Avoiding your own PFC (Personal Financial Crisis) – Part 1
5.5 min read
Vincent Moore shares his tips for securing a healthy financial future
Welcome to the future. Banks are becoming smarter, sharing more information and asking more questions about how you spend your money. Borrowing money has become an art form and banks are only happy to lend to people named Pablo. It can now take months (even years) of practice and dedication to paint the perfect picture and prepare for your home loan.
Carelessness and a lack of planning lead to the global financial crisis back in 2008 and caused utter chaos. If you don’t prepare ahead, you might find yourself having your own personal financial crisis when you find that perfect apartment and you can’t get approved for a loan.
As your resident art teacher and mortgage broker, I’ve broken down all the changes that have happened recently and how to best prepare. These aren’t just tips for when you’re planning to get a mortgage, they are financial tips to live by.
This one is a biggie. Rewind two years ago and banks asked for your living expenses, but they never really cared what your answer was. Like an ex after you’ve just won the lottery, they’ve suddenly become very interested in your money and how you spend it. They now want a specific breakdown of each category of living expense (Food, entertainment, utilities etc.) and will often ask for bank statements to verify this.
This is still a bit of a grey area given banks haven’t quite worked out how deep they want to delve. Some lenders won’t ask for any bank statements where as others will want one or three months everyday bank statements. One lender has even put it on the table that they will be asking for 12 months bank statements to verify living expenses come October. Either way, they are scrutinising living expenses more carefully now and it will likely get worse.
Our recommendation: Spend less. Start tracking your spending and know how much you’re spending on a month. It doesn’t mean you’ll have to go back to your Uni days filled with Mi Goreng and cheap wine but it might mean that you choose to whip up a quick satay as opposed to getting UberEats for the third time this week.
Nothing quite shows financial character like savings. It means you’ve been able to manage your money, avoided the temptation of booking your next Bali trip, and shown discipline to put funds aside. There are lots of methods of savings (keep your ears peeled, I’ll run through them soon enough) and it’s become a skill that lenders place a high emphasis on.
You might be relying on the parents to come through with the goods and gift you the funds or put their house up as a guarantee in order to help you purchase your first home. Often, this is no longer good enough. More and more lenders are asking questions as to why clients haven’t managed to save funds themselves. Their view is that if you can afford a home loan, then you should have shown you can afford to save.
Our recommendation: Get saving. Put a plan in place (which should correlate with your living expenses) and work out how much you can save. This isn’t just a skill for the lenders, it’s a life skill.
We’re not quite done teaching you on how to paint that masterpiece/prepare for a home loan. Stay tuned for part 2…