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LOUISE FAIRSAVE: Evaluating housing costs

BEA DOTTIN, [email protected]

LOUISE FAIRSAVE: Evaluating housing costs

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Today let us evaluate whether your spending on housing is consistent with your goals and objectives. The first step is to be explicit as to what are those goals and objectives in the long term.
As a young career person, a major question you face is: do you plan to rent all your life, to rent until whenever you can accumulate the finances to undertake a mortgage, or to target undertaking a mortgage as soon as possible?
Alternately, as an established mid-life career professional, you may already own a home, yet be willing to consider upgrading your housing just because your budget allows it.
A further example may be of someone who is near retirement or already retired, who may be considering a reversed mortgage in order to lower the relatively high cost of housing to their reduced level of retirement income.
We have already identified that housing, including rent/mortgage, insurance and taxes, typically falls in a range – between 20-35 per cent, with a median of  27 per cent, where the median is the most popular point in the range.  
A young career person may wish to maintain the lifestyle they enjoyed in their parent’s home even as they move to acquire separate housing. That person may end up spending some 30 to 35 per cent or even more of their income at that stage to rent the apartment of their liking.   
However, this is likely to mean that they will find themselves renting for life. Unless 100 per cent mortgages are available, saving towards purchasing a home is likely to be out of the question.
If this is an explicit decision – well, fine.  If it is not, here is an opportunity for the young person to really consider what they wish for their life in the long term.   
For them, living modestly at the lower end of the range for this expense, would make more sense – allowing the accumulation of some savings toward a desirable long-term goal of owning a home.
The mid-life career person may be more justified in upgrading their home, either by way of budgeted renovations, or by way of selling the existing home and acquiring another.  
Typically, by this stage of life, there is some slack in the overall budget, including some accumulated savings that would make such a choice reasonable.
Always remember the most important long-term goal is to be financially comfortable in retirement. So it is recommended that some of those extra funds that tend to accumulate as one’s career evolves be allocated toward enhancing one’s pension fund.
Finally, and fittingly, is the person near or in retirement. In retirement, earnings tend to fall off a financial cliff compared to the level enjoyed whilst in full-time employment. Suddenly, unless well planned, the cost of housing may become an unreasonably significant proportion of that reduced income. Thus, that person may be driven towards considering a reversed mortgage in order to bring their finances back into balance. A reversed mortgage, however, involves utilizing the equity held in the house more and more as time passes.
Hopefully, these examples presents some considerations that will help you to be clearer in setting your goals and objectives for spending on housing . . . ensuring your long-term satisfaction with your spending on this budget item.
• Louise Fairsave is a personal financial management advisor, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances.

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