When someone spends a considerable amount on home ownership including bond repayments, maintenance and utilities, they often find they are paying more for their home than they can afford. There is minimal cash flow for life’s other expenses. This is what is meant by being cash poor.
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If most of your income is going towards your home, think about how you would find the money to fund things like car maintenance, unexpected medical bills, extra mural fees? Do you have the liquidity to pay these or would you need to turn to debt to fund? What would happen if you / your partner were to lose their job?
It is important to always try and find a balance between assets and cash, so you can build up your asset wealth while still having enough money or funds to live a good life without running into debt.
Ways to Avoid Becoming House Rich and Cash Poor
Set up an emergency fund
Before buying property make sure you build up an emergency fund (at least 3 months income) This should be in a separate account away from your normal transactional account. Start to factor this into your monthly budget to fund future expenses.
Don’t be overstretched with your bond repayments
It’s crucial to have manageable repayment when buying a new home. Calculate how much of a deposit you need to keep your bond payment to less than 25% of your monthly income. This way you’ll still be able to pay your bills and fund the family expenses. There is no point having the most amazing house if you cannot afford to furnish or maintain it.
Consider the costs to furnish and update your home
Budget the amount of money needed to furnish, paint and decorate your home. This could add up fast depending on your taste. You don’t want to be taking out loans to buy that must have corner suite or the 65” TV. We love Facebook Marketplace (quick plug) for some slightly used items to update your home.
Be patient. Buy when the time is right, for you.
A home is probably the largest purchase you will buy. Take your time, don’t rush it. If the house or price doesn’t feel right, wait. Your gut knows best.
Cash-poor and struggling with debt?
Contact the team at Meerkat today! We’ll deal with all your creditors on your behalf, leaving you to focus on what matters to you most. Contact us today for a FREE no-obligation debt assessment.
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