Draw up a new budget for new home
It’s “tax season” – and a great time to get an accurate picture of your income and expenditure for the past year, and to get to grips with your financial and savings goals for the next 12 months, especially if you are planning to buy a home of your own.
So says Berry Everitt, MD of the Chas Everitt International property group, who notes that the first thing experts recommend is that you update your budget,” taking into account any job or salary changes, any changes in your household circumstances or lifestyle and your plans to reduce debt and boost savings”.
Next, he says, you should make sure everyone in your family is on the same page. “In most households, there tends to be one person who handles the finances, but it’s a good idea for them to discuss the budget and financial goals with their spouse or partner and older children at least once a year and get their buy-in and ideas for reducing spending and increasing savings.”
Writing in the Property Signposts newsletter, Everitt says financial experts also all note that it is always easier to save if you have a specific goal, such as building up an emergency, travel, university or retirement fund – or getting the deposit together for a home purchase. “However, they also point out that it is generally a good idea to pay off debt before trying to grow savings – because the interest paid on most savings accounts is lower than the interest charged on most debts.
“And this is doubly important for those planning to buy their first home, because in terms of the National Credit Act, lenders can’t grant home loans to those with high levels of household debt and insufficient disposable income.”
So the third thing you need to do now, he says, is to evaluate your debt load honestly, and make an immediate start on reducing it. “And while it may make more sense mathematically to start by paying off the balance with the highest interest rate, research has shown again and again that consumers are more motivated to continue with a debt-reduction plan if they can successively knock out their smaller debts in their entirety and then apply those repayment amounts to their bigger debts, so that is probably the plan to follow if you are serious about getting debt-free.”
To speed up the process, Everitt says, it helps to go through every item in your current budget with a view to cutting costs and diverting any savings into debt reduction. “Some items to review, especially, include your utility, transport, storecard and cellphone bills, and this is where it really helps if the whole family is contributing ideas and working together to keep costs down.
“This is also a good time to review your household, vehicle, life and medical insurance and make sure that you are not paying too much – or too little. You might be able to save on car insurance, for example, because its market value has declined since last year, but if you’ve bought new furniture or other household goods in the past 12 months you may well need to increase that premium to ensure that you’re not under-insured.”
Similarly, he says, you don’t want to skimp on life, disability, health or hospital insurance, especially if you have a family, but it is definitely worth reading the small print to see exactly what you are getting for your money, and doing some “comparative shopping” to see if you could do better elsewhere.
“Then when that’s done, your final step for the year should be to get all your budget and financial documents properly organised and stored somewhere safe. These should include a list of any bank and investment accounts, as well as insurance policies and a complete inventory of everything in your home that you insured and would need replaced in the event of a disaster, from furniture, appliances and clothes to certificated jewellery, artwork and other valuables – and if they are stored somewhere else, like a bank safety deposit box, your spouse or another trusted person should know how to access them in case of emergency.”
Issued by Chas Everitt International
