Affordability and budgeting

When you apply for a bond, financial institutions consider your affordability to be equally as important as – if not more important than – your credit history. So drawing up an accurate monthly household budget will assist in determining what you can afford, and how you can adjust your budget to improve your affordability.

Getting Started

Accessing your credit profile is an excellent base from which to start, as it will have an automated summary of your personal banking transactions over the past three months, which you can compare to your personal budget of income and expenses. This will be a good reality check for you.

Budgeting

Unlike what you might believe, budgeting isn’t all about restricting what you spend money on or cutting out all the fun in your life. It’s really about setting and meeting your financial goals by understanding how much money you have, where it usually goes, and then planning on how to best allocate those funds to reach your goals.

Your goals could include saving for a down payment on a car, getting out of debt, saving for retirement, putting your children through university, or travelling. Without goals, your budget will just be a pair of handcuffs.

While it may seem daunting, it’s just a series of simple steps:

• First, list your income from all sources.
• Then – using your last three months’ bank statements and even till slips – record all your monthly expenditures.
• Be diligent about recording cash spending, as it is the biggest leak in most budgets. Cash disappears quickly and if you don’t write down everything you spend it on, your budget will not help you much.
• Identify good or bad spending patterns.
• Distinguish between those items you really need and the items you want to have – and then have the discipline to stick to the items and amounts listed in your budget.

Yes, these are simple steps, but simple does not always mean easy. So, if you want to take the thinking out of it, you can try our mobile budgeting tool to track your spending.

Go to www.mobile2budget.com to register. You can then create your budget, capture expenses on the go, and check on a regular basis if you are living within or beyond your budget! Registration is free and the costs are 0.20c per expense capture. This may well be the easiest way to keep track of your spending, and the most affordable bookkeeping system for your own budget. You can even load the budget and mobile number of your partner so that you can – together – keep track of your total household expenses.

There’s a good chance you will find that you spend more than you need to (or even more than you can really afford). Don’t feel alone, though. Most people do. But that doesn’t mean it’s okay. If you want to buy your own home, you may need to take some hard decisions about your spending, and the best ways of doing this are saving on everyday expenses and proactively managing debt.

Affordability

Once you have accurately listed all your income and expenses, you can work out how much you can afford, using a quick and easy online process.

When deciding if you can afford a particular property, you need to budget for more than just the bond repayments, so make sure you have enough money in your budget for:

• the loan repayment
• any administration fees, e.g. transfer fees, bond registration fees (to work out the legal costs and charges, go to the free website http://www.avidfirefly.com)
• life insurance to cover the bond
• home owner’s insurance
• rates and taxes linked to the property
• water and electricity costs
• levies if applicable.

Don’t be tempted to push your budget to the limit. Keep a little in reserve for interest rate increases, or other unexpected expenses.

Probably the most effective way to optimise your affordability is to have a deposit. The bigger your deposit, the better the interest rate will be on your mortgage. But it’s hard to save for a deposit while paying rent, so check to see if you qualify for FLISP.

FLISP Subsidy

FLISP stands for finance-linked individual subsidy programme. This is a government initiative to assist qualifying households by provide a one-off subsidy for buying their first home.

The criteria to qualify for FLISP are:

• combined household income of between R3,501 and R22,000 per month (July 2018 figures)
• first-time property buyers
• having secured bond finance
• at least one dependent spouse or child
• South African citizenship or permanent residency permit.

We can help you apply for a FLISP subsidy, should you wish to purchase a home. Once your bond is already approved and you meet the qualifying criteria, go to www.flisp.co.za to apply.