Well, here we are in February 2022 – Christmas and the new year period is behind us once again, our social media feeds are filled with pictures of little people in brand new school uniforms, and collectively we have all stepped into 2022 hoping that there are fewer ups and downs than the last two years have presented us with.
I am so happy to report that my daughter and her partner had a very smooth settlement for their first home in December, and they are learning the joys of paying the mortgage and saving for the renovation fund.
February is a great month to talk about saving. I have always thought New Year’s resolutions should start in February, Christmas shopping is over, if you are lucky enough to have leave - the lovely long lazy days of January have slipped past, and the pattern of real life starts to solidify again in Feb. If you have thoughts of dipping your toe into the property buying pool at any time in your future, or maybe you are a parent that wonders how your children will ever get into the property market – then there is one thing to start doing today. Not tomorrow, not next week, not next month but today – and that is to start the habit of saving money.
Habits are strange things – tough to break and tough to make. There is not a high enough word limit in this blog to go really in depth on the psychology of habit making and breaking – but money and budgeting and saving is all about habits, and ideally starting good habits as early as possible.
When I got my first part-time job aged 15– my mother was very proud of me, and when I brought home my first pay packet, (yes in the eighties we still received cash in an envelope that doubled as a payslip), she shocked the heck out of me by asking for half of my pay as I now needed to pay her board. I thought she was the worst person in the world as I had big plans for the pay packet – Madonna had just released her first full album and it was going to be added to my growing collection of vinyl, along with a pair of white pointy-toed court shoes that had caught my teenage fashion-loving eye. With my reduced finances, I chose the album and the shoes had to wait. What I did not know was that my darling Mother, was putting my “board” into a long-term saving account, and on my 18th birthday, she presented me with my savings. She had taught me the art of “paying myself first.”
“Paying yourself first” is putting an amount of money aside before you do anything else. Before you pay bills and before you make discretionary purchases – you pay yourself. The idea is that you then have less discretionary spending at your fingertips.
With my children, I started the habits as early as possible. Christmas and birthdays would always see a card from loving grandparents with a note or two of cold hard cash affixed with a paper clip. Right from the get-go – the rule was, half of the money can be spent however they wanted, and half of the money went into a bank account that they could not touch. No ifs, no buts, and no matter how much begging and pleading and tears were shed. “You will thank me later,” was quoted a lot on birthdays in our household. Later when they got part-time jobs – I encouraged them to blow their first pay packet on whatever they wanted, but from the second pay packet onwards – the rule again was half in the untouchable savings account. The long-term goal for the savings was not always clear – discussions would ensue about it be used towards a first car, towards an extended period of travel when school was finished, or maybe towards a deposit on a property. The goal didn’t matter to me – the aim was to entrench the principle of “pay yourself first.”
Saving money gets more complex as we enter adult life. There are enough articles out there that advise buying a house is easy – just give up the avocado on toast café lifestyle and soon you will be reaching for the keys on your new home. It is not that simple, nothing in grown up life is simple – but I do know that if you open a bank account today and start saving today you are on the right path. I highly suggest a hard to touch bank account, one that you cannot access on your phone banking app – one that you need to physically visit a bank branch to access your funds – this really helps with the saving discipline.
(Bonus Home buyer tip – if you are getting closer to making a home loan application – please streamline how many bank accounts you have. If a lender needs to trawl through 17 sets of bank account statements – it will delay the processing time on your application.)
So go on – what are you waiting for, open a hard to touch bank account, ask your employer to send a portion of your pay to that bank account. – and what is the worst that can happen? You might have to wait a little longer for your “want, but don’t need” purchase, but you will thank yourself later.
If you are on a saving for a house deposit mission, lenders love seeing applicants that have a long-term demonstrated savings history. This history shows the lender that an applicant has money managing skills and the right mindset to make mortgage payments.
I was so very lucky to have my mother teach me about money, but I know that not everyone has wonderful financial role models – but like all habits, be it getting more exercise or trying to drink less coffee (that is my struggle), it is never too late to start a new habit, and to start learning more about managing our finances.
Our relationship with money, saving and budgeting is a complex thing – and much more complex than I can touch on in a short blog. If you would like to learn more on this topic – I highly recommend a wonderful book by Emily Power, “How to Buy a Home.”
https://www.penguin.com.au/books/how-to-buy-a-home-9780143787907
The author is much younger than I, and she details her life of debt, spending patterns and how she eventually made new habits – and she eventually achieved her goal of becoming a property owner.
In my next blog I will talk more about budgeting and how this starts to shape a successful home loan finance application.
As always – please ask questions, the only silly question is the one you don’t ask. The tomatoes in my vegetable garden are starting to ripen – so I’m off to harvest tomatoes and think about vinyl records.
KB
