S01_E17 - Building 6-12 Months of Savings and Buying your First Home

01/16/24 • 11 min

Jellyman Investing - Personal Finance for Australians

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I want to talk about the journey towards buying your first home. It starts by paying off debt and building your savings. It's really easy to fall off the bandwagon when it comes to getting your finances under control.

Here's the way I found to work TOWARDS a house:

Set up your automation and accounts for everyday expenses.
Build your 6-12 months of emergency savings.
Begin investing in index funds.
Meet with a broker to assess your financial position relative to how much you'd like to borrow.
Readjust your borrowing power based on rising interest rates.
Build an additional buffer for post-home purchase (ensures you have enough left over just in case).
Buy a house.

As you can see, building the buffer is step 2. The buffer ensures that if unexpected expenses occur, we can cover them without becoming mentally derailed. It's hard when you have to move money back and forth between accounts because it feels like progress is being taken away from you.
The automation in step 1 will automatically push money towards your savings account. What some people do is create a whole new bank account with a different bank and have the money transferred there. This account has no associated card, which removes the temptation to spend it.
Let's add time to the equation. What tends to happen when you've automated your accounts is that it just happens in the background. Before you know it, you've built up enough savings. You might think that the next step is to buy a house. But I actually think people should invest first.
Now, before you start telling me it's risky, hear me out. Index funds, which are a basket of stocks that allow you to become automatically diversified, are relatively low risk and have good returns, even in bad economic times. You can even buy index funds specifically tied to property.
Because it now takes much longer to save for a house, while you wait for the best time to strike, the value of your stocks goes up. In fact, in my personal situation, after I had my 6-12 months saved up, I began buying stocks each month. But it took a few years before the timing was right to get a house. In those few years, I ended up accruing an additional $15k in stock value, which I could sell to buy my house.
Luckily for me, during the time I was buying stock, I was still diverting some of my funds towards saving for a house. After meeting with a broker, he told me I actually had enough in my savings to buy a house, which meant I could leave the stocks to keep growing and still buy a house.
This is a win-win situation and gives me a number of options. If I suddenly need cash, I can always liquidate some of my stocks (which I've never had to do). By leaving my stock, it can just grow. Another win for me.
Moving my savings towards property means the money in my home is now growing as well. Any renovations I do also build equity.
Now, I have mentioned a few times that having equity sounds good on paper, but it's not real money until you sell the asset. That is true. But the way I like to think about finances is to try and have a win scenario for every situation.
If the stock market crashes tomorrow, I have cash on standby to purchase stocks at a discount. If the market instead jumps, I already have stocks to ride the wave. If housing prices go down, it's fine because I already have a home to live in. If they go up, my equity increases. If I lose my job, I have several other income streams.
Every which way you look at it, I have some form of protection. That is true security. Just because it says 'full-time' on your job contract, doesn't mean you have security.
So take it

Here's the way I found to work TOWARDS a house:

Set up your automation and accounts for everyday expenses.
Build your 6-12 months of emergency savings.
Begin investing in index funds.
Meet with a broker to assess your financial position relative to how much you'd like to borrow.
Readjust your borrowing power based on rising interest rates.
Build an additional buffer for post-home purchase (ensures you have enough left over just in case).
Buy a house.

Previous Episode

S01_E16 - Understanding the Tax System for Financial Independence

https://www.patreon.com/Jellyman_Investing
The history of taxation is as old as civilization itself, originally designed as a means to generate capital, primarily to fund wars. In ancient times, rulers and governments imposed taxes to amass wealth, ensuring they had the resources necessary for military campaigns.

The Australian Tax System: A Progressive Approach

Today, the Australian tax system plays a pivotal role in the country’s development. It is structured to fund public services, infrastructure, healthcare, and education. But why do some individuals pay more tax than others?

The answer lies in the progressive nature of the tax system, which is designed to be equitable rather than equal. This means individuals and entities with higher incomes pay a proportionately larger amount in taxes, reflecting their greater capacity to contribute to society’s needs.

Tax Benefits: Rewarding Beneficial Endeavors

The Government learned long ago that if you want to move the country in a specific direction, they can tax activities that take away from that agenda, and incentivise the ones that align. It’s actually that simply.

When reading the tax code, you’ll actually find that a substantial amount of it, in fact most of it is laws are on how to reduce your tax by pursuing certain activities. These can include but are not limited to:

Superannuation Contributions: Contributions to superannuation funds often receive favorable tax treatment. When the population ages, the costs for services especially retirement funding such as pensions becomes a heavy burden for the Government. When they see people investing and making extra contributions to take care of themselves in retirement, it’s one less person the Government has to support. They like this.
Education and Research: Tax deductions for certain educational expenses and research activities encourage investment in knowledge and innovation, crucial for the country’s growth. This creates new industries and potential jobs.
Charitable Donations: Donations to registered charities are tax-deductible, promoting philanthropy and support for non-profit sectors.
Investment in Renewable Energy: Tax incentives for investing in renewable energy projects align with the government’s commitment to environmental sustainability.

Tax Penalties: Discouraging Unfavored Activities

Conversely, the tax system can impose higher taxes to discourage certain activities or to manage economic disparities:

Luxury Car Tax: This tax is imposed on expensive vehicles, discouraging excessive spending on luxury goods while generating additional revenue.
Capital Gains Tax (CGT): Higher taxes on short-term capital gains discourage speculative investment and encourage long-term, stable investment behavior.
Sin Taxes: Higher taxes on products like tobacco and alcohol serve a dual purpose – reducing consumption of harmful products and generating revenue.
Progressive Income Tax: High-income earners face higher tax rates, a measure to address income inequality and ensure a fair contribution from all economic segments.

A Dynamic and Responsive System

Earning more but not aligning with Government policy simply means you’re swimming upstream. We work so hard in our jobs that climbing that corporate ladder brings more wealth as well as more stress and time away from our family. The more you earn, the more you’re taxed.

The only way to combat this is to start investing, purchasing real estate, starting a business, starting a side gig, investing in renewable energy, investing in index funds and ta

Next Episode

S01_E18 - Understanding the Role of a Broker in First-Time Property Purchases

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The journey into first-time property ownership often presents a labyrinth of complexities, from dodging aggressive real estate agents to navigating through the myriad of mortgage options from various banks.

Undertaking this journey alone can be a daunting, stress-filled endeavor. This is where the expertise of a good broker shines, offering a beacon of guidance and efficiency. These professionals not only simplify the process but can also access a wealth of information rapidly, making the journey smoother.
And the best part? They’re free!
What is a Real Estate Broker?

A real estate broker is not just an intermediary in property transactions but a pivotal figure in your journey to homeownership. Choosing a good, reputable broker is essential - akin to selecting a life partner in marriage. The importance of this phase cannot be overstated.
A proficient broker knows how to negotiate favorable rates, complete paperwork efficiently, evaluate your finances to determine your purchasing power, manage risks, educate you on economic changes, and provide early access to government programs and grants.
The best way to gauge a broker's performance is by asking for feedback from individuals who have recently bought a house. This level of diligence in selecting the right broker can make a significant difference in your property-buying experience.
Key Responsibilities of a Broker in First-Time Purchases

Market Knowledge and Property Identification: They offer insights into the real estate market and assist in finding the right property.
Financial Guidance and Price Negotiation: Brokers provide financial advice, suggest financing options, and handle price negotiations.
Property Viewing and Evaluation: They arrange viewings and evaluate the property’s condition and potential issues.
Legal and Regulatory Guidance: Brokers navigate the legal procedures and ensure compliance with property laws.
Managing Transactions and Closing Deals: They oversee the entire transaction process, ensuring a smooth closing.

The Benefits of Working with a Broker

Expertise and Experience: Brokers bring valuable knowledge and experience to the table.
Time and Stress Reduction: They streamline the property search and reduce the stress involved in negotiations.
Professional Network: Access to a broker’s network can be crucial in finding the right property and deals.
Representation and Advocacy: A broker advocates for your interests throughout the process.

Choosing the Right Broker

When selecting a broker, consider their reputation, experience, local market knowledge, and reviews from previous clients. It’s essential to choose someone who aligns with your needs and whom you trust.
Final Thoughts

For first-time buyers, a broker is an indispensable ally in the journey to homeownership. Their expertise and guidance can demystify the complex world of real estate, ensuring you make informed decisions. Remember, the right broker can turn the daunting dream of owning a home into a manageable and rewarding reality.