You can help your children to understand how their spending and ability to budget will help them save for a deposit and ultimately maintain their home loan.
The below steps will help your kids get started. Discuss how this works for you as this will give your kids a practical example for management of their finances. You could also seek advice from a budgeting or financial professional, however the below points will help steer the conversation in the right direction.
We suggest using the frequency of your pay as the timeframe for a budget. For example, if you get paid weekly, set up a weekly budget.
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:
This money could be from your wages, pension, government benefit or payment, or income from investments.
There are two buckets of expenses to consider. Your regular day-to-day expenses that cover your needs and your discretionary expenses, those that aren’t essential, and which you could cut back or stop if the need arose.
Regular day-to-day expenses - the essential items you need to pay for to live. These include:
Discretionary expenses – non-essential items that are nice to have rather than a must have. These include:
To make sure you've recorded all your expenses, look through your bank statements. Include what the expense is for and then total these up into categories, so you have a good understanding of what you spend and where. You might be surprised at what you find.
The money you have left after expenses is your spending and saving money. Your spending money is for 'wants', such as entertainment, eating out and hobbies. Plan for what you want to do with your spending money. This will help you see where it goes and keep within your spending limit. Remember, buying a home will likely be the biggest spend of your life, so work hard to put as much money aside for the deposit. It’s a short-term sacrifice for a long-term gain.
If you have a savings goal, you can use your budget to work towards it. Once you know how much money you have for 'wants', you can work out how much of it you'd like to save. Having some savings can create a safety net for unexpected expenses. Even a small amount set aside regularly will make a difference.
Your budget needs to work for you and your lifestyle so it's important to adjust your budget as things change. It’s not uncommon for first home buyers cut back all discretionary spending for a good period of time in the build up to buying their first home.
Where you can, clear or reduce small debts such as credit cards, lay buys and overdrafts. It’s often not easy to reduce your student loan, but make sure its in order.
To help make budgeting easier, consider having separate bank accounts. You could have:
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.