g. council rates, insurance and maintenance expenses.
Four steps to financial stability:
- Create a budget and keep an eye on it, adjusting as your income changes.
- Stick to the ‘pay yourself first’ approach. Set aside money for your commitments and savings before spending on other things.
- Treat yourself when you hit certain milestones on your financial journey.
- Protect your most important assets (including your life and income) with relevant insurance protection.
