With Covid-19 putting a halt on international travel, our priorities have changed drastically. Less travel = more disposable income to spend on other things. Whilst it is upsetting we are unable to enjoy the luxuries of travel for the time being, why not take this opportunity to save for a house deposit? Even if your saving has not been affected by travel, this article will still prove useful by providing key ways you can save for a house deposit or anything for that matter – the same principles apply across the board. Keep in mind we are not saying any type of saving is easy, it requires a whole lot of discipline, but with the appropriate strategies implemented, saving does not have to be a tiring and lengthy ordeal. Read on as we list some top ways to save for a house deposit.
- Creating a budget and understanding your budget = more savings
The first step to take when planning to save for a house deposit is to create a personalised budget. Having a budget is a key way to understand your money and be able to save for large purchases (e.g. a house deposit). By understanding your money, you will be better equipped to know firstly how much you have to spend and secondly how much you will be able to save if this budget is followed.
- Review your current spending
In order to create a budget, you will need to review your spending by finding out how much you are spending each month (or each paycheck) on purchases. The best way to do this is by dividing up your spending into categories such as groceries, car expenses, home expenses, other bills, leisure, etc. Of course, you do not want to force yourself to live in poverty just to secure a house deposit, but there are certain changes you can make in everyday life to save even more $.
A big change you can make is in regards to grocery shopping. Of course, purchase the necessities but cut down on things you simply do not need and save them for a special occasion. Another tip is to purchase cheaper brands. Heads up, most of the time they are just as good anyway. The extra money you would have put towards a branded product can now be put towards your deposit – remember that small amounts add up and every dollar counts!
Set and forget and consider automating the transfer of your weekly savings amount. See if your employer can send part of your pay directly to a savings account or create an automatic transfer from the account your wages are paid into to avoid the hassle and worry of remembering every time. Another tip of ours is to use a high-interest savings account or a term deposit where you will make a lot more interest compared to a transaction account.
- Reduce other debts – pay off as much as you can
We get it, you want to save as much money in as little time as possible, but it does not hurt to be patient. We suggest paying off as much as you can (or the entire amount) of any debts you may have. By paying off other debts prior to saving for a house deposit will not only provide you with peace of mind, but it will also assist you in securing a home loan as debt payoffs are something that lenders look at with scrutiny.
Unsure whether you have debt expenses? Here are some examples:
- Personal loan repayments
- Credit card payments
- Mortgage repayments
- Student loan repayments
- Calculate the amount needed for your deposit
A house deposit is nothing to sneeze at, but quite often people overestimate how much they actually need to save for a house deposit. Firstly, get clear on how much you need to save and plan your budgeting accordingly. As a guideline, it is a good idea to aim to save 20% of the purchase price of the house (this way you will avoid the additional Lenders Mortgage Insurance [LMI] cost). Once you calculate this (or an approximate price using this rule), you will be able to more closely and realistically plan and save. Speaking to your lender or mortgage broker will help fine tune this and help you to discover how much you can afford in general and keeping this in mind, how much you can afford to borrow. They can also provide you with some alternate options and advice. Speaking to a lender is a good starting point as they will help you determine how much you will be able to borrow and the amount you will need to save all the while taking into consideration your current lifestyle.
- Review scheme and grant options
When saving for a house deposit, it is a smart idea to be made aware of the relevant Government schemes and grants running at the time (e.g. first home owners grant). By learning about and understanding these schemes and grants, it can help you to save for a deposit and purchase a home sooner.
If you implement these strategies and make some small sacrifices when saving for a house deposit, the process does not have to be agonising. By reviewing your spending and developing a budget that works for you, you will be well on your way to not only saving for a house deposit but in fact purchasing your house. Happy saving!