Applying for a loan responsibly means figuring out what you can and can’t afford before you apply. Some loans, such as home loans, depend on more than just income – lenders may also want proof that you’re a good saver with good credit history.
The best way to take charge of your finances is to establish a monthly budget. A budget will enable you to direct your finances to priority areas whilst alerting you to expensive habits you didn’t know you had (find an alternative to your store-bought coffee habit!)
Setting up a budget before applying for a loan will stand you in good stead financially. Why? The longer it takes to repay the loan, the more interest you will have to pay. A monthly budget will help you to determine how much you can reasonably afford to repay each month.
Thinking about your finances can seem overwhelming, but establishing a budget doesn’t have to be. Follow these Ezi steps to make budget-angst a thing of the past.
- Work out your income
You might know what your salary is, but after you take into account superannuation and tax, this final figure can look markedly different. Collect your banking and financial statements and then do the math. This process may be the most tedious, but it’s essential to help you save.
- Define your goal
Some people might have a monetary target in mind; others may simply aspire to be free of debt. Whatever your end-goal may be, it should be firmly fixed in your mind when you plan your budget. Having a goal makes it easier to stick to your budget, and to track your saving progress.
- Plan for fixed and variable expenses
It’s important to know how to categorise your spending: fixed expenses are those that don’t fluctuate from week-to-week (e.g. rent and insurance) while variable expenses are subject to change and represent your daily, weekly or monthly spending decisions (e.g. will you spend $50 or $200 on dining-out this month?)
- Don’t forget about one-off expenses
One-off expenses may happen less frequently (hence the name), but they can make a big dent in your savings. These expenses can include gift giving or unexpected visits to the doctor. Budgeting for one-off expenses can be hard because life is unpredictable, but if you budget around a certain minimum, you’ll be less likely to be caught off-guard.
- Track your progress
A budget is not something you can wash your hands of after it has been established – it requires dedication and constant monitoring. You can track your progress by making notes, keeping receipts and tweaking your budget as you see fit. Don’t be ashamed to tweak – it is important to be realistic!
- Borrowing Power
Having established what you can comfortably repay to afford your next big purchase, your friendly Ezilend consultant can establish your “borrowing power” for you before you commit to a contract to buy. This is the maximum loan amount taking into consideration variables such as loan term, rates, fees and balloon payments that you can borrow. This way, with a pre approval in place, you can strike the best deal possible.
Now, to get started…
Use this simple worksheet to plan your monthly budget!