For many of us, the hardest part about buying a property is saving for a deposit.
Generally when buying a property, whether it be established or off the plan, the minimum deposit you will need is 10%. This means if you are looking to buy a property worth $600,000, you will need to save up a minimum of $60,000. You’ll also need some additional cash to pay some legal fees, stamp duty and potentially building and pest inspections if buying established. It’s also beneficial to have some extra cash as a buffer for personal emergencies – it may be something as simple as having to repair your car.
So how do you save $60,000? It’s a lot of cash!
Depending on how much you’re earning, if you really want to buy a property then you need to scale back your spending. The sooner you do it the better. For those that are still in their 20s, now is the best time to start. It may mean having one less drink with your friends a week, one less restaurant meal a week or one less overseas holiday. It’s not a big sacrifice and all the savings can add up quickly. If you smoke, consider quitting – not only is it going to be good for you from a health perspective, it’s going to save you thousands of dollars a year! You’ll also probably spend less time at the bar too which means you’ll save on those expensive cocktails.
Saving for a home is all about discipline. Knowing what you want to achieve and then creating a plan to get there. For double income earners, it should be pretty easy to save for a home. Learn to live off one salary and save the rest. This way you could save the $60,000 in a few years.
For example, if you were in a relationship and were earning $50,000 + $75,000, your total household income would be $125,000. Your after tax income is $42,000 and $58,000, making a total of $100,000 in after tax income.
Taking a generous $50,000 for living expenses, plus total rent of $25,000, gives you total expenses of $75,000 after tax.
This means you should be saving $25,000 per year. Within three years you’ve hit $75,000 and are ready to buy your property!
So some of you may be saying that you can’t find a suitable property to rent for $25,000. If you earn a higher combined income then put some additional money towards the rent – but remember, rent money is dead money unless you are investing in property on the side using your savings. This is another strategy which you may want to consider. If you really want to only spend $25,000 a year, then move to a less desirable property, location or look to share with some friends. Two couples spending $500/week gets you a $1,000/week property – your money can go a long way with this sort of budget!
EIGHT TIPS FOR SAVING TO BUY A PROPERTY
- Leave home a little bit later. If you can earn a salary and stay at home for a couple years, you could save yourself some serious rent money.
- If you have to move out of home, look to share a flat with a friend. Don’t overpay and learn to live in something that isn’t perfect but will help you save for your end goal.
- Earn a salary. Have work pay you into a savings account and then have it auto transfer a weekly allowance for you to live on. Make sure you include a little extra than you think you will need and learn to save in this transaction account too. This will help with surprise expenses such as upcoming birthday and Christmas presents along with other expenses such as dentist, doctors, mechanic, etc.
- Cut back on extras – if you’re in two minds about buying a pair of shoes, a new handbag or the latest watch, pass on the opportunity and put those funds into your saving account.
- If you have moved out of home already, consider moving back for 12 months if the opportunity is available – it’s a quick way to double your savings and save that deposit.
- Saving is important but knowing what to do with your savings is even more important – move it around and put it in high interest earning accounts. As your savings build up the interest you earn can become substantial! Use term deposits and high yielding shares as a possible way of further increasing your savings.
- Credit card debt is a big no – if you currently have it, get rid of it ASAP. Transfer it to another card with a special promotion and look to pay 0% interest for six months of the balance transfer – then make sure its paid off in that time. There is no excuse for credit card debt!
- Everyone buys stuff – now it’s time to sell stuff – look through the cupboards and see what you can sell on eBay. Most couples could quickly find a few thousand dollars of ‘stuff’ they don’t really need. Sell it and put it straight into your savings account.
Source: Mendel Mark, 2014, Property Observer