How to prepare for buying a home, paying off a mortgage, starting a family or funding your kid's education costs?

Finance & Fury Podcast

Welcome to Finance and Fury, The Say What Wednesday Edition

special series – running through the catalogue of questions and concerns

The series is broken down into three stages – 50 years or so timeline – last week was basics and the first stage

https://financeandfury.com.au/how-do-i-start-my-journey-to-financial-independence/

1. Teenage to young adults (16-25): 10y - The focus of these years is to learn the basics of money

1. 1. finish schooling/education - next step is setting up the basics in last weeks ep
2. Family and home (25-45): 20y - Whether your goals are to buy a house, start a family, education costs or anything else - the biggest part of this stage is preparing for the financial responsibility that comes along with each goal – this week
3. Accumulating to Retire (45-65): 20y – Normally have larger disposable incomes – set sights on accumulating more to fund rest of life – next week

What is life normally like before the 20s?

1. Up until this point – have been a consumer – younger people are naturally socialist
   1. Rely on family – living at home, parents provide for you, go through school – have been told what to do mostly up until early adulthood
2. After this – time to take charge – Finish school and likely have first income – going forward in life
3. Ages differ – but principles stay the same
   1. The last ep – went through some of the basics – principles of solving the economic problem
   2. Prioritise around the economic problem – Finite resources (money) – so where is it best put?
      1. Setting out your own goals/needs – building a plan based around where to put each dollar to meet goals
      2. Make your own target ratio – budgeting to pay yourself first – why prioritising helps – sets clear goals
   3. Invest in yourself – continue to gain experience and knowledge – this doesn’t change
4. What are the economic problems at this stage? – Today – Start looking at events that tend to occur over time - First home, mortgage, starting a family – all about balancing finite resources to maximise your gains (utility)
   1. This stage is mostly defined by debt or expenses – can mean limited room for wealth accumulation which is why these first stages are important – covered in the last episode –

Firstly - Likely in debt or about to get into debt

– personal, mortgage or education debt – there are also two stages of either preparing for upcoming events (family, home, etc.) or already gone through them

1. Defining stages – Preparation – Preparation for buying a home, getting a mortgage, starting a family
2. Considerations that need to be accounted for
   1. Debt and expenses normally take charge over wealth accumulation
   2. Wealth protection strategies – insurances to cover debts and family
3. Or – you are currently in that position of having a mortgage and having a young family

For each one of these things – we have done plenty of eps on each individual thing – so we put links to each in the show notes

Everything here is about asking yourself the important questions – you are your own boss in personal finances – look to your own situation to answer these

Preparation for events – does require sacrifice

1. First home, mortgage
   1. Deposits and getting financing – tools to use to solve the economic problems
   2. How much will you need? Look at the type of property you want to buy? Can you afford it? Wants v needs
   3. Tools to use
      1. FHSSS - personal savings – aim these to be enough of hitting your targets for deposits
      2. Hint - Avoiding LMI if you can – over leverage can be a killer of personal finances
   1. Kids Education costs – probably not a while off if you haven’t had your first kid – cover in a second
   2. More important – Budgetary issues - Single income/maternity leave
      1. This is why the basics of having your budget in place is important
      2. What will your finances look like on a single income or mat leave income?
2. Starting a family -
3. Protection – Getting into debts – make sure protected and have adequate covers to make sure if something happens to income-producing ability –
   1. Different levels of lump sums – the level of debts, or sole income provider leaving leftover life covers
   2. Ongoing income replacement – is it needed? In most cases it is likely -
4. All about having your goals written down – working out how to solve the economic problem – no single correct way –
   1. Figures, strategies, timelines – all depends on your personal situation

Now – if you have already bought a home, had kids, etc. – not preparing for these events but in the middle of it

1. First home and got a mortgage – do you know what your rate it? Know how long until paid off? Know how much interest over life of loan?
   1. Deposits and getting financing – aren’t the issue here
   2. The repayments of debt have to be balanced with lifestyle costs –
      1. Economic problem – Cost benefit analysis
      2. Where compounding comes into it again – compounding of interest on your mortgage debt versus investing into growth investment for long term or education costsThe low interest rate environment make it easier to answer that question – but the size of mortgages is forgotten about - $680k today vs $70k 20ish years ago – low rates on massive mortgage still means lots of interest paid – just slowly over time

2. Have a young family – few kids -
   1. Education costs – either from savings/cashflow
      1. Private schooling – might need to get up education funds – previous episode links
   2. Cashflow and another lifestyle expense
      1. Might be on part time income – lower budgets can be accounted for – might have to sacrifice
   3. Getting kids involved in finances – school won't educate them on this – how value of money works to them
3. This is all about looking at your cashflow – sorting out where funds should go – solving the economic problem
   1. Look at $1 into debt versus $1 into super or an investment – what is interest saved over 20 years v value gained?
   2. Later often doesn’t get looked at – the long term isn’t as pressing – but remember the rule of 72 and compounding – little bits now can help a lot in the long term –
4. Again – the first stage of goal planning is important – all workbooks available through members at FF
   1. Create priorities and allows you to have certainty – less stress

Thanks for listening, if you want to get in contact you can do so here.

Previous episode links -

Deposits

https://financeandfury.com.au/say-what-wednesday-first-home-super-saver-scheme/

https://financeandfury.com.au/what-is-the-first-home-loan-deposit-scheme-and-how-to-use-it/

Obtaining Loans

https://financeandfury.com.au/9-reasons-your-loan-may-have-been-rejected/

Education

https://financeandfury.com.au/say-what-wednesdays-whats-an-education-fund-and-what-are-the-tax-benefits/

Insurance

https://financeandfury.com.au/say-what-wednesdays-insurance-how-it-works-what-to-look-for-and-how-much-you-need/

Stress

https://financeandfury.com.au/financial-stress-a-major-issue-for-many-australians/