Getting Your (Financial) Act Together

So you found your dream home and now all you need is a bond! That’s when the real work starts. Expect to be faced by reams of paperwork from the banks that will have you wondering if it’s all worth it. The key to overcoming this obstacle is to get on top of – and stay on top of your finances. If you don’t currently own property, going through the motions of determining your net worth will prepare yourself for the day you are ready to commit to a mortgage.

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Even if you are already a property investor, a few key tips and tricks will make the process a lot smoother when you are ready to invest in your next property.

Right, let’s get started. Gather the following documents

  • Proof of income
  • Copy of your South African ID or passport
  • Proof of current residential address
  • If you are an employee, you’ll need an official salary slip or stamped bank statement (either option needs to show history for the last 3 months)
  • If you are a self-employed entrepreneur, the process is that much harder. You’ll need to prove that a regular monthly fixed salary has been earned from your business and received into your personal cheque account, preferably on the same day of every month. Statements of your business and personal accounts of at least six months up to a year history period might be required.

In addition to the documents detailed above, you will need to complete an income statement and a personal balance sheet which compares your financial assets (what you own) with your financial liabilities (what you owe). The sum of all of the money you owe is your liabilities. The difference between your assets and your liabilities is your net worth. Simply put, an asset is something that puts money in your pocket while a liability is something that takes money out of your pocket!

In order to start preparing your income statement and balance sheet, you’ll need your latest bank statements, as well as the details any loans you have. Once you have all of that information available, start developing your balance sheet by listing all of your assets (financial and tangible assets) with the values.

  • Cash (in the bank, money market accounts)
  • All investments (mutual funds, university savings accounts, individual securities)
  • Home value (the resale value of your home)
  • Automobile value (the resale value of your car)
  • Personal Property Value (resale value of jewellery, household items, etc)
  • Any other assets

The sum of all of those values is the total value of your assets. Your goal should be to continually increase your assets.

Next, you can look at your liabilities, which should be everything you owe. Here are some common liability categories:

  • Remaining bond balance
  • Car loans
  • Student loans
  • Any other personal loans
  • Credit card balances

Understanding your Income Statement and your Balance Sheet.

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Categorise all your expenses and income streams into their respective columns. Don’t forget to include any income-producing assets and income-draining liabilities.

This is the cash-flow pattern of an asset:

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This is the cash-flow pattern of a liability:

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Once you have these documents in front of you, it will be easy to identify which liabilities are draining your budget, allowing you to get rid of the ones that you no longer need or want.  It will also give you a better understanding of where your income is going, and open up to new ideas for expanding your income.

If you have the financial resources to pay at least 20% or more of the purchase price as a deposit and also have cash available for the transfer duty and attorney fees, it will substantially increase your chances of obtaining a mortgage bond on a property.

Repeat this process twice a year to ensure your finances are up to date. Having all this information on hand will be invaluable when you start the bond application process!

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