Homeowner. It has nice ring to it, doesn’t it?
It’d be pretty special to have a home you could finally call your own. Oh, and the peace of mind that comes with knowing you’ve made it onto the property ladder, wouldn’t go astray.
But saving a deposit for said home can feel…well…daunting.
Generally, lenders are after 20% for a deposit, which could be upwards of $100,000 in the current market, depending on where you’re searching.
Out of reach? Ha, good one (you’re thinking). More like out of sight.
I agree, it’s a hard ask. And yes, it may be inaccessible for some. But is it impossible?
If you can get yourself into a savings mindset, be patient and disciplined, you can eventually get there. I’ve seen this happen, time and time again.
I know you don’t fancy the idea of living as a hermit on baked bean for the next umpteen years. And while the need to make sacrifices to save goes without saying, you don’t need give up everything that brings you joy.
Try these tips on for size to give yourself the best possible chance of hitting that deposit target.
And remember: Keep your eyes on the prize. Because that prize is kind of a goodie.
1.Figure out how much you need to save
Instead of simply throwing every spare dollar and cent into your savings account and hoping for the best, get clear on what you’re actually working towards.
Have goals set so you can track your progress. Figure out what you can afford to borrow, based on what you earn, what your mortgage repayments would be and so on.
There are plenty of tools around to help you with this. All the main banks, for example, have online mortgage calculators.
Remember, the larger the deposit, the less you’ll pay in interest in the long run. Plus, because it’s more risk to the lender, higher loans (over 80%) tend to have higher chargers – some banks charge lenders mortgage insurance, others increase the interest rate to cover the risk.
It’s also smart to get your head around the type of property your money will buy early on. Look online at homes in your preferred areas, see what they’re going for and look at how this fits with what you’re aiming to save.
Yes, things may have moved on by the time you’re in a position to buy, but it’s always a good idea to set your expectations early to avoid any (unwanted) surprises when it comes to house-hunting.
2.Understand your current finances
Before you can create a plan for saving, you first need to assess your current situation and get clear on where your money is going.
Get a grip on your spending habits. Break them into categories then go through them with a fine-tooth comb. From there, you can figure out what you can cut back or eliminate. You might also like to group them into ‘essentials’ and ‘non-essentials’ to make it easier to review.
When you’re looking at areas to pull back on, don’t go gung ho. Put some thought into it first and be honest with yourself.
Can you still have a few little treats that make you happy, while cutting back on other nice-to-haves?
Start by looking at what’s going to save you the most money for the least impact.
Are all those monthly subscriptions necessary, for example? Could you cook more at home? Switch to less expensive brands? Put your dream of purchasing the latest iPhone on ice for another year?
3.Create a budget
Budget - it’s a scary word. And creating one isn’t the sexiest of activities, but securing that first home is. So (and I repeat), keep your eyes on the prize.
Now that you’re clear on where your money’s being spent and what your savings goals are, it’s time to make a plan for spending going forward.
Set your budget for each category, give yourself a buffer, and stick to it.
Separate bank accounts are key. Spendings and savings are the obvious, but I recommend going even further if it helps you stick to your budget (it literally takes a few minutes to open a new bank account online).
Set up an account for food, bills, clothing, house deposit etc and have automatic payments made as soon as your salary hits your account. That way, it’s crystal clear what you’ve got to work with and much harder for those sneaky extras to slip in.
Important announcement: Under no circumstance should you transfer money from your savings to your spending account.
Unless it’s an emergency of course. But if it’s for concert tickets you simply can’t pass up, the answer’s no.
You might be surprised at how motivated you become as you watch your savings grow.
4.Deal with debt
When it comes to saving for a home deposit, it’s best to get rid of any existing debt first. I’m talking credit cards, personal loans and hire purchases. If these are ticking up in the background, it’s wise to use any savings to pay them off, rather than having that money sitting in a bank account.
That’s because the interest you pay on these sorts of loans are usually ridiculously high. And if you let them get on top of you, they can be hard to overcome.
Start with debt that has the highest interest rate and work your way down.
5.Boost your income
Aside from cutting back on spending, you could also consider ways you might boost your cash flow.
Could you ask for a pay rise at work, for example? It might seem scary, but if you don’t ask, you don’t get, right? Be sure to go in prepared with facts, achievements and results, and make your case. What’s the worst that could happen?
Or perhaps you’re in a position to take on extra work - another shift or some casual weekend work. Or maybe a side hustle of some kind.
Yes, this might mean giving up some of your hard-earned downtime, but it’s a temporary measure that could be the cash injection you need to reach your home-ownership goal.
6.Step up your KiwiSaver contributions
This could help you grow your deposit faster because first home buyers who’ve been contributing to KiwiSaver for at least three years can dip in for a home withdrawal.
You could look at upping the percentage you contribute – even a small increase of a few percent could mean thousands of extra dollars over time. Remember, you can always drop it back down again once you’ve hit your target.
Need a hand to get those finances on track?
As a mortgage broker, I’m here to help make that home ownership dream a reality.
Get in touch and let’s get you sorted.
The Finance Marshall
0508 543 627