Making the dream a reality

Your new home is almost certainly the most important purchase you will ever make in your life but, like many of the good things in life, it may require some sacrifice and discipline. It’s worth it, though, so plan proactively to improve your affordability by implementing some simple strategies, namely saving on everyday expenses and proactively managing debt.

Saving on everyday expenses

You may be surprised how much you can save with sufficient motivation (like owning your own home) and some discipline. Here are some useful tips:

• Pack your own lunch – takeaways are very expensive.
• If you are traveling alone to work, join a lift club. Sure, you are forced to leave and return from work at specific times, but is convenience or saving the priority right now?
• Apply the 30-day rule. When you think you need an expensive item, wait 30 days and then ask, ‘Do I really need it?’ You might find that you really don’t!
• Restaurants can be great, but why not rather invite friends round and eat at home? When your friends apply the same approach, eating out will be more social and much cheaper.
• While we are on the eating topic, consider cooking double or triple portions when you have time and freeze the extra portions. This way you avoid expensive takeaways for those evenings when you are running late or when you just don’t feel like cooking.
• The gym membership! Where’s the gym again? Yes – for many of us, we pay but we don’t really play. Consider cancelling or not renewing your membership and rather exercise by walking or running.
• Pay cash for medical bills at your doctor or dentist. They will generally give you a cash discount. Sure, you will have to submit the account yourself, but your medical aid cover will no doubt stretch for longer, and the savings will keep on ticking up.
• Your cell phone can talk away your income quite efficiently, as that monthly debit order rocks your bank account. Consider going to prepaid. The per-minute rate might be a bit higher but you kind of think twice about making that call, so you send a WhatsApp instead.
• With vehicle insurance, insurance companies will always only pay out the market value of your car. Your car’s value decreases every year. Contact your insurance broker and reduce the amount of cover to match your car’s value.

Managing your debt

Keeping track of the money you spend each month on items you need will help you manage your finances but, more critically, it will eliminate the need for costly credit.

While credit can be used responsibly, using credit cards or short-term loans to purchase non-essential items is often costly in the long run. But it is so hard to resist – why not buy that flat screen TV? Everyone seems to have one, and you are told you can pay it off over 12 months if you purchase it on credit. Out comes the credit card and you are now enjoying your TV programmes in full HD. That’s Month 1.

But then along comes Month 2. You still have enough cash for most of your groceries, but you buy a little less as you make that first instalment to pay off your new TV. You are, of course, also paying the interest on the outstanding balance, and … oh yes, don’t forget the monthly admin fee.

‘Well, that wasn’t so bad,’ you say. ‘Maybe I should get a Netflix account. Then I can watch all my programmes whenever I want to.’ That’s another monthly payment.

Month 3 arrives, and the fridge is looking a little empty. You buy your groceries but realise you have to buy far less. You now have to pay the instalment for the TV, the Netflix contract – and you’re still paying interest on the TV.

‘Maybe I can buy some groceries on credit,’ you say.

You get the picture! Purchasing items on credit can be risky and, over time, you will have less and less money available for the items and services that you and your family really need.

Escaping the debt trap is simple – but remember, simple does not mean easy. Here’s a strategy that can work:

• Itemise the details of all your short-term debt.
• List these debts on a page or spreadsheet, from the smallest outstanding balance to the largest.
• Keep on paying the usual monthly payments required for every account each month.
• Then use spare cash identified in your budget to pay extra on the smallest debt each month. Keep on doing this until it is paid off. We’ll call this our debt-busting payment!
• With that debt paid off, add what you were usually paying off on the smallest debt onto your debt-busting payment, and start paying off the next smallest debt.

You get the idea. Every time you pay off a debt, you add the usual monthly payment to increase the size of your debt-busting payment. Doing this will also save you interest, admin fees and credit insurance, but most importantly, you will more easily afford that dream home.