Hey there little nugget. You’re not so little now, and you’ve probably gone on to achieve quite a bit in your mere 20 years on this planet. Needless to say, I’m pretty proud of the young woman you’ve become.
But I understand that tacking a zero on to the end of your age can be scary. You’re probably asking yourself questions like:
“Why am I here?”
“What should I do with my life?”
“Should I travel first, or buy a house?”
“Is a higher education really worth the time and money?”
“When will dad stop nagging me about health insurance?”
And these are all legitimate questions. For the record, I will never stop nagging you. I’m your dad, and it’s my job.
You’re probably scared of the future, and I’d be worried if you weren’t. We all were at 20 at some point. And yes, I can imagine that the price of houses has probably risen dramatically between 2016 – 2036. Did you know the cost of a house in Sydney rose from $28,000 to over $850,000 between 1975 and 2015*?
Don’t let those figures scare you. The average income has also risen too. But I can’t predict the future, so I don’t know what sort of world you’re living in right now. I can only offer what knowledge I know in 2016.
So with that in mind, here’s some sound wisdom from a Sydney mortgage broker to see you cruise into your 20s with financial security, all while having a bit of fun along the way. It’s the kind of advice I’d give you right now if you were able to open a bank account, and I hope at least some of it is relevant for you in the future.
If you want to buy a house in your 20s, don’t be afraid of FOMO
In fact, embrace it. But know the difference between missing out on Friday cocktails, and missing out on a stable future. Friday night cocktails last for a few hours and the hangover might last for a few days. Big woop. Buying a home? That joy last for decades.
Sydney property market FOMO > Friday night FOMO.
Buy things that build compound interest. I.e. Stay away from the sales
Sales on at MYER? Are they still even around in 2036? I don’t know what the latest craze is, and maybe they have created an indestructable MacBook Pro. But I’m going to guess that they haven’t, so know this: the best way to spend your money is on things that accumulate value. Cars don’t, so buy them second hand. Clothes don’t (except for unique designer goods). Buy consumerables on sale, and buy what you need.
Some of the only things you can spend money on that do increase in value are land and homes. Particularly in Sydney! Invest THERE.
Earning more $$$ doesn’t mean saving more money
Saving is a character trait and not a consequence of earning more. As we enter the next income bracket, we have a tendency to adjust our lifestyles accordingly. Hello Negroni, gym memberships and buckets of Gelato Messina! Don’t assume that you can put off saving until you’ve finished uni, or until you get a pay rise. It doesn’t work that way. Financial discipline is a muscle you need to work on. Start NOW.
But whyyyy dad?
Well, if you learn to save for small things like an overseas holiday, you’ll be able to apply that same discipline to saving for a home loan deposit. The biggest thing stopping first homebuyers from purchasing is the large deposit needed to even get an application form from a lender. If you don’t have a deposit, they won’t even touch you. Unless you have myself and your mum go guarantor.
In 2016, you need a minimum of 11% of the value of your dream home. Then you need to think about stamp duty and other costs. Generally, this means you’ll be borrowing up to 97% of the value of a home.
Here’s an example.
Cost of a house in Sydney’s west: $650, 000
11% needed for a deposit + stamp duty + conveyancing: $71, 500
Actual amount borrowed: $630, 500
Start now. If you’re finding the peer pressure to spend too hard, then…
Don’t try to keep up with the Kardashians
I really hope that this family isn’t pop cultural royalty in 2036, but my point is that comparisonitis is an evil disease. Your defense against it is to surround yourself with people with similar values. If you’re finding that your friends like to spend their time shopping, drinking and generally spending their time, well, spending, I urge you to get new friends! Find friends who like hiking, who can cook, or who like movie marathons. A true friend doesn’t care what clothes you wear or whether you can afford an espresso martini every Friday night.
Cultivate good relationships
No matter how much you want to save for your first home, always remember to spend time with those you love. This includes myself and your mother! And what about the grandparents? Have you called them lately? There are people in your life more important than saving money. They are priceless gems of people you can rely on.
My parting advice? Life is not an excel spreadsheet. Remember to keep your future top of mind, but don’t stress if life gets off track and you can’t squirrel away thousands per month. Ditching your lattes and nights at the movies is miserable, so remember to enjoy yourself too. Your life – and your financial future – are meant to be cherished. That’s the most important thing of all!
* McCrindle Research, 40 Years of Change: 1975 to Today.