First things first
Cashflow is king from age 17 to 97. You can’t eat without cashflow. You can’t put a roof over your head without cashflow. You certainly can’t pay off a substantial mortgage without good cashflow.
This means taking a look at your income and career.
Are you doing the best you can in your career? Are you prepared to move house or town or even country to do so? Are you prepared to go back to university, night school, or do whatever it takes to achieve the best you can? Have you thought about or looked into buying your own business instead of a house?
Lets do some maths. Does a few extra grand a year matter that much?
Lets assume you get a $400,000 mortgage over 25 years at 7% per annum (a 7% mortgage rate is the long term average in NZ). Your payments will be $2,827 per month. Your total interest (dead money) over 25 years will be $448,000.
What if you can increase your income?
You take my advice and manage to increase your income by about $10,000 per annum before tax. You increase your monthly payments to $3,500 per month. Your mortgage will be paid off in 16 years. Your total interest (dead money) will be $263,000.
First Prize: $185,000 less interest.
Second Prize: Debt free nine years sooner.
Third Prize: A better life for you and your family.
A fabulous pay-off from making that extra effort to increase your income.
But…I can’t. Yes, you can.
It’s too hard. Debt has to be repaid - that can be a lot harder.
House prices are rising fast, so everyone says I should get in now. Not necessarily so. In fact, property prices in many areas in NZ are not rising.
Back to the beginning
Cashflow is king. Do not borrow $1.00 until you have really worked on your cashflow, your career, and looked at all the options open to you.
“Haste in every business brings failures” - Herodotus
Be smarter. Don't accept the status quo just because that's what everyone else does. Haste can mean waste or loss – make haste slowly.
There are many solutions.
I think these ones are worth repeating:
- Watch George Clarke's 'Amazing Spaces' TV series to give you some inspiration in creating a small but workable space for your home.
- Eliminate rent - live in mum and dad’s garage.
- Find a job that has free accommodation ie a night manager at a motel, or a share milker.
- Take a job overseas in the Ozzie outback, or in the Middle East that offers free accommodation.
- Put a minor dwelling on it.
- Start on Stage One of your dream home - maybe the garage.
- Get a converted shipping container - they are cheap and comfortable and some are
But don’t fight with councils - circumvent them instead.
Put wheels on it. Call it a granny flat. Build your “garage” first.
If the council is not helpful, ask them to pay your mortgage interest.
Next week - student loans and first homes.
Supplied by Alan Clarke, financial & retirement adviser, & author. He also writes regular articles for the media and on line.
His second book “The Great NZ Work, Money & Retirement Puzzle” is now available.
You can buy it on line at www.acfs.co.nz
Alan is an independent authorised financial adviser (AFA) FSP26532
His disclosure statement is available on request and free of charge