In retirement, saving lets you stash away money, but you access it for many years. But a house deposit is a large sum of money that you’ll need to access soon. It means setting aside small amounts, but investing in stock markets may not necessarily work for you either due to fluctuations.
In these nine points, we’ll cover how to start saving for your house deposit and how to do it the smartest way.
How to save for a house deposit the smart way
1. Set a realistic goal
Before you start saving money for your house deposit, you first have to have a goal in mind. Plan to sit down with a mortgage lender to help you understand how much of a mortgage you can qualify.
Generally, in Australia, housing expenses and mortgage repayments should not exceed 30% of your stable monthly income.
So if your income is $4000, you can potentially allocate $1200 of that ($4000 x 30%) to your future house payment.
The $1200 includes the principal and interest, insurance, and other associated taxes.
Shop around and see the kinds of houses you can afford based on your current income. It will help you understand how much you need for a house deposit.
2. Set up a separate savings account
The next step toward saving for your house deposit is setting up a separate savings account. Your special-purpose savings account is where you place all the pennies you pinch away.
As a rule, since this savings account is a special purpose account, you need to save money within a specific timeframe. It means you avoid saving money in risk-type investment vehicles such as real estate, stocks, investment trusts, etc.).
Instead, save your money in super-safe vehicles such as boring old savings accounts and certificates of deposit.
Sure, high-risk investment vehicles have an equally higher return, but they also carry a risk of losing your money in the process which will set you back from your deposit.
Remember, if your goal is to save money for your house deposit, your worst-case scenario would not be missing out on good returns. It would be losing some or all the money you needed to buy your house.
3. Make more room in your budget.
Since we are talking about saving a few dollars per week, you have to clear some room in your budget to achieve your weekly saving goals.
It means cutting back on your expenses, adding additional income, or both.
Making room in your budget will help you achieve your goal and help you manage your expenses. Embrace it for all it is worth.
4. Start saving smarter – not harder.
The digital age makes it so much easier for anyone to save. You can easily find many platforms and programs geared towards helping you learn how to manage your money.
Find applications you can customize to your financial needs and give you updates to help you reach your goals.
But which ones work best when it comes to saving money for your house deposit?
Have a read through our list of the best Aussie budgeting apps to help you make up your mind.
5. Automate your savings
Most people are not savers by nature, so automating your saving process will work best if you want to achieve your saving goal.
It means having some payroll savings plan where you allocate a certain percentage or dollar amount from your regular pay. The money goes directly into your savings account or money market account dedicated to your house deposit.
The method not only automates your savings but also makes them invisible. It removes the temptations and ability to spend the money on other needs.
It helps you save first then find ways of stretching the balance as far as you can.
6. Shorten the process with windfalls
Windfalls can make the process of saving money towards your house deposit much easier or shorter.
Windfalls include gifts, income tax refunds, bonuses, large commission checks, or the sale of personal assets.
Deposing a windfall into your savings accounts fast-forwards the process. Regularly depositing a few thousand every week can chop off years of your savings timeframe.
How to save money for a house on a low income
Let’s be honest. Saving money for a house on a low income will take a bit more finesse than it does for those with more disposable income.
But it is still possible if you consider some additional methods.
7. Rent out a garage or a room
It makes no sense to have a garage or a spare room you don’t need. Why not rent it out for extra cash?
On average, you can make a rental income of around $85 to $440 per week