Some simple arithmetic will pay off in the long run.
Many New Zealanders are property-mad. The crazy Auckland prices confirm that, with people paying just about anything to get on the property ladder.
But buying your first home usually involves borrowing money and borrowed money has to be paid back.
First things firstCashflow is king from age 17 to 97. You can't eat without cashflow. You can't put a roof over your head without cashflow. You certainly can't pay off a substantial mortgage without good cashflow.
So before you start thinking about buying your first home, secure your cashflow first.
This means taking a look at your income and career.
Are you doing the best you can in your career? Are you prepared to move house or town or even country to do so?
Are you prepared to go back to university, night school, or do whatever it takes to achieve the best you can?
Have you thought about or looked into buying your own business instead of a house?
Let's do some maths. Does a few extra grand a year matter that much?
Let's assume you get a $400,000 mortgage over 25 years at 7 per cent a year - the long-term average.
Your payments will be $2827 a month. Your total interest (dead money) over 25 years will be $448,000.
What if you can increase your income?
Take my advice and manage to increase your income by about $10,000 a year before tax. You increase your monthly payments to $3500 a month. Your mortgage will be paid off in 16 years. Your total interest (dead money) will be $263,000.
Your prize:
First prize: $185,000 less interest.
Second prize: Debt-free nine years sooner.
Third prize: A better life for you and your family.
A fabulous pay-off from making that extra effort to increase your income.
But I can't. Yes, you can.
It's too hard. Debt has to be repaid. That can be a lot harder.
House prices are rising extremely quickly so everyone says I should get in now.
Not necessarily so. Prices in many areas are not rising.
Back to the beginning
Cashflow is king. Do not borrow even $1 until you have really worked on your cashflow, your career, and looked at all the options open to you.
"Haste in every business brings failures." - Herodotus.
Be smarter. Don't accept the status quo just because that's what everyone else does. Haste can mean waste or loss - make haste slowly.
There are many solutions.
I think these ones are worth repeating:
-Watch George Clarke's Amazing Spaces TV series to give you some inspiration in creating a small but workable space for your home.
-Eliminate rent - live in mum and dad's garage.
-Find a job that has free accommodation, such as a night manager at a motel, or a sharemilker.
-Take a job overseas in the Aussie Outback, or in the Middle East, one that offers free accommodation.
Then save, save, save and buy a section.
-Put a minor dwelling on it.
-Start on stage one of your dream home - maybe the garage.
-Get a converted shipping container - they are cheap and comfortable and some are pretty smart.
The council will no doubt try to stop you building anything that is not a dwelling proper, but don't let that stop you doing something temporary to save heaps of mortgage interest.
However, don't fight with councils - circumvent them instead.
Put wheels on it. Call it a granny flat. Build your "garage" first.
If the council are not helpful, ask them to pay your mortgage interest.
-Next week: Student loans and first homes.