January 25, 2023 • 29 mins
Home ownership: It’s the biggest topic in personal finance.
On this first episode of It All Adds Up, we’ll take a look at how much it takes to buy a home in Australia these days and some strategies to help our listeners to get a foot in the door.
It All Adds Up is the podcast where we make money easy to understand so that listeners can begin building their financial wealth. Join The Sydney Morning Herald and The Age's senior economics writer Jessica Irvine and money editor Dominic Powell as they try to help you make it all add up.
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Episode Transcript
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S1 (00:00):
Hello and welcome to It All Adds Up the podcast
where we chat about money, how to get it, how
to spend it, and how to invest it. I'm senior
economics writer Jess Irvine, and you're listening to our summer series,
where we're replaying some of our hottest hits to help
you get in shipshape financial form for 2023. It all
adds Up will resume normal programming in February with a
(00:21):
brand new season full of money saving tips and insights.
So until then, sit back, relax and enjoy. Hello and
welcome to It All Adds Up the podcast where we
chat about money, how to get it, how to spend it,
(00:43):
and how to invest it, and seek to demystify the
world of finance and investing. I'm senior economics writer Jess Irvine, and.
S2 (00:50):
I'm money editor Dom Powell. And for our first episode,
we've decided we may as well just dive into perhaps
the biggest topic in personal finance, the very vexed question
of home ownership. We're going to take a look at
how much it costs to buy a home in Australia
these days and strategies to help you or a loved
one get a foot in the door.
S1 (01:05):
We're also going to be sharing some of our own
personal stories of getting into the housing market and things
that we wish we knew before taking the plunge. And
later in the episode, I'll be offering my budget tip
of the week, which is going to be a regular
feature to help you cope with the rising costs of living.
S2 (01:22):
But first, just a reminder that the information we're about
to discuss is general in nature and does not take
into account your personal financial situation, goals or objectives.
S1 (01:31):
Yep, good point. Now we don't know each other too
well just yet. But I knew I was super impressed
with you when I'd heard that you'd bought your first
home at some tender age. I'm not even sure.
S2 (01:42):
I was 23.
S1 (01:44):
23. And I think that's quite impressive. And I think
that is quite anomalous in today's market. So I just
wanted to ask you, you know, what was your experience
of purchasing a home? How did you decide so early
in life that you were going to even try?
S2 (01:59):
Well, look, my experience is quite unique. Definitely not the
experience of of most people out there. The reason that I,
I owned property at the tender age of 23 is
because I got quite lucky with a little thing called cryptocurrency.
S1 (02:15):
You went to the moon?
S2 (02:16):
I did. I went to the moon. I was at
the right place at the right time. I do not
profess to be an investing genius. I just got curious
in the world of crypto at the start of 2017,
rode the market to a decent point, sold out and
made a decent enough enough money that I could start
(02:36):
actually thinking about home ownership. And before that it wasn't
even on the cards. It wasn't even something that I
was thinking I would do anytime soon. But after that,
you know that that fateful year I was sort of
in a position where I could start to think about
actually buying a home. And then in about 2018, 2019,
I started to look and bought a building, an apartment
(02:57):
in in Melbourne in 2019.
S1 (03:00):
That's funny because that ended we ended up buying in
the same year because I bought my first home in
late 2019. So snap at the tender age of about 39.
I think I was.
S2 (03:13):
Still a tender age.
S1 (03:14):
Did you turn up to a whole bunch of auctions
and get knocked back? What was it like for you?
S2 (03:20):
Yeah, well, it was interesting. I am. So I should
also add, because I don't want to be one of
those man buys home at 23 from crypto savings like
that is true. But I also had help from my parents,
so there was a bit of both. Like I don't
want I just want to make that very clear. I'm not,
you know, some sort of 1 to 1 in, but
I went to a lot of auctions. My first, the
(03:41):
first one I bid at, I was quite demoralised to
find out that the sort of price that I was
hoping to to get the place that was just eclipsed very,
very quickly. But in the end, I bought my home
in a pretty weird way. I put it in an
offer and then a number of other people put it
on offer and we ended up having a boardroom auction.
S1 (03:58):
What's that?
S2 (03:59):
They sit you around in the boardroom of the of
the Real estate agents office, and there was about three
other people there for the people there. And you have
an auction. But instead of being out in the street,
you just sitting there at the put in the boardroom.
It was bizarre. It was such a strange experience. But
in the end I won that. So yeah, Then I
bought my place at the end of end of 2019.
S1 (04:20):
Yeah. And I hope by sharing our stories of how,
you know, we've got into home ownership, it's not I'm
just incredibly aware of the privilege that I had in
sort of having a good, decent income to accumulate my
own savings. I didn't have any sort of cash from
mum and dad, but I did have them go guarantor
on my loan, which is something which we'll discuss later
(04:41):
when we get to sort of some potential solutions if
people are looking for ways to get in. I had
my deposit ready to go for a couple of years actually,
and I was just watching the market and I actually
spent a lot of time on the sidelines just, you know,
prices would go up. So I'd go, Oh, that's okay.
I can live in an apartment. That's okay. Maybe, you know,
(05:01):
I can just not have a balcony. And I kept
trying to adjust down the, oh, I can buy further out.
And then really just at the end, sort of had
to go to the bank and say, what is the
maximum amount you will lend to me? Like it's getting
away from me. And then I did sort of end
up looking for slightly more expensive properties. I paid about
$870,000 for a two bedroom apartment. So in 2019, and
(05:27):
I think the bank was going to lend me a
million plus, but I sort of just decided that wasn't necessary.
I did get up. We did an auction. So the
week before I bought, I sort of turned up and
I was have my maximum bid. They say you should
write it on a piece of paper in your pocket.
So I put my number and then during the auction,
I proceeded to bid substantial proportion above one number as
(05:49):
the do.
S2 (05:50):
Yeah, I think that's just the way it goes for
any auction, right?
S1 (05:53):
Exactly. And the successful bidder was an investor. Basically the
classic story of sort of just having way more money
than I. So then I started looking about a suburb
out from where I was originally and happy Days. So
the point of sort of picking this is our first topic,
I think in my mind is that really home ownership,
you know, the decisions that you make about property will
(06:16):
be one of the biggest factors that will influence your
future financial capability and your wealth. It's just so, so key.
S2 (06:25):
Absolutely. Having a mortgage is sort of just makes you
think about everything differently, I think, in terms of your
personal finances. Like, you know, just when you have such
a large asset in your life, I guess it just
changes your perspective on everything. So I think you're right.
It is it is a massive decision. And, you know,
it does sort of make a very big impact on
(06:46):
the way you think about money.
S1 (06:47):
And it's also probably the most expensive thing that you're
going to have to pay for throughout your life is
figuring out. Are you renting? Are you buying? And what's
your strategy there? You know, when you retired, are you
going to own a place outright or will still be renting?
It's just so important. Now, look, preparing for this episode,
you've you've been out there and you've been researching some
pretty scary statistics just to give us the current state
(07:10):
of play of where houses are at with home ownership.
So do you want to run us through a few
of the very scary stats? Yeah, it's not gross.
S2 (07:18):
It's not great. So something that did surprise me, which
is the first statistic, which is that two thirds of
Australians own their own home, which I thought might be
a bit lower, and it used to be a bit higher.
It used to be about 75%, but that's fallen over
the last two decades to 66%. So, you know, it
is coming down, more people are renting. But that sort
(07:41):
of tells us that houses are expensive. We knew that
this is not this is not surprising and have become
much more and significantly more expensive over time. So in 2000,
you could buy a house in Sydney and this is
like a house, not a not an apartment for just
under $300,000 and in Melbourne, just under $200,000. And that
was at the turn of the millennium today. That's at
(08:04):
about 1.6 million in Sydney and about 1.1 million in Melbourne.
And the median across all capital cities is sitting pretty
much exactly at $1 million to buy a house.
S1 (08:17):
A freestanding house, a.
S2 (08:19):
Freestanding house, obviously different for four units. But as most
people think, you know, there's a sort of home ownership
dream is owning a house typically. So that's that's sort
of the reference. So that's a obviously, you know, an
astounding rise in property values over I know obviously two
decades is a long time, but that is a massive
(08:39):
increase in the price of a property.
S1 (08:42):
Yeah. And way out of line with wages growth, you know,
as a multiple of incomes. It's just it is to
be stably got much much harder.
S2 (08:51):
Yeah nothing else you know few other things that have
risen as much as you know as property prices have
in the last 20 years. So what that sort of
means for home owners who are trying to get into
the market at the moment, is that to buy a house,
you're looking at a deposit of at least $200,000. That's
a lot of money. You know, that's it's an immense
(09:11):
amount of money.
S1 (09:12):
To have the full 20% deposit, to have.
S2 (09:15):
The full 20%. Sorry, this should be clear.
S1 (09:17):
And is it that it's not hilarious? It's very painful
that so we're saying that's how much she needed to
buy a house in 20. In 2000 and now that's
how much you need for a 20% deposit. It's just gobsmacking.
S2 (09:29):
Exactly. So what what could have bought you a full
a full on house the whole hog back in back
in 2000 now just gets you a measly 20% of it.
So yeah, I think it's pretty clear to say that
that the odds are stacked against young homeowners. A first
home owners, young or not, it's a huge amount of
money to save. And the stats are, you know, Australians
(09:50):
save on average about $700 a month. So you're looking
at maybe 8 to $10000 a year. So that's looking at,
you know, for one person, 20 ish years of saving,
if you're just saving straight off your own back to
afford a home deposit, That's fascinating.
S1 (10:07):
What's the source of that?
S2 (10:08):
So that's from some savers savings surveys I found online
from Finder. But I've checked a few other places and
that's pretty accurate in terms of the ABS data as
well as on sort of, you know, the amount that
people save per year. Obviously, the older you are, you
save more, the younger you are, you save less. But
that's the average sort of thing. So obviously these these
(10:31):
sort of figures change if you're saving for someone else
like a you on a partner want to buy a.
That sort of drops drastically, But you're still looking at
a good number of years if you want to sort
of go from zero to a house deposit. And I
suppose this is where we can come in and look
at what you can do to cut that period of
time down or sort of circumvent it or whatever the
(10:51):
possibility is.
S1 (10:53):
To help, because I think people would hear that. And
I think a lot of people have just kind of
given up and just gone. It's just not for me,
you know, I'm going to have to look at a
rent vesting sort of strategy where I'm investing somewhere else or.
S2 (11:06):
Just rent full stop and not even invest, Right. Yeah.
You know, a lot of people can't afford to do
investing on the side. So they're just sort of resigned
themselves to renting for the rest of their lives.
S1 (11:15):
So yeah. And meanwhile, the rental market is getting tighter
and people are getting squeezed there. Yeah, I mean, I
sort of have done a lot of looking at that
issue of renting versus, you know, buying and whether which
one's appropriate. And I did use to be sort of
I'll just be a rent. VESTER But I think I
was just putting off city because I was doing the renting,
(11:35):
but I wasn't doing the vesting, investing part of it.
The common.
S2 (11:39):
Common scenario for many people in the in the renting
bucket and.
S1 (11:42):
I think the sort of the having had a mortgage
now and it's sort of it's enforced version of that
that you know you it forces you to put aside,
you know not only you're paying for the interest obviously
on the loan that you've taken out, but the any
principal you make is is a form of investment because
you're increasing your ownership stake in an asset that you've purchased.
(12:03):
And the ability I mean, there is nothing like property
for banks to lend you money. So the ability to
leverage and purchase an asset upfront of which you would
enjoy any percentage gains in a tax free environment is
pretty unparalleled. So when I've looked at renting versus, you know,
buying a property to live in sort of comes back
(12:24):
to that leverage thing of how much you'll be able
to shackle yourself with one of these super sized mortgages,
you know, which hurts on the interest front, but also
gives you access to ownership of a large asset earlier
in your life. So I am all about telling people
that we've rigged the system such that property ownership is
(12:46):
is structured in a way that if you can get
on there, that hopefully will mean a good financial future
for you, assuming you don't borrow too much. So whilst
we acknowledge there are so many challenges out there, I really,
really want to help people who are on the cusp
or who might be close if they just did a
few of these things. Yeah, we could maybe will help.
(13:07):
Maybe we can help if we get there.
S2 (13:10):
The first thing I think is that we've we've spoken
a lot, you know, just in this podcast so far
about the 20% deposit and you don't need 20%. You
can go in at less, you can come in at 10%
or under, but you'll have to pay what's known as
lender's mortgage insurance and have like, how much is that?
Just like what? What is what's the sort of the
average amount that you would expect to pay if you're
(13:32):
paying lenders mortgage insurance?
S1 (13:34):
Yeah, I have in my mind sort of about $10,000
being on a typical or a median sized home. It
depends and it varies. But yeah, that's the insurance. You
pay not to cover you in any capacity but to
cover the bank. If you've borrowed on a lesser than 20% deposit,
there's less equity that you have in the property. So,
(13:56):
you know, the lender actually takes out this insurance to
protect them. Yeah. And it can be a really high
upfront cost. It is something you can build into your loans,
so you just borrow that extra amount to cover it.
And then there's also a government scheme which I think
we'll get to. But yet number, you know, we've got
a list of five solutions that we're going to offer
(14:18):
to the people through number one, it doesn't seem like
much of a solution, but to have less of less
than 20% don't. If you're sitting there waiting to get
your 20% deposit, for many people, the 23 years, that's
just not you're not going to get there. And it
just seems to be the way things are moving that
the system is encouraging you and facilitating more people to
(14:40):
get in earlier with smaller deposits, which is kind of
scary when house prices are falling by 30 to absolutely 20%. Yeah.
S2 (14:46):
And you shack yourself up with a with a big
mortgage and then, you know, interest rates go up and
you can't repay it. Like there's a lot of it's
not a it's not an elegant solution going in at
less than 20% it is an option.
S1 (14:57):
But I think it is important for people to know
that is what everybody else is doing. So, you know,
absolutely you're sitting there waiting diligently to get your 20%.
S2 (15:06):
And like another option I'll second offering, which is doing
similar to what Jess and I have done. And instead
of looking to buy a house, looking to buy an apartment,
so the median price for a per unit across all
capital cities is about 600,000. In Melbourne, it's less than that.
In Sydney, it's quite a bit higher. And you know,
apartments are really nice. I love my apartment. I've got
(15:29):
to have a great time.
S1 (15:30):
I love my apartment too. And I tell people, don't
forget about. Ground floor apartments where you sort of all
of us, apart from all the people living on top
of you, it feels like you you know, you can
have access to a bit of a garden as well. Yeah.
I mean, as a solution, again, it's, you know, it's
not what you dream of. You want the quarter acre
block particularly. Got, you know, I've got a kid and
(15:52):
I sort of it took me a lot of mental
adjustment to go, That's just not going to happen. I'm
not going to live in the sort of house that
I lived in when I was a kid. And I
think mentally adjusting to that can be hard because you
feel like you want to provide that. But lots of
great people, including us, are living in apartments. The only
(16:14):
thing to watch out for that is strata fees. And
I think people don't necessarily factor that in is which
is a large ongoing cost.
S2 (16:22):
What are your strata fees each year in Sydney?
S1 (16:25):
I'm paying about a $9,000 a year in strata fees. Oh.
S2 (16:30):
9000. I'm truly shocked.
S1 (16:33):
The building that's got a lift, it's got communal gardens.
We've got a pool, which is actually lovely, but you know,
you're paying the cost. And I have been meaning to
do the sums. I don't know if you bought bought
a freestanding house, whether you would be spending $9,000 a
year on upkeep. What are your fees?
S2 (16:50):
1400 a year.
S1 (16:52):
Oh, goodness.
S2 (16:53):
Yeah. So.
S1 (16:55):
Wow, maybe that's a Sydney, Melbourne thing because I'm.
S2 (16:57):
Guessing it might be. Also, I've only got 14 people
in my block. Like, it's not a big it's not
a big, big apartment. No lists. No lists. It's got
actually communal gardens, it's got carports. It's like pretty low
key on the maintenance front. So that's that's obviously the difference.
But I'm not sure if that's, you know, seven and
a half thousand dollars difference. That's a phenomenal amount of money.
S1 (17:16):
Yeah, I wish I had paid a little bit closer
attention to that, actually, the ongoing cost, you know, because
I'll own my apartment outright so there will be no mortgage,
but when I'm retired, I'll still have this large ongoing cost. Yeah. Anyway,
so just to take that into it, just take.
S2 (17:32):
That into account. What's our next tip?
S1 (17:35):
So solution three and this is what I wish I'd known,
is that don't just sit there kind of thinking and wondering.
You have to actually start going and talking to banks
and to mortgage brokers pretty early on in the piece.
And actually a large part of the education that I
got about the process of getting a loan came from
(17:56):
literally one day I walked into three different banks on
the high street and just, you know, can I have
a loan? And, you know, I'm a financial expert and
it's just you have to go through that process because
they then start to ask you all these questions like, okay, well,
what's your income? What are your expenses? You know, and
(18:16):
that's how they determine how much surplus cashflow you've got.
And at the time, I was not the budgeting wizard
that I am today. If you see.
S2 (18:24):
My famous, famous budgeting website.
S1 (18:26):
Instagram account, my money with Jess, I now keep a
almost unhealthy level of tracking of my expenses. So now
I know. But they will get you really thinking early
on about focusing in on, you know, what's your income,
what what are your expenses? Where could you trim back?
You know, and I remember when I told one banker, oh, yes,
(18:48):
I spend about, you know, what, three or $4,000 a
year on hair treatments. And he sort of gave me
the one I raised and went, Do you? Well, you
don't now, you know, if you want your mortgage, you're
not going to, you know, be able to you have
to actually, you know, and I had to sort of
live to a more modest lifestyle to afford my loan
(19:09):
than I was previously. And know if you do go
and have that conversation about your borrowing capacity, it can
help you to sort of bring back to reality, you know,
the some of the sacrifices that you probably will have
to make.
S2 (19:21):
Though I think we should make it clear that we're
not telling people to stop eating avocado toast.
S1 (19:25):
No.
S2 (19:26):
No, that's not part of that. You will never hear
that on this podcast. We're never going to stop telling
you to stop having your brunches. Yes, fine.
S1 (19:33):
Brunch is.
S2 (19:33):
Allowed to have.
S1 (19:33):
It, had a life. Maybe don't have that every day.
S2 (19:37):
Have it felt that if you were having an every day,
I'd probably tell you to stop just from like a
health point of view rather than like a finance point
of view. I mean.
S1 (19:43):
Nutrition.
S2 (19:45):
Yeah. Would put them on nutritionists hat and say to
stop eating the toast. Mix your diet up mate.
S1 (19:50):
Best healthy fats out of an avocado. We digress.
S2 (19:54):
We digress. Another sort of and this is this is
the one that you sort of loathe to mention, but
it is sort of the reality for so many people
in Australia, which is the bank of mum and dad, right? Yeah,
it exists. It's big. It offers a lot of very
generous and low interest loans to a lot of people
that a lot of people have to get money from
(20:16):
their parents or they have to have their parents guaranteeing
their loan. Like, you know, we've got two examples of
either situation here, right? So it is sort of unfortunate
that that is the scenario that we're in in Australia,
where the generational wealth is such that that you have
to rely on your parents to. I had the money
for your house, and you then might have to do
(20:37):
that for your own kids. But it is a reality
for many people who are in the position that where
their parents can do that. And you know that some
it is a lot of ways to get into the
property market.
S1 (20:47):
Yeah, it makes me really sad. We've designed such a
terrible system that we've let house prices inflate away. And
if you didn't carefully select your mother and father at birth.
S2 (20:59):
Which we all.
S1 (20:59):
Did to be someone who owns property and, you know,
in urban areas. Yeah. The idea I hate giving this
piece of advice and I was very loathe to get
my own parents involved. I was like, No, I should
be able to do this by myself. I want to
be able to do this by myself. I was really
worried about having mom and dad on the hook because
they went guarantor by loan, but it is a conversation
(21:21):
worth having. If your parents do own property, they've got
substantial equity in their home. You know, they might not
have the cash to actually stump up to help you
with deposit. But there there are parental guarantees. And what
was reassuring to me and it's just worth talk to
a mortgage broker, talk to a banker about how to
use these sort of guarantees. They weren't sort of on
(21:42):
the on the line or on the hook, if, you know,
if I didn't pay my loan, they were going to
have to pay back my whole loan, but only for
the missing amount that I had in my deposit versus
having the 20% deposit. They went guarantor on that sort
of smaller amount, which meant that I avoided paying lenders
that lender's mortgage insurance that we spoke about.
S2 (22:01):
Okay, So you can sort of and organize it so
it works in a different way.
S1 (22:06):
Yeah. So I think I mean, I could have borrowed
with I think I had about a 15% deposit at
the time and I could have done it and just
paid lender's mortgage insurance. But it did, you know, having
that guarantee meant that I avoided into that, that part
of the cost. So it's not that I couldn't get
it without the guarantee, but it did help me save
save a little bit upfront. And then actually what happened
(22:29):
is after in the year after I bought the the
value of the property went up and then I was
able to release them from the guarantee. Once your loan
to value ratio is under the 80%, then you can
release them. So that was a lovely moment to be
had to right release I release you back into the wild,
you know.
S2 (22:46):
Not they're not part of this.
S1 (22:48):
So yeah, I'm an independent lady all again, all over again.
So there are the bank of Mum and Dad is
not totally flush with cash. There are other ways that,
that they can help. And you know, if you have
access to that, it's a conversation worth having.
S2 (23:03):
Yeah. And also, again, you know, this is another sort
of thing that a lot of people are very privileged
to have, but a lot of people are not. So exactly.
Obviously that piece of advice is not apply to everyone,
but this piece of advice does apply to everyone, which
is there are a number of first time buyer schemes
out there. There was a I'm not sure if people
remember the election. That was a bit of a that
was a bit of a topic. So we have we
(23:24):
have some sort of some some fresh home schemes that
are available on the federal one. There's 35,000 places a year.
They allow you to buy a place for as little
as a 5% deposit and they'll sort of back you
like the government will back you.
S1 (23:39):
Yeah, they essentially become the bank of mum and dad
for you by going the guarantor. It is income tested. Yeah.
For people to be aware of. But yeah, that's the
first home deposit scheme which seems to be a new
feature and a feature that's going to stay in the landscape.
S2 (23:55):
Absolutely. But obviously the caveat with that is that you
have to apply. It's not for everyone and there's only
35,000 every year. So, you know, it's it's a bit
of a limited scheme, but it is a good way
to get yourself into the into the property market with
a very small deposit. And then obviously on top of that,
there's all the state based first home buyer schemes, which
are pretty similar as far as I'm aware. Often it's
(24:17):
a grant of about $10,000. They'll waive stamp duty up
to a certain value of the property and then over
that they'll reduce the stamp duty like I didn't pay
any stamp duty on my place, which was, which was good.
S1 (24:30):
Because it was under the threshold.
S2 (24:32):
Yes. It was under 600,000. Yeah.
S1 (24:34):
And then the final one we wanted to mentioned was
the first home super saver scheme, which I remember when
that was invented back in the day. I'm showing my
age now, but when Kevin Rudd got elected, you know,
housing affordability was a big issue. How long a good
Kevin I seven. So that's 15 is still a big issue.
And this was their sort of offering which has since
been expanded, that if you have a plan and if
(24:55):
you're ahead of time, you know, a couple of years
down the road before you want to purchase, you can
make voluntary contributions to super up to a $15,000 a
year and then capped at a sort of $50,000 total
that you can put into super and take out again
for release under the first Home Saver scheme. The advantage
(25:17):
of that is that you pay lower tax on that money.
So rather than be taxed at your marginal rate, you
get to save in this lower tax environment of super
and the that that can really you know, the amount
of tax that you save adds to the deposit that
you can then. A mess.
S2 (25:34):
Yeah. And if the market's having a good year, make
it a little bit of money on your. On your deposit, too. Yeah.
S1 (25:39):
And you just hope it wasn't sort of the last
year or. Yeah, you sort of want to be looking
at us sort of a couple of years time horizon,
I think. But if I have my time again, you know,
and I got my act together a bit earlier, that's
definitely something I would have looked at.
S2 (25:53):
That scheme made to I think about none of that.
I would have put a bit more cash in. So
something like that. Well, look, we hope that that sort
of helps a little. Obviously, that doesn't erase the massive,
overarching problem of housing affordability in Australia, which is something
that no one appears to want to talk about or
do much about. So moving on from that, Jess, we
(26:13):
do have your budget tip of the week. Is it
related to housing?
S1 (26:16):
It's not.
S2 (26:18):
Well, that's probably refreshing, to be honest.
S1 (26:19):
Unless you have home insurance. My budget tip of the
week is to live your life to excess.
S2 (26:26):
Okay, great. You know what I said about avocado toast earlier?
I'm just going to go grab some.
S1 (26:30):
Just go eat. No, this is to look at your
excesses on your insurance policy. So everyone's tightening the belt.
Starting to review, you know, household expenses. Something that I've
done throughout my personal finances is to go through all
my insurance. So car insurance, health insurance, home insurance, and
(26:53):
a strategy that I have in place because I know
that I do have an emergency savings fund. I've got
my $36,000 that sits there, which I've calculated is roughly
my six months of basic living expenses. So I know
that if I do need to make a claim, if
I agree to a higher excess, which means that I
agree to pay a higher dollar amount out of pocket
(27:14):
in the event that I need to claim that my
premiums go down. So with private health insurance, they recently increased,
you know, the excess that you're allowed to accept up
to 750 for singles and 1500 for couples. And so
I just go for the biggest excess possible. And I
know that I've got the savings there to pay it
(27:35):
if I need to pay it out of pocket in
the event of a claim. But I have saved so
much of my premiums on across all of my insurance
is that it's probably already made up for whatever excess
I would need to pay. And you could be unlucky, unfortunately.
And you know, maybe you have a claim fall soon
and you've, you know, agreed to the bigger excess and
that's not going to work out for you. But it's
(27:56):
definitely something you can tinker with because those are some
very large parts of household budgets and insurances, particularly private health.
S2 (28:04):
Premiums, are one of those things that I think when
I bought insurance for the first time, like I bought
a car for the first time last year and I
was like, I don't really understand this. I'm just going
to set it at a number that feels about right.
Like I didn't even I don't even think about it.
So I should I'll I'll go back and review my
excesses and be more excessive.
S1 (28:20):
Be more excessive.
S2 (28:22):
Well, I think that's probably all we have time for
this week. But in future episodes, we would love to
answer your questions, so please email them through to. It
all adds up at nine. Accommodate a few or even
send them as a voice memo so we can play
them if a live. That's alright with you because we'd
love to hear from you.
S1 (28:38):
This episode of It All Adds Up was produced by
Chee Wong. Information discuss is generally nature and does not
take into account your personal financial situation, goals or objectives.
You should always do your own research or get professional
advice before making any major financial decisions. If you like
today's episode, hit follow in your podcast app. Leave us
a review and recommend it to all your friends. You
(29:00):
can submit your listener questions in text or audio format too.
It all adds up at 9:00 for you. Thanks for listening.
Hello and welcome to It All Adds Up the podcast
where we chat about money, how to get it, how
to spend it, and how to invest it. I'm senior
economics writer Jess Irvine, and you're listening to our summer series,
where we're replaying some of our hottest hits to help
you get in shipshape financial form for 2023. It all
adds Up will resume normal programming in February with a
(00:21):
brand new season full of money saving tips and insights.
So until then, sit back, relax and enjoy. Hello and
welcome to It All Adds Up the podcast where we
chat about money, how to get it, how to spend it,
(00:43):
and how to invest it, and seek to demystify the
world of finance and investing. I'm senior economics writer Jess Irvine, and.
S2 (00:50):
I'm money editor Dom Powell. And for our first episode,
we've decided we may as well just dive into perhaps
the biggest topic in personal finance, the very vexed question
of home ownership. We're going to take a look at
how much it costs to buy a home in Australia
these days and strategies to help you or a loved
one get a foot in the door.
S1 (01:05):
We're also going to be sharing some of our own
personal stories of getting into the housing market and things
that we wish we knew before taking the plunge. And
later in the episode, I'll be offering my budget tip
of the week, which is going to be a regular
feature to help you cope with the rising costs of living.
S2 (01:22):
But first, just a reminder that the information we're about
to discuss is general in nature and does not take
into account your personal financial situation, goals or objectives.
S1 (01:31):
Yep, good point. Now we don't know each other too
well just yet. But I knew I was super impressed
with you when I'd heard that you'd bought your first
home at some tender age. I'm not even sure.
S2 (01:42):
I was 23.
S1 (01:44):
23. And I think that's quite impressive. And I think
that is quite anomalous in today's market. So I just
wanted to ask you, you know, what was your experience
of purchasing a home? How did you decide so early
in life that you were going to even try?
S2 (01:59):
Well, look, my experience is quite unique. Definitely not the
experience of of most people out there. The reason that I,
I owned property at the tender age of 23 is
because I got quite lucky with a little thing called cryptocurrency.
S1 (02:15):
You went to the moon?
S2 (02:16):
I did. I went to the moon. I was at
the right place at the right time. I do not
profess to be an investing genius. I just got curious
in the world of crypto at the start of 2017,
rode the market to a decent point, sold out and
made a decent enough enough money that I could start
(02:36):
actually thinking about home ownership. And before that it wasn't
even on the cards. It wasn't even something that I
was thinking I would do anytime soon. But after that,
you know that that fateful year I was sort of
in a position where I could start to think about
actually buying a home. And then in about 2018, 2019,
I started to look and bought a building, an apartment
(02:57):
in in Melbourne in 2019.
S1 (03:00):
That's funny because that ended we ended up buying in
the same year because I bought my first home in
late 2019. So snap at the tender age of about 39.
I think I was.
S2 (03:13):
Still a tender age.
S1 (03:14):
Did you turn up to a whole bunch of auctions
and get knocked back? What was it like for you?
S2 (03:20):
Yeah, well, it was interesting. I am. So I should
also add, because I don't want to be one of
those man buys home at 23 from crypto savings like
that is true. But I also had help from my parents,
so there was a bit of both. Like I don't
want I just want to make that very clear. I'm not,
you know, some sort of 1 to 1 in, but
I went to a lot of auctions. My first, the
(03:41):
first one I bid at, I was quite demoralised to
find out that the sort of price that I was
hoping to to get the place that was just eclipsed very,
very quickly. But in the end, I bought my home
in a pretty weird way. I put it in an
offer and then a number of other people put it
on offer and we ended up having a boardroom auction.
S1 (03:58):
What's that?
S2 (03:59):
They sit you around in the boardroom of the of
the Real estate agents office, and there was about three
other people there for the people there. And you have
an auction. But instead of being out in the street,
you just sitting there at the put in the boardroom.
It was bizarre. It was such a strange experience. But
in the end I won that. So yeah, Then I
bought my place at the end of end of 2019.
S1 (04:20):
Yeah. And I hope by sharing our stories of how,
you know, we've got into home ownership, it's not I'm
just incredibly aware of the privilege that I had in
sort of having a good, decent income to accumulate my
own savings. I didn't have any sort of cash from
mum and dad, but I did have them go guarantor
on my loan, which is something which we'll discuss later
(04:41):
when we get to sort of some potential solutions if
people are looking for ways to get in. I had
my deposit ready to go for a couple of years actually,
and I was just watching the market and I actually
spent a lot of time on the sidelines just, you know,
prices would go up. So I'd go, Oh, that's okay.
I can live in an apartment. That's okay. Maybe, you know,
(05:01):
I can just not have a balcony. And I kept
trying to adjust down the, oh, I can buy further out.
And then really just at the end, sort of had
to go to the bank and say, what is the
maximum amount you will lend to me? Like it's getting
away from me. And then I did sort of end
up looking for slightly more expensive properties. I paid about
$870,000 for a two bedroom apartment. So in 2019, and
(05:27):
I think the bank was going to lend me a
million plus, but I sort of just decided that wasn't necessary.
I did get up. We did an auction. So the
week before I bought, I sort of turned up and
I was have my maximum bid. They say you should
write it on a piece of paper in your pocket.
So I put my number and then during the auction,
I proceeded to bid substantial proportion above one number as
(05:49):
the do.
S2 (05:50):
Yeah, I think that's just the way it goes for
any auction, right?
S1 (05:53):
Exactly. And the successful bidder was an investor. Basically the
classic story of sort of just having way more money
than I. So then I started looking about a suburb
out from where I was originally and happy Days. So
the point of sort of picking this is our first topic,
I think in my mind is that really home ownership,
you know, the decisions that you make about property will
(06:16):
be one of the biggest factors that will influence your
future financial capability and your wealth. It's just so, so key.
S2 (06:25):
Absolutely. Having a mortgage is sort of just makes you
think about everything differently, I think, in terms of your
personal finances. Like, you know, just when you have such
a large asset in your life, I guess it just
changes your perspective on everything. So I think you're right.
It is it is a massive decision. And, you know,
it does sort of make a very big impact on
(06:46):
the way you think about money.
S1 (06:47):
And it's also probably the most expensive thing that you're
going to have to pay for throughout your life is
figuring out. Are you renting? Are you buying? And what's
your strategy there? You know, when you retired, are you
going to own a place outright or will still be renting?
It's just so important. Now, look, preparing for this episode,
you've you've been out there and you've been researching some
pretty scary statistics just to give us the current state
(07:10):
of play of where houses are at with home ownership.
So do you want to run us through a few
of the very scary stats? Yeah, it's not gross.
S2 (07:18):
It's not great. So something that did surprise me, which
is the first statistic, which is that two thirds of
Australians own their own home, which I thought might be
a bit lower, and it used to be a bit higher.
It used to be about 75%, but that's fallen over
the last two decades to 66%. So, you know, it
is coming down, more people are renting. But that sort
(07:41):
of tells us that houses are expensive. We knew that
this is not this is not surprising and have become
much more and significantly more expensive over time. So in 2000,
you could buy a house in Sydney and this is
like a house, not a not an apartment for just
under $300,000 and in Melbourne, just under $200,000. And that
was at the turn of the millennium today. That's at
(08:04):
about 1.6 million in Sydney and about 1.1 million in Melbourne.
And the median across all capital cities is sitting pretty
much exactly at $1 million to buy a house.
S1 (08:17):
A freestanding house, a.
S2 (08:19):
Freestanding house, obviously different for four units. But as most
people think, you know, there's a sort of home ownership
dream is owning a house typically. So that's that's sort
of the reference. So that's a obviously, you know, an
astounding rise in property values over I know obviously two
decades is a long time, but that is a massive
(08:39):
increase in the price of a property.
S1 (08:42):
Yeah. And way out of line with wages growth, you know,
as a multiple of incomes. It's just it is to
be stably got much much harder.
S2 (08:51):
Yeah nothing else you know few other things that have
risen as much as you know as property prices have
in the last 20 years. So what that sort of
means for home owners who are trying to get into
the market at the moment, is that to buy a house,
you're looking at a deposit of at least $200,000. That's
a lot of money. You know, that's it's an immense
(09:11):
amount of money.
S1 (09:12):
To have the full 20% deposit, to have.
S2 (09:15):
The full 20%. Sorry, this should be clear.
S1 (09:17):
And is it that it's not hilarious? It's very painful
that so we're saying that's how much she needed to
buy a house in 20. In 2000 and now that's
how much you need for a 20% deposit. It's just gobsmacking.
S2 (09:29):
Exactly. So what what could have bought you a full
a full on house the whole hog back in back
in 2000 now just gets you a measly 20% of it.
So yeah, I think it's pretty clear to say that
that the odds are stacked against young homeowners. A first
home owners, young or not, it's a huge amount of
money to save. And the stats are, you know, Australians
(09:50):
save on average about $700 a month. So you're looking
at maybe 8 to $10000 a year. So that's looking at,
you know, for one person, 20 ish years of saving,
if you're just saving straight off your own back to
afford a home deposit, That's fascinating.
S1 (10:07):
What's the source of that?
S2 (10:08):
So that's from some savers savings surveys I found online
from Finder. But I've checked a few other places and
that's pretty accurate in terms of the ABS data as
well as on sort of, you know, the amount that
people save per year. Obviously, the older you are, you
save more, the younger you are, you save less. But
that's the average sort of thing. So obviously these these
(10:31):
sort of figures change if you're saving for someone else
like a you on a partner want to buy a.
That sort of drops drastically, But you're still looking at
a good number of years if you want to sort
of go from zero to a house deposit. And I
suppose this is where we can come in and look
at what you can do to cut that period of
time down or sort of circumvent it or whatever the
(10:51):
possibility is.
S1 (10:53):
To help, because I think people would hear that. And
I think a lot of people have just kind of
given up and just gone. It's just not for me,
you know, I'm going to have to look at a
rent vesting sort of strategy where I'm investing somewhere else or.
S2 (11:06):
Just rent full stop and not even invest, Right. Yeah.
You know, a lot of people can't afford to do
investing on the side. So they're just sort of resigned
themselves to renting for the rest of their lives.
S1 (11:15):
So yeah. And meanwhile, the rental market is getting tighter
and people are getting squeezed there. Yeah, I mean, I
sort of have done a lot of looking at that
issue of renting versus, you know, buying and whether which
one's appropriate. And I did use to be sort of
I'll just be a rent. VESTER But I think I
was just putting off city because I was doing the renting,
(11:35):
but I wasn't doing the vesting, investing part of it.
The common.
S2 (11:39):
Common scenario for many people in the in the renting
bucket and.
S1 (11:42):
I think the sort of the having had a mortgage
now and it's sort of it's enforced version of that
that you know you it forces you to put aside,
you know not only you're paying for the interest obviously
on the loan that you've taken out, but the any
principal you make is is a form of investment because
you're increasing your ownership stake in an asset that you've purchased.
(12:03):
And the ability I mean, there is nothing like property
for banks to lend you money. So the ability to
leverage and purchase an asset upfront of which you would
enjoy any percentage gains in a tax free environment is
pretty unparalleled. So when I've looked at renting versus, you know,
buying a property to live in sort of comes back
(12:24):
to that leverage thing of how much you'll be able
to shackle yourself with one of these super sized mortgages,
you know, which hurts on the interest front, but also
gives you access to ownership of a large asset earlier
in your life. So I am all about telling people
that we've rigged the system such that property ownership is
(12:46):
is structured in a way that if you can get
on there, that hopefully will mean a good financial future
for you, assuming you don't borrow too much. So whilst
we acknowledge there are so many challenges out there, I really,
really want to help people who are on the cusp
or who might be close if they just did a
few of these things. Yeah, we could maybe will help.
(13:07):
Maybe we can help if we get there.
S2 (13:10):
The first thing I think is that we've we've spoken
a lot, you know, just in this podcast so far
about the 20% deposit and you don't need 20%. You
can go in at less, you can come in at 10%
or under, but you'll have to pay what's known as
lender's mortgage insurance and have like, how much is that?
Just like what? What is what's the sort of the
average amount that you would expect to pay if you're
(13:32):
paying lenders mortgage insurance?
S1 (13:34):
Yeah, I have in my mind sort of about $10,000
being on a typical or a median sized home. It
depends and it varies. But yeah, that's the insurance. You
pay not to cover you in any capacity but to
cover the bank. If you've borrowed on a lesser than 20% deposit,
there's less equity that you have in the property. So,
(13:56):
you know, the lender actually takes out this insurance to
protect them. Yeah. And it can be a really high
upfront cost. It is something you can build into your loans,
so you just borrow that extra amount to cover it.
And then there's also a government scheme which I think
we'll get to. But yet number, you know, we've got
a list of five solutions that we're going to offer
(14:18):
to the people through number one, it doesn't seem like
much of a solution, but to have less of less
than 20% don't. If you're sitting there waiting to get
your 20% deposit, for many people, the 23 years, that's
just not you're not going to get there. And it
just seems to be the way things are moving that
the system is encouraging you and facilitating more people to
(14:40):
get in earlier with smaller deposits, which is kind of
scary when house prices are falling by 30 to absolutely 20%. Yeah.
S2 (14:46):
And you shack yourself up with a with a big
mortgage and then, you know, interest rates go up and
you can't repay it. Like there's a lot of it's
not a it's not an elegant solution going in at
less than 20% it is an option.
S1 (14:57):
But I think it is important for people to know
that is what everybody else is doing. So, you know,
absolutely you're sitting there waiting diligently to get your 20%.
S2 (15:06):
And like another option I'll second offering, which is doing
similar to what Jess and I have done. And instead
of looking to buy a house, looking to buy an apartment,
so the median price for a per unit across all
capital cities is about 600,000. In Melbourne, it's less than that.
In Sydney, it's quite a bit higher. And you know,
apartments are really nice. I love my apartment. I've got
(15:29):
to have a great time.
S1 (15:30):
I love my apartment too. And I tell people, don't
forget about. Ground floor apartments where you sort of all
of us, apart from all the people living on top
of you, it feels like you you know, you can
have access to a bit of a garden as well. Yeah.
I mean, as a solution, again, it's, you know, it's
not what you dream of. You want the quarter acre
block particularly. Got, you know, I've got a kid and
(15:52):
I sort of it took me a lot of mental
adjustment to go, That's just not going to happen. I'm
not going to live in the sort of house that
I lived in when I was a kid. And I
think mentally adjusting to that can be hard because you
feel like you want to provide that. But lots of
great people, including us, are living in apartments. The only
(16:14):
thing to watch out for that is strata fees. And
I think people don't necessarily factor that in is which
is a large ongoing cost.
S2 (16:22):
What are your strata fees each year in Sydney?
S1 (16:25):
I'm paying about a $9,000 a year in strata fees. Oh.
S2 (16:30):
9000. I'm truly shocked.
S1 (16:33):
The building that's got a lift, it's got communal gardens.
We've got a pool, which is actually lovely, but you know,
you're paying the cost. And I have been meaning to
do the sums. I don't know if you bought bought
a freestanding house, whether you would be spending $9,000 a
year on upkeep. What are your fees?
S2 (16:50):
1400 a year.
S1 (16:52):
Oh, goodness.
S2 (16:53):
Yeah. So.
S1 (16:55):
Wow, maybe that's a Sydney, Melbourne thing because I'm.
S2 (16:57):
Guessing it might be. Also, I've only got 14 people
in my block. Like, it's not a big it's not
a big, big apartment. No lists. No lists. It's got
actually communal gardens, it's got carports. It's like pretty low
key on the maintenance front. So that's that's obviously the difference.
But I'm not sure if that's, you know, seven and
a half thousand dollars difference. That's a phenomenal amount of money.
S1 (17:16):
Yeah, I wish I had paid a little bit closer
attention to that, actually, the ongoing cost, you know, because
I'll own my apartment outright so there will be no mortgage,
but when I'm retired, I'll still have this large ongoing cost. Yeah. Anyway,
so just to take that into it, just take.
S2 (17:32):
That into account. What's our next tip?
S1 (17:35):
So solution three and this is what I wish I'd known,
is that don't just sit there kind of thinking and wondering.
You have to actually start going and talking to banks
and to mortgage brokers pretty early on in the piece.
And actually a large part of the education that I
got about the process of getting a loan came from
(17:56):
literally one day I walked into three different banks on
the high street and just, you know, can I have
a loan? And, you know, I'm a financial expert and
it's just you have to go through that process because
they then start to ask you all these questions like, okay, well,
what's your income? What are your expenses? You know, and
(18:16):
that's how they determine how much surplus cashflow you've got.
And at the time, I was not the budgeting wizard
that I am today. If you see.
S2 (18:24):
My famous, famous budgeting website.
S1 (18:26):
Instagram account, my money with Jess, I now keep a
almost unhealthy level of tracking of my expenses. So now
I know. But they will get you really thinking early
on about focusing in on, you know, what's your income,
what what are your expenses? Where could you trim back?
You know, and I remember when I told one banker, oh, yes,
(18:48):
I spend about, you know, what, three or $4,000 a
year on hair treatments. And he sort of gave me
the one I raised and went, Do you? Well, you
don't now, you know, if you want your mortgage, you're
not going to, you know, be able to you have
to actually, you know, and I had to sort of
live to a more modest lifestyle to afford my loan
(19:09):
than I was previously. And know if you do go
and have that conversation about your borrowing capacity, it can
help you to sort of bring back to reality, you know,
the some of the sacrifices that you probably will have
to make.
S2 (19:21):
Though I think we should make it clear that we're
not telling people to stop eating avocado toast.
S1 (19:25):
No.
S2 (19:26):
No, that's not part of that. You will never hear
that on this podcast. We're never going to stop telling
you to stop having your brunches. Yes, fine.
S1 (19:33):
Brunch is.
S2 (19:33):
Allowed to have.
S1 (19:33):
It, had a life. Maybe don't have that every day.
S2 (19:37):
Have it felt that if you were having an every day,
I'd probably tell you to stop just from like a
health point of view rather than like a finance point
of view. I mean.
S1 (19:43):
Nutrition.
S2 (19:45):
Yeah. Would put them on nutritionists hat and say to
stop eating the toast. Mix your diet up mate.
S1 (19:50):
Best healthy fats out of an avocado. We digress.
S2 (19:54):
We digress. Another sort of and this is this is
the one that you sort of loathe to mention, but
it is sort of the reality for so many people
in Australia, which is the bank of mum and dad, right? Yeah,
it exists. It's big. It offers a lot of very
generous and low interest loans to a lot of people
that a lot of people have to get money from
(20:16):
their parents or they have to have their parents guaranteeing
their loan. Like, you know, we've got two examples of
either situation here, right? So it is sort of unfortunate
that that is the scenario that we're in in Australia,
where the generational wealth is such that that you have
to rely on your parents to. I had the money
for your house, and you then might have to do
(20:37):
that for your own kids. But it is a reality
for many people who are in the position that where
their parents can do that. And you know that some
it is a lot of ways to get into the
property market.
S1 (20:47):
Yeah, it makes me really sad. We've designed such a
terrible system that we've let house prices inflate away. And
if you didn't carefully select your mother and father at birth.
S2 (20:59):
Which we all.
S1 (20:59):
Did to be someone who owns property and, you know,
in urban areas. Yeah. The idea I hate giving this
piece of advice and I was very loathe to get
my own parents involved. I was like, No, I should
be able to do this by myself. I want to
be able to do this by myself. I was really
worried about having mom and dad on the hook because
they went guarantor by loan, but it is a conversation
(21:21):
worth having. If your parents do own property, they've got
substantial equity in their home. You know, they might not
have the cash to actually stump up to help you
with deposit. But there there are parental guarantees. And what
was reassuring to me and it's just worth talk to
a mortgage broker, talk to a banker about how to
use these sort of guarantees. They weren't sort of on
(21:42):
the on the line or on the hook, if, you know,
if I didn't pay my loan, they were going to
have to pay back my whole loan, but only for
the missing amount that I had in my deposit versus
having the 20% deposit. They went guarantor on that sort
of smaller amount, which meant that I avoided paying lenders
that lender's mortgage insurance that we spoke about.
S2 (22:01):
Okay, So you can sort of and organize it so
it works in a different way.
S1 (22:06):
Yeah. So I think I mean, I could have borrowed
with I think I had about a 15% deposit at
the time and I could have done it and just
paid lender's mortgage insurance. But it did, you know, having
that guarantee meant that I avoided into that, that part
of the cost. So it's not that I couldn't get
it without the guarantee, but it did help me save
save a little bit upfront. And then actually what happened
(22:29):
is after in the year after I bought the the
value of the property went up and then I was
able to release them from the guarantee. Once your loan
to value ratio is under the 80%, then you can
release them. So that was a lovely moment to be
had to right release I release you back into the wild,
you know.
S2 (22:46):
Not they're not part of this.
S1 (22:48):
So yeah, I'm an independent lady all again, all over again.
So there are the bank of Mum and Dad is
not totally flush with cash. There are other ways that,
that they can help. And you know, if you have
access to that, it's a conversation worth having.
S2 (23:03):
Yeah. And also, again, you know, this is another sort
of thing that a lot of people are very privileged
to have, but a lot of people are not. So exactly.
Obviously that piece of advice is not apply to everyone,
but this piece of advice does apply to everyone, which
is there are a number of first time buyer schemes
out there. There was a I'm not sure if people
remember the election. That was a bit of a that
was a bit of a topic. So we have we
(23:24):
have some sort of some some fresh home schemes that
are available on the federal one. There's 35,000 places a year.
They allow you to buy a place for as little
as a 5% deposit and they'll sort of back you
like the government will back you.
S1 (23:39):
Yeah, they essentially become the bank of mum and dad
for you by going the guarantor. It is income tested. Yeah.
For people to be aware of. But yeah, that's the
first home deposit scheme which seems to be a new
feature and a feature that's going to stay in the landscape.
S2 (23:55):
Absolutely. But obviously the caveat with that is that you
have to apply. It's not for everyone and there's only
35,000 every year. So, you know, it's it's a bit
of a limited scheme, but it is a good way
to get yourself into the into the property market with
a very small deposit. And then obviously on top of that,
there's all the state based first home buyer schemes, which
are pretty similar as far as I'm aware. Often it's
(24:17):
a grant of about $10,000. They'll waive stamp duty up
to a certain value of the property and then over
that they'll reduce the stamp duty like I didn't pay
any stamp duty on my place, which was, which was good.
S1 (24:30):
Because it was under the threshold.
S2 (24:32):
Yes. It was under 600,000. Yeah.
S1 (24:34):
And then the final one we wanted to mentioned was
the first home super saver scheme, which I remember when
that was invented back in the day. I'm showing my
age now, but when Kevin Rudd got elected, you know,
housing affordability was a big issue. How long a good
Kevin I seven. So that's 15 is still a big issue.
And this was their sort of offering which has since
been expanded, that if you have a plan and if
(24:55):
you're ahead of time, you know, a couple of years
down the road before you want to purchase, you can
make voluntary contributions to super up to a $15,000 a
year and then capped at a sort of $50,000 total
that you can put into super and take out again
for release under the first Home Saver scheme. The advantage
(25:17):
of that is that you pay lower tax on that money.
So rather than be taxed at your marginal rate, you
get to save in this lower tax environment of super
and the that that can really you know, the amount
of tax that you save adds to the deposit that
you can then. A mess.
S2 (25:34):
Yeah. And if the market's having a good year, make
it a little bit of money on your. On your deposit, too. Yeah.
S1 (25:39):
And you just hope it wasn't sort of the last
year or. Yeah, you sort of want to be looking
at us sort of a couple of years time horizon,
I think. But if I have my time again, you know,
and I got my act together a bit earlier, that's
definitely something I would have looked at.
S2 (25:53):
That scheme made to I think about none of that.
I would have put a bit more cash in. So
something like that. Well, look, we hope that that sort
of helps a little. Obviously, that doesn't erase the massive,
overarching problem of housing affordability in Australia, which is something
that no one appears to want to talk about or
do much about. So moving on from that, Jess, we
(26:13):
do have your budget tip of the week. Is it
related to housing?
S1 (26:16):
It's not.
S2 (26:18):
Well, that's probably refreshing, to be honest.
S1 (26:19):
Unless you have home insurance. My budget tip of the
week is to live your life to excess.
S2 (26:26):
Okay, great. You know what I said about avocado toast earlier?
I'm just going to go grab some.
S1 (26:30):
Just go eat. No, this is to look at your
excesses on your insurance policy. So everyone's tightening the belt.
Starting to review, you know, household expenses. Something that I've
done throughout my personal finances is to go through all
my insurance. So car insurance, health insurance, home insurance, and
(26:53):
a strategy that I have in place because I know
that I do have an emergency savings fund. I've got
my $36,000 that sits there, which I've calculated is roughly
my six months of basic living expenses. So I know
that if I do need to make a claim, if
I agree to a higher excess, which means that I
agree to pay a higher dollar amount out of pocket
(27:14):
in the event that I need to claim that my
premiums go down. So with private health insurance, they recently increased,
you know, the excess that you're allowed to accept up
to 750 for singles and 1500 for couples. And so
I just go for the biggest excess possible. And I
know that I've got the savings there to pay it
(27:35):
if I need to pay it out of pocket in
the event of a claim. But I have saved so
much of my premiums on across all of my insurance
is that it's probably already made up for whatever excess
I would need to pay. And you could be unlucky, unfortunately.
And you know, maybe you have a claim fall soon
and you've, you know, agreed to the bigger excess and
that's not going to work out for you. But it's
(27:56):
definitely something you can tinker with because those are some
very large parts of household budgets and insurances, particularly private health.
S2 (28:04):
Premiums, are one of those things that I think when
I bought insurance for the first time, like I bought
a car for the first time last year and I
was like, I don't really understand this. I'm just going
to set it at a number that feels about right.
Like I didn't even I don't even think about it.
So I should I'll I'll go back and review my
excesses and be more excessive.
S1 (28:20):
Be more excessive.
S2 (28:22):
Well, I think that's probably all we have time for
this week. But in future episodes, we would love to
answer your questions, so please email them through to. It
all adds up at nine. Accommodate a few or even
send them as a voice memo so we can play
them if a live. That's alright with you because we'd
love to hear from you.
S1 (28:38):
This episode of It All Adds Up was produced by
Chee Wong. Information discuss is generally nature and does not
take into account your personal financial situation, goals or objectives.
You should always do your own research or get professional
advice before making any major financial decisions. If you like
today's episode, hit follow in your podcast app. Leave us
a review and recommend it to all your friends. You
(29:00):
can submit your listener questions in text or audio format too.
It all adds up at 9:00 for you. Thanks for listening.
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