Structuring Cashflow To Meet Goals

What Is My Goal?

Let assume you want to buy your first house. First you will need a deposit, this typically is 5-10% of the purchase price (minimum). You may also need stamp duty, mortgage insurance and legal fees, less any assistance from the government, family and/or friends. This can be a hefty amount to save. Your goal will be to purchase a house in 3 years.


First Home

Determine the Requirements at the Time Required

Determining the amount you require can be a little tricky. First you will need to determine the price of houses or units in the area you desire at the time that you have completed saving. Look at the current median price (online or real estate agent) and use the long term growth rate and multiply it up. Many real estate sites have this information. The median price is the middle price in a list of sales, not the average. For example a unit in your suburb of choice is now $250,000 and prices have grown 30% over 3 years averaging 10% per year. By adding 30% the future price in three years would be approximately $325,000. You now have a figure to based your calculations on.

Establish a Cashflow Plan

Let’s say you calculate a total of $40,000 for the deposit and purchasing costs and now need to determine a periodic amount to save plus know where to save it. It would be best to stick to the 3 year timeframe. Let’s assume you’re paid $4,000 monthly and your expenses are $3200 a month. Saving $800 a month will take 50 months or a bit over 4 years. You want to do it in 3 years so by making sacrifices you start putting away $1,111 a month. You choose a high interest savings account that may bring the target date forward a couple of months. This account is also protected from your spending by making it an account that both you and your partner have to sign to withdraw the money. You avoid risky investments as you want to meet this target.

Monitor and Evaluate Your Progress

As the months pass you ensure that the regular amounts go in and the right interest payments are added. You are pleased as the amount grows as planned. You celebrate every $10,000 to reinforce your positive behaviour. Any windfalls like a bonus are not spent but put into the savings allowing the deposit sooner or your deposit will go further as house prices won’t have grown as much in a shorter timeframe.