One of the great joys of being a budget coach is to journey with my clients as they save for and buy their first home. Buying your first home requires a huge commitment, it may well be the biggest purchase of your life so it is important that you take your time, do your homework and understand all the costs that are truly involved.
A quick google search will quickly tell you the costs you must consider when buying a house, you know, the deposit, the real estate agents fees, the legal fees, stamp duty, the banks fees, connection fees, moving cost and so on. But what you will rarely find on this list is the importance of having a decent cash reserve.
As a budget coach I strongly recommend that all of my clients include a cash reserve of$20,000 as one of the costs they need to consider when buying a house. Now I am fully aware that no one wants to hear this sort of advice, $20,000 is a huge amount of extra money to find and yes I know you are busting to get your first home but please here are three reasons you need to take this advice on board:
It Is Far Easier to Save Before You Have Bought a Home Than After
The financial commitment to owning a home is far greater than just the mortgage repayments. Once you own a home there are the rates, additional insurances, and day to day maintenance, not to mention all the things you would like to do to make it your own home. The reality is saving money is far easier before you buy a house than after.
Big Unexpected Household Costs Are Far More Common Than You Think
Even with a thorough building inspection major maintenance issues still get missed, in fact I would say this is more common than not and unless you are prepared for it you could find yourself on the back foot financially from day one.
In the past two years both I personally and number of my clients have experienced major maintenances issues within a few months of moving into a new home. Within 5 weeks of moving into our home we were faced with a $8,000 plumbing issue. Two clients have also had major plumbing issues, one clients heating system died and another had a tree crush their carport. The repair cost for each of these were in the thousands of dollars.
This is just the unexpected household maintenance costs, there are also potential car costs and medical costs or loss of employment that should be considered.
While these things may not happen to you unexpected expenses and emergencies are a fact of life, the only way to insure against them is by having a cash reserve.
A Cash Reserve Provides A Buffer Against Economic Shocks
Just over a month ago the Reserve Bank of Australia released its Financial stability review. One of the major concerns highlighted by the Reserve Bank was that one third of Australian borrowers had less than one month’s buffer on their mortgage leaving them vulnerable to economic shocks.
So what does the reserve bank mean by economic shocks? Well here are three that could easily occur within the next few years – rising interest rates, higher unemployment and falling house prices. These are the three that the Reserve Bank is most concerned about.
I am all for a glass half full approach to life and I definitely don’t want to be a party pooper but before you jump in and make what could be the biggest purchase of your life take time to consider, what would happen if you; lost your job, if interest rates went back to 6 or 7%, if one of the kids got seriously ill or if you had a major maintenance issue within the first few months of moving in?
Surely having a decent cash reserve on your list of costs you need to consider when buying a house is worth the peace of mind.