How can I save for a property deposit?

Day in and day out the most common phrase I hear from customers is “I haven't saved enough for a deposit”. Clearly this is a big hurdle, especially in today’s market. So this advice is for those of us who aren’t lucky enough to have a rich uncle or family members that will act as guarantors.

• Related: Got a low deposit? Read our guide to Guarantor Loans
• Related: See if you qualify for the First Home Owners Grant
• Related: Do No-Deposit home loans still exist?

1. Outline your goal

Before we dive headfirst into this, we must start with WHY. Everyone in Australia is obsessed with property but why do YOU want to hop on the ladder? Why is saving for a deposit to buy a house so compelling to you? What is the driving force behind your intentions? Think long and hard about this - there is no right or wrong answer. You might want this because you have always wanted to start investing in real estate, but why? This question is something you must seriously consider before you get started on your journey.

If you can begin with the end in mind, that means you have a clear goal with an official deadline. Do not set a target that is impossible and likely to burn you out, or that is too easy and not challenging, but rather a sweet spot in the middle that stretches you just enough. As Benjamin Franklin once said, “If you fail to plan, you plan to fail.”

Action: A good exercise is to ask yourself WHY three times, each time going deeper and deeper into the root motive of your intentions. Understanding this will act as your emotional driver.

2. Create a savings plan

To start a savings plan, you first need a specific figure and a realistic timeframe are essential to save for a deposit. Start by reverse engineering the end figure to break down how much you should be putting away each month.

Example:

• Let’s say the maximum price you’ll pay for a property is $600,000.
• The minimum deposit you’ll generally need is 10%, so $60,000.
• Now, before we do anything else, we must set a realistic timeframe as to when this deposit will be sitting in our bank account, ready to place on a beautiful piece of real estate. For instance, it may be $60,000 by October 2019 (starting October 2017).

Okay, so how much do I need to put away into my account each month in order to have $60,000 saved in two year’s time (if that is your goal)?

• Around $2,500 per month is about $625 per week.
• The nature of the market means most will be saving with a partner, so start by depositing $312.50 per week each, into a separate savings account.
• A lesson from possibly the greatest investor of our time, Warren Buffett, “Don’t save what is left after spending; spend what is left after saving”.

Of course, these figures will differ for everyone, depending on your lifestyle, salary and so on. Create your own plan and stick to it.

Action: Start by opening up a separate savings account (preferably an incentive saver where you earn bonus interest if you do not make any withdrawals). Start depositing your weekly goal as if you were paying rent.

3. Document your expenses

Now, write down all your current monthly expenses, both fixed and variable. To begin with, try tracking your spending habits for a month, there are plenty of apps out there that can do it for you.

Take, for instance, the habit of buying a cup of coffee a day. While $4 a day may not seem like much, that is a pricey coffee at over $1000 a year, and if you’re eating out every day, you can multiply that number by five. So let’s be honest, the instant coffee at work isn’t fantastic but at least it’s FREE. Learning to make small sacrifices like this will contribute to the bigger picture and will get you to your goal faster.

Many expenses are variable, meaning they are subject to change, so you can work to minimise them. Rent may be a fixed cost every week, but you might think about moving elsewhere to pay cheaper rent. Or, perhaps get some flatmates to split the rent or even move in with the in-laws for a short period.

It’s also smart to evaluate your smaller recurring expenses, like switching over to a cheaper phone bill. You may be surprised by the number of variables you have the power the change and minimise.

Action: Start by tracking all monthly expenses. At the end of the month, analyse and evaluate each expense and outline any possible ways of reducing them.

In summary

I get it, not all plans work out, and emergency expenditures arise from time to time, but it is crucial that you stay diligent in your work and disciplined in your actions. Make adjustments to the plan and jump back on the path as soon as you can. The only time you should look back is to see how far you’ve come (and how much you’ve spent).

Happy saving!

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.