Frank Newman: Frugality and home ownership

Virtually every day I see news items reporting a tale of woe about unfortunate wannabe first home buyers being deprived of the right to do so; and it’s always someone else’s fault. I personally don’t buy into that negativity and blame game. In my view houses are affordable, and more so in provincial New Zealand.

I addressed this issue in a recent column about living off the smell of an oily rag. People usually have a bit of a chuckle about frugality and dismiss it a little like they would buying a black and white TV – it was something a previous generation did, before cell phones were invented and before Facebook (Fb) joined the Periodic Table of Elements.

News flash! Frugality is a pathway to buying your first home and first, and second, and third investment property. It’s not the only pathway but it is low-risk and certain to achieve the objective.

If I were to express as a single word the difference between those who are able to buy their own home and those who are not, it would be attitude. I know that’s general to too trite to be true in all cases, and there are situations where some people are not able to achieve stable housing without state assistance. This is where politicians could help. In all other cases they should largely get out of the way in my view.

Attitude comes down to five things.

The first is commitment. Start saving early and often. As a general rule of thumb that 10 cents in every dollar that flows through your pocket (and bank account) should be captured and caged. By captured I mean saved, and by caged I mean put to work in an investment account of some kind. If the person on the average wage did that during their life-time then by the time they are of an age to receive super’ they will have more money than they would have ever have imaged when they made that first deposit into their savings account. That’s not an exaggeration, it’s just how the numbers work - and compounding interest really is just as simple as 1, 2, 4, 8, 16….

Commitment also means giving up some of the nice things so you can have the important things. Having a flash car to look good is an act of stupidity in my view. Just remember a mortgage repayment will have life-time benefits. A car on the other hand is a liability with diminishing resale value and increasing annual costs.

The second key word is KiwiSaver. There are huge benefits to be had for those who have yet to buy their own home. Literally there are thousands of free dollars waiting for you to grab and use as a deposit on your first home. One would need to have cup-cakes in their head to not take advantage of it! KiwiSaver has been well covered previously in Property Plus.

The third key word is time. Use it productively. Turn off the tellie and use that time to generate some extra income or use it to save money by putting in a vege garden or doing some other money-saving activity. If you have a particular hobby, try to turn it into a positive cash flow. Time is also about having a date in mind when you want to buy your first (or next) home. Defining a time frame creates an imperative that turns it into a goal, rather than a day dream.

That leads onto the fourth key word, which is mind-set. Don’t expect anyone else to do things for you. If you want something it’s up to you to get it. As much as you or others may wish it, the government will not give you a house. Unfortunately there is a perception that it will, which tends to make people stand in a queue with their hands out, while the rest of the world passes you by. If you want something, you should be prepared to give something up to get it. Figure out what is least important to you and give that up first.

The fifth key word is humility. A first home need not be the Kings’ palace. The important thing is to get on the property escalator. A humble abode in a nice street is likely to turn into a tidy investment.

There are a lot more words that could be said about home ownership but these pretty much sum it up: commitment, KiwiSaver, time, mind-set, and humility.