Free Tool
Indicative Living Expenses Calculator
Estimate your monthly household living expenses using a simplified benchmark-style calculation.
Your household
Category breakdownIndicative estimate
| Category | Monthly |
|---|---|
| Total excluding housing | $0 |
Whether you’re planning to buy your first home, refinance an existing mortgage or simply understand where your money goes each month, knowing your living expenses is an essential part of financial planning.
When you apply for a home loan, lenders don’t just look at your income. They also assess how much you spend each month to determine whether you can comfortably afford future mortgage repayments. By understanding your spending habits before applying, you’ll be better prepared and more confident throughout the lending process.
Why are Living Expenses Important?
Living expenses represent the ongoing costs of maintaining your household. These include both essential and discretionary spending that occurs regularly throughout the year.
However, common living expenses like groceries and entertainment, which are separate from your mortgage repayments or rent, are what lenders usually assess independently when determining your borrowing capacity.
Understanding your living expenses allows you to not only create a realistic household budget but also helps identify areas where you can save money. When preparing for major financial decisions like a home loan application, having a comprehensive view of your expenses helps avoid borrowing more than you can comfortably afford.
Using Our Calculator
Our living expenses calculator provides a practical estimate of your annual and monthly household costs based on your circumstances.
It can help you estimate your household spending, compare your expenses with those of typical Australian households, and identify opportunities to improve your spending, all of which leads to understanding how lenders may view your expenses when preparing your home loan application.
First, you will need to provide basic household information, including your marital status, number of dependents, your combined or individual annual gross income and the state or territory you belong to.
This last category is optional, but you can also provide your monthly rent or any existing mortgage repayment for an accurate estimate. Once you’ve done that, the calculator will work its magic, and you’ll have all the information you need.
Alongside the estimated monthly living expenses, you will be provided with an indicative estimate of how much you should spend under different household categories, including food and groceries, clothing and personal care, transport, medical and health, recreation and discretionary, and finally miscellaneous spending. At the end, excluding your housing costs, you will be provided with another total of just the living expenses, which can help you budget without fault.
While the calculator provides a useful estimate, it should be used as a guide only. Since every household is different, your actual expenses will depend on your lifestyle, family size, location and financial commitments.
Why do Banks Assess Living Expenses?
Every lender has a legal responsibility to ensure a home loan is suitable for the borrower. This means they must assess whether you’ll still be able to meet your loan repayments after covering your everyday living costs.
Simply earning a high income doesn’t automatically mean you’ll qualify for a large mortgage. Lenders want to understand how you manage your money and whether your current spending leaves enough extra income to support future repayment.
When assessing your application, lenders typically review your employment, income, existing loans, credit card limits, personal debts and liabilities, household composition, savings history, and regular living expenses.
How Do Banks Calculate Your Living Expenses?
Most Australian lenders use several methods to estimate your living costs. The choice of procedure can vary from lender to lender, but the goal is pretty much the same: to find out whether you’re fit to handle a home loan, not just now but also in the future.
Your Declared Living Expenses
During your home loan application, you’ll be asked to provide an estimate of your regular household expenses. This generally includes spending across multiple categories, and providing accurate information is important. Please note that underestimating your expenses may result in additional questions or delays during the assessment process.
Reviewing Your Bank Statements
Most lenders will review recent transaction history from your bank accounts and credit cards. This helps them verify your regular spending habits, recurring bills, subscription services, loan repayments and more. If your actual spending is significantly higher than what you’ve declared, the lender will generally use the higher figure.
Household Expenditure Measure (HEM)
Many Australian lenders also compare your spending against the Household Expenditure Measure (HEM). The HEM is an industry benchmark developed by the Melbourne Institute of Applied Economic and Social Research. It estimates the minimum reasonable household expenses for Australian families based on factors like household income, number of adults, children and lifestyle profile.
While it does not represent any individual’s exact spending, HEM provides lenders with a benchmark for what an average household is expected to spend. If your declared living expenses are lower than the HEM benchmark, many lenders will instead assess your application using the HEM figure.
What If My Living Expenses are Higher Than Average?
Frankly, there’s nothing inherently wrong with having higher living expenses. Several households spend more because of large families, childcare costs, private schooling, medical expenses, and lifestyle choices.
However, higher ongoing expenses can reduce your borrowing capacity. So, if you’re planning to apply for a home loan within the next few months, it may be worthwhile reviewing your discretionary spending and identifying areas where you could reduce unnecessary costs. Even a small reduction in monthly expenses may improve your overall financial position.
Tips to Improve Borrowing Capacity
Here’s how you can improve your borrowing power for a successful home loan application:
- Reduce unnecessary discretionary spending
- Pay down personal loans and credit card balances
- Avoid taking on new debt before applying
- Keep accurate records of your household expenses
- Review your subscriptions and recurring payments
- Prepare a realistic household budget.
Our living expenses calculator is designed to help you better understand your household budget and prepare for a successful home loan application. By estimating your annual expenses, income and savings, you’ll gain valuable insight into your financial position and how lenders may assess your borrowing capacity.
If you’re still unsure how your living expenses may affect your borrowing power, speaking with an experienced mortgage broker can help you understand your options and identify lenders whose assessment policies best suit your circumstances.
