One way to think about it is: just because you like buying clothes from a particular clothing brand doesn't mean you should buy stock in that company. The criteria you use for your personal preferences and the criteria used to determine whether something is a good financial asset are often different.
This is a mindset shift that people are often reluctant to make when it comes to property because they like the idea of hitting two birds with one stone. It's also easier to justify the extra expense of buying a nice home if you can also tell yourself it's a good investment.
Being clear about whether you are looking for a home or a property that will be part of your investment portfolio in the future will help clarify your decision making.
Focus on your financial house first
The pressure to buy a property as soon as possible can make you forget that you are taking out a large loan and making a decision that is likely to affect you financially for decades to come.
For this reason, it's a good idea to have a basic level of financial stability and confidence before adding a lot of complexity and pressure to the mix.
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This looks like: understanding how to manage your income and expenses and how to save money consistently. Do you know how much you can afford to keep on a mortgage?
Understanding whether you are adequately insured, understanding your retirement and tax saving opportunities you could take advantage of through Super, or having an idea of what your investment goals are can help you decide where property fits into this combination
I'm not saying you have to have everything perfectly in order before you buy a property, but I'm saying it sounds like you want to buy a Ferrari before you've learned the basics of how to drive. This can put you in a worse situation in the future if you feel overwhelmed, because you've taken on a level of responsibility that you don't know how to handle.
In short, here are a few steps you can take that will help you clear things up:
- Start learning basic money management and organizing your financial affairs (paying your bills, saving money consistently, keeping track of your expenses).
- Review and optimize the financial products you probably already have (retirement and you may also have insurance in your super fund).
- Be clear about what your investment goals are and where buying a property fits in. Do you want to buy a house or build a real estate investment portfolio?
Don't try to do all of these at once. Give yourself the time and grace to learn the ropes and build confidence step by step.
Paridhi Jain is the founder of SkilledSmart, which helps adults learn how to manage, save and invest their money through financial education classes and courses.
- The advice given in this article is general in nature and is not intended to influence readers' decisions about investments or financial products. They should always seek their own professional advice that takes into account their personal circumstances before making any financial decisions.
