How to save for a first home deposit
You’ve decided it’s time to get serious about saving for your first home deposit. Perhaps you’re sick of renting, you want a place of your own, or you’re planning for a family. Whatever your motivation, write it down and keep it front of mind. Stick it on the fridge. Remembering why you’re doing this is one of the most important parts of sticking to your savings goal.
It can be difficult to give up things you enjoy or make sacrifices today in order to put away a bit of extra money for tomorrow. But if you remind yourself that this is important – and you frame it as a contribution to your future self – it will be easier to form a habit of saving rather than spending.
Have you got a money management plan?
Do you know where your salary goes every month? Do you have a clear picture of how much you’re spending? The first step to getting your finances in shape is to map out exactly where your dollars are going. How much is dedicated to rent, groceries and daily travel? Do you have any regular expenses associated with healthcare? Map out these important, essential costs – they’re not going anywhere.
How much is left after that? And where is it going? Is it the same every month or wildly different depending on the week? In the next section we’ll talk about breaking it down even further and changing up your lifestyle, but for now we really just want to have a money map in front of us. Where is your money going and why? What are your broad categories of spending?
Think about any debt that you’ve currently got on the books. Count the credit cards in your wallet. Convenience aside, the interest charges and annual fees on those cards could be costing you more than it’s worth. The same goes for bank accounts. Have you opened a number of accounts with different banks? Do you actually find time to check the interest rates and move your money around? These accounts will also be costing you fees, and perhaps it’s worth doing an overall analysis and simplifying your finances.
Streamlining your accounts will help you get back in control of your finances. Once you can see your accounts laid out and you know what you’re dealing with, you’ll be better placed to stay in control and make informed financial decisions, rather than having to guess based on what you think you’re working with.
Let’s change things up
Now that you know what you’re dealing with, perhaps you want to make some adjustments to your lifestyle. The morning coffee, restaurants, gym memberships and parking fees all add up. Make a list of your subscriptions and recurring charges, as well as your biggest monthly costs. There are some great apps you can use to help with this (check out Pocketbook and Moneytree), or get out a highlighter and print your latest credit card statement. Do you notice any patterns?
Then make a list of the things that you couldn’t live without – think about what’s really important to you. Is buying lunch everyday really an essential cost? Perhaps you could find fun ways to get the whole family involved in packing lunch. Finding recipes, making a shopping list and cooking together could add a whole lot more value to your week than takeaway.
Write down three things that you’re going to focus on for the next three months and set a date for evaluating whether you’ve succeeded.
Goal-setting: the SMART way
Have you ever asked yourself: what are my financial goals? Saving for a first home deposit takes years – it’s not exactly the sort of thing you’d want to set as a new years resolution. So how do you set financial goals and make meaningful progress?
You’ve probably heard about SMART goals. The idea is to set goals that are Specific, Measurable, Attainable, Realistic and Time-bound. In other words, don’t set yourself up to fail, and make sure you’re checking in regularly and making changes as you learn from experience. In terms of your first home deposit, this is going to mean breaking down the bigger goal into smaller, measurable, time-bound chunks, and celebrating your successes when you follow-through.
For example, you may map out your finances, make some changes to your lifestyle, and decide that you will be able to save 10% of an $800,000 mortgage over 5 years. This means $16,000 per year and $1,333 per month. In order to meet this goal, you’d want to be measuring your progress every month, and if you haven’t met your monthly goal, think about the reasons why. If you had an unexpected expense that prevented you from saving, don’t stress – make a commitment to putting away the difference during a month when expenses are low. Perhaps the bulk of your monthly saving could come from simple lifestyle changes so that it becomes ‘set and forget’.
If you want to read about some money making ideas check out this post.
In the world of savings, you also need to consider factors such as your age, your health, any debts you’ve already got on the books, and any financial obligations that are specific to you. If you own a small business and your income is affected by seasonal changes, then make sure you factor it in. Keeping you age and health in mind is important, as you may be paying off your HECS debt, or perhaps you’re planning to start a family. Our responsibilities and aspirations are different at every age, so be don’t be shy about including things that seem irrelevant right at this moment.
If you’ve hit your savings goal, you’re on the hunt for the perfect home, you’re ready to commit to researching your options thoroughly and you’ve got these things on your radar, it may well be time to seriously consider your home loan options.
Want to know what questions you need to be asking at home inspections? Listen to the first episode of our new podcast series, The Home Stretch, for the low-down on where to start your research.