Can I afford a house – focus on what you’re buying
Anyone applying for a mortgage in New Zealand today is being hit with the impact of the new CCCFA legislation; a thorough investigation of how they have spent every last cent in the past three months.
This legislation is already flagged for review, as the net result seems to be that the banks are denying home loans to people who would previously have been approved. Many people are putting off applying at all.
Which is the pits if you’re finally at the point where you can look at buying. But there is an opportunity here which could grow your wealth considerably over the life of your (eventual) mortgage.
If the legislation is amended, the banks may go back to assuming that everyone can easily change their spending habits once they have a mortgage. It’s in your own best interests to be 100% sure that you can. Because the end goal is not getting a mortgage, it’s living in a house that you own free and clear.
An increasing number of mortgage-holders are getting to retirement age with years of mortgage repayments still ahead of them. Their options are to sell the house, or keep working.
If neither of those options appeal to you, you will need to get a grip on what you’re spending. (Bonus: you could get a mortgage approved today, when fewer people can, meaning less competition when looking at houses to buy.)
Getting a grip on your spending is not as easy as most people make it sound. “Spend less” misses a vital point.
No one wants to spend money. What they want is the things that they’re buying. To cut spending, you have to change what you’re buying.
But it’s a crucial distinction which is ignored in most “be good with money” advice.
How to track your spending
The fail-safe way to change your spending pattern is: track what you buy. Not with an app that will do it for you – that won’t connect you to what you’re doing in the same way, it’ll just provide a report on spending you can barely remember doing. Use a way that works for you – take a photo of your purchases, write them down, enter the details in a spreadsheet. Have a look at your bank and credit card transactions online every couple of days. Any unexpected charges in there?
Review your purchases
Now review each type of purchase – how is what you’re buying making you happier? Weirdly, some spending doesn’t really make us happier, it’s just a habit. Excellent. That type of spending is easy to cut back on.
If the spending does make you happy (or cutting it completely would make you unhappy – like utilities) ask yourself – could I achieve the same result for less or no money?
Could you find another way to socialise with friends? Get a better deal on electricity? Have clothes you love that cost less? Share the cost of a sport or hobby with someone else? Buy the same snacks in bulk from the supermarket instead of one at a time from the dairy?
Just ‘spending less’ will often lead to unhappiness and feelings of deprivation. It’s not sustainable. But buying what makes us happy, while spending less or no money – that’s empowering, sustainable, and more likely to get you that mortgage approval.
Relating to Money aims to help you figure out the underlying emotions and beliefs behind any behaviours that are detrimental to your financial health and replace them with life enhancing alternatives. This isn't about about making you live the kind of lifestyle where buying coffee at a cafe is a punishable offence! Rather, Relating to Money will endeavour to help you identify and overcome any issues you may have when dealing with your finances.