Oily raggers are not ones to dwell on the negative so they are probably not taking a lot of notice of all the talk about expensive housing. As oily raggers we know that home affordability is more like a molehill than an insurmountable mountain, so we thought it worth sharing some hints about home ownership with those yet to be converted to the oily rag mind-set.
There are four important words to remember. The first is commitment. Start saving early and often. We have a general rule of thumb that 10 cents in every dollar that flows through your pocket (and bank accounts) should be captured and caged. By captured we mean saved, and by caged, we mean put to work in an investment account of some kind. If the person on the average wage did that during their life-time then by retirement age they will have more money than they would have ever have imaged when they made that first deposit into their savings account. And that’s not exaggerated puffery, it’s just how the compound interest numbers work – it really is as simple as 1, 2, 4, 8, 16….
Commitment also means giving up some of the nice things, so you can have the important things. Give the flash cars and fancy restaurants a miss – put that money into debt repayment. Just remember a mortgage repayment will have a life-time of benefits. If that money were instead used to buy a car it becomes a liability with diminishing resale value and increasing annual costs. Every dollar matters – so don’t waste it!
The second key word is time. Use it productively. Turn off the tellie and use that time to generate some extra income or use it to save money by putting in a vege garden or engaging in some other money-saving activity. If you have a hobby, try to turn it into positive cash flow. Time is also about having a date in mind when you want to buy your first home. That defines the time frame and creates an imperative that turns it into a goal rather than a wish.
That leads us onto the third key word, which is mind-set. Don’t expect anyone else to do things for you. If you want something it’s up to you to get it. As much as some may wish it, the government will not give them a house of their own. Unfortunately there is a perception that it will, which tends to make people stand in a hand-out queue, while the rest of the world walks on by with a purpose. If you want something one generally has to give up something to get it. Figure out what is least important to you and give that up first. We think booze and cigarettes are at the very bottom of the need list and should be the very first things to go – in fact we believe those who are not prepared to help themselves by giving up the ciggies are in no position to expect others to give up something to help them.
A few years back we looked at what a person is giving up to smoke and found that over a lifetime, a one-packet-a-day smoker is giving up the equivalent of a house in Auckland (and two in the provinces). That’s massive – and it puts a very different slant on the home affordability question: a smoker could afford a house, if they gave up smoking!
Another way to look at it is what could be put into the weekly shopping trolley if cigarettes are not put in – and the answer is a lot of healthy food.
The fourth key word is humility. A first home need not be a King’s palace. The important thing is to get onto the property escalator. A humble abode in a nice street is likely to turn into a tidy investment – especially when the embellishments from the many savings that can be made by living off the smell of an oily rag are included.
There are a lot more words that could be said about home ownership. But we think four words petty much sum it up: Commitment, time, mind-set, and humility.