If you are planning to buy a home in the future, then you will certainly need to save for a home deposit. A healthy home deposit is a must have to get in the property door, no bank or mortgage broker will be able to secure you a loan without it. It’s not just a good security net to make sure you can afford a home, it’s also important to establish your commitment and ability to make the long term financial sacrifices necessary to own your own home comfortably.
Here are some ways to help you get started in making as you save for a home deposit.
Know your budget
Most people run their finances on autopilot. The fastest and easiest way to get proactive and create some structure around your income and expenses is to create a budget that lists all your incomings and outgoings.
Make a detailed list of all your income and another of all your expenses. Be sure to include annual memberships that automatically come off your credit card, personal loans, and odd items that pop up unexpectedly (like vet bills).
From there you can see how much you are spending in what areas and make moves to put restrictions on luxury items or non-essentials.
You may need to shuffle some priorities here to have moving into your own home top of the list over pay TV, nights out and holidays.
Some really great ways to cut back on your outgoing expenses is to:
Just grabbing a coffee on your way to work can hurt your savings, have your daily caffeine fix at home or wait until you get to the office to make something up in the kitchen. Pack your own lunches and cook your own meals. If you are short on time, cook up meals in big batches and place them in one serve containers in the fridge or freezer.
Don’t pay rent
Imagine how much you could save if all the rent money went straight into savings! If you live in the same area as your parents, have a talk to them about the options for where you can stay while you save for your deposit. It helps to sweeten the deal by contributing as much as you can to work around the house and being there to support them. Put a set timeframe in writing so you are clear on when you will move out by.
Cancel old memberships
Any membership expenses that you don’t use or are no longer a priority need to be cancelled. It’s not a great idea to get rid of the ones that are potentially cost effective, like ambulance cover and health insurance, but it pays to look at the current cover you have to see if you are paying for unnecessary extras.
Now that you have your spending under control it’s time to look at maximising your savings.
Clear your debts
Many people make the mistake of thinking of credit cards as free money.
Personal loans and credit card debts will affect your ability to save. Before you get serious about saving for a home loan, pay off any small loans you have and get your credit card to zero. Going forward make sure you only use cash for your transactions. You can still use your credit card but it’s a matter of only spending what you can afford to buy and paying the money back onto the card straight after it’s debited. Once the debts are paid off you can start putting that money straight to your savings.
Have a target amount
If you just aim to put away what’s left over from your expenses there is not a lot of incentive to spend less. Have a target of how much you want to save in a certain time frame (i.e. 3-5 years) then determine from that how much you will need to save every year, every month and every week to meet that target. As soon as you get paid put this amount into a high interest account. What’s left over in your daily account is for your remaining expenses, just make sure you have left a reasonable amount in your spending account to cover all your bills and essentials.
See about a helping hand
There are plenty of government grants around to help first time homebuyers get into their home sooner. While these won’t negate the need for a deposit, they will give you a much-needed break on your purchasing expenses which means you have less to worry about in the long run. Look at your options for the First Home Owner Grant as well as land and building grants in certain states and territories. For first owner grants available in Victoria click here.
The bigger your deposit the more flexible your lending options are and the less you will need to borrow. That means less interest on your purchase so it’s in your best interest in every way possible to get cracking and save for a home deposit now, and do the hard work before you even glance at an online property site.
Parley Property Advisory