Category: First Home Buyer journey

An update of what I did during the Christmas/New Year break

From time to time, I may publish blog posts giving a brief update of where I am up to on my home buyer journey. These posts aim to shed a personal light on what it is like to buy a first home in Australia which will supplement the information posts that describe how to save and buy a first home. In this blog post, I will talk about the numerous things I did during the Christmas/New Year holiday to prepare for buying my first home.

The First Home Buyer Guide

Over the second half of December 2023, I watched all the videos of the First Home Buyer Guide by Home Buyer Academy to get an overview of the process of buying my first home in Australia. I first heard about the course while listening to a Digital Finance Analytics video on buying a first home under rising interest rates. Since then, I had wanted to do the First Home Buyer Guide to learn more about the process of buying my first home. To prepare myself, I listened to a few First Home Buyer Guide podcasts and did two free coursesfrom Home Buyer Academy to get a feel of what the platform is like. Liking what I heard from the podcasts and the two free courses, I purchased the First Home Buyer Guide for AU$990. 

Doing the course was worth it as it taught me an orderly process of buying the right property at the right price. The central idea of the First Home Buyer Guide is that there is a sequential process of purchasing the right property that suits my long-term needs without overpaying for it. This process is encapsulated by the PACE system which consists of ten steps over four phases:

  1. Preparation: It consists of assembling a support crew that would support me on my home buyer journey, knowing my borrowing capacity with the money that I saved and thinking about what I would like in my first home.
  2. Action: This consists of the property search and inspection, and using the information to revise my expectations of my first home. 
  3. Commitment: Once I have found the property that I would like to buy, I would need to do some due diligence to see whether the property is right for me and if there are any faults or dealbreakers. 
  4. Execution: Once the property is okay for me to buy, I would need to read and/or sign a contract, either negotiate a fair price or go to auction and undergo the settlement process once the property is purchased.
PhaseSteps
Preparation1) Support Crew
2) Money
3) Plan
Action4) Search & Inspect
5) Revise & Correct
Commitment6) Methods of Sale
7) Evaluation
Execution8) Contracts
9) Negotiation & Auctions
10) Settlement
The PACE system as taught in the First Home Buyer Guide

The steps in the first two stages were very clear, highlighting the importance of research and self-reflection to understand the property market and what I need to consider when inspecting property. The course provided a lot of templates to keep track of who I have recruited in my support crew and to record whether I would buy recently sold properties so that I can calibrate my expectations of what I can buy. 

What I learned from the course is that I don’t have to enter the property market right away by buying a cheap property that does not meet my long-term needs and does not have much market demand. Instead, if I have sufficient borrowing capacity and patience, I can stretch myself and buy a first home that might be expensive but would suit my needs in the long run and would be easier to sell as it would attract plenty of potential buyers. 

On the other hand, the steps in the last two phases were a bit messy as I was confused of what I can do before and after I sign a contract depending on whether it is a private sale or an auction. This is something where I would need to do further research and ask more questions and guidance from my support crew. Nevertheless, the steps in the last two phases gave me an overview of how to use my research to negotiate effectively and what happens after I purchase the property so that I know when I can move into my first home.

I also received a lot of freebies in purchasing the course, namely a book on buying property at auction, a question board to ask questions to the course facilitators and a 30-day free trial of live Q&A sessions where I can receive guidance live. The 30-day free trial is something that I will activate later on once I have identified a few properties that I am thinking of buying, but I will make use of the book and the question board now while I start searching for property.

Overall, the course has been worthwhile in understanding what is involved when buying property. The steps taught in the course are not only useful for buying my first home, but also set the foundations for researching and buying investment property later on in my life. 

What else did I do?

Going off the First Home Buyer Guide, I am starting to bring together my support crew that will support me in my home buying journey. I did some research on mortgage brokers, property solicitors, conveyancers and property inspectors that I could recruit as part of my support crew. At the moment, I am making appointments with two mortgage brokers to learn more about my borrowing capacity and ways to expand it. These mortgage brokers would not only search for the right home loan for me, but would also structure it in a way that gives me flexibility of buying investment property in the future. Knowing my borrowing capacity would allow me to decide whether to start looking at property or not. 

In preparation for my meeting with mortgage brokers, I calculated how much money I earned and spent in 2023. I found that I had enough money to cover the weekly essentials and fun stuff, allowing me to save a huge proportion of money towards my first home. At the same time, I found that I could save even more money to increase my deposit and to cover the costs of buying my first home such as inspections and conveyancing fees.

As a result of inspecting my spending and saving habits, I have slightly modified my cash flows between my bank accounts so that I can save some money towards my first home while giving myself some money to spend on fun things and go on a domestic and Japan holiday over the next two years without feeling guilty. I will have plenty of excess savings, of which I will allocate a high proportion towards my first home, accelerating my savings.

Finally, even though I have not started looking at property, I am starting to walk around different suburbs in Melbourne. I am doing these tours to see what they are like, particularly how easy it is to walk to shops and the train station, and whether I would live in them. Over the past two weekends, I have done a tour of two adjacent suburbs within eastern Melbourne, looking at what homes, shops and public transport are like in these suburbs. I will do more suburb tours around Melbourne over the next few months to expose myself to different areas where I might live. This suburb research would put me in good stead in knowing what property I could buy when I start looking at property.

What’s next?

As for what’s next, I am still planning blog posts on ways to save money towards a first home deposit. Currently, I am planning to write a blog post on the First Home Super Saver (FHSS) Scheme, an initiative where one can save money towards a first home deposit via super. I have been using that scheme for the past 1.5 years, so I have some knowledge of how the scheme works and my experiences of using that scheme. I haven’t started writing it up yet, but I intend to recollect information on the FHSS and start planning that blog post so that I can write it up soon. 

Saving money using the Fast and Slow System

Saving enough money to buy your first home can be a daunting task. This is made more difficult by the many temptations that entice people to spend money such as holidays, clothes and home appliances. This spending could be covered by credit cards or personal loans. However, these only depress savings towards a first home and reinforce unsustainable spending, putting people in a lot of debt that can be hard to get out. As someone who saves as much money as possible while cutting down on unnecessary spending, I find it easy to save money towards a first home deposit. However, I used to feel uncomfortable spending on guilty pleasures that would make me happy for fear that I have wasted my money. It was not until two years ago that I learnt and implemented a system that balances saving and spending. Now, while I am still saving towards a first home, I feel less anxious spending on things and experiences that make me happy. 

In this blog post, I would like to describe the system that I use to balance saving and spending, allowing me to save towards a first home while spending on present things and experiences that make me happy without feeling guilty. 

The basics of the Fast and Slow System

Burning $100 bills
The modern world compels us to spend money as quickly as possible

I first heard about the Fast and Slow System during a seminar that Max Phelps delivered. In the seminar, he described how to set up your bank accounts and optimise your cash flows between accounts so that you can save money towards your first home while spending money on holidays, unforgettable experiences and guilty pleasures that make you happy without feeling uncomfortable or anxious. You can learn more about the system and how he developed it in his book Spending Fast and Slow, a book that I highly recommend. In this blog post, I’ll just give an outline of the Fast and Slow System and how I have adapted the system to my needs. 

Basic schematic of Fast and Slow System
A basic schematic of the Fast and Slow System. You can find more details about the system and how cash flows between bank accounts (represented by circles) in the blog below.

The Fast and Slow System is attuned to the fact that our cognitive biases and elements of the modern world such as electronic banking encourage us to spend money as quickly as possible. This system is designed to slow down our spending by introducing friction in how money flows between bank accounts. Friction is introduced by setting up bank accounts over two banks: bank A which is for achieving savings goals and paying the bills and bank B which is for everyday spending and guilty pleasures. By separating our bank accounts over two banks, we can identify that money in bank B is okay to spend, but money in bank A needs to be saved up to cover our bills and savings goals. Having bank accounts over two banks also allows us to reduce the amount of money that is readily available to us. This is done by:

  1. Making it as difficult as possible to readily access money from bank A. This can be done by leaving the bank A card at home, unlinking the card from our phones and watches and deleting the bank A app.
  2. Making it relatively easier to access money from bank B by carrying around a physical card, linking the card to our phones and watches and having the bank B app in our phone. 
  3. Setting up an automatic transfer from bank A to B so that a set amount of money is paid weekly from bank A to B to cover everyday expenses. 

Having less money available in bank B induces us to spend less. This allows us to save more money towards a first home deposit while having enough money to cover everyday expenses, guilty pleasures and holidays without feeling guilty about it.

How cash flows in the Fast and Slow System

The Fast and Slow System consists of at least five bank accounts over two banks. Bank A has three bank accounts: 

  1. Bills: the account where bills get paid. This is also the bank account where our income initially lands and gets distributed to other bank accounts.
  2. Future: the account where we are saving money towards our long-term goals such as a first home deposit.
  3. Holidays: the account where we are saving money to go on holidays, without resorting to a credit card or a personal loan. 

Bank B has two bank accounts:

  1. Everyday: the account being used to cover everyday expenses such as groceries, meals out and drinks.
  2. Fun: the account being used to cover gifts, special occasions and guilty pleasures. 

In terms of how cash flows under the system, within bank A, income initially lands on the bills account. Any bills get paid in that account while money gets allocated to other accounts. We set aside a portion of our income towards our savings goals. To save towards a home deposit, we typically save at least 20% of our income. However, if we are living with our parents where there are no additional living expenses, we can save 50% of our income. We also transfer some of our income to the holidays account to save towards local and overseas holidays. 

In contrast, we only transfer enough money from bank A to B to cover our everyday and discretionary spending. A set amount of money should be transferred to the everyday account weekly to cover our weekly expenses such as groceries, meals out and drinks. Conversely, money should be transferred to the fun account monthly so that we can either have fun or save towards big events such as birthdays, anniversaries and Christmas.

This system allows us to save money to achieve our future savings goals, while setting aside an amount of money to comfortably cover our everyday and discretionary spending. Under the system, we can take a proactive approach to how we save and spend money, balancing fun with financial stability. This is in contrast to reacting mindlessly to insufficient savings or unsustainable spending which force us to quickly cut back, depriving us of some happiness.

How have I adapted the Fast and Slow System to my needs?

Before hearing about the Fast and Slow System, I previously had one everyday and two savings accounts in one bank. All my pay would go into the everyday account, where I would set aside some money to spend over the fortnight, transfer a set amount of money to the holiday account and whatever was left to the first home deposit. Although I was saving a lot of money towards my first home, I did not have an account to cover my discretionary spending on guilty pleasures. This made me feel anxious about spending money that was designated for everyday spending. Hence, I did not spend much money on experiences and things that I would have enjoyed for fear of feeling guilty about it.

However, after learning about the Fast and Slow System, I set up two bank accounts in another bank and used that bank to do my everyday and fun spending. I kept the existing bank accounts to pay my bills and save money towards my long-term goals. After moving to different banks and some tweaking, I have found an optimal structure based on the Fast and Slow system that works for me. You can see the banking structure that I use below.

Schematic of my version of the Fast and Slow system
My version of the Fast and Slow System

All my income still lands in the bills account, where I pay my bills and transfer money to other accounts. I keep at least $1,000 in the bills account to pay my bills and to cover any unexpected expenses. Within bank A, I set aside:

  1. 33% of my income to the home account to save towards my first home.
  2. 10% of my income to the holiday account to go on holidays every year.
  3. 10% of my income to the investment account, where I invest in index funds to build my wealth.

I transfer a set amount of money weekly into the everyday account in bank B to cover my weekly expenses such as public transport, groceries and medicines. For the fun account, I pay a set amount of money fortnightly to see my money grow in that account. I use money from the fun account to purchase things and guilty pleasures that I desire such as video games, clothes and anime merchandise. 

However, I am still a saver at heart; I don’t spend all the money that is available in bank B. Instead, any money that exceeds the maximum amounts in the everyday and fun accounts gets funnelled into a third bank account labelled overflow. I can use money in the overflow account to make big or expensive purchases such as furniture, home appliances and gaming machines. For example, I recently bought a gaming PC using money that I saved in the overflow account. This not only gave me the satisfaction of using my own money to buy something that I desired, but it also gave me a chance to wait for other gaming PCs to release so that I could compare them before purchasing the best gaming PC for me during the Black Friday sales.

With the system in place, I am still saving towards a first home deposit while having enough money to cover my daily and discretionary spending. This has reduced my anxiety and has allowed me to buy things and experiences that would make me happy without feeling guilty about it.

Conclusion

Using the Fast and Slow system, I am able to cover my living expenses and spend on things and experiences without feeling guilty. At the same time, I am able to save a lot of money towards a first home while going on holidays and starting some investments. Depending on your goals, you can adapt the Fast and Slow System to suit your needs. It just depends on what you want to achieve in your life, saving enough money in your savings accounts and setting a specific amount of money to sustain reasonable weekly and discretionary spending.

I am also saving money for a first home deposit through superannuation. Learn more about it in the next blog post in the series.

References

Phelps, M. (2024). Spending Fast and Slow. Major Street Publishing Pty Ltd

Financial advice disclaimer

Anything that is posted on The Active Evaluator blog is for general informational purposes only. You should not interpret this information as formal financial advice. If you would like advice tailored to your personal situation, please seek an accredited professional. I am not responsible for any subsequent actions you take by reading my blog as well as any expenses, costs, losses, damages and injuries you or another person may incur in the process. 

Starting “My First Home Buyer Journey” blog series

As of writing this blog post, I am living with my parents in South-East Melbourne. However, for many years I have aspired to move out of my parents’ home and live by myself by buying a first home. This is an important step in my life, where I can live independently without being burdened by family expectations. I will be able to live in a place where I can go wherever I want, whenever I want, and form long-term connections with the community. Having my own place to live also means I can arrange my things however I want, and possibly have a pet. I appreciate there will be some challenges in finding my first home given the housing and rental crisis in Australia. However, I not only have the determination to move to my own home, but I am also willing to learn more on what to consider when buying a first home. That way, I will be an informed first home buyer, able to purchase a first home that I can live in for at least 10 years.

I am starting “My First Home Buyer Journey” blog series to record in real-time my personal experience of buying my first home. I will provide an account of what it is like to buy a first home, from saving enough money for a deposit to moving into my first home. I will share some tips when finding a first home, as well as mistakes I have made along the way and what I would have done differently. I will also upload some research posts describing the housing and rental crisis in Australia, as a way to provide some background behind my personal journey.

Of course, I am not a property expert by any means, and what may have or will work for me may not work out for you. I would also strongly advise you to seek professional advice if you want to buy your first home. However, I hope that this blog series will give you a personal insight of what it is like to buy a first home in Australia despite the challenging circumstances. Reading my blog posts will hopefully help you identify some things to consider when buying your first home, as well as what to avoid.