How to Save Your First Home Deposit
When you're saving for your first home, the task ahead of you may seem overwhelming. But if you follow these steps, pretty soon your bank balance will be growing.
The key to saving up a home deposit is consistency, putting away some savings every single pay cycle.
Here's some additional tips to help you get the ball rolling:
Step 1: Identify Your Savings Goal.
Saving for your first home is a pretty daunting task. Setting a clear goal will help you to break it down into manageable weekly chunks, so before you know it you'll hit your target.
To work out how much you need for your deposit and home buying costs, you'll need to have a rough idea of the total amount you'll spend on your first home.
The best place to start is by having a chat to a mortgage broker for expert advice. A broker will calculate how much you'd be able to borrow, based on your current income and expenses.
Once you know this amount, you can decide how much you want to spend. And once you know this amount, it's easy to calculate how much you'll need for your deposit and costs.
There's a few other things that come into play, such as whether you use a guarantor, or whether you will pay Lender's Mortgage Insurance.
Step 2: How much will you save each payday?
Step 1 was really the hardest part - everything you'll do from here will be just putting in place the structure to meet your savings goal.
Now you know what your goal is, have a look at your current spending, and how much extra cash you have to spare. This will give you an idea of how long it'll take to reach your target.
Prepare a spending plan that gives you some flexibility.
You can use the savings target calculator to work out how long it will take to reach your goal, based upon how much you can save each pay cycle, and the interest you might get from your bank.
This can be a good time to have a look at your expenses, and to prepare a budget if you don't have one already.
If you need a hand with this, feel free to get in touch and we can give you some handy tools, such as a budget template spreadsheet that you can use to get started right away.
Step 3: Set up an automatic transfer.
This means no cheating! With an automatic transfer to a dedicated savings account each time your pay goes into your bank account, pretty soon you won't even notice that you're saving.
Step 4: Find the best place to keep your savings.
Where you should put your money to get the most return through interest will depend on how long it'll take to reach your goal.
Options would typically include:
- High interest savings account
- A term deposit - if you won't be using the money for 3-5 years you can really benefit from higher interest.
- Stocks, or a smaller investment property, can be a smart way to build your equity if you have larger goals in mind.
How will you stay accountable?
Sharing your goal with someone you trust can really help you stay on track. Telling people you trust what your long term plans are means they can give you that boost you need when you're tempted to splurge.
Consistency is the real key to a strong savings habit. If you're used to putting away a small part of your income, it'll be much easier to increase this amount if your income increases.
Consistency is KEY reaching your goals.
Jerry Seinfield is one of the most successful comedians of his time - we're still watching his show even though the last one was made in 1998! But just like buying a home, becoming a great comedian didn't happen overnight.
He did this by focusing on getting a small task done- writing one joke every day, even if it was terrible. Each day he did the task, he put a red cross on the calander, and pretty soon he was addicted to continueing the chain of red crosses.
Give yourself a visual reminder to help you to reach your savings goal.
Saving for your first home is like this - once you get into the habit of setting aside a little each week, or each day, set up a visual reminder like the calander. You'll find the habit gets easier and pretty soon you'll find it hard to break.
If your circumstances change - you might start a new job, or get a pay rise - you can easily adjust your savings budget, and maybe reach your target even sooner!
Remember to celebrate your progess.
One thing that I do recommend setting some sub-targets that you can celebrate along the way - when you reach the goal, treat yourself to a nice dinner, or a quick weekend away. Life is meant to be enjoyed, even when you're preparing to buy a home.
I hope you've found this article helpful, and remember, you can get in touch any time you have questions.