Jellyman Investing - Personal Finance for Australians
Business:Investing
https://www.patreon.com/Jellyman_Investing
When I think of buying a house I don't just think of the actual purchase event. I think about what happens if interest rates increase, I think about how I can capitalize if housing demand drops, I think about what happens if I suddenly lose my job, I think about unexpected expenses or changes to my life like having a kid. I want to set up my life so I have protection and you can too.
Building your 6-12 months (or more) of savings is absolutely crucial. What I see a lot of people do is jump from paying off debt to planning to buy a house.
Here's the way I found to work TOWARDS a house:
As you can see, building the buffer is step 2. The buffer ensures that if unexpected expenses occur, we can cover them without becoming mentally derailed. It's hard when you have to move money back and forth between accounts because it feels like progress is being taken away from you.
The automation in step 1 will automatically push money towards your savings account. What some people do is create a whole new bank account with a different bank and have the money transferred there. This account has no associated card, which removes the temptation to spend it.
Let's add time to the equation. What tends to happen when you've automated your accounts is that it just happens in the background. Before you know it, you've built up enough savings. You might think that the next step is to buy a house. But I actually think people should invest in stocks first.
Now, before you start telling me it's risky, hear me out. Index funds, which are a basket of stocks that allow you to become automatically diversified, are relatively low risk and have good returns, even in bad economic times. You can even buy index funds specifically tied to property.
Because it now takes much longer to save for a house, while you wait for the best time to strike, the value of your stocks goes up. In fact, in my personal situation, after I had my 6-12 months saved up, I began buying stocks each month. But it took a few years before the timing was right to get a house. In those few years, I ended up accruing an additional $15k in stock value, which I could sell to buy my house.
Luckily for me, during the time I was buying stock, I was still diverting some of my funds towards saving for a house. After meeting with a broker, he told me I actually had enough in my savings to buy a house, which meant I could leave the stocks to keep growing and still buy a house.
This is a win-win situation and gives me a number of options. If I suddenly need cash, I can always liquidate some of my stocks (which I've never had to do). By leaving my stock, it can just grow. Another win for me.
Now, I have mentioned a few times that having equity sounds good on paper, but it's not real money until you sell the asset. That is true. But the way I like to think about finances is to try and have a win scenario for every situation.
If the stock market crashes tomorrow, I have cash on standby to purchase stocks at a discount. If the market instead jumps, I already have stocks to ride the wave. If housing prices go down, it's fine because I already have a home to live in. If they go up, my equity increases. If I lose my job, I have several other income streams.
S01_E20 - Basic Principals of Investing in Individual Companies
S01_E19 - Variable vs Fixed Mortgage Structures
S01_E18 - Understanding the Role of a Broker in First-Time Property Purchases
S01_E17 - Building 6-12 Months of Savings and Buying your First Home
S01_E16 - Understanding the Tax System for Financial Independence
S01_E15 - The Biggest Money Fears and What to do about them
S01_E14 - How Much Do I Need to Retire - Part 2
S01_E13 - How Much Do I Need To Retire - Part 1
S01_E12 - Retirement Planning - Superannuation as a Back Up
S01_E11 - A 9-5 Job will never make you rich
S01_E09 - Welcome to my Patreon
S01_E08 - Good Debt and Bad Debt
S01_E07 - The Gold at the End of the Rainbow
S01_E06 - Understanding Compound Interest
S01_E05 - Tips on How to Save
S01_E04 - Willpower and Structuring your Accounts
S01_E03 - Debt, Credit Cards and Personal Loans
S01_E02 - Developing your Money Mindset and Forgiving your Past Self
S01_E01 - Welcome to Jellyman Investing
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