I’m not saying you shouldn’t buy a property. I am saying it’s worth resisting the pressure and ensuring you’re making the right property decision, not just a fast one.
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Here are some signs you may not be ready to buy a property yet – and there may be other moves you can make to strengthen your financial standing first.
There are big gaps in your understanding
Your finances feel like a bit of a mess. You have random savings accounts, don’t know how to track your expenses, but somehow you’ve managed to gather enough for a deposit.
You don’t know the first thing about your superannuation or taxes. Is it in the right portfolio? Is it in a good fund? You blindly hand your taxes to an accountant every year and hope for the best.
Property is an advanced financial decision because of how complex it is. If your financial skills are low, there is a higher chance you’re going to unknowingly make expensive mistakes.
You’re scared of investing $5000 in ETFs, but ready to sign a $500,000 mortgage
People often jump into property (particularly investment properties) assuming that it’s safer than share market investing. Ideally, you want to buy a property because you’re confident it’s a good decision – not because you’re scared of the alternatives and so property feels like the only option.
Property is not safer than share-market investing. When you factor in the mortgage (which adds risk), the lack of diversification (another risk), the number of added parties involved, and so many other factors, you’ll see that property comes with significant risks of its own.
By learning to invest in something simpler like ETFs first, you’ll build your financial confidence and also create real choice: once you know how to build wealth without property, you have the freedom to choose property because you want to – not because you think you have to.
Make sure you have a financial plan outside just investing in your home.Credit: Eamon Gallgher
You have no plan for building wealth outside your home
Without clarity on what your plan is for building wealth outside your home, it’s easy to end up putting every spare dollar into getting the dreamiest home you can afford.
Wealth is better measured by the size of your investments than the size of your home. A bigger home doesn’t add anything to your financial security than a smaller home. In fact, it can hurt your financial security long-term if it stops you from being able to spare money for investments.
Having a plan for building wealth outside your home first will help ensure that you don’t buy “too much home” and will give you clarity on where your home fits in your overall financial plan.
In short – get the boring basics right first. That way, when you do take on a half-a-million-dollar mortgage, you can financially, mentally and emotionally withstand the pressure. You can go into that decision from a position of strength and confidence – not fear and pressure.
Paridhi Jain is founder of SkilledSmart, which helps adults learn to manage, save and invest money through financial education courses and classes.
- Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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