Budgeting for a home loan mortgage

Get ready to borrow

Review your spending and budget

Let's look at how to prepare a budget and what else you can do to reach that target deposit to get you into your first home.

Before you borrow it helps to be on top of your finances. It makes it easier for a lender to understand how you manage your money, and what’s your likely capacity for borrowing. A budget to track where your money goes helps you plan and achieve your financial goals.

Set up a budget based on your income cycle. So, if you’re paid weekly, a weekly budget will work best.

What’s coming in...

Record how much money is coming in and when. If you don't have a regular flow of income, work out an average amount.

Make a list of all the money coming in, including:

How much
Where from
How often (weekly, fortnightly, monthly or yearly)

These funds could be wages, a pension, government benefit or payment, or investment income.

...and what’s going out.

There are two types of expenses to consider. First are day-to-day expenses that cover your essential needs and the second covers your discretionary spending. Typically, discretionary spend isn’t essential and could be cut back or stopped if you need to.

Day-to-day expenses are the essential things you need to pay for to live. These include:

Food and groceries
Electricity, gas and phone bills
Insurances
Transport: fuel, car registration or public transport
Family costs including baby products, childcare, school fees or sporting activities
Debt obligations:
- Personal loan repayments
- Credit card payments
- Store cards and lay buy
Unexpected expenses:
- Car repairs and services
- Medical bills
- Extra school costs
- Pet costs

Discretionary expenses are ‘nice to have’ rather than a ‘must have’. These include:

Subscriptions like Netflix, Disney+, magazines, newspapers
Entertainment (eating out, cinema etc)
Hobby and sports-related expenses, such as crafting, sewing, and gym memberships
Holidays and travel
Alcohol, tobacco (and vaping) and coffee

You need to record everything, so look through your bank statements, list what the expense is for and total them up into categories. This gives you a good understanding of how you’re spending your money and you might be surprised at what you find!

Set your savings goal

Anything left over after your essential day-to-day expenses is your saving and spending money, or, your discrectionary income. Spending money takes care of your 'wants', such as entertainment, eating out and hobbies. On the other side of the coin you have your savings. Once you know what your discretionary income is, work out how much of it you'd like to save, and how much of it you'd like to keep for your 'nice to haves'.

The amount you save will not only help you create a safety net for unexpected expenses, but also help you on your way to building your deposit for your next home or investment. Even setting aside a small amount regularly makes a difference.

Adjust your budget

Any budget needs to work for you and your lifestyle so adjust it as things change. Much like a diet, if it’s too restrictive you won’t stick to it for long! Having said that, in the lead up to buying their first home many buyers cut back on all discretionary spending. It’s a short-term sacrifice for a long-term gain.

Tidy up your debts

Where you can, clear or reduce small debts such as credit cards, lay buys and overdrafts. It can be harder to clear a student loan, but make sure you’re on top of it.

Make budgeting easier

To simplify your budgeting, think about creating separate bank accounts for different purposes:

A transaction account for bills and expenses
A transaction account for spending
A higher-interest savings account

You can then automate your budget by setting up a regular transfer via automatic payment to your savings account on pay day. You can also set up direct debits when your bills are due.

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