Affording Mortgage - Estimating Affordability and Household Savings - Family of 5

Lfranklowe23 on 20/07/2024 - 22:48
Last edited 21/07/2024 - 12:03 by 1 other user

Hey OzBargainers,

Planning to take on a large mortgage ($1.69m / 53% of net income) and currently working on the family budget to make sure this can be done without too many issues. Noting that my circumstances are way better than many Australians out there doing it really tough, I would still appreciate other experience and wisdom in such matters.

At the moment we spend quite a bit, as we aren't paying a mortgage, and I'm trying to see where we can reasonably cut back.

Situation is as follows:

  • Family - 2 Adults - 3 Kids (at public schools and under all under 11yrs)
  • Income (net): $9100/fn ($236,600/yr)
  • Mortgage (proposed) $4850/fn ($126,100/yr)
  • Remainder (for saving / spending): $4250/fn ($110,500/yr)

Given we are spending more than $4250/fn now, do 5-people families currently working to a budget think this is a workable number for their circumstances (my feelings are this works ok). We like the odd holiday, driving locally and wouldn't mind a simple OS holiday every few years.

For reference I calculate our current expenditure to be approximately as follows:

  • Supermarket Food: $630/fn (almost no eating out)
  • Car Costs (petrol,parking,basic services): $480/fn
  • Insurances (house,car,health etc): $426/fn
  • Utilities (gas,elec,internet,phones): $250/fn
  • Medical: $150/fn
  • School: $70/fn
  • Pets: $70/fn
  • Holidays: $230/fn
  • Kids Care (before/afterschool): $240/fn
  • Coffee: $60/fn
  • Sub Total: $2560/fn
  • Other (clothes, household items, presents etc): $1820/fn

I feel this other category at $1820/fn can take some serious trimming without us suffering too much, but wanted to get a gauge on what others are spending in similar circumstances.

For those out there, how does this compare with similar composition families? Are my numbers way out with yours? Does this other category sound excessive?

Finally does a mortgage @ 53% of net income compare reasonably with others out there in similar situations?

Financial Home Loan Loan

Comments

  • 7ekn00 on 21/07/2024 - 01:11
    +2

    Most institutions won't lend if the repayment > 50% income now days …

    • [Deactivated] on 21/07/2024 - 10:53
      +3

      It more comes down to disposable income than the specific interest rate. A 3% buffer on a $1.69m means they need to be able to afford repayments of $6400 a fortnight, leaving them $2700 to live off. Plenty of families live on a lot less than $2700 a fortnight after housing costs. OP has listed $2,560 for costs excluding "other", which presumably is what went on the loan application.

      It's cutting it far finer than I would want to, but I can see how the bank approved it.

      • franklowe23 on 21/07/2024 - 12:40

        Yep. Finer than I really want to too, but this is the Australia we live in, even if I wish it was different.

  • Ghost47 on 21/07/2024 - 01:11

    Finally does a mortgage @ 53% of net income

    Wait you mean your mortgage is going to cost 53% of your income? The general rule of thumb is 30% on all housing costs (including insurance, bills etc). COL increases and increased rates has probably pushed this up for people out there already, so I wouldn't be surprised if people are spending 40-50% now but they might be struggling if it was unexpected. It looks like you have some wiggle room but I would be extremely careful if I were you, they don't call it a death pledge for nothing.

    I also see no mention of an emergency fund which is a concern.

    • franklowe23 on 21/07/2024 - 08:19

      Yep that is correct mortgage is going to cost 53% of net income; approximately 35% of gross income.

      Add to that insurance, rates etc and housing costs are well well clear of 50% of net income. Well less than that in gross income terms.

      We do have an emergency fund (couple of hundred thousand), but it is currently invested in shares (EFT and direct shares), which means it could be worth significantly less than that when we went to call on it - particularly if that was during a major economic shock for example.

      • Ghost47 on 21/07/2024 - 14:47
        +2

        We do have an emergency fund (couple of hundred thousand), but it is currently invested in shares (EFT and direct shares)

        That’s spectacular, it might be worth considering liquidating some of it for the mortgage either to borrow less or offset the mortgage.

      • BuddhaBoy on 21/07/2024 - 18:27
        +1

        Hey Frank, good to see that emergency fund. You will be fine! All the best!

      • CheapskateQueen on 21/07/2024 - 21:31

        oh lol mate, "couple hundred thousand"… what are you even doing here.

      • ThadtheChad on 22/07/2024 - 10:36
        +3

        I would offset the mortgage with the emergency fund - Don't bother reducing the borrowing amount.

        At these incomes, the rule of thumb of 30% is not really recommended given that you're imposing an artificial constraint that is arbitrary/not without merit. As I posted elsewhere, there is no reason to adhere to that for high income earners as the remaining is still substantial to live off.

        Once you get settled in to your mortgage, you will be better off assessing your total outgoing - factoring in house maintenance costs, the peculiarities of your choice of housing (pool, mega gardens etc).

        You will very likely find the ability to make extra repayments to shorten your loan period/reduce repayments. Lastly, in terms of making investments alongside your mortgage, consider debt recycling. This is an especially valuable strategy for folks on the highest threshold given the ridiculously low threshold for the highest bracket, and the amount of tax paid. Very crudely put, if you have 50k to invest in an ETF for the year, just dump it into the mortgage and redraw it, the interest on this 50k is now tax deductable, and will offset the beating you'll take when your ETFs disburse dividends.

        I'd also steer you towards the AusHENRY subreddit https://www.reddit.com/r/AusHENRY/ . OzB forums are brilliant, and while a lot of HENRYs are in here (I've spotted quite a few over the years), they tend to be a lot less vocal for obvious reasons.

        • franklowe23 on 22/07/2024 - 21:38
          +1

          Thanks for the tips - especially around debt recycling - we were planning on using it, but I haven't really read into it the depth I'd like. I will take a look in coming weeks.

          Thanks again.

          • ThadtheChad on 23/07/2024 - 11:17
            +1

            @franklowe23: No real rush there mate. Read up!

            I saw another one of your comments here that I'll respond to here, one fundamental thing that folks tend to gloss over, you don't necessarily need to pay off the mortgage. Over time, you will have a ton of equity in the property that will allow you to invest/downsize etc. So you really don't need to stress over a 30 year mortgage hanging over your head.

            We too have a 1m+ mortgage and we've shaved off about 9 years off our mortgage just through nominal extra repayments as our financial situation improves (as well as offsetting).

            Lastly, as an Aussie who wasn't born here (moved here as a student decades ago), the writing is on the wall as to what is happening here. Aus is an exceptionally attractive country to move to due to a whole range of reasons… for instance, it has very robust social frameworks in place for social mobility (e.g. HECS, FEE-HELP, CCS, medicare etc), blue collar work pays exceptionally well, social stability is incredibly high, the lowest tiers of the workforce (e.g. hospo, retail and the like) still make fairly decent wages leading to fewer social issues etc.

            As a direct consequence, it is a very attractive destination to relocate to, especially for professionals as well as established tradesfolk. I genuinely don't see the housing crisis going away, I expect we are going to see the market replicate conditions that are present in most of the large cities in the world. For better or worse, the days of a couple, both making median incomes and being able to afford a freestanding home within an hour of business centres in the biggest cities here is gone. The egalitarian Australia that most grew up with, is done.

            • franklowe23 on 23/07/2024 - 11:22
              +1

              @ThadtheChad: Thanks. And agree mortgages don't need to paid off if they are working for you financially.

            • cadwalader on 23/07/2024 - 12:17
              +1

              @ThadtheChad: I agree with most of your comment except the last bit. What you describe Australia is, is exactly how egalitarian is. Its just that the egalitarian just no longer involves individual land ownership within an hour of the main business districts in the biggest cities. The most egalitarian countries' homeownership rate are between 60-70% and fertility rates of 1.46 to 1.72, Denmark, Norway, Finland, Sweden, Netherlands etc. Quite similar to Australia with the exception that our taxes are not so high and that a much higher proportion of our households live in freestanding houses at 70% compared to said countries which hover around 60-20%. https://www.oecd.org/content/dam/oecd/en/data/datasets/affor…

              • ThadtheChad on 23/07/2024 - 15:57

                @cadwalader: Makes sense to me. I would agree that my misperception around what "egalitarian" is/was coloured by what was the status quo in the years prior.

  • The Camera Man on 21/07/2024 - 01:48
    +1

    the portion for presents could be cut down in my opinion.

    • franklowe23 on 21/07/2024 - 08:19

      Yes that one is in the cross hairs for sure.

  • Porker on 21/07/2024 - 07:49
    +2

    The banks may appoint a differernt expenditure than what you have listed. As example, my bank applied something like $X0,000 per dependent.

    I questioned it and the response was that while they are young now, they will obviously grow and will require more money.

    As example, your $236k net income might be knocked down to $146k at estimated $30,000 per child. That then may be your starting point to deduct expenses from.

    Consider speaking to a financial advisor, or broker or even the banks.

    • franklowe23 on 21/07/2024 - 08:23

      Spoken to a broker and they and the bank seem to think it is all fine, but they are in the business of selling mortgages so can't exactly be considered independent on this.

      The bank seems to calculate our expenses (using HEMS presumably) at $6600/mth ($3300/fn), which is well less than we currently spend.

      • [Deactivated] on 21/07/2024 - 10:56

        You might be in for a rude shock when you actually apply for a loan then, I had to fill in my actual spend and that's what they approved the loan on.

        • franklowe23 on 21/07/2024 - 12:44

          Did you have a fully assessed pre-approval? Cause I'm hoping that the fully assessed pre-approval means that this risk is minimal, but I don't know what I don't know here (mortgage broker didn't indicate any issues).

          • [Deactivated] on 21/07/2024 - 14:25

            @franklowe23: I'm surprised you're fully assessed without doing a self-assessment of spending, APRA guidelines recommend doing both HEM and self-assessment. I did one through pre-approval then again at approval to make sure it hadn't changed, along with submitting months of bank statements to show actual spending.

            It could just be your income is high enough that you're outside the norm, you have enough assets or the bank you're going through has fairly lax standards. Mortgage brokers don't know much beyond punching numbers into a computer, in my experience.

            • BartholemewH on 21/07/2024 - 19:53

              @[Deactivated]: They have 200k in ETFs.

            • franklowe23 on 21/07/2024 - 20:24
              +1

              @[Deactivated]: Oh we had to do a full self-assessment of our current spending and provide months and months of bank statements (as you say) which I assume the bank looked at (as they asked for more).

              After all of this (took about 3-weeks start to finish) apparently we have been issued with a fully assessed pre-approval (again whatever this is) from one of the brokers lenders.

              • stratbargain on 22/07/2024 - 07:06

                @franklowe23: And if interest rates go up .25 or .5 over the next month/few months?

                Or if one of you lose your jobs?

                It’s a hard no from me

                • ThadtheChad on 22/07/2024 - 10:38

                  @stratbargain: The banks are willing to work with people to cushion these situations. There are a whole range of options offered to clients in these situations.

            • ThadtheChad on 22/07/2024 - 10:45
              +1

              @[Deactivated]: There are benchmarks that are typically used to assess/compare against the self-declared expenses .

              As I understand it, they use the expenditure benchmark corresponding to one's household income. Especially when one's expenditures are lesser than the benchmark value for that income.

              For OP, its very likely they are relying on the benchmark figures as their actual expenses were coming below the benchmarks for the household. I say this as OP's expenses are lower than what our outgoing is, and we were only 2 adults with a pet, when we applied for mortgage (baby came soon after)… and we didnt have to do a detailed cost of living assessment either.

              • franklowe23 on 22/07/2024 - 21:43
                +1

                @ThadtheChad: Yep bank seems to be using their benchmark figures rather than our own (at least from what I can tell)

            • cadwalader on 23/07/2024 - 12:21
              +1

              @[Deactivated]: You can do a full self-assessment of spending with bank statements etc and still be under the minimum HEMS by household size which the bank will then apply. I've never had to submit two rounds of bank statements between pre-approval and actual approval. I guess this may be because its never been more than a few weeks apart between my pre-approval and formal approval.

  • MrThing on 21/07/2024 - 08:27
    +7

    cool brag bro

  • barge-in hunter on 21/07/2024 - 08:59
    +3

    Some big numbers all round here - it’s sounds like it’s manageable, based on the assumption that you’ve got a good safety net.

    You mentioned an emergency fund which is great, but I’m genuinely hoping your “insurance fees“ number includes some very decent income and trauma protection.

    Only because you’re proposing a very high percentage of your income being “permanently” allocated to debt for the next 25 years - and if that income were to drop temporarily or permanently, the impact would be huge.

    Other notes:
    $2k spare per fortnight (well done), but life is expensive:
    - no extra into the mortgagee?
    - odd international holiday for a family of 5 (bare min $10k? )
    - house repairs and improvements can be huge and immediate ($35k+ for a bathroom Reno, $2-3k for a broken split system)

    • franklowe23 on 21/07/2024 - 12:42

      Yep good with insurance - assuming the policy is worth the paper it is written on.

  • Benoffie on 21/07/2024 - 09:12

    For me, the car costs seem too high, then i noted you're in Canberra. If this is because of fuel and running the kids to school, that needs a rethink. Public transport is the pits there but that kind of expense, even factoring in tyres and insurance, is too high.

    As others have said, i would be factoring in extra repayments to allow for redraw. Dont know what suburb but $1.6/7 doesn't buy much or fancy in Canberra atm. So renos within 10 years would have to be a factor plus excessive heating and cooling costs.

    • franklowe23 on 21/07/2024 - 12:47
      +1

      Yep a $1.7m loan doesn't buy you anything fancy in inner Canberra!!

      Car costs of $480/fn covers 2 x cars including: rego, basic servicing, parking ($11/day) and fuel. We don't actually drive too much, but I can't see too many possibilities for savings there (maybe I'm missing something).

      • barge-in hunter on 21/07/2024 - 13:08
        +1

        Another thing on car costs - does it include depreciation? You won’t own the same cars for the entire length of the mortgage, so at some stage you’ll have to sell your old cars and ‘realise’ the depreciation- coming up with the cash for replacement vehicles

        Or is saving up cash for new cars something else the “extra $2k per fortnight” will cover?

        • franklowe23 on 21/07/2024 - 13:31
          +1

          No it doesn't include depreciation and one of cars isn't exactly new, well loved (over loved perhaps) could be a more accurate description.

          The $2k of extra per fortnight does need to include saving for replacement cars (we're happy with 2nd one's around the $15-$25k price range).

          • barge-in hunter on 21/07/2024 - 13:40

            @franklowe23: That makes sense- might be worth doing some back of the envelope estimates on that and adding it to car costs, just because that $2k seems to be earmarked for a few specific things already

            • franklowe23 on 21/07/2024 - 13:43

              @barge-in hunter: Indeed it is, which is fine as they are all contingency like things (aka building a tiny savings pool in addition to the "emergency fund"), but not fine when (if) all the contingency things need to drawn on at once (which often seems to be the case).

  • Hoju on 21/07/2024 - 09:45
    +17

    For what it's worth, similar to you but 3 years ago.
    Fast forward to now and we have sold that house as the financial burden wasn't worth it to us.
    We took out a $1.5m loan, which was approved based on our incomes at the time and the interest rate at the time. 4 kids, oldest in public primary school.
    Monthly repayments were $5600

    Now we have 5 kids and 2 in high school and the older kids are really eating up the money, possibly quite literally. Our food budget has gone through the roof. We also have catholic school fees of about $6500 each to pay. Not because we are catholic but because we can't afford a private school and the local public high school is a bit sketchy. Those could be changes to take into account.

    My main thoughts are, I eventually hated the job that got us the loan. I moved into something far more flexible that I enjoyed and gave me time with the kids (otherwise why have them at all). End result was a significant financial strain paying for the house, which just wasn't worth it. Oddly it was a huge house that we thought we all wanted, but after living in apartments and townhouses, no one used half of the space and we all congregated together so we will now downsize and look to cut our mortgage into 1/3 at least, and prioritise family holidays and an easier life… YMMV :)

    • franklowe23 on 21/07/2024 - 12:53

      Thanks for sharing, that is very interesting and worthy of considering. We all live on top of each other now, and hence the drive for more space (reduce the fighting), but after years being crammed in perhaps that is actually better for us.

      Need to stay in our jobs is definitely a worry too - it's fine whilst it is fine, but it's not fine when it becomes not fine. Very hard to predict the future…

      How much the kids will eat in the future is for sure a concern. I can easily see our grocery bill going up an extra $200/fn in a couple of years just because they eat more.

      Did you find the kids just got more expensive in general as they got older and if so any guesses as to how much more expensive (beyond just there amazing appetites)?

      Sounds like it has worked out well for you (congrats) and hopefully the same option is available to us if we ever need it - the risk is of course that house prices take a huge dive over coming years and then that option is off the table.

      • p1 ama on 21/07/2024 - 13:56
        +2

        How much the kids will eat in the future is for sure a concern. I can easily see our grocery bill going up an extra $200/fn in a couple of years just because they eat more.

        Yeah, but as they get into their teenage years, they also generally start getting part-time jobs, will sometimes eat out or with friends, and you can start asking them to chip in for some expenses.

        Did you find the kids just got more expensive in general as they got older and if so any guesses as to how much more expensive (beyond just there amazing appetites)?

        It's a bit of a rollercoaster, I find that kids tend to get cheaper as they start school - babies are super expensive, then childcare is pretty expensive as well, then the costs whilst they're in school tends to creep upwards over time (usually more extra-curriculars, and more food, more hobbies…etc.), until they get part time jobs, and start spending some time out of the house (in which case, they start paying for more of their own hobbies and personal expenses).

        Then it kinda trails off from there. When I was in university, I chose to live at home, but I paid for my share of expenses, and some "rent".

        • franklowe23 on 21/07/2024 - 17:57

          Thanks again for the insights.

          We found babies weren't too bad - my partner didn't work during that period.

          The childcare years - nasty as!!

          Primary school years so far not too bad.

          Looking forward to those part-time job years :-)

      • BartholemewH on 21/07/2024 - 19:58
        +2

        Our grocery bill, 2 adults, 2 primary, one toddler is 550/week. Not sure how you do it on 630/fn.

        • franklowe23 on 21/07/2024 - 20:37
          +2

          I don't think I'm missing spend - although not all washing liquids and cleaning products are purchased in this (some come from Costco and elsewhere), but I wouldn't say we eat lavishly, just simple and healthy.

          Today was:

          • Porridge / weetbix for breakfast for the kids with milk
          • Homebrand muesli and yogurt for the adults with homemade coffee's (Aldi beans - not bad beans for the price)
          • Apples for morning snack (kids only)
          • Lunch (homemade):
            • cheese and Vegemite sandwiches for the kids (homebrand wholemeal bread)
            • salad sandwiches for the adults (homebrand wholemeal bread)
          • More fruit as afternoon snack and veggies as a pre-dinner snack
          • Dinner (homemade) - approx cost $20 and will now do 5-work lunches next week:
            • Tomato seafood pasta - made from basic ingredients (veggies and tinned tomatoes and seafood ($7 worth of seafood))
          • Drinks:
            • 1 x beer (cheapest option)
            • 0.5 x bottle of Aldi red wine ($6.99 option - pretty drinkable given the price)
          • Desert:
            • Small helping of tinned fruit for the kids (homebrand)
            • 1 x Moser Roth Aldi 70% Chocolate square (not too bad if I say so myself)

          This is pretty standard for us, although we drop the booze during the week (as a health not a cost thing).

          I do think as the kids get older they will obviously eat more and I can easily see the food bill blowing out another $100 a week without even trying. At the moment they seem to like plain pasta and rice as second helpings, but that won't last!!!

          edit: I highly recommend a chest freezer if you don't already have one - makes buying on special or in bulk very worth while. For example we can freeze bulk frozen meat or the very occasional frozen food we use when it is save 50%. I'd say the freezer (2nd hand purchase) paid for itself in a few months.

      • Hoju on 22/07/2024 - 02:22
        +3

        My kids are 100% getting more expensive as they get older.
        This is a factor of them doing more (sports), eating more, paying adult fares for things, that holiday becomes more expensive because they need a bed not something rolled on the floor or the sofa. School is a big one that we hadn’t counted on. I find the babies have been close to free, their cost is a loss of income related one from mum.

        To be honest, it sounds like you’ve made up your mind and I don’t blame you. We did the same. We had lived in a one bedroom apartment with three kids then a three bedroom apartment wirh 4. We always thought we needed and wanted a house and until we ticked that box we would forever have been considering that the goal in life. We skewed all our thinking and numbers to make the house seem like a great idea.
        Maybe for someone else it would’ve been but for us it didn’t work out that way. I got sick of the constant small renovation projects taking up all my time and money. The house was literally like having another child.
        But, if we hadn’t done it and lived it, we would still be wishing. Just something we had to experience ourselves in person…

  • nomoneynoproblems on 21/07/2024 - 10:24
    +6

    We're in a similar boat but have a sub half a mil loan. Not a chance in hell we'd take $1.6mil lol. Might stretch to $8-900k in future unless partners onlyfans takes off but on a PAYG wage? No way. Say good bye to flexibility while you literally slave your existence to the bank.

    • MS Paint on 21/07/2024 - 10:43
      +9

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    • V2L on 21/07/2024 - 11:44
      +6

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  • George Washington on 21/07/2024 - 10:37
    +1

    Did u factor in your age and retirement years. Average loan is 30 years. Will you be able to work to 70 etc.

    Holidays expectations. whats the risk factor if one lose their job?

    Remember you don't pay of a loan by paying off the monthly repayment u pay it off by additional payments.

    • franklowe23 on 21/07/2024 - 12:55

      Assuming govt's don't make significant changes to the super system (tinkering should be ok) then super should cover it.

      If they do make significant changes then we certainly have a problem!

      • George Washington on 21/07/2024 - 18:48
        +1

        We are on similar income as your description. we have a 1 mill mortgage 2 kids as well one in High school one finishing primary later this year.

        More then enough of a loan for us. Just a reminder, factoring in kids tutoring costs, extra curricular activities. Is the biggest hit the to the budget for us. Braces for the both kids are also on the cards.

        Other things we consider is a replacing one of the cars every 8 years or at 120 000km.

        From a person experience, I wouldn't take on 1.6 mill as a loan or over 1.1

        Just reading a bit more of this post. It looks like your in Canberra factor in kids going to uni if they choosing to stay in Canberra or moving to the cities, what support are u willing to provide them etc.

        • franklowe23 on 21/07/2024 - 21:05

          Thanks, appreciate the extra effort in the response. I hadn't thought about tutoring costs at all!

          One of our cars is 10yrs old (250k on the clock) and probably doesn't have too long to go. The other is 8yrs old and rolling into 90k's on the clock. Hopefully we can buy cheap enough 2nd hand ones to replace them when the time comes.

          Thanks for the personal loan experience. If you'd asked my 2yr ago self I would have said a $600k loan was more than enough - it just that won't buy anything where we want to live (including our deposit).

  • V2L on 21/07/2024 - 11:25
    +3

    the numbers are very manageable from budget/servicing perspective but I would be asking some questions about your long term plans as a family when taking on the commitment as mentioned above

    1. your age, and whether you are comfortable servicing that mortgage into your 60/70s, considering potential health issues. with the current numbers it's likely you won't have much left to grow your savings/investment outside of property - how much do you have in terms of a liquid capital for emergencies?

    2. kids and schooling - they will be entering HS age soon - ?private school

    3. is this your forever home / home you want to retire in or do you plan to downsize once kids move out? personally I don't want to work till 60/70s to service a large mortgage and prefer to live in something a bit more modest and have money to be able to not work if I wanted to / needed to / travel etc

    • franklowe23 on 21/07/2024 - 12:58

      Thanks for your thoughts.

      1. I certainly don't want to be working into my 60's (20 yrs off), but assuming govt's don't make significant changes to the super system (tinkering should be ok) then super should cover it. If they do make significant changes then we certainly have a problem!

      2. First entering HS in a couple of years. Part of the reason for choosing this house is the school zone - public schooling is woeful in Canberra, but hopefully the local high school turns out ok.

      3. I hate committing to housing (hence the renting until now), so I wouldn't say forever home, but certainly not planning to move out in a couple of years.

  • dtc on 21/07/2024 - 11:35
    +6

    I think people are getting wrapped around the axles on percentages and it’s irrelevant because it’s the $$ that matter

    You have $110k pa to spend outside the mortgage. That’s more than many people have including housing costs; so if it’s possible for most of the population then it’s absolutely possible for you. I’m in Canberra and with 2 kids and 2 cars and a non budgeted lifestyle (because I have paid off my house) and my annual expenditure is around $75-80k plus international travel (every couple of years) and that without even trying (admittedly I don’t have child care fees anymore)

    $110k is plenty. Well, it should be plenty

    From your current budget you need to add $10k for housing costs (rates are high, insurance, a bit of maintenance etc). But your ‘other’ category is really high, I’m sure you can reduce that quite a lot; and medical is high as well unless there is a particular medical issue (I know young kids get sick all the time but you don’t have to see a doctor every time). When you buy a house you usually need to give up holidays for a few years or take a week or two at the coast not at Christmas. Car seems excessive and even with teen kids we don’t spend $315 a week on food. Reduce your meat consumption or something

    Even knocking off a few $100 per week seems easily doable. Yes living off a budget sucks but if you want to buy a big house then that’s the trade off

    If you google up ‘what is your weekly budget reddit’ you can get some good comparisons, although people are not entirely truthful/you get a lot of bragging about how little people spend, so add 25% to most of those responses

    Do I think you need to spend presumably close to $2m for a house in Canberra- no. $1.5m will get you a great house. But if that’s what you want to do, you can easily afford it.

    Edit: all those talking about how long it will take etc - there is always the option of selling up when you retire and the kids have left and buying smaller, fully paid off.

    • franklowe23 on 21/07/2024 - 13:06

      Thanks for your thoughts and I kind of agree with everything you've said and my commonsense brain says you are probably correct. My risk adverse brain always ask "what if" though….(and hence this thread).

      Did you find that the kids got significantly more expensive as they got older? Or about the same (plus some additional food)?

      We're already through the childcare stage thankfully (outside of after-school care for a few days a week).

      The medical line item is very expensive. We don't actually spend that much at the moment, not even close, but I wanted to include some small contribution to the costs of things like 3 x kids braces in the budget somewhere…

      Health insurance (hospital + extras) is another interesting one - for our family of 5 it costs $240/fn and we barely use it. We will be able to claim some of the kids braces on it when we reach that point, but part of me feels it is dead money, but it is hard to cut back.

      Thanks again for your response.

      • dtc on 21/07/2024 - 14:35
        +1

        Kids get cheaper as they get older, unless you have private school fees or they are big into sports. You dont need after school care, baby sitters, they can catch public transport. Once they hit 14 or 15 (not sure of the age) they can get a job at KFC or Maccas and be self funding in terms of their entertainment costs. Its not as cheap now but send them into the op shops to buy their clothes, my daughter used to come back with 5 dresses for $50 or $70 and that would be her wardrobe for a season/year (vs one new dress at $100 or something). Plus they have fun picking through the stuff, go with some friends and make a social occasion. Plus as kids get more independent, you get more time back - so you have more time to cook, clean, do the gardening etc and dont have to hire or buy convenience food.

        Of course, if they then go to Uni out of Canberra you are stuffed, thats $20k+ pa. But you have time to save. And they probably eat more

        Braces, yes, thats $10k or $12k or whatever its up to now. Its perhaps one of those costs you put in your budget and set the money aside into an offset, it if doesnt happen then you have saved.

        Health insurance - I'm guessing you are on top/gold cover with extras? For me there were some years i probably would have made a slight saving if I had extra cover, but most years I would be behind so I dropped it early on. Depends on your specific requirements (eg glasses). Have a look at the main policy, can you drop down to silver or silver plus eg you probably (I assume) dont need obstetrics and pregnacy cover anymore. Should be able to get it down to $350 per month or less (but plus extras)

        Reading your other posts, yes gas bills are high in Canberra. If you buy somewhere that has a reverse cycle heater then you can drop the bill by a fair bit, and if you have solar then that helps as well. Its true that if you arent at home during the day the solar benefit isnt as good, but you will at least be able to use it on the weekends and all through summer for air con, and school holidays and when the kids get home etc. I have an 11kw solar system and my gas+electricity bill went from $1900 over April to July down to $650 switching to reverse cycle, which still includes gas fees as my cooktop is still gas (admittedly this doesnt make sense to do unless your heater needs replacing anyway since the RC will cost $10k+ to install, probably more like $15k).

        Anyway, you are probably well able to do your own budget analysis. Spend what you need but take a good look at what you dont. Switch between 2 streamers at a time rather than 6 on call all the time. Take a french press to work and make your own coffee. take lunch to work. All those things add up a little bit

        • franklowe23 on 21/07/2024 - 18:05

          Thanks again!

          Very glad we are through the childcare years and no-private school fees planned at this stage (unless the govt. decimates the public schools even further).

          Yes we have either Gold or Silver extras (think it is Silver) and I'm mainly keeping that for the braces - not sure if it is worth it or not. Going to have to take another look at the private health - could be ripe for cutting.

          Thanks for the solar insights - certainly worth considering.

          We already love a good op-shopping for both the adults and kids clothes - although the Canberra op-shops are surprisingly picked over.

    • FaLLeN25 on 23/07/2024 - 11:13

      Off topic, but what is the name of the restricted license? I have heard mythical things about it, but haven’t been able to find the course or application in WA?

  • Downvoter on 21/07/2024 - 11:53
    +3

    Take your couple of hundred grand from shares and put straight into the offset

    • franklowe23 on 21/07/2024 - 13:07

      Certainly an option, I just don't like the thought of having everything tied up in Australia's housing bubble.

      • V2L on 21/07/2024 - 13:21
        +1

        it's a reasonable option anything you put in an offset is netting you the equivalent of 10%+ per year gross returns assuming you hold shares in your own name. hard to beat the returns and next to no risk with 100% liquidity, you're not putting it in the house it's just sitting in your bank account

        • franklowe23 on 21/07/2024 - 13:26

          Yes this is a good point and perhaps that trumps diversity.

      • souljah on 21/07/2024 - 13:46
        +1

        Maybe rethink spending $2m+ on a house then?

        • franklowe23 on 21/07/2024 - 13:50
          +4

          I didn't buy a house for 20yrs+ in this country because I think they are way too expensive vs incomes. Of course that decision hasn't worked out great has it.

          Housing will crash (vs incomes) in this country, will it be in 2024 or 2064 - that is anyone's guess and sadly timing is everything when it comes to these things.

          I do get your point though (which I believe is buy a cheaper house) - as always life decisions aren't quite as simple as that - eg we'd need to leave school zones, commute further etc. Nothing wrong with these as choices they are just all varying trade-offs.

  • ihbh on 21/07/2024 - 11:58
    +1

    You have the current means so could proceed. My two points are: 1. value, 2. risk management

    Have you thought about renting long term?

    Prices are very expensive at the moment. We have relatives - GP and specialist doctor - struggling to buy too and they don't have kids yet, although they are in Sydney, so even more expensive and they probably don't budget yet and might have different expectations. Have a look at Japan after 1990 and China the last few years. Nothing continues forever. How old are you/partner and if you were to buy and say prices dropped 20% or remained flat for decades, would you be okay?

    How secure are your jobs? If one of you were to lose their job and could only find work at 1/2 the current pay, could you cope? For risk management do some scenario analysis.

    • franklowe23 on 21/07/2024 - 13:15

      Thought about it lots. We've been renting for over 20 yrs now as I thought housing was expensive (vs incomes) back then and it is even worse now. I want to keep renting, but the security of being able to lock in our public school zones is the full to buying (I'd say owning, but it is the bank that is owning)

      One day house prices will come back to the long term averages - this means in a "best" case scenario (from the perspective of home owners) they must fall in real terms against incomes, in the most severe case we crash like Japan (in real and nominal terms) and it takes 30 yrs to come back. It will happen, the timing is impossible to predict though and timing is everything when it comes to this.

      Our employment is secure (as in we won't lose our jobs unless we go postal), but salary could potentially drop by 15% for one of us if our employer was to cut back (is that likely, hard to say). In this case we'd need to cut spending further or draw on the emergency fund. If our incomes dropped 40% then we'd need to find an extra $28k/yr in savings (hard, but presumably not impossible - plenty of other people live on less)

  • dp1 on 21/07/2024 - 12:14
    +1

    We're a similar but slightly older family of 5, net income a little lower but mortgage less than half of yours.
    Car costs are much lower (one EV owned outright costs almost nothing to run, other small petrol SUV also owned outright but under 3000kms a year).
    Food bill I'm sticking my head in the sand but sounds right.
    Utilities a lot lower, I'd strongly recommend the first thing you do is get as many solar panels as you can fit on the roof (my 6.6kw system saves $1700 a year).
    In spite of the smaller mortgage it still feels tight some weeks.

    As kids get older major costs can include braces ($8-10k per child), car insurance while teaching them to drive then even more on P plates (unless you are happy to risk it being written off). Teenagers take ridiculously long showers so expect water bills to reflect that.

    Cost of trades is a killer. I'm not sure if it's a national thing or just WA but you can do a short TAFE certificate to work on your own house electrics, it will pay for itself within a few days. Learn basic power tool skills at the men's shed as well if family didn't teach you (I could use a drill and jigsaw by the end of primary school!)
    Get a Bunnings power pass if you can use an ABN. The average homeowner spends $105000 at Bunnings over their period of ownership.

    TLDR: everything costs more than you expected. Think about a cheaper house if you can. But nothing beats the feeling of never thinking about a rent inspection ever again.

    • franklowe23 on 21/07/2024 - 13:19

      Thank you.

      Utilities are expensive. It is based on our current spend for a similar aged, but smaller and possibly better insulated house than the one we'd be buying (neither have solar).

      Much of this is in gas heating costs for Canberra's winter (both houses have ducted gas). We only set the heater to 19.5C currently and aren't home weekdays, yet it still costs us around $1500/yr.

      Can I ask how much your solar system cost to install? I wasn't (aren't) convinced it is worth it as we aren't home to use the solar power during the weekdays - it feels like a battery would be required to make it make sense, but perhaps I've got this wrong.

      Ack on the braces - this hasn't escaped me!!

      • dp1 on 21/07/2024 - 18:15

        Solar was just under $5k but WA may be cheaper. You may not be home during the day but lots of things can be run sequentially on timers to use solar: washing machine, dishwasher, slow cooker, bread maker, and you can pre-heat the house using solar power if you have reverse cycle AC so it's warm when you get home. Weekends use solar for more laundry, ironing and car charging. Also consider heat pump hot water (I haven't got round to it yet because the gas hot water just refuses to break, it's the last thing left on gas). I also run a pool pump almost 100% from solar as well.

        • franklowe23 on 21/07/2024 - 21:07

          Thanks. $5k for the solar sounds like a bargain, I must investigate Canberra pricing!!

          A heat-pump hot water makes a lot of sense.

  • p1 ama on 21/07/2024 - 12:19
    +9

    This likely won't be the advice you are after, but past a certain income threshold, you can realistically afford whatever you want (within reason), and it just comes down to what are the trade-offs you want to make and the sort of lifestyle that you are after. With ~$240k net family income p.a., you are definitely well past that point.

    It is ultimately your decision on whether you want to live in a $1.7m house and what sacrifices this will entail. I know plenty of people at the extremes - those who are happy living in a small 3BR house, and going on overseas holidays every 6 months, and I also know plenty of people who live in mansions, but hardly have anything left for things beyond the basic necessities.

    It's up to you to decide what you want to do with your hard-earned money and what you feel will bring you happiness. Only word of advice is that there's a lot of wankery going on when people talk about how much they earn, how much they spend, and how much they save. It's not a pissing contest for who can earn the most, spend the least, climb the proverbial ladder the quickest. It should be about who lives the happiest life. You are fortunate enough to be in the few (likely < 5%) of people who earn enough to not have to worry about money. Don't make it a problem is what I would suggest.

    • franklowe23 on 21/07/2024 - 13:22
      -1

      Ack and thanks.

      I'm certainly not up for pissing contests and that certainly wasn't the purpose of this post. I also totally agree that life is for living and not climbing the ladder (unless that is your thing - it isn't mine).

      So in a way perhaps your post is actually good advice.

      Enjoy the rest of your weekend!

      • p1 ama on 21/07/2024 - 13:37
        +2

        I'm certainly not up for pissing contests and that certainly wasn't the purpose of this post.

        I wasn't trying to suggest that you were, so apologies if you took it that way.

        What I was trying to say is that a lot of people online tend to turn these things into pissing contests, and that the quietest ones are the ones who are out enjoying their lives.

        • franklowe23 on 21/07/2024 - 13:41

          No not at all (absolutely no apology needed!)

    • V2L on 21/07/2024 - 13:31
      +1

      great advice, well said

  • gromit on 21/07/2024 - 12:43

    Your utilities spend seems extremely low for a family. we have household of 2 and we spend more than that on Utilities. you sure you didn't miss something there. The real way to test your affordability is add a couple of percent to the laon interest rate and calculate what that does to your monthly budget.

    • franklowe23 on 21/07/2024 - 13:23

      I think I've accounted for everything. Our electricity is about $55/fn, but our winter gas bill is huge (not so in summer). Water / sewerage costs are currently largely born by our landlord, but I've used the full bill to plan our budget.

      • sumyungguy on 21/07/2024 - 13:51

        Have you checked out the ASFA Retirement Standard? It gives a detailed breakdown of expenses for a retired single/couple which is not quite the same circumstance but the breakdown and allocations may help. I'd say $2,560 pfn for a family of five is on the low side.

        • franklowe23 on 21/07/2024 - 13:53

          Yes I've checked that.

          I have to say I'm not sure about their numbers (in general that is), I know living in retirement is cheaper than living when working with a young family, but I can't imagine living their modest lifestyle would be stress free for many people in modern Australia.

  • Drakesy on 21/07/2024 - 12:53

    Sorry OP, you'll struggle to find a bank willing to lend you that much.

    My household net income is close to yours and the bank doesn't want to lend us more than $1 mill which i think is still ridiculously high (no dependents)
    But hey, if you want to spend your entire life paying off a mortgage and possibly end up retiring with debt then go ahead.

    But to me you're not earning enough to warrant that level of debt, especially with 2 kids. Throwing away $1.5 million in interest repayments over the life of the loan sounds horrendous. Spend another couple of years increasing your deposit and reducing your loan amount, especially in a cooling market.

    • V2L on 21/07/2024 - 13:17
      +1

      that can't be right surely, pre covid banks were lending 6-7x gross income as a rough rule of thumb, now maybe 4x, 1mil sounds a bit low for your income

    • franklowe23 on 21/07/2024 - 13:25
      +2

      All incomes I provided are net incomes (as I can't spend our gross income; sadly) so perhaps that might be the difference??

      It's actually 3-kids too, which is fun, but not great for the budget.

      And yes a bank would do very well out of us if we go ahead.

  • netjock on 21/07/2024 - 14:14
    +3

    You actually want a bit of buffer so that you can pay down the mortgage quickly (extra $100 per fortnight etc) because mortgage on PPOR is not great debt.

    But you can thank those people who think negative gearing is "the ATO paying your mortgage" (which it isn't, it is just a tax deduction against other sources of income which otherwise would be carried forward, like capital losses in absence of capital gains to offset) It is also why I think giving financial advice on real estate should probably be regulated because anyone can give advice right now without accounting for people's personal circumstances

    • franklowe23 on 21/07/2024 - 17:42

      Yep negative gearing is certainly a contributing factor to the unsustainable high house prices we have in this country.

  • bigbadaboom on 21/07/2024 - 14:30
    +1

    If you love your jobs, you make enough to go for it. But also consider how easy it is for your jobs to be replaced by a machine in the next 5-10 years. That's going to surprise a lot of people. Consider that risk.

    • franklowe23 on 21/07/2024 - 17:43

      Yes AI is going to make a mess of the jobs market over the next 5-10yrs - very hard to predict what impact on my (or your) exact job though.

  • amorphous2111 on 21/07/2024 - 16:04
    +2

    I think the mortgage is a little big. Your budget I think is reasonable but already on the tight end to me. Your “other” category comes to about 43k pa. Take away 8k in rate and some maintainance every now and then you have 35k left. To be safe add another 2% on top of the currrent rate which is 34k, so basically nothing left.

    If the house price keeps going up then it is not big an issue since you can get out anytime, otherwise could be stressfull if such scenario materialises.

    • franklowe23 on 21/07/2024 - 17:45

      Yes agreed if prices fall, which they should at some point, and we wanted to offload it wouldn't be a great situation.

      Yes $8k in rates and $6k+ for maintenance each year needs to be found somewhere.

      And I agree it's not a perfectly comfortable mortgage amount!!!

      • amorphous2111 on 21/07/2024 - 18:15
        +1

        Yes, I run your spending number in Nab with an assumed income of 118k net for 2, and it came to a mortgage of about 6500 pm, substantially less than your number of 10000 pm.

        You are right to seek additional opinions here as the “pro” will tell you whatever they can to sell the products, said but true.

        If I were you I probably will hedge by buying something cheaper, maybe worse house in the same surburb. I probably held, and still hold, the same sentiment about the housing situation in Australia but I made smaller steps along the way in term of housing, not in a position to complain I guess but I am still happy if the house price corrects to a level that benefit the younger generation.

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