Now that you have worked out how much you can repay, you may look at this amount and be rather disappointed. You might be wondering, how can I do better? If you are feeling a little deflated (or a lot)—rest assured—there are options to help you increase this amount. There are three things you can do to increase your repayments:
- Cut out some of your expenses;
- Save on some of your expenses; or
- Earn more money.
Let’s look first at cutting out some of your expenses.
- Cut out some of your expenses
If we are honest with ourselves, there are usually ways we can cut out some of our expenses. The most obvious expense you can cut is rent. If you are planning to move into the property you purchase, this will free up rental money for you to put towards your home loan. For example, if you pay $250 in rent per week, this works out to be approximately $13,000 extra that you can repay on your home loan per year.
When we purchased our first home, we were paying approximately $400 per week in rent (for a small one-bedroom apartment). Once we moved into our own property, this money was going to us.
If you currently pay rent and plan to move into the property you purchase (and if you haven’t already taken your rental amount into account in the previous section), you can add this to your repayments. Now you will have a new amount you can repay.
Even small additional repayments make a big impact.
What other expenses can you cut? Do you buy lunch every day or every week? Store bought lunches can really drain your income. Lunches can cost approximately $10 each (and that’s a cheap lunch!); with that in mind, even if you only bought lunch once a week, you could be saving $520 per year, or if you bought lunch every day, you could be saving approximately $2,500 per year. It all adds up. That money could be going towards your home loan. And the bonus is that this becomes money you don’t have to pay interest on!
How about coffee?
What about other regular spending habits?
Take a good look at your spending.
Now, this is going to sound like a lot of work, but it is actually really easy to do and should only take about 10 minutes. Open up your bank account so you can see all of your expenses over the last three months (or year would be better).
Now create three categories:
- Essential;
- Non-essential; and
- I don’t know what this item is!
Categorise everything you have bought according to one of these three categories.
Essential purchases are things you have to buy or pay for. For example, you have to pay your electricity bills, you have to pay your water bills, you have to buy groceries (although this could be lower in some cases), and you have to pay uni or school fees etc. There are some things you just have to pay.
Non-essential purchases on the other hand are eating out or buying that new bag for $300 when you have perfectly good bags in your wardrobe already!
Open your bank account and scroll to three months ago (or a year ago), then look at every item one-by-one that you have purchased since then.
If you don’t have access to your bank account, make it a priority that you get access asap. You should always have access to your bank account.
Every time you reach a non-essential item, write it down and write down the amount it cost. Write it onto the computer, type it into your mobile or write it down on a piece of paper.
Do whatever works for you.
As you’re going through, if you come across an ‘I don’t know what this item is’ expense, write it down as well. We will come back to this in just a minute.
When you have reached the end of the three months, or year, look at your list of non-essential items. And be honest with yourself, where could you make some savings by cutting out expenses?
Or a better question might be, what are you WILLING to cut out?
For example, you may not be willing to forgo buying coffee every day or eating out once a week because these are special treats and you want to keep that ritual.
That is absolutely fine.
You decide where you are willing to cut expenses to put towards your home loan. No-one can decide for you. And no-one is going to tell you what you can or can’t do; it’s your money.
The more you are willing to cut now, the faster you are going to pay off your home loan and the less interest you pay on that home loan.
It’s up to you.
So, with that in mind, write down the items you are willing to cut out to be able to repay more on your home loan. Only write those that you believe you could actually do without and are willing to sacrifice. Later when you review your situation, you may find you are willing to sacrifice more (or less).
In the meantime, highlight those that you are currently willing to sacrifice.
And then work out how much you could repay with these items cut. Add this to your repayment amount from the last section and write that down somewhere. Based on all of the repayments (from the last chapter and this section), add them up and write that down.
As for those ‘I don’t know what this item is’ expenses, how many did you find? A couple? A handful? A lot? Go back through your statements and look at how many times you have paid for these ‘I don’t what this item is’ expense.
Are they things that come up regularly or were they a one-off purchase? Try to work out what they could be. If it’s regular, maybe it is always an expense that happens on a Friday, could this give you a clue as to what you are buying?
In any case, it’s always a good idea to keep track of your spending. There are lots of ways you can do this but it can be time consuming and boring, so many people don’t bother.
At the very least, you should make an effort to check-in on your account once per week or fortnight to look at all your expenses for that period. Some banks even allow you to receive notifications for every purchase you make; that way you can pick up on any suspicious expenses straight away. If you don’t already do this, schedule it right now into your diary to look at all your expenses once a week or once a fortnight or to receive those automated messages from your bank, so you can catch any suspicious expenses immediately.
You may even like to check in on your account to check that you have been paid! This will also help you see how your expenses chew up on your savings (did I really get take out three times last week?). And you may decide there are more non-essential items you are willing to forgo.
- Save on your expenses
When we had our first home loan we had a nice but expensive to service European car (we live in Australia, so European cars are expensive here). We purchased the car when we had our first baby because we wanted a family car. After we first purchased the car we had it serviced and the cost was about $2,000. We were told that this was a big service and a big service like this wouldn’t be necessary the next time. We took this as a one-off hit to the budget and didn’t worry about it anymore.
The next year came around and what do you know, the service cost around $2,000 again. This time because it needed some repairs. Following this, the car service every year was still around $2,000. This really ate into our mortgage repayments every year.
It was our final car service that really took the cake—it was $6,000—and it was in the final year of our home loan. It was then that we said goodbye to that car!
We swapped it for a small, reliable and cheap to service car. We’ve had this car for about five years now and our servicing costs have been about $300 for each service. From $2,000 to $300 was a huge saving!
And the difference to our home loan has been huge as a result.
There are also other ways you can save money on expenses you already have. For example, can you save on your energy or gas bills, can you save on interest repayments by choosing another lender? What about your mobile phone or internet bills? Are there other bills that you could be making savings on?
Sometimes it also helps to think outside the box.
For example, to save money on holidays we started house swapping! So far, we have saved about $2,000 to $5,000 in accommodation per holiday. Sometimes we have swapped over a long weekend and at other times we have swapped for three weeks.
Obviously, it’s a great way to save money! And you also get to meet like-minded people and you get to go somewhere you might not normally have picked but absolutely love (or you can choose your destination – you just have to ask!).
House swapping has become really popular with lots of places to swap around Australia and all over the world with some amazing destinations. With this in mind, you could put extra money towards your home loan that you would normally spend on accommodation, allowing yourself to go on holidays because it won’t break the budget.
I wish we knew about this earlier because we actually put off holidaying to save money when we first had a home loan. We didn’t start doing this until we lived in our second property. You don’t have to miss out on a fun holiday.
If this is something you are willing to try (or something like this), don’t add how much extra you could save to your repayment amount, leave this as a bonus for your home loan journey.
What are things that you could save money on? Write those down and start making those savings.
- Earn more money
The other most obvious way to make higher repayments and pay your home loan off faster is by earning more money. Before we talk about this I must mention, sometimes earning more money can mean more unnecessary stress and if this is not an option for you, it’s ok. When we went through this journey we focused on reducing spending as opposed to earning more money. That may be your focus too.
However, if you are willing to earn more money and it suits your lifestyle, think about it, are there ways you could earn more money? Here are four ways you could earn more money:
- Are you due for a job promotion? About a year or two after our home loan started my husband got a promotion. This helped to boost our home loan repayments, and to pay for new expenses such as preschool. Even changing sectors helped. For example, some state level jobs pay higher than federal jobs, depending on which state you live in—bonus! Sometimes private companies pay more than government roles (and sometimes they pay less); but the hours can be longer and you have to weigh up whether this is worth it. Have a look for alternative roles to see if there are opportunities elsewhere.
- Could you get a second job? We didn’t get a second job. My husband had over three hours in travel time to get to work and back every day. Work was just too far away, and it was more important for us to spend any extra time we had as a family, so this wasn’t an option for us. But your circumstances could be different and this could be something that you do in the short-term to boost repayments. For example, maybe you don’t have kids yet or maybe you have more free time. I also had casual work that helped to boost repayments. Every little bit helps.
- Could you do odd jobs to increase your pay? You know—the sorts of jobs people list online that you can bid for. Are there freelancer jobs you could do as a side-hustle? We didn’t do this at the time we were paying our first home loan off, but I have done this to boost income that little bit after that time.
- Lastly, any extra money you receive, put it straight into your home loan. For example, If you change jobs and have your leave paid out; put this money into your home loan. If you have a tax return, don’t touch that money; put it straight into your home loan. If you must use the money, then take only half, and put half into your home loan. It will be so much easier to pay your home loan off or stay ahead if you put this money away. Try not to touch it.
Just remember, whatever income you earn, you need to declare. So always leave some money aside for tax purposes.
What other ways could you earn a little extra money to help with your repayments? Write down any ideas you have for making money, and then for any of those ideas, highlight any that you are willing to try.
Any extra money you make is a little extra bonus towards paying your home loan off faster. What will you try?
Once you have your extra repayments, it’s important to also ask yourself how comfortable you are in making those repayments.