Barefoot Investor Scott Pape has praised an Aussie’s simple piece of financial advice.
Writing to Mr Pape, the man, named Darren, said he struggled to relate to Aussies struggling despite earning over $100,000-a-year.
Darren revealed how he is lucky to earn half that in a year – but has still been able to save up a 20 per cent deposit and buy a home.
This is despite being a single-income family and having five young children who all depend on him.
A clearly impressed Mr Pape told Darren he had discovered how having debt ‘enslaves you’. He also told him: ‘You got this!’
Writing to Barefoot Investor Scott Pape, the man, named Darren, said he struggled to relate to Aussies struggling despite earning over $100,000-a-year
Darren revealed how he and his family, which includes five young kids, travel the country in a caravan
Darren wrote: ‘What kind of expensive neighbourhood and lifestyle are your readers living?
‘We travel the country in a little pop-top caravan, homeschooling our kids while I work online. I don’t believe in sponging off the government either, so we don’t put our hand out for welfare payments.
‘You don’t need to be earning big bucks to have a valuable life in this country, and kids don’t need to go to some posh school or have after-school care to get educated or be successful.’
Mr Pape told him: ‘You’ve discovered what a lot of people eventually work out when it’s too late: debt enslaves you.
And if you can avoid being in too much debt, you’ll be happier. Life is short and the time you have with your kids is even shorter.’
In another ‘Ask Barefoot’ article, Mr Pape warned Aussies to think twice before buying a house with just a two per cent deposit.
He revealed a letter from a woman who managed to buy a unit as a single mum on a low income who is also a carer and sending money to a parent living overseas.
Jane said she had put down a two per cent deposit when interest rates were low with help from the then-Coalition government’s First Home Loan Deposit Scheme.
But now her fixed rate is about to run out, her mortgage is about to triple, she’s ‘terrified’ and wants advice on switching banks to keep her costs down.
Mr Pape was blunt in his answer, saying ‘Jane has about as much chance of moving banks as Peter Dutton has of being Prime Minister’.
Scott Pape (pictured left with his wife Liz), better known as the Barefoot Investor, has given a double thumbs down to the idea of buying a house with just a two per cent deposit
Mr Pape was blunt, saying ‘Jane has about as much chance of moving banks as Peter Dutton has of being Prime Minister’. Pictured is a house for sale
‘She pretty much had zero equity in the joint to begin with, and it went down from there,’ he said.
‘So not only is she deeply in the red but, more importantly, her interest rate is about to triple, and her repayments could take food off her table.’
Jane had admitted in her email to him that she had gone ‘against what you recommended’ because ‘the government said they were helping me buy a unit’.
Mr Pape said her mistake was to put her faith in politicians.
‘I don’t blame her for wanting to buy her home,’ he said.
‘The problem is she trusted that the politicians were acting in her best interest, not theirs.’
Mr Pape said he had put Jane in contact with a financial counsellor who will work with her and her bank to try and find a way forward.
‘But it won’t be easy,’ he said, adding that only having a two per cent deposit is not his cut off line by any stretch.
‘I believe that if you can save only a five per cent deposit … then you really can’t afford a house.’
How to save for a deposit while you’re renting
Work out your deposit size and price range
Do some research on where you want to buy, what sort of property you’re interested in, and be realistic about how much you can afford to pay in monthly home loan repayments.
This will help you determine your deposit size and give you a realistic saving target.
Create a budget
As a general guide (and depending on your lifestyle needs), you should allocate around 50 per cent of your income on living expenses (such as rent, transport, insurance and utilities), 25 per cent of your income on entertainment (such as dining out, movies and concerts) and roughly 25 per cent should go towards your savings.
Around 15 per cent of the amount you’re saving should go directly towards your deposit fund.
Find more ways to cut back on spending
Find a roommate, move to a cheaper suburb or consider downsizing to a smaller or older place. If you’re currently paying $300 per week in an inner-city location, consider moving to an outer suburb location where you might pay just $200 per week.
A $100 weekly saving may not seem like much, but this could add over $5,000 to your savings account each year, which could fast-track your way into the real estate market.
Look for a higher interest savings account
Open a high interest account that is dedicated to your deposit savings. You can separate your deposit funds from your other accounts and keep track of how much interest you’re earning each month.
When it comes to applying for a home loan, making regular deposits into a high interest savings account will demonstrate to the lender that you have good financial discipline.
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