How to build your financial fitness when getting a home loan

6 min read | 18 Jul 2019

Did you know we are prone to overestimate our ability to achieve short term goals and we routinely underestimate our long term ones?

Think about that time you were going to lose ten kilos, joined the gym, and six weeks later ultimately gave up because it took too long and you didn’t see the benefit immediately. Plus laying off chocolates and wine made the time drag by.

Financial fitness works in much the same way. If you say you are going to save $20,000 in a year, it seems an impossible ask, but if you set incremental bite-sized goals, it can be done.

Just like you are more likely to win on your weight-loss journey if you set small goals like quitting soft drinks before cutting out other sweet treats, the same is true for financial goals.

Have a one year, five-year and ten-year vision of what your financial future looks like. That might be paying down your credit card within a year, renovating the house within five years, and having your home loan paid off within ten.

Or, if you are a first home buyer, it may be to pay down the cards within one year, saving for a deposit within two, renovating within five, and paying the house off within ten.

Each goal should be a stepping stone to the next, so by the time you are trying to tackle that massive long term goal, you have already been on the path to achieving it, with rewards along the way.

Generally, short term goals should be the ones that set you up to achieve medium and longer-term goals and set you on the path to success.

Before you can accumulate wealth or savings, you should get rid of any debt. Only after that is paid down, can that money be used towards savings, and by the time you are in the savings phase, you are already used to living without that money, so the savings component is more natural.

Look at how much debt you have and across how many credit cards, personal loans and store cards. Start with the one with the highest amount of interest first and pay that off as fast you can, before moving to the next highest interest and continue.

“But if I had the money to pay off my debt I wouldn’t have the debt in the first place”, we hear you say, but generally the more money you have,  the higher the debt, because you adjust your lifestyle to suit your income. Here are a few small hacks to help you get started (and don’t worry, re-using teabags is not among them - we aren’t that cruel)

Well duh! That seems obvious, but clearly, as a nation we don’t follow this mantra all the time. Keep track of what you spend using a small notebook (old school) or a budgeting app on your phone. Track every last cent, from your coffee to your rent or mortgage.

Pocketbook, Wallet and Mint are three of the best free budgeting apps available on Apple and Android, and you can share your budget with your significant other if you have shared goals.

After a month or two you will quickly see where you are wasting your money, and you can channel those funds into smashing that debt.

Lists stop you buying the impulse purchases that can add up in the weekly grocery shop.

And hungry people have eyes bigger than their stomachs and buy loads of rubbish food they don’t need.

Don’t impulsively buy something as soon as you see it. Leave it for 24 hours and then decide.

And if you absolutely must have it, shop around for the best price.

This is pretty standard advice (yawn), but five coffees a week is almost $25 and five basic take away lunches is more than $50.

That’s a staggering $3770 you could be using towards debt repayments or savings per year!

Work out how much you need for daily and weekly expenses, and withdraw that amount (and not a penny more). Use cash only for your purchases. Once you have used all the money, then there is no more until the next day or next week.

If you have spare change at the end of the day, chuck it in a jar and either bank it or reward yourself with something nice at the end of the month.

Assuming you have employed some great budgeting hacks to pay down your debt, the next step is to put that same money towards achieving your savings goals. That may be saving for a house deposit or a renovation, or paying down the most significant debt you have - your mortgage.

If you are reasonably financially savvy, you might want to invest in Exchange Traded Funds (ETFs) or equities, which carry higher risk, but also higher returns than the interest on cash in a bank account.

In amongst your savings plan, we recommend setting up an Emergency Fund - that is money to tide you over with all of your household expenses if you lose your job, or have unexpected but significant expenses.

Ideally, you should aim for at least three to six months’ income, but tackle that goal incrementally too - start with aiming for a week’s salary and add another week once you meet that target and so on. Have that money in a high interest but difficult to access online account in case you suddenly think “I need a week in Bali because the boss sucks” is an emergency. It’s not!

If you have a home loan, use all your available fund towards paying that sucker down. Make extra repayments; chuck the work bonus against the mortgage; use the spare change you saved in a jar at the end of each month, but pay it down as fast as you can.

If you have a redraw or offset facility, use that for flexibility and ability to access your money in an emergency or for household expenses.

You can also get your salary paid directly into your home-loan to reduce the interest payable and redraw as you need it for other expenses. The savings on compound interest over time make it a profitable strategy. Compound interest is a b*tch.

If your home loan doesn’t have the flexibility to let you do these things, consider moving to one that does. At Athena, we have low interest rates and reward and encourage our customers to pay their loan down sooner.

Our customers will always have the benefit of knowing we will pass on the same great rates we offer new customers on a like for like mortgage, and we will also reduce your interest rate by 0.01% per cent for every year you stay with us and make your repayments, for the first five years.

We want our customers to achieve their financial goals quickly.