Savings can be tough! Savings for your home deposit can seem even tougher as the amount you need to save to get into your own home can sound intimidating. Let’s face it, if you are looking at buying a house for $350,000, you will need around $85,000 to avoid LMI and cover all the fees.
So the big question before you start saving for your deposit is how much will you spend on your home? There may be some deciding factors in this, like where do you want to live? What sort of property are you going to buy? How much can you borrow from the bank?
Once you know the answers to those, let’s look at ways you can set yourself up to save your home deposit. The secret is to create a system that you can follow and automate that until you reach your goal.
So how can you set this up?
Firstly work out your budget – if you found out from a mortgage broker how much you can borrow, you would have done half the legwork for this already. The trick with budgets is to ensure that you have a balance and that you do not micro manage them.
I find that managing three money buckets is a lot easier than managing each line item separately, and it doesn’t just mean that I have different mark for things on my budget; I actually set up separate bank accounts. And there’s a reason for that!
So the first bucket is for my expenses. I collate everything from school fees to utilities to rent etc. under this banner and have a bank account called expenses. From here I have automated set ups to utilities, phone companies etc. I also do not spend more than 60% of my income on this bucket. Because I want to ensure that I am not in a financially stressful position.
The second bucket is for spending. This is the only account that I can spend money from on entertainment and other knick-knacks which is worth around 20% of my income.
And the third account is for my savings. And this savings will be the home for your home deposit money in this instance. This account is in a separate back, so I cannot easily touch it to transfer money from it for spending or bills. I also look for a high interest online savings account for this to ensure that not only I can put money away constantly but the money is working for me along the way. The savings that go into this account are the remainder 20% of my income.
Having the 60:20:20 ratio means that I do not feel financially under stress, and I can still achieve my goals. To help you along, download my budget template here.
Once you figured out your budget and how much will go into each of these 2 accounts, get to work to set it up. Don’t put it off, make it happen now! Once the accounts are ready make sure you automate your system as much as possible. If you can, ask your payroll department to put each portion in the relevant account. If you can’t then make sure that you have automated payments set up from the account your pay goes into.
When you are saving remember that every little bit counts. A good saving strategy is like a marathon, it doesn’t matter what you do in the short term as long as you finish the race – save sufficient deposit to buy your own home. Here are some trips to help you save more effectively:
- Every little bit counts so make sure you maximise your opportunities to save
- Try and save at least 20 per cent of the purchase price so you can avoid paying lender’s mortgage insurance
- Make sure you have a demonstrated savings history – lenders will not lend you money if they don’t know you are responsible when it comes to finances
- Pay off your debts. It increases your serviceability and also possibly your savings amount (check out my Let’s get Debt Free Masterclass to learn more!)
- Work out ways to save small sums of money regularly and add them to your savings – a good dose of decluttering can turn into a profitable garage sale. It will help establish a savings history and boost your savings
- Find the right account for all your needs, so you don’t pay unnecessary fees.
- Track your progress to keep yourself motivated.