How can you travel if you have taken on the responsibility of a home loan?
In this ever more connected world, travelling is one of the major life accomplishments many young people hope to achieve. Travelling always makes a dent in even the most meticulously planned budgets. With the expense of accommodation, transport, and the incremental spending that occurs on the trip, the costs are infinite. When you have a mortgage, your day-to-day budget gets tighter as you need to account for all the expenses associated with being a home owner.
Not only do you have to budget for your repayments but also rates, bills, strata fees if you own a property that is part of a strata complex, as well as ensuring you’ve got funds available if you need repairs. So the idea of travelling - whether it be a weekend away to a tropical location, multiple weeks in a major country like the UK or the USA, or even a long-term trip around Europe, requires more planning than just booking the plane ticket or hotel.
Planning is key - budget
If you know you have the travel bug but also want to get in the ever growing property market, the best way to plan your budget, is to allow savings for holidays. When you start looking for a property and the home loan to go with it, make sure that you have factored the savings for travel into your workings to find out home much you can afford to borrow and in turn spend on property. Having this as part of your original budgeting means that you will know what your limits are and that if you go over them, you’ll have to take it out of the funds you put aside for travel. When working out your budget make sure to properly account for all expenses.
- Mortgage repayments
- Council rates
- Credit card and other loan repayments
- Strata fees
- Insurances (car, home and health)
- Monthly and quarterly bills (electricity, gas, water, phone and internet, mobile, pay tv)
- Regular medical expenses (prescriptions and regular visits)
- General car expenses, including petrol, tolls, rego and CTP
- Public transport
- Groceries and general expenses
- Animal expenses if you have pets
- Childcare and schooling expenses for people with children or planning to soon
- Holidays - now this is where you can include in your budget funds to save for any and all trips
- Entertainment expenses such as eating out, movies, newspaper or magazine subscriptions
- Gym or other health membership
- Miscellaneous hobbies and expenses
- Takeaway lunches, dinners, coffee, tea, cigarettes
Control your emotions - shop smart not with the heart
When looking for a property it’s easy to get swept up in the excitement and romance that is home ownership, however if you want to be able to enjoy yourself and travel whilst also maintaining this financial responsibility you need to keep your emotions in check.
You may find your dream home in the dream location and fall in love with it the moment you go to your first viewing, but you have to also be willing to walk away from this if the price gets pushed to a point beyond your means. If you are looking in your dream suburb but the prices seem to be heading outside your budget perhaps look at the surrounding suburbs.
Another tip when looking is to look for an extra bedroom so if you are moving into the property you can have that extra financial benefit of rent coming in to help with the general expenses of owning. This way also you can put more away, as well as being less concerned of spending when travelling.
Cut the costs
Make sure the place you choose won’t require any major works like kitchen or bathroom renovations as this will take funds away from your travel fund. Yes, all home owners want to make changes to the property overtime but if you buy a property that straight away needs a new kitchen or bathroom then you lost your ability to travel.
Similarly when moving in don’t feel like you have to furnish the whole place with brand new furniture, although you may want to a treat yourself to a new bed or lounge or TV. Overall, stick to the furnishings you have if they aren’t falling apart or broken but if you want to replace them, add this to the list of long term goals.
If you do need to buy new things ask friends and family if they have anything they could part with or know anyone selling something you need, or just check out second hand shops and sites.
Whether you are an owner occupier or you have purchased the property as an investment,there are still some key things to remember when you travel.
Autopay all essential payments
Your home loan repayments may already be set up to be automatically deducted from your nominated account on a weekly, fortnightly or monthly basis but what about the other expenses for your property? Depending on the length of time you plan to be away, you may also need to pay rates, strata, electricity, water, insurance whilst you are away, so it’s best to set up autopay for these expenses also. If you don’t want to setup an automatic debit for these expenses, perhaps you can ask a friend or family member to handle these finances on your behalf, you may need to give them access to your accounts so make sure you trust them with this task.
Pass on decision-making power
If you have tenants in your property or plan to get some in due to travelling for a longer period of time, it would be best to pass on power of attorney for decision making to do with your property to a trusted friend or family member. As you may be out of reach for periods or in alternate time zones, it's best to set up something in Australia in case something goes awry and needs to be handled. Before leaving it might be an idea to introduce your acting power of attorney to your real estate agent and explain the situation to them both so that everyone is on the same page when it comes to the decisions to do with the property.
Inform your bank
To make sure that everything runs smoothly whilst you are away it would be best to let all of your financial institutions know that you will be out of touch for whatever length of time. You should also let them know how you can be contacted or who to contact within Australia on your behalf. One of the options you also have to help with funds whilst overseas is a repayment holiday from your home loan. A repayment holiday is where the bank will draw on any extra repayments made by the borrower into the loan in order to make the repayments for a period. This option is only available to those that have been making extra repayments into their loan and have the funds available for a repayment holiday.
Manage your credit and spending
One thing you could do to make sure you can afford all the expenses of your home loan as well as the dreamed of holiday is to work harder to pay off any other outstanding debts, particularly credit cards. If you have a small amount on a credit card it may be best to pay this off and have the credit card empty for emergencies whilst your overseas rather than eating into the funds you will need access to for your home loan once you get home.
There is a lot of advice against using or overusing credit cards but as long as you keep your limit low and are smart about the spend it can be a great way to not only avoid further financial stress when you return, or whilst still travelling, but also to track your spend. And you always have the option of consolidating your debts once you return and paying down your credit card as you do your home loan. Travelling when you have a home loan can be daunting but as long as you plan well and budget for all your finances you can have the great Australian dream of home ownership and also enjoy travelling the world without too much stress.