I wanted to start a thread that gives people tips on how to save for your first home deposit faster. I think all of the experienced investors on this forum will agree with me that the first deposit is the hardest to get, because you have to do it all yourself and you don't have properties appreciating in value to help you out.
Let me start with this tip:
Earn A Little Extra Money On The Side To help pay for deposits I do freelance writing and freelance web design work as well as my full time job. I live off my full time job (and try to save some money from that) and use the extra money I earn to save for my deposit. It really speeds up the process!
Live Off One Income If you are married or in a de-facto relationship you could try living off just one income and saving the second income. Me and my wife did this for a while and we survived to tell the tale. It's good practice if you plan to have kids anyway so you may as well get started and have the money go towards your deposit.
Please continue on this thread with other great ideas. I know there are lots out there.
Not so much a tip for saving for a depoist but when you do purchase dont be shy/embarrassed about asking for discounts for homeloans/conveyancing fees/starta reports and inspections. I've gotten establishment fees waived and fees reduced just by asking a simple question.
I guess the old adage of "it's not what you earn, it's what you save", being the old chestnut.
For example, the last financial year, my wife went back to study – her income dropped 60%.
I changed jobs, earned 30% less than the average of what I earned the previous 4 years.
And somehow, we still managed to get to Thailand for an 8 day holiday, buy a 3 bedroom house in Heathmont for $537,500 (with help from the equity in the 2 bedroom unit we already owned), and turned the unit into an IP which has holding costs of $60/month.
Goes to show you how little I/we were saving the previous couple of years, even though we thought we were saving.
My last post was pretty general in nature, it was more of a train of thought, than anything specific…
1. Put every gold coin you have in a jar, and put that into a savings account at the end of the month. I'd be shocked if you didn't have $50-$100/mth, simply from the poo change from groceries, general shopping etc etc. If you really want to , put the silver coins in there as well. You'll be shocked.
2. If you do get a payrise for any reason – put the payrise away into savings, don't touch it!
3. When it comes to food – never buy meat and poultry from supermarkets like safeway/coles/iga. Every main city in Australia has a meat and poultry wholesaler where scotch, rumps and mince are 70% cheaper than what you get get in the supermarkets. 5kgs of Scotch fillet for $8/kg? Cut it up, freeze it, $300 of meat, poultry, and some other party type foods (chicken, dim sims etc) will last 2-3 months. If you're in Melbourne, message me, I'll let you know where you can go for this.
4.If you're someone who likes going out, I'm not asking you to change your lifestyle, that's your choice – but if you like the bar and restaurant scene buy an Entertainment Book – for anywhere between $50-65 – (the money goes to charities), there's buy one main, get one main free, or 25% of total bill….50% off rack rates at hotels, 50% off car rentals for holidays and short stays…even down to the small bits, like cheaper Hoyts tickets and buy one get one free at Nandos, KFC and other healthy alternatives You will make your money back from this book purchase after 2-3 uses….
5. If you know your income is relatively stable, or you can predict what your income and PAYG tax will be at the end of the financial year, then speak to your company's accountant and the ATO and set up a PAYG variation payment. If you think you'll get a $2000 refund at the end of the year, then why give the ATO that money for them to earn interest on? Have that $2000 paid back into your salary over 26 fortnight throughout the year…that's an extra $76 a fortnight, or roughly $160 per month right there. Most people take the "lump sum" and blow it on "conspicuous consumption"
This was just a start, hope it helps I'm nowehere near the doyen of savings, it took me a while – but good habits started early will pay itself off many times over.
Work out on your current income how much your home loan would be and how much you would have to repay on the mortgage each month. Almost every single bank with a home loan with have a calculator that tells you this rough amount.
Then start putting that money aside into a separate savings account and DO NOT TOUCH IT! Set up an automated bank transfer to take the money out right after pay day so you don't get tempted.
You'll quickly find out how to budget your remaining funds and still live your life – and your savings will grow enormously!
When I was on maternity leave and our wage was therefore halved we did things like:
More vegetarian meals
Shopped for groceries with cash then we couldn’t go over our limit
If we ran out of something in the week there was no replacing it unless it was the day to do the grocery shopping
Left all credit cards in the filing cabinet
Called up our insurance providers and asked for a better deal (generally we got a reduction)
Walked to places that weren’t too far – usually we may have been lazy and driven
Used our bicycles more
I started tutoring in the evenings (I’m a teacher)
Husband did some professional editing
We are now in a position of trying to save for our 3rd IP and also a overseas trip and again we are trimming the fat on our budget!
Open a FHSA and put 5500 in it for you and the missus each FY until you reach your 80k maximum. Then, if you aren't ready to buy, leave it in the bank and keep adding all of your spare cash to it and you will have a healthy sum growing at at least 6% PA.
So long as the housing market isn't re-stimulated with FHBG boosts, there is no way a housing investment will grow quicker than it in the short to medium term. Even if it is re-stimulated, 2 years of buyers have been brought forward, so the stimulus required to get people to dive in will be greater. Even if the stimulus is enough to warrant buying, you can slap the FHSA onto the mortgage when it matures.
Do not buy stuff that depreciates in value. Examples :- nice new car , nice 3d Tv, Nice new computer.
Take money out of the bank account your wage goes into and transfer it into a power saver account at higher interest rate. If you do not have easy access to the power saver account as some of them are only accessable online you won't be tempted to withdraw it. If it is not in your wage account you learn to live on what is left in the account.
Pay off credit cards first and do not use them again.
If you have children and get Family allowance B payments ask for them to be paid at the end of the year as this is an excellent compulsory way of saving money. You get the payment in your tax return and then put it into your power savings account.
Take a cut lunch to work rather than go to a take away place each day. (Save about $10 a day)
Work closer to home (have you bought a train ticket lately $9.90 a day ) and driving to the city what does parking cost a day! Working in the suburbs parking cost zero and petrol cost low and you are paying for the car insurance and rego might as well get your moneys worth by using the car to travel 5k up the road rather than 20k in grid lock traffic to work.
Always ask for a discount, especially at Harvey Norman (lol). No really, I don't think I have bought anything recently that I didn't get a discount on.
Shop for kids clothes for next year and next season at the end of season clear out. The Target near us sells off kids clothes for $2.86 (stupidly cheap) I just take a guess at the sizes for that season next year. I bought all this years dresses/shorts last year for $4 and $5
ATM Borders have 25% off online and free delivery on books, might be a good time to get some of those property books. Sign up to the email newsletters for shops so you get the discount coupons or notified of discounts.
It sounds almost too simple, but you have to REALLY WANT a first home. It's not as crazy as it sounds, think of all the things that you have saved for (holidays, cars, bike etc) and been really disciplined to achieve, well buying your first home is just like that, only on a bigger scale! My wife and I saved our deposit, and really surprised ourselves on how easy it was to achievet the goal. Start with a good budget, sacrifice the things that you don't need (movies, dinners out and gym memberships not used) and look for other money making opportunities like a 2nd job or if your a tradie, jobs for cash!! But seriously, you will never live your dream unless you believe it's achievable and you really really want it.
The most useful tip I've had is to record every cent you spend into a spreadsheet divided into a dozen or so major catergories like food, petrol, rent + bills etc. Before doing this I had no idea where all my money was going and struggled to save even $50 a week. Once I had it all down on paper I was shocked to see how much I was wasting, mostly on takeaway food, restaurants and alcohol. I didn't completely stop any of these but cut them back to a level I was happy with. Now I average 45% of my income as savings.
I've picked up a few other savings strategies along the way which could be of use to someone, I'm still quite young so some of these might be more suited to others of a similiar age. Furniture and appliances are hugely expensive, living in shared accomodation that's already furnished saves a huge amount. I have a rule that I only own what I can fit into a standard sized car. Good furniture bargains can be found at garage sales but there's also a huge amount of crap you have to wade through before you find them. Find some like minded friends that are in a similiar stage of life. If all your friends want to go out drinking at bars and eating at resturants every night then your gonna find it really hard to save. I've had way more fun nights hanging out with a few friends at home than going out to bars blowing $100+ on drinks. Likewise I think it's very important that your partner shares the same values as you. If your saving hard and your partner has a shopping addiction or wants to go out partying all the time then it's going to be a lot harder to reach your goals. Learn to cook. Preprepared food is expensive and in my experience very low quality. Over the weekend I'll make two large batches of something like spag bol or curry and freeze 10 meals for that week, they work out to about $3 per serve. Rice and pasta are the backbones of almost everything I make, vegetables take up most of the rest and meat is only a minor proportion. Grow some food yourself. It's easy, satisfying and a very relaxing hobby. You don't even need a garden, some pots on an apartment balcony will work. I buy most of my clothes second hand or at somewhere like target or kmart. Electronics are almost always cheaper when bought online. Never buy a new car. Learn to do basic car servicing and diagnostics yourself. Even if you still get a mechanic to do the work knowing what they're talking about will help stop you from getting quite so badly ripped off. Gyms are one of the biggest scams around. A small investment in some basic equipment will last you many many years and give the same results.