Setting a budget is a fundamental skill taught to us in school, but many of us don’t use the skill in our adult lives.
It essentially means putting all of our income and expenses on paper, to understand our financial position. It is not as complicated as accounting and requires not other formulas besides basic maths.
Setting your budget for your first property investment is no harder than this, but with one extra step. You need to work out the amount of deposit you need to purchase a property.
Your borrowing or lending capacity is basically, how much money the bank will lend you for a property. It will tell you how much deposit you need for your first property.
Working out your borrowing capacity is the first thing you need to do before setting your budget, as it will provide the target amount of deposit you need to save and the time it will take to save it.
This can be done in two ways: (1) Make an appointment with your mortgage broker and they will tell you, or (2) Go onto a bank or mortgage specialist website. They normally have a borrowing calculator where you can enter your details and it tells you how much you could borrow and what deposit you require.
There are several things to keep in mind when creating your budget. Firstly, you have to be accurate. Search for pay slips and expense receipts. The more accurate your budget figures, the more accurate your savings figures.
Secondly, be realistic. If you cannot realistically save 50% of your disposable income because there are many irregular expenses throughout the year. Irregular expenses could be eye contacts, massages, birthday dinners and sporting events. Try to put these expenses into the budget, otherwise allocate a smaller amount of disposable income to savings.
Lastly, try to be committed. Revisit your budget regularly to remind yourself of your savings goals. Watching your savings grow, will provide you with the motivation to stick to your budget.
Our advisors at JR Prosperity have helped many first time investors to get started in property investing. If you need assistance setting your budget for your first property investment, or simply need to chat to someone about your borrowing capacity, call us today on 1300 522 562.