Couples guide to starting out

By Sarah Stowe

We all undertake great changes in our lives and many of these events require a change in money matters. One of the biggest changes is for new couples starting their life together; however, getting your finances in order doesn’t have to be unduly testing.

Whether you are looking to start out renting for the first time, wanting to purchase your first home, or thinking about starting a family, the key to managing your money is to plan. This is a great habit to get into, because this will apply whatever type of life-changing event you are embracing now and in the future.

“Managing money is a lifelong skill and it takes time to develop. But we can all become more confident by practising a few simple habits on a regular basis,” suggests Paul Clitheroe, chairman of the Financial Literacy Foundation’s Advisory Board, a government-established foundation set up to promote national money management.

Planning financial success

The more research you can gather on all the options, the better position you are in to make the right decision. Talk to friends in similar situations and use the Internet: both financial institutions and websites like this will have pointers and tips that will take you a step further to your goal.

Working out income and outgoings is the first step to understanding what needs to change in the way your money is managed. Seeing the figures clearly laid out in front of you really helps to focus on where you can easily make savings on expenditure.

In many cases, any debt repayment is worth reviewing: the costs spent on accrued interest often far outweigh any benefits to be made by focusing only on minor savings in other areas of the accounts.

Doing the budget

Look at both of your incomes and set them against any regular household bills, transport, debt repayments, personal expenses, savings (for example, superannuation), insurance costs (don’t forget car and medical insurance) and of course ad hoc entertainment and leisure expenses. It is easy to overlook items such as gifts, magazines and DVDs, but the costs all add up.
Look at where you’re spending your money and eliminate any wasteful habits (not sticking to your minimum account balance for instance) and unnecessary fees (late payments).
Work out how you can both spend less. Think through the best ways to achieve this – whether it’s giving up gym membership, limiting entertainment, or making a big reduction in your food budget.

Controlling your finance

Keeping tabs on your money is best done on a regular basis so why not stay in control of your finances with SMS and email reports from your bank? Look at Internet and phone banking to reduce costs and schedule your regular payments so you know when the money goes out. Check whether you are paying for frequent statements and requesting longer term balance sheets that don’t incur a fee.

Saving money

Consider pooling some of your finances into a savings account – research and discuss the best option for you as a couple. Perhaps an investment fund will be most suitable?

Setting up home: Want to rent?

Moving into your first rental property is an exciting time but remember that in addition to the regular rent you’ll be asked for extra costs up front so you will need extra savings to get you through the moving-in process.

Most landlords ask for a month’s rent in advance, and demand a similar fee as a refundable bond. Add in any connection costs for utilities, the cost of removals, and think about insuring your personal possessions.

Setting up home: Looking to buy?

It’s a big step to purchase your own home, and a stressful time too, so ease the headache by sorting out funds up front. Buying a house or a unit is a huge commitment so you need to be confident in your ability to meet the repayments.

Mortgage repayments will be considerably more manageable, and therefore your home will be at less risk, if you have a substantial deposit saved. And the advantage of a deposit of 20% or more is that you won’t need to pay mortgage lender’s insurance. For an easier start, you can negotiate a smaller deposit; the downside is that this will add costs to your overall payments.

Making extra repayments is a great way to reduce your overall costs but you will need to check whether there are any fees for this. Some loans will calculate the interest daily, so additional payments cut back your costs immediately. Imagine you have a $200,000 loan: you could cut almost three years off a 30-year loan by just adding in an extra $10 payment each week, so if you can afford the extra, it’s worth it.

Whether you choose a fixed, variable, split or other loan, there are pros and cons to each. Your personal circumstances, goals and your own monetary discipline will dictate which are best suited.

A fixed rate mortgage offers you the security of a set cost for the term of the agreement, an advantage if your budget is very tight. However, the costs may increase considerably after the term ends so you may need to look at refinancing.

A variable mortgage gives you less control over your finances, so if the interest rates rise, there needs to be enough spare in your budget to manage the added costs. It could derail your budget if you are not careful.

Of course, once you have your home you will need to review your budget. You’ll need to consider what costs you need for insurance, how much you should allocate for maintenance, and calculate savings for any improvements you plan to make. Thinking ahead to the next stage will help clarify the best payment option for you now.

For instance, you could use your salary to help pay off the mortgage by setting up an all-in-one package or offset account - but this requires discipline. Your salary is paid into an account attached to your mortgage and interest calculated on the amount you owe but minus the account balance. You could combine this approach with a credit card to pay your expenses and then pay it off at the end of the month. This enables you to use the interest free period on your card and at the same time achieve interest savings on your mortgage.

Beware mortgages that have seductive introductory rates but lock you into a long repayment schedule that incurs substantial penalties for an early exit. Further down the track, if you find a lender with a better rate and options partway there is the potential for re-financing. To see the true financial benefits, add in any penalties due to your current mortgage company as well as any loan establishment fees.

Whatever your mortgage choice, there will be certain fixed costs when you purchstase a home, such as loan establishment fees, conveyancing and legal costs and the fees incurred for title search and mortgage registration. Add in the cost of any building or pest inspection and searches prior to purchase. And don’t forget you will need to pay building and contents insurance!

Some states may allow exemptions and concessions on stamp duty to first home buyers. Research what government grants are available to you as a first time home buyer – you may be pleasantly surprised.

Here are some ways you can make savings with your new mortgage:

Shop around for better banking deals and keep tabs on how the financial institutions are reducing fees for their customers.
Consider whether a joint bank account will be more beneficial than maintaining two single accounts.
If you have expensive short term debts you could consider whether or not you want to repackage them into a single short term loan repayment. You can take advantage of lower rates, but beware of the costs if it gets rolled into a long term repayment schedule – do your own sums.

Starting a family

Bringing up a child is a hugely expensive task and, unlike a mortgage, is an unquantifiable cost, though estimates suggest $30,000 a year is realistic. So how do you manage that on top of your other commitments?

However much maternity leave is taken, there will be some time spent surviving on a single salary. Are you in a position to live on one income? You will have big upfront costs, and then continuing costs that escalate with the child’s age and educational demands.

Here are some suggestions for how to budget for a baby:

Factor in what expenditure there will be around the birth itself – medical or otherwise. The initial costs of providing for the baby can be huge, so remember that many young families will pass on baby equipment and furniture, and you can source items in the local press or on ebay.
Add in any medical or insurance policies that you may want to take out, and discuss whether you want to allow for savings to cover any educational costs later in the child’s life.

How are you going to meet these costs? Paying off a home loan is one option for significant cost reduction, as is refinancing your home for a more flexible mortgage that allows you to take payment holidays. Consider the long term effects of this decision – do you want to pay more now, or extend your mortgage time?

Sarah Jensen and her husband Alain Adolphe are working out a strategy to provide for the new addition to their family.

“We are seriously curtailing our takeaway and movies expenditure,” reveals Alain. “I have all the insurances I need but we are looking at moving out of the city for a more relaxed way of life, so will have moving costs to add on, too. It’s at least 18 months away but we’re doing our budget now so we know what we need to work to.”

Do your homework

The Financial Literacy Foundation suggests a number of tips for better money management that apply to couples at all stages of their relationship:

Check out your credit cards and loans to see if you can reduce your fees
Think about how you can protect your money with insurance and understand your rights and responsibilities
Shop around for comparisons before making any financial decisions
Ask questions and know when to ask for help.

Cutting back financially is hard but immensely rewarding – review what you can achieve in big reductions, and look at every opportunity to shave costs in minor ways – it all adds up to a smoother start to your life together.