Saving for your first home can seem like walking a never-ending track when youre tired and hungry; its a daunting task. But, the good news is it doesnt have to be this way if you have a strategic plan that allows you to accumulate funds at a steady pace.
Think of saving for your first home like running a marathon. You dont want to rush out of the starting block and then find you cant go the distance. Instead, you want to travel at a speed that allows you to cover the distance in good time, without using all of your resources. This means working out what works for you best financially and understanding your current situation, and then devising a plan that allows you to achieve your goal and to be successful.
In terms of saving for a home deposit, this means knowing how much you can borrow based on your income, and then working out how much of a deposit youll need to buy a home. For instance, lets say after a borrowing power calculator you discover you can afford to buy a home worth $300,000. Youll then need to save a minimum deposit of 10 to 20 percent of the purchase price. On a $300,000 home this will equate to $30,000 to $60,000.
Its also a good idea for you to look at how much youll need to cover stamp duty and home loan fees and charges, as these can add thousands to the cost of your home purchase depending on the state where you are buying. For instance, a $300,000 home in South Australia will cost you $11,330.00 in stamp duty, $2,089.50 for the mortgage title transfer, and $155.00 to register the mortgage. Your lender will also charge you a mortgage title search fee of approximately $200 and a loan establishment fee of up to $800.
You also need to be aware of any first home buyer grants that are being offered by the government and whether or not you are eligible for these. All Australian states and territories have different grants, so it depends where youre buying a home to, as to which grant youll be eligible for.
Best Tactics to Use to Save Your First Home Deposit
1. Review your spending habits Grab a pen and paper or if youre computer savvy, your laptop. Next, write or type out what you earn in a week, then list what you spend this money on. Be honest. If you buy lunch, and a coffee on your way to work daily, then make sure you include this cost. If you go out most Friday nights for drinks with friends, then add this to your list. Then alongside each of your expenses, write down what each costs. For example:
So based on the example above, you can save $88.00 per week. This will allow you to save $4,576 a year. Therefore, it will take you just over 13-years to save $60,000, which is far too long. So how can you save more money, faster?
Look at where youre spending your money. Rent, utilities and groceries are necessities so these a cannot be changed. But buying your lunch, going out for Friday drinks and going to the movies are luxuries, therefore you can reduce your spending here. For instance, buying a coffee and lunch once a week and, going to the movies and out for drinks once a month will reduce your spending. Based on the table above, this will allow you to save over $800 more in a month, or $9,600 a year. This makes your savings $14,176 a year, which means it will now take you just 4-years to save $60,000.
2. Set-up of term deposit A term-deposit account will typically pay you a higher rate of interest than a standard bank account, and in most instances you cannot access the money. Therefore, this type of account helps you to save more and prevents you from spending the money.
3. Selling unwanted goods Go through your possessions and put all of your unwanted items in a room, then have a garage sale. This is the easiest and most cost-effective way of selling unwanted items. Sure you can sell your goods on eBay, but by the time you set-up an account, photograph and list items, and post them to a buyer, the return you make is minimal.
The key though when selling items at a garage sale is to put the money into your term-deposit and not into your wallet. This will then allow you to save all the money you collect and not be tempted to spend it.
4. Review insurance policies Most of us have car and other insurance policies that we renew yearly without comparing the premium to others on the market. So rather than automatically renewing your insurance, shop around and see if you can save some money. If you make a saving, put this into your term deposit.
5. Check memberships If you have a gym membership, Wi-Fi and Pay TV, then consider what you use and what you dont use. If youre not going to the gym or watching enough Pay TV to justify paying for a subscription, then cancel these and put the money in your term deposit.
6. Ask yourself four questions when buying Do I need it? Is it practical? Will I use it? Can I justify the expense? If an item does not tick these four boxes, then dont buy it. This will make you accountable and see you spend less.
Are you looking to buy your first home? Then contact eChoice today, we can help YOU find a cost-effective home loan.
Written by eChoice
Since 1998, eChoice has helped more than 50,000 Australians secure a home loan through its network of over 25 lenders and hundreds of loans. Best of all our service is cost and obligation free!