First home owners tipped to embark on their home ownership journey this year need to be reminded not to fall into the trap of dropping the financial ball after the initial thrill of the purchase.

There is a common tendency for many first home owners to want many of the things that go with a home, without having the patience to wait until they can comfortably afford to buy them.

The issue at stake here is that our modern spending behaviour has evolved in line with the increasing availability and ready accessibility of credit.

Where our parents generation would diligently save up for big ticket items, subsequent generations have learnt they can purchase these items now and pay for them later – and for first home buyers freshly dealing with the financial commitment of a home loan, this behaviour can be very dangerous.

The ‘spend now, pay later’ attitude is commonly seen in retailing where the buyer is encouraged to have not just the outfit, but the accessories as well – and is an unfortunate mentality that has now crept into the home buying process, but with far more significant financial repercussions.

Blowouts in discretionary spending on things such as new furniture to go in the new home and upgrading their lifestyle to suit their new digs are common traps for first homeowners to get caught up in, amid the euphoria of buying their first home. 

But the reality is, that euphoria will be short lived when they struggle to cope with paying back that recently accrued debt on top of their regular mortgage repayments – particularly given it can so easily be avoided,

The warning for first home owners then is simple: Don’t let your new home purchase be a house of cards.

First home buyers need to continue to apply the discipline they used to get them into their home in the first place and not succumb to feeling they need to have it all – and have it now. Property is a long term investment and only reaps rewards through ongoing diligence and by exercising restraint.

But most importantly they need to remember that interest rates are going up, therefore keeping financially disciplined is the best habit to have.  Even though many first home owners do take out low rate introductory loans, they will have to budget ahead for the inevitability of higher repayments when they do eventually come off that initial rate.

First home owners adopt the following principles:

1. Keep loan and credit arrangements to a minimum and refuse new offers of additional credit.
2. Try to use cash for all discretionary spending.
3. Keep a rainy-day buffer in your budget for any unforeseen expenses, as well as the time when your mortgage repayments may increase.
4. Spend money only on essential repairs to your new home and use the relevant skills of friends and family if necessary where you can to fix a problem.
5. New furniture is not essential in a new home. Look instead at second-hand furniture you can often find at charity shops or council throw outs or opt instead for a minimalist look and acquire things as you can afford them.
6. Holidays are not a holiday from financial obligations. Stay-at-home vacations are becoming increasingly popular in achieving down time without the financial burden of having to travel anywhere to get it.
7. When you plan to catch up socially with your friends, entertain at your own restaurant i.e. your home – and keep the rules simple by asking everyone to bring a plate.

The great Australian dream of home ownership is still alive and well, but like any dream, needs to include a dose of healthy realism to ensure the end goal is achieved.

Tags: affordability, Budget, Credit Cards, First Home Buyers, Home Loan, Home Loans, Interest Rates, Move House, Property, rate rise, Variable loan, variable rate

This entry was posted on Friday, March 26th, 2010 at 4:09 pm and is filed under First Time Buyers, Home Loan Tips, Interest Rates. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.