It's easy to feel intimidated by the prospect of saving for a house deposit. For many, the benchmark for their deposit size is at least 20% of the property value, or a Loan to Value Ratio (LVR) of less than 80%. For most lenders, this is the threshold where buyers can avoid paying Lenders Mortgage Insurance (LMI).
Average home prices in Australia are currently more than $600,000, so that means putting together a whopping $120,000. The good news is that there are lots of things you can do to speed things along when you are trying to stay ahead of the curve.
Create your budget
Budgeting should be more than a quick mental estimate each time you see your wages appear in your bank account. Doing a proper budget means going back through your transaction history for the past few months.
Most online banking services make it very easy to do this. From here, you can work out things like your average weekly grocery spending, or how many cocktails you've been ordering after 10pm on Saturday
Many banking apps nowadays also offer spending and budgeting insights, so you can see an easy snapshot of where your money is going. Maybe you've been drinking more cocktails than you thought. Once you start categorising everything, you might be surprised how much seemingly trivial things add up over time.
One popular budgeting method is the 50/30/20 rule. This means no more than 50% of your net pay goes towards essential expenses - rent, groceries, car expenses and so on. It might also be handy to put some of this figure away for emergencies, such as if your car breaks down, and aim to develop an emergency fund.
The next 30% is for splurging such as meals and drinks out, movies, Netflix, clothes and so on. The next 20% is for saving.
If your take-home pay is $1,000 a week, that means $500 on essentials, $300 on splurging, and $200 on saving. Or if you're feeling frugal you can flip the last two around.
Of course, this isn't mandatory - find a strategy that suits you and stick with it.
Avoid lifestyle creep
A common phenomenon when getting a higher-paying job is that your lifestyle gets more expensive. If you've received a pay rise, it's all too easy to start eating out more, buying more lavish clothes, getting a more luxe rental property, and treating yourself to a holiday. However, while one or two meals out won't break the bank, lifestyle creep can negate any of the pay rise, and potentially leave you no better off.
If you've received a pay rise or bonus, live within your means, and keep your lifestyle the same to maximise your savings.
Adjust your budget
Now that you've broken down your spending, the next step is trimming the fat. You'll want to work out how much more you can put away in savings by eliminating unnecessary spending.
Drinks and eating out
Coffee is a widely publicised example, but it's still worth pointing out that buying a $5 coffee each working morning for 48 weeks of the year works out to be $1,200 annually. Invest in some coffee pods or plunger coffee, start waking up five minutes earlier and that's some extra cash you'll have by the end of year.
Inevitably, you'll find many cases like this. Eating out and takeaway food is another common example of paying for convenience. If you're serious about saving, adjusting your routine so you prepare more meals for yourself is a great idea.
On those lazy nights where you can't bear the thought of cooking, there's still rarely an excuse to not nip to the supermarket and grab something quick. Even a frozen meal is probably half as expensive as UberEats or DoorDash.
Of course, that morning coffee or Thursday night takeaway might be your only 'vice' or what gets you through the day, so be kind to yourself.
Eliminate three takeaway coffees ($15), two pub beers ($15), and one takeaway meal a week ($20) = $50 a week or $2,600 a year saved.
Subscription services and gyms
You might find yourself repeatedly watching The Office of an evening, so don't need to be paying for six different subscription services. $10 here or there might not seem like much, but can quickly add up. Subscription services bank on the fact you forget to cancel your plan after the free trial, so review your bank statement or transaction history to see if you've forgotten to cancel one.
This also goes for not just Netflix and Spotify, but gyms as well. If you're paying $60 a week for a boutique fitness studio, but only going twice a week, your money might be better spent elsewhere. Many cheaper gyms offer free classes on weeknights to help keep you motivated.
The world could also be your gym - swimming, running, walking, calisthenics or working out at gyms you see at public parks. There are many YouTube channels offering free yoga and high intensity interval training (HIIT) classes to get the blood pumping.
Eliminate three subscription services ($36 a month) and swap $60/week boutique gym for $15/week chain gym = $2,772 saved in a year.
Take a look at your utility bills
When was the last time you reviewed your phone, internet, or electricity plan? This could easily add hundreds of dollars to your bottom line every month.
For example, it's no use paying $70 a month for a 100GB phone plan with international calls if all you use is 5GB and your calls are only within Australia. A $20 plan might easily do the job. There are the big-three providers in Telstra, Optus, and Vodafone, but also many smaller carriers such as Amaysim, TPG, Boost, and more. Reassess the need to upgrade your phone when the contract expires.
The same goes for internet. There's no use in paying for a 100Mbps NBN plan that's designed for a family household if you live by yourself and only stream Netflix of an evening. If you aren't in a contract with your phone or internet, switching can be a swift process.
Power bills - while they only seem to ever rise - is another fat-cutting avenue. If you're not reviewing your power plan every 12 months, you could be paying too much. Look at the supply charge as well as the usage charge. The supply charge is fixed. Chances are if you live alone or don't use much power, your supply charge is the biggest cost - you'll want to get this as low as possible.
You can start comparing energy and internet plans using our utilities comparison tool.
Getting together a sensible budget should take you no more than a couple of hours. It might seem a bit painful at the time but identifying and then reducing those occasional little luxuries (that are neither occasional nor little in price) means much more money left at the end of each month. This is money you can then start investing in term deposits or savings accounts.
Swap $70 a month phone plan for $20 one, swap $100 100Mbps NBN plan for $50 25Mbps plan, and swap $1.10 daily electricity supply charge down to a 80c = $1,309.50 saved.
Total: $6,681.50 saved just by trimming the fat.
Attack your bad debts
Many of Australian households have debt, mainly in the form of home loans, car loans and credit cards, and the amount of debt per household is rising. However, not all debts are 'bad' - for example a mortgage helps keep a roof over your head.
Tackling the credit card and balance transfers
Outstanding credit card debt and interest however is a quick way to offset any gains you make from budgeting. And it's completely avoidable via paying off your balance on time.
If you are trying to save for a house, it's probably worth assessing whether or not you need a credit card at all. If you do, make sure your budget allows you to make all your repayments comfortably before the interest free period expires. A lender will also likely factor in the entire credit card limit into your borrowing power, so consider reducing it.
If you have credit card debt you can't shake, you could consider a balance transfer. This is a special rate many credit card providers offer to incentivise you to switch to them. A balance transfer interest rate is normally significantly reduced, often to 0%. Fees to do a balance transfer are usually around 1-2% of the balance but sometimes these are waived too.
You can transfer your existing debt to the new provider, and then pay it off at the new balance transfer rate, saving yourself interest payments. Keep in mind though that a balance transfer does not last forever, and the revert rate that kicks in once this period is up is normally much higher.
Before doing a balance transfer, you'll want to be sure that you can pay off all your debts in the balance transfer period. You'll also want to avoid adding new debt or making additional purchases as these might not be subject to the special balance transfer offer.
Debt consolidation
Another option that can help clear debts is a debt consolidation loan, which is a new loan you take out to pay off all your existing debt, then just pay off the new loan. This is a good option if you have several different debt obligations (multiple credit cards, car repayments etc.), and find a debt consolidation personal loan with a lower interest rate than you are currently paying.
You'll need to remember that sometimes penalty fees apply for paying your debts early, and of course make sure that your loan will end up saving you money.
If neither of these options suit you, you might just concentrate on making bigger credit payments for a few months to eliminate your debts quickly.
Cut down on rent if possible
One of the more frustrating aspects of saving for a house is seeing the money you would have been spending on your mortgage leave your account every week in rent. At the end of your lease, this is another payment that could be worth assessing. Moving a few suburbs further out might make your train ride to work a bit more tedious, but it might be worth saving an extra $50-$100 a week.
Living alone is a dream for many, but consider if it's worth moving into a place with housemates to save money. Also consider your need for that spare bedroom for once in a blue moon when friends or family stay over. Spending a year in a slightly downgraded house might mean you eventually move in to your very own house much earlier.
With the stress of the current rental market in Australia though, this might be easier said than done. For many, finding appropriate rental accommodation has become extremely hard. If it's viable, you might even consider moving back in with your parents or family members, eliminating rental payments altogether and concentrating everything on building up your house deposit as quickly as possible.
Get the best out of your banking
After you've maximised the amount you are saving, it's time to find the best place to put them. There are many different ways to try and make your savings grow over time. If you're game, investments such as shares could see the biggest returns, but of course, you are also taking on a much greater risk. Investing is worth considering, but you'll want to do your research, and explore all the possibilities.
Look for high interest savings accounts
If you are looking for more secure ways to grow your money, it still shouldn't be as simple as logging in to your online banking and opening a savings account. For one thing, if a savings account is the route you would like to go down, there's a wide range of options available. You can check out Infochoices guides and comparison tables to help find the savings account that best suits your needs.
Even if you already have a savings account, there may be other providers out there who you can get a better return, so you should be ruthlessly assessing your current provider against competitors. Opening up a new bank account can take as little as five minutes. Interest rates, account fees, accessibility and conditional interest rates are some of the things you should be comparing.
Compare term deposits
Once you have a few thousand dollars behind you, you could look into opening a term deposit account. This is a special account where you deposit a set amount for an agreed amount of time, not adding or taking money out in this time, and then receiving interest on top of this.
Term deposit accounts tend to offer higher interest rates then savings account, and your savings not being accessible might help you avoid temptation. However, your money is locked away for a certain period - it's no use opening a five-year term deposit account if you want to buy a home in the next two years.
Putting together enough for a house deposit is a daunting savings undertaking for most people. At the end of the day, regardless of how disciplined you are, there will probably be times where you feel a bit hopeless. It's important to not lose sight of any progress you have made, nor where you are headed. If you can minimise your spending and maximise your banking, you are putting yourself in a great position to eventually be able to afford your dream house.
The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.
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