Money management

Money Goals – available funds

Keeping a substantial buffer in savings, offset and/or in redraw is one of the keys to ensuring you have a feeling of financial stability.  The best way to achieve this is through ensuring that your purchase price allows for adequate surplus monthly cash flow after settlement. This can be assisted through flexibility in loan term and repayment.

Maintaining a cash buffer after you purchase property is arguably the most important mechanism to managing risk. This enables you to maintain a safety net for any future cash flow challenges, such as; sickness, accident, employment or funding a major one-off expense outside of insurances.

Generally, you want to strive for a cash buffer that provides for between 6 and 24 months of your total living expenses and costs.

Your living expenses are an estimate of a moment in time and will constantly fluctuate subject to the bills of the month. To ensure your Property Strategy remains the best fit for your needs, it’s crucial to update your cash flow summary as your circumstances change, budget improves and when you trim your expenditure.

It’s important to ask yourself, “If I had no income, how long could I survive given my current financial commitments and lifestyle costs, before I would need to sell assets?”.

Self-awareness around this question will inform you of the level of cash buffer that you’ll want to have available via your bank or lender before and after making your next property decision or major investment.

The following methods can assist you in growing your cash/offset buffer at a faster rate as long as you uphold the successful money management habits of:

  • Having a longer loan term to lower your compulsory monthly repayment, therefore your additional repayments will be greater, increasing your available redraw at a faster rate.
  • Making the minimum repayments into the loan and placing all surplus ‘savings’ into your ‘Grow’ offset account. This can be achieved whether you select principal and interest or interest only repayments.

Your living expenses are an estimate of a moment in time and will constantly fluctuate subject to the bills of the month. To ensure your Property Strategy remains the best fit for your needs, it’s crucial to update your cash flow summary as your circumstances change, budget improves and when you trim your expenditure.

Unfortunately, too many property buyers base their purchase price on a generic borrowing capacity without any forward planning and goal setting. Defining your preferred cash savings and cash flow buffers is a personal and emotional decision.

Your risk profile will be different to others, and different to your spouse if you’re in a relationship.  When determining your savings buffer goal, you should consider:

  • Annual living expenses.
  • How many months or years of your existing savings will last should you drop to one income, or no income. Do you have insurances protecting your earning ability such as income protection, trauma, life and total permanent disability?
  • Stage of life.
  • Risk profile.
  • Number of properties owned and your ability to sell a property if absolutely required.
  • Level of equity.
  • Your monthly surplus cash flow goal.

Determining your goal for your available funds/cash savings buffer is an action item for you as part of determining your mortgage strategy and Property Plan. This should be completed before you can have clarity on your property strategy and selection for your next purchase.

Step 1 – Move all expenses from your bank accounts into a spreadsheet

Step 2 – Move all your expenses into categories.

Step 3 – Define your buckets and the categories within each!

Step 4 – ‘Document’ where you will cut back spending

Contact us today to book in a free confidential property planning, strategic mortgage broking, money management or property select meeting.

The Seven Steps to Money Management Success is intended to be an information resource only and contains information of a general nature. It is not intended and does not constitute or act as a credit quote, credit proposal disclosure document or preliminary credit assessment. Further, it does not constitute or contain legal, taxation, financial product or financial planning advice. You should seek independent advice regarding these matters relevant to your own circumstances and individual needs from an appropriately licensed party. All information is provided by PPA with due care to its accuracy, however, no representation or warranty is made as to its accuracy, currency, completeness or reliability. It is your responsibility to assess and verify the accuracy, currency, completeness and reliability of the information and whether it applies in your individual circumstances.

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