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Email: admin@livingexpenses.com.au
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What are Basic Living Expenses?
Basic Living Expenses include costs that the average person will spend and generally regarded as essential to maintain a comfortable standard of living. This is sometimes called the Cost of Living.
Examples include:
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Groceries (Food, Consumables, Alcohol, Cigarettes, Lunch)
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Entertainment (Dining out, movies, pub)
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Clothing
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Hair Dressing & Personal Grooming
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Telecommunications (Phone & Internet & Media Streaming)
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Education
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Child Care
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Health (Gym & Sports & Medical)
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Transport (Vehicle Costs, Fuel, Public Transport)
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Housing Utilities (Electricity, Gas, Rates, Insurance)
What are Discretionary Living Expenses
Discretionary Living Expenses may include expenses that people want to spend but are not generally regarded as essential. A person could chose to forgo these expenses if they wanted to
Examples include:
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Overseas Holidays
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Gifts and Celebrations
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Private Schools
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Private Health Insurance*
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Life / Income / Trauma Insurance
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Recreational Vehicles
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Holiday Houses
Why are Living Expenses Important?
In simple terms, a person who minimises their Living Expenses is able to spend more of their income of items that they really want. This could be a overseas holiday, a new car or a new mortgage.
Increasingly banks and other lenders require people to fully disclose their Living Expenses.
Not understanding your living expenses may be the difference between getting a loan or not.
This website will let you know some hints and tips for reducing living expenses any help you calculate and understand your living expenses.
What do Banks want to your Living Expenses?
When you apply for a mortgage your lender MUST take into account your living costs when determining how much you can afford to borrow. A lender would normally calculate your net income after tax; deduct your current commitments such as existing loans, leases, student loans etc and then deduct your assessed living expenses.
Net Income
- Commitments
- Living Expenses
= Borrowing Capacity
Lenders use different methods to calculate your living expenses, including:
scrapping your bank statements for the size of your family and the number of dependants you have.A young couple with no children will most likely have fewer expenses than a family of five. A young single borrower with an active social life will probably spend more each week than a pensioner who no longer drives and owns their own home.
How Do Banks Assess Living Expenses?
Different lenders use a number of different methods to calculate your living expenses:
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Statement Scraping Software
Banks use sophisticated software to analyse each transaction on your bank or credit card statements
They can then categorise these into living expense categories to
The software can also pick up regular income, recurring expenses and payments to your current loans.
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Living Expense Survey
Loan applicants will normally be asked to compete a detailed survey estimating their living expenses.
This is normally built into the loan application and may be broken down into 10, 20 or 30 categories
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Comparisons with HEM
Many lenders will compare your stated living expense with a calculation known as HEM (Household Expenditure Measure).
HEM was developed by the Melbourne Institute of Applied Economics in 2011 as a measure that reflects a modest level of weekly household expenditure for various types of families. The HEM figure takes inconsideration the size of a family and assumes people who earn more spend more.
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