Financial Steprs to Buying a Home

This is a small excerpt from an interview I did with a guy named Bill James. Bill is a great financial adviser and I have been working closely with him in creating a book and a workbook that should be ready for print in a few months. I thought this was important for buyers and sellers to understand.

A lot of people who have gone right out and bought a home without actually taking the time to make sure their backyard was in order. In New Zealand we have a massive amount of debt. There are a lot of people who look rich who are not rich and it’s a house of cards. And there’s a terrible old expression I always remember which is “fur coat on top, no knickers underneath” which means it looks great but it’s got no substance.

The first thing you’ve got to do is sit down and actually have a look at yourself and have the patience, which is not a great commodity in this day and age, to put your backyard in order so that you kind of clear the decks of debt and you start to put your own money aside.

Now that starts with the absolute basics. You need to get out of this habit of borrowing. So step one is to have a look at where you are now and say, ‘Well just how big is my problem?’ and realize that it is a quantifiable dollar amount.

A lot of people make the mistake of thinking they can fight it without putting it into a dollar figure. And it is very, very hard to beat a smoke dragon. But as soon as you make it solid by saying ‘Oh, okay, so I’m $20,000 in debt,’ even though that’s a lot, its solid amount and you can now stick a sword in it. It’s no longer a smoke dragon. It’s become real and so you can cut it into pieces and chew it up in $10 lumps, whereas when you fight smoke you slash away at the air and you do absolutely no good because it always just moves around you and you never seem to get your hands on it. So you have to first look at where you are now.

The next thing you have got to do is you’ve got to stop getting into any more debt. It sounds easy when you say it like that but the analogy I often use is to find someone in my audience that is a smoker and suggest that they simply don’t light another cigarette and therefore I have solved their problem and they are no longer a smoker. Of course it’s not that easy but nonetheless it’s something you’ve got to do because one of the keys to being rich is savings, but also stop debt.

I believe that you’ve got to accompany the idea of stopping debt also with having your own money because it’s not just the fact that you have no more debt, it’s the fact you get out of the habit of putting your problems on a credit card or borrowing money to cure the problem.

Don’t underestimate how important it is to have your head in the right place before anything else will happen.

Now the next step of that then is there are only two places you can get money from when you need it. One is borrow it and that will cost you interest; a retail interest contract, that can be well into the thirties of percents. The other place is yourself and so what I’m saying is you need to actually become your own bank. And again it sounds easy enough said quickly but it is hard to do.

Now when I get people to sit down and put on one side of the page everything they’ve got to spend: the rents, the power, the food, the petrol, everything. And then on the other side of the page they put what they earn. The reality is there’s a gap in between that is often many hundreds of dollars a fortnight or $500, $600, $700, $800 a month. And the question then begs, so what happens to that? And the answer is almost certainly ‘Gee I’ve got no real idea.’ and so most families actually have a huge chunk of leakage.

If you’re not in that situation and you literally are living on every cent, then you need to get off your butt and you need to go down and get some proper budgeting advice. There’s a pride aspect that comes into this which is ‘But if I need budgeting isn’t that an admission that I’m no good at something?’ That is a crock. If you need it do it!!!

The moral of the story is that you need to sort yourself out first. You must make sure that your back end finances are in check and that your emotionally up to buying a home. There is nothing worse than getting your home taken off you by the bank because you haven’t budgeted for an unforeseen expense.

Deon Swiggs

Property Profits