Renting is a big expense in most people’s budget, so buying a home can often seem like just a dream. However, with tried and tested strategies it is undoubtedly a reachable goal. In just 18 months you could have built your savings enough for a deposit.
So, how do you save for a home deposit while renting? Here are 7
- Budget in a reasonable, achievable way
- Open a separate savings account
- Reduce your rent expenses
- Consider your credit score
- Set smaller goals and a target completion date
- Take advantage of grants and concessions
- Seek professional advice
Budget in a reasonable, achievable way
Creating a budget is one thing, but sustaining a budget is another. When creating your budget for saving for a home deposit, think about what expenses you can truly live without for over a year. If your budget is not realistic, then you will probably end up failing quite quickly.
A tip for devising an achievable budget while renting is thinking of hypothetical situations or even doing simulations. Try to go a week without a barista-made coffee - will it be possible to give it up for over a year? Think about what you will do if you budget not to buy gifts, and then one of your close friends has a wedding? All of these possibilities need to be fleshed out before it is set in stone.
Other tips for budgeting include cutting back on unnecessary spending of course, but also think about downgrading your current purchases. Perhaps try purchasing home-brand or a cheaper alternative to your usual favourites when you next go shopping at the supermarket. These cheaper choices will lower your grocery bill and the savings will compound over time.
Open a separate savings account
Creating a new account for your imminent home deposit is fantastic for not only compartmentalising your deposit savings, but also you can choose to open a high-yielding account. This will give you even more incentive not to withdraw out of the account and, instead, promptly deposit a lump sum of your pay into it. It is also a fantastic idea to set up automatic deposits into this account and not have it as part of your online banking, so you are not tempted to dip into it necessarily.
Reduce your rent expenses
If you are serious about saving for a home deposit relatively quickly, paying less rent could be an important sacrifice to make. Rent is usually the biggest expense coming out of savers’ pockets, so if you can find a cheaper apartment that would be a practical adjustment. You could even move into a shared house or back home for a short period of time while saving. Although this might seem like a huge sacrifice, remember that it is not forever, and you will have your own property to show by the end of it all.
Another great way to reduce your rent expenses while saving for a home deposit is to attempt to negotiate with your landlord. Of course, this is more achievable in some instances than others, but it is important to try. If you
could save just $20 or $50 a week it all helps.
Consider your credit score
Although it may seem far off, the usual end goal of saving for a home deposit is to get a loan from the bank to purchase a property. In order to receive this loan you need, not only the deposit amount, but a healthy credit score. This involves repaying all of your debts, as banks will be reluctant to loan to anyone with a large amount of outstanding debt. Finding out your credit score by downloading a report online is a really simple way of understanding how good your credit is and how you might improve or at least maintain it.
Set smaller goals and a target completion date
It can involve a lot of discipline to save for a home deposit, and the target may seem too large to obtain. That is why it is practical to set smaller goals, perhaps one every three months or even one every month. Work out your larger target, chunk it down, and celebrate every time you reach the small goal. This will get you in a motivated mindset as you reward yourself for achievement. A final end date will also allow you to really work hard towards hitting your goal by then, instead of living in “savings-mode” with no end in sight.
Take advantage of grants and concessions
While these vary from state to state, government grants and subsidies are available in all states in some form*, particularly to assist first home buyers. An Australia-wide grant is the First Home Loan Deposit scheme for example, where the government acts as a guarantor for a smaller deposit so first home buyers do not have to bear the cost of loan insurance. Look at your state government’s home owners page to find out more about what schemes are relevant to you.
Seek professional advice
It could be a beneficial idea to sit down with a financial advisor or planner when thinking about saving for a home and budgeting. They are the professionals and have seen countless people undertake the journey to save for a home. They can tell you what is realistic, any tax benefits or conscessions and special considerations you could be eligible for.
If you were looking for a sign to start saving for your home deposit, here it is. Start your journey today with these steps and lock down your dream home.
*Correct as of 15 February 2021
DISCLAIMER - The information provided is for guidance and informational purposes only and does not replace independent business, legal and financial advice which we strongly recommend. Whilst the information is considered true and correct at the date of publication, changes in circumstances after the time of publication may impact the accuracy of the information provided. LJ Hooker will not accept responsibility or liability for any reliance on the blog information, including but not limited to, the accuracy, currency or completeness of any information or links.
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