This post is originally a chapter in our workbook (stay tuned for more information). Here, we go in depth into the importance of having a strong financial foundation when purchasing a home. While you certainly don’t need to be a millionaire to buy property, you do need to know how much money is coming in, where the money is going, how much you can afford to save, invest and so forth. You don’t want to sit in your new home and realise you can no longer buy your favourite coffee beans at the supermarket. Let’s explore budgeting, managing debt and expenses and more.

Budgeting for Homeownership

We have all seen the Excel spreadsheets with income in one column and expenses in another column. There is nothing quite as exciting as a good old-fashioned budget. In all seriousness, while you don’t need an Excel spreadsheet (because who can actually figure out how Excel works anyway?) having a budget is important. Especially, if you have no clue where your money is going.

Let’s look at why budgeting is important if you want to purchase a home:

  • By creating a budget, you will know exactly how much money you can put aside for a house deposit every week/fortnight/month. Instead of just transferring $200 here and $500 there and then taking back $300 because you realised you actually needed the money (we’ve all been there), you will know the exact amount you can put aside for the house deposit on a regular basis (without having to take it back five minutes later).
  • It generally gives you clarity around your finances, and it will also show the bank exactly where your money is going and how much you are making (and that you can stick to a budget and manage your money).
  • By creating a budget you know exactly how much money you have every month. This helps you set realistic goals and expectations and make informed decisions based on your income and expenses. This ensures that you don’t commit to a property that could lead to financial stress.

How to create and maintain a realistic budget

Often, when people hear the word budget they think they have to deprive themselves. Goodbye take away coffees, brunch with friends and basically anything fun. However, that’s not how you should make your budget. Your budget needs to be realistic – if it’s not realistic, it won’t last. Do you love watching Netflix every night? Then unsubscribing from Netflix probably won’t be very sustainable. While there probably are some expenses that can be cut down (do you really need a to-go coffee every single morning?), it should not be so tight that you can’t do any of the things you love and enjoy. Hence, the word realistic.

You need to assess all income and expenses as the very first thing. This might seem scary, but trust us, it’ll be even scarier to look at in 10 years so you might as well look now. Look at utilities, rent, groceries, entertainment, phone bills, debt, discretionary spending… Everything. Are you living within your means? You should be spending less than you make. Is there anywhere where you can cut expenses? Again, you should not feel deprived. But perhaps you don’t need a subscription to Netflix, Disney+, Neon and Amazon Prime. Maybe one or two will do? Can you make your own coffee instead of buying it? Is the daily pie really bringing you that much joy? There is no one size fits all so do what works for you, but ask yourself this: Is it a need to have or nice to have?

Managing Debt and Expenses

Let’s delve a bit deeper into the topic of debt and expenses.

The impact of existing debts on mortgage eligibility is a critical consideration for aspiring homeowners. Banks assess an individual’s debt-to-income ratio (DTI) to determine their ability to manage additional debt like a mortgage. Here’s why understanding this is important:

  1. Credit Card Debt Impact: Every $10,000 in credit card debt can reduce your mortgage eligibility by approximately $70,000. Banks take into account your existing monthly commitments, and high credit card balances may limit the amount you can borrow for a mortgage. Take a look at this article from Opes Partners for more information about this.
  2. Monthly Commitments: Banks evaluate the total of your monthly debt payments, including car loans, personal loans, and credit cards. This influences the amount they are willing to lend for a mortgage, as they want to ensure borrowers can comfortably manage all their financial obligations.

Strategies for Debt Reduction and Management

Managing and reducing debt is crucial for improving financial health and getting a home loan. Let’s explore some strategies for this:

  1. Debt Consolidation: Consolidating multiple debts into a single loan with a lower interest rate can make debt more manageable. This simplifies monthly payments and may result in lower overall interest payments. Please note, that typically car loans will be kept separate.
  2. Use of Debt Reduction Calculator: Using this debt calculator from Sorted, play with how fast you can pay off your debt. E.g. allocate an extra $100 per week toward debt repayment and see how much faster this means you will have paid off your debt.

How to Prioritise Expenses to Save for a Deposit

Prioritising expenses is crucial when saving for a home deposit. Here’s how to distinguish between essential and non-essential expenses:

  1. Nice to Have vs Need to Have: Categorise expenses into essential needs (e.g., housing, utilities, groceries) and discretionary wants (e.g. dining out, entertainment). Focus on cutting back on non-essential expenses to redirect funds toward savings.
  2. Create a Budget: Develop a budget that clearly outlines income, necessary expenses, and savings goals. We have already talked about the importance of a budget above.

Deposit vs Paying Down Debt

This is always going to depend on your unique situation, but let’s look at some general rule of thumbs:

    • Good Income, Small Deposit: If you have a solid income but a small deposit, prioritise saving for a larger deposit. A higher income may better accommodate both mortgage payments and existing debt.
    • Good Deposit, Limited Income: If you have a substantial deposit but limited income, consider allocating funds to pay down existing debt. This lowers monthly obligations and enhances your financial position when applying for a mortgage.
    • Small Deposit, Limited Income: Here you definitely want to pay down debt first. There are also schemes where you can get away with just a 5 per cent deposit, but start by paying down debt before going house shopping.
    • Minimising Expenses: Regardless of the situation, actively work on minimising unnecessary expenses to free up funds for either debt repayment or saving for a deposit.

How to Minimise Expenses

Let’s look at bit more at how you can minimise expenses, as we all know this one can be a hard one:

  • Cut Discretionary Spending: Identify and cut back on non-essential expenses, such as dining out, subscription services, or impulse purchases.
  • Negotiate Bills: Negotiate with service providers for better rates on utilities, insurance, phones and other regular expenses.
  • Explore Cost-Saving Alternatives: Look for cost-effective alternatives without sacrificing quality, such as cooking at home instead of dining out or bringing your own coffee to work instead of getting a to-go coffee.
  • Review and Adjust Budget Regularly: Regularly assess your budget to identify areas for further savings and adjust spending habits accordingly.

We hope that this post about building a strong financial foundation has provided you with information and hopefully a few tangible action steps you can take that’ll get you closer to owning a home.


Everything shared in this blog post is general financial advice. For financial advice tailored to you, please book a kōrero with us.