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Your ideal income versus expenses ratio

This article is part of a fictional case study series following "Sarah", a typical first home buyer in Victoria. Read each article to follow "Sarah" through a variety of articles exploring issues related to buying a home.

When speaking to her broker, Sarah was told that she ought to write down her expenses.

Banks will review how much of your salary are you spending, and how much you are putting away for emergencies, saving, etc.

There’s no magic number here. But there are a few guidelines a bank may want to see before they start offering you some money, so here are a few tips to help keep your ratio in check:

  • Keep your housing costs to less than a third of your take home pay. Now, we know in Melbourne that’s not always possible. But if you keep your housing costs below a third, it gives you more disposable income to prepare for interest rate rises that may occur.
  • Always try to save at least 10% of your income. The more money you can save, the better. And if you can get above 20%, that’s even better! But having at least that 10% means you have room to move if anything happens. After all, car repairs come up, your heating bill is more than you expect, and so on.
  • Keep your discretionary spending around 10%. It’s all good to spend money on fun, but you want to keep it at a limit. When saving for a deposit, making sure you cut down on super expensive activities will help the bank see you as a responsible spender.

If you earn $80,000 a year but you spend $15,000 of that going out to restaurants and drinking – that’s fine! – but your bank may question why you weren’t able to save more money during that time. It’s also going to scrutinise your budget more.

Don’t cut out everything. Just keep the spending under control.

  • Try to keep your bills to 33% of your income. This is really going to differ on where you live, but use the 33% as a guide. That way you can easily divide up your income into three parts – 33% as housing, 33% as bills, then 33% as everything else.

This isn’t going to work for everyone – after all, it’s just a guide. But use it as a start, adjust it to your area of living. Who knows – even if you use it to make a few small changes, that can mean all the difference.


Sarah thought she was doing pretty good with her bills, but she can always do better! Sticking to these ratios can help her save even more money and pay down her mortgage faster.

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