Saving for a deposit for your first home can seem daunting. After all, it seems like such a huge amount of money if you’re already spending much of your salary on living expenses.
Fortunately, there are ways to make the savings process much easier. If you’re keen to get into the real estate market, here are some tips that might help:
Know how much you need
Saving for an unspecified goal makes it harder to stay motivated to reach a specific figure. By comparison, if you take the time to find out exactly how much you need it becomes easier to create a realistic plan to achieve it.
First home buyers generally need to save a minimum of 5% of the purchase price, plus the costs associated with the purchase such as stamp duty and conveyancing+. So if you’re thinking about aiming at a $400,000 property, you’ll need to save $20,000 plus another $20,000 to cover fees and charges.
Don’t forget that borrowing more than 80% of the property’s value means you’ll also need to pay Lender’s Mortgage Insurance (LMI). Speak to a good mortgage broker about the option of adding your LMI to your loan amount, as some lenders may allow this.
Keep in mind that you may qualify for the First Home Owner’s Grant if you choose to construct a new home or buy an off-the-plan apartment in some areas. The grant could help cover some of your purchasing costs so you won’t need to save so much.
Pay off personal debt
If you’re carrying outstanding credit card balances or if you still owe money on a personal loan, you should consider paying them off. It’s hard to save effectively if your income is eaten away by debt repayments every month.
Stop using your credit card and work out ways to afford your living expenses on just your salary. If you want to buy larger items, think about putting them on lay-by or saving for them instead of pulling out the plastic cards. You may need to budget a little differently at first, but you’ll find it much easier to pay off your outstanding debts.
Once they’re gone you’re in a strong position to start saving your home deposit in earnest.
Create a savings plan
Work out exactly how much you can afford to put aside into your savings each week or fortnight and deposit that amount into a dedicated savings account regularly. You can make this easier on yourself by setting up an automated direct debit payment from your regular transaction account into your savings account each week.
It’s also a good idea to shop around for a savings account that pays interest on your cash. The interest you earn might not seem like much at first, but even those small amounts contribute towards getting you closer to your goals.
Contribute extra cash when you can
Whenever you receive extra money, add it to your savings account. Whether you earn some overtime or receive a tax refund or if you sell some unwanted items on eBay or Gumtree, put the extra cash towards reaching your savings goals faster.
Find ways to reduce some of your expenses so you can save even more money. Renegotiate your mobile or internet plan for a better deal. Look for a bank account that doesn’t charge monthly fees. Think about ways you can maximise your opportunities to save money whenever you can while still enjoying your lifestyle.
Remember, every little bit of extra cash you can add to your savings makes a big difference in the long run.
Saving a deposit for your first home doesn’t need to be difficult. The key to reaching your goal is to create a plan that works for your income and lifestyle and then stick to it.
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