Owning property in the current NSW property market might seem impossible, however, all it takes is some planning, discipline and commitment to start saving to buy a home.
Firstly, you need to tell yourself it’s possible and set a target for how much you want to have in savings in the next few weeks or months. This way you cut down on overwhelm and get used to the idea of actively saving. If you suddenly try to save $250,000, you’ll probably find that you won’t save anything at all and those bad habits will just keep eating into your pay packet.
Prove to yourself you can save money. Commit to putting something away consistently right now. Even if that’s just $10.00 a week, you are gathering evidence that you can save and have the reward of meeting your first savings goal.
TIPS TO START SAVING TO BUY A HOME
Think about what you can go without. It’s surprising how much those extras cost. Cigarettes, café coffee, public transport, petrol, pay TV, movies, bought lunches, drinks after work. Think about your lifestyle and where you can put in a little extra time and effort to save. It doesn’t mean you have to go without, it might mean going to the cinema on cheap night, walking rather than taking the bus, going for a jog rather than going to the gym, cutting down on treats or taking advantage of happy hour. Make sure you put the savings into your account where you can’t touch them.
If you and your partner are planning to buy a home together, see if you can live on one income and put the rest into savings. This is also good practice for how much you can afford to pay on your future mortgage.
When you have made some ground in your saving account, have a look around and see what type of property is best suited to your needs. Look at size and style in a number of different locations to see what’s going to work. When you get an idea of the cost you will be paying, use an online home loan calculator to work out the deposit.
The online calculator will also factor in all the extra costs like stamp duty and title transfer. While each lender may have different policies that determine the amount you are required to pay as a deposit, it is also government regulated so you won’t be able to get much lower than 10%.
Just keep in mind that any deposit you make under 20% will be subject to lender’s mortgage insurance.
Use a high-interest savings account and set up automatic contributions so the money is moved before you even knew it was there.
If you are buying your first home, look into the First Home Buyer Scheme that gives you the option of salary sacrifice on your income so that you are not charged income tax on what goes into savings.
The first homebuyer grant and concession will be factored into your duty fees if you are buying your first home. It’s also worth checking into builder grants and concessions if you are buying a new home (never been lived in) or plan to build your own home on land you buy.
The home loan deposit and out of pocket expenses will add up to your overall savings goal. Decide when you would like to be able to buy your home. Make sure your date is realistic and achievable.
Now you have a goal amount and a date. Break this down into what you will need to save each year and every month.
By breaking your goal into bite-sized pieces, you can keep your eye on a short-term prize and get the long-term gain.
For example, if your savings goal was $50,000 and you want to buy in three years, that would break down to approximately $16,600 each year and $1,400 each month. You can even go smaller if you like and aim to save $350 a week.
It’s important that your savings goal is both ambitious and achievable. If your goal is too easy you will not be motivated. If you have created a goal that is too difficult, move your timeframe out so you can make realistic progress.
Dedication and discipline are the keys to success. Keep track of your money spending habits. Create a detailed tracking system that shows you what you are spending money on and where you can tighten your belt. There are lots of free budgeting apps you can use to help keep track of your spending and create a practical budget going forward.
After rent, electricity, water, insurance, cars and other living expenses have been paid, know how much you can spend on additional items like food, entertainment, transport and health and stick to it.
Remember this is a long-term plan so if something happens that means you don’t get your savings perfect one month, it’s not the end of the world. Just get back on track as fast as possible and keep going. You are still on track.
Make sure you treat your home deposit savings account as locked money. It’s not an account you can access for anything, it’s only for your big goal of buying your own home. So hands off! It will be worth it when you find your dream home and pick up the keys.
Peta Stewart – Certified Practicing Conveyancer
