Saving the deposit for your property, whether it be your first home or an investment property, can be a lengthy and tiring ordeal. With property prices running away from us it is getting harder and harder to save for a property. It seems the longer you take to save your deposit the higher the price your property is going to be when you do get around to buying it.
Most articles out there offer your traditional “canned beans” tips. That is they simply say that “you should try to cut your spending as much as possible, often so much that you shouldn’t be spending money on food and should only eat “canned beans” for a year.”
While cutting costs where possible and saving what is left over is necessary to saving a deposit, I feel that some websites take this to the extreme and offer this as the only option for saving your deposit.
My 20 tips might not suit everyone, but they offer you an alternative to “eating beans” for 12 months. I have broken my tips into two sections, the first section is tips on how to actually save your deposit, and the second section is how you can lower or edit the deposit that you require.
THE LEGAL STUFF I HAVE TO SAY: Some of these tips have legal and tax implications that are not covered in this article. This article should not be considered financial advice and if you wish to outwork any of these tips seek professional legal advice.
How To Save More Money For Your Deposit
1. Be Smart With Your Money
Even though I don’t subscribe to the “just eat beans” mentality of my fellow real estate blogs and magazines I do advocate being wise with your money. Don’t force yourself to live just above the poverty line, but don’t be silly with your spending either.
Cut down on the things you don’t need to buy, and where you don’t care about brands buy the cheaper version. Me and my wife must buy our favorite brand of cereal, otherwise whatever we buy will go to waste, and the only sauce we buy is the Heinz Organic, which is more expensive. But we are happy to buy the cheap milk, cheese and a few other items.
Eating crappy cereal would make us miserable and wouldn’t make us happy to save. Emotions play a huge role in saving money, if you are miserable you will splurge, if you are happy then you will continue saving.
TIP: Compare prices of products, and whatever you save by buying the cheaper version put onto your home loan. Think of it as paying the full amount, but a portion goes into your pocket. For example, if the branded cheese is $10.00 and you buy the cheaper version for $7.00 then you would save the remaining $3.00 towards your deposit. Save enough of these little amounts and it all adds up.
So be smart with your money by saving on the things that don’t concern you, and putting the extra saving aside for your home loan.
2. Take It Straight Out Of Your Pay
This is a lesson I learned at church. In the bible God says to honor the Lord with the first fruits of all your crops. In normal people language this means to offer up the first part of your income before you even start spending.
No, I am not getting spiritual on you and saying you should give to church (though you should be generous), but I am saying that you should apply this principle to saving for your home loan.
Don’t try to live and save what is left, save your money as soon as you get paid and then live off the rest, stretching it as far as you can. If you try to live first and save second you will find you run out of money before you get a chance to save, but if you save first then you will find that you can stretch to live (and enjoy life) off the remainder.
3. Downgrade Your Car
Most couples own two cars, or at least one pretty nice car. Little do they know their car could be the deposit for their property.
A car is a depreciating asset and not only does it depreciate over time it costs you a bucketload of money to run. Insurance, registration, maintenance and petrol all cost money.
If you can live with one car instead of two then sell one of your cars and put the money you make into your savings account. Then calculate the money you would have spent on the car and save that money too.
If you have an expensive car then it is likely you could be happy with a cheaper car. Sell your car, buy a second hand cheaper car and save the remainder. You can always sell your cheap car and upgrade after you have bought your home.
4. Rent Out A Room, Or A Garage
Do you have a spare room in your house? Or do you really need your garage? Why not rent them out for some extra income.
A room could rent anywhere from $50-$200/week. That’s $2,600-$10,400 extra per year that you could be putting towards your deposit. If you live in a busy area then it is likely you could rent out your garage for $30-$70/week as well. That’s $1,560-$3,640 that you could be adding to your savings.
LEGAL MEMO: Check your rental agreement (if renting). Some rental agreements don’t allow you to legally sublet your car spot or property.
5. Sell Your Stuff
How much of your stuff do you actually need? Do you really need that old laptop you have already replaced? Or that second TV you never use because it is too bulky or the screen is too small?
One mans junk is another mans treasure. Wouldn’t it be better to live in your own home with less stuff than to be paying dead money (aka rent) to someone and have a whole bunch of stuff? You can always upgrade again once you are in your one home.
eBay.com.au is still a great place to sell your used items. To get the best results use terms in your heading/subtitle that people searching for your product will be typing in. Once we got a floor lamp worth about $600 for $100 because the person selling it wrote “Standing Lamp”. Sunday night seems the best night to sell things, though I have found weekdays around 1:30pm good for selling tech stuff.
6. Shop At Aldi, Cosco or Other Discount Stores
You don’t have to live off less to be able to save money, you just have to buy more with less. Shops like Aldi, Cosco or other discount stores offer you your common items but for half the price (on some products). I love the drink V, if I buy that from a convenient store once a day I pay $3.50, but I can get a 4-pack at Aldi for $6.99. I can now enjoy more V than usual (if I want to) and still save money. This is an example of making your money go further.
Again I will reiterate that I think it is a good idea to buy the cheap versions of the things you don’t care about. If you must have a certain brand of chocolate, then get it and pay for it. But if dishwashing liquid doesn’t matter to you then why spend $6.00 at Woolworths when you could be spending $1.30 at Aldi?
Buy more with the same amount of money by shopping at discount stores and buy things when they are on special. You should have already been saving money at the start of each month, so this is just about making what’s left go further, rather than saving the difference.
7. Create A Second Income For Yourself
Almost everyone can create a second income for themselves. You could live off your primary income and then save all of your secondary income.
It is likely that you could be using your current skills outside of your workplace. If you work as a mechanic, then you may be able to fix your friends cars on the weekend. If you work as a writer you could do freelance writing on the side. If you work as an accountant you could help people with their tax returns.
Anyone can outsource themselves on sites like Odesk or Elance.
Alternatively you could start a small business on the side. Get clients and do the work in your after work hours. Or build up passive income by starting a website and selling affiliate products. You are only limited by your imagination.
This is not my main job, but this site and others I own and run make me a little bit of extra cash that I am able to invest and save.
LEGAL MEMO: Check your employment contract, if it says you can’t use your skill outside of work (for an income) then tread carefully. You may need to earn your secondary income from another skill.
8. Get a 17% Increase On Your Money Instantly – Tax Free
Banks might only give you 5% interest on your money but when you save money with the governments First Home Saver Account, the government will give you 17% tax free on the money you save instantly.
For every $6,000 you save the government gives you a little over $1,000*. You can then still earn 5-6% on your money (whatever the bank is offering).
*THE CATCHES: You can only contribute a certain amount each year and still be eligible for the 17% and you have to keep your money in there for at least 4 different financial years. You have to add $1,000/year for 4 financial years before you can access the money. You can also ONLY use the money to buy your first home, no shares or investment properties allowed. Get financial advice to discover all the perks and catches or talk to your bank
9. Earn Commissions and Save Them
If you work in a sales role, or a role that affects the bottom line of the company then it is likely that you will be eligible for commissions. Many companies offer their employees a base salary and commissions on top.
You can live off your base salary, and then any commissions you make you can put straight towards your deposit. Pretend that you didn’t even get paid it. The more you make (or save) for your company the better your commissions and the quicker you can save your deposit. If your currently in a sales role and not getting commissions, ask if it is possible to get them. The worst they can do is say no.
10. Lower The Rent You Are Currently Paying…and Save The Difference
If you’re currently paying $400/week rent then you could probably move to a place that only costs you $300/week in rent. It won’t be as nice but it is only temporary. Then you could save that extra $100/week and put an extra $5k towards your deposit in just one year.
Or if, God forbid, you decide to move back in with the parents or in-laws then you need to be saving what you would have been paying in rent. Pay your rent every week, but pay it into your savings account instead of to a landlord. Don’t move in with the in-laws and then waste the rest of your money.
11. Encourage Your Spouse To Be A Part Of The Saving Process
Often couples have one person who takes care of the money. That person is the “budgeter” in the relationship. Usually the budgeter will organize the money, but the other person is the one who spends the money on a day to day level.
The budgeter is the person who says “we a going to save this”, but they have no control over how the spouse can save money.
If you can get your spouse a part of the saving process then you can save your deposit so much quicker. It might be worth getting them to track how much they are saving on the shopping so they can see their contribution to the deposit. Find out what works for you, but get them involved and make your life easier.
12. Save Your Marriage and Go On A Holiday
Holidays are usually a huge expense and thus when you are saving for a deposit you will want to simply cancel holidays out of the picture. Be careful, because that may not be healthy for your marriage/relationship.
A healthy relationship encourages the saving along, because there is less stress placed on money. The more stress you place on the relationship the more fights about money you will have (generally). Holidays are just one way to help avoid this tension during this difficult period of your life.
You can do holidays on the cheap. There are loads of caravan parks in beautiful settings, or luxury resorts at 70% off on sites like lastminute.com.au or expedia.com.au. Be smart and go on a holiday on the cheap.
13. See If Anyone Would Be Willing To Help You
I almost didn’t include this because this relies heavily on the chance of your situation. It is not really something you can do yourself to save the deposit for yourself. There are the lucky few out there who get help from friends and family who will loan or provide them with the deposit for their own property.
If you are loaning the money from someone to pay for your deposit you will need to keep it in your bank account for at least 3 months before the banks will count it as “proven savings”. If you are receiving the money as a gift you may need a statutory declaration for the person giving the gift saving that it is a non-refundable gift.
You could always ask the people in your life for help. Your work may have a program to help you save, the government may have some benefits to help you that you aren’t currently accessing, or other people in your life may want to help you out. It may not even be financially, a family member may help babysit so you can spend the time earning some extra money.
I’m not asking you to be a charity case, but I saying that if you have support networks around you that could help you then that is worth a look.
How To Lower or Alter The Money Needed For Your Deposit
It is likely that you may be making life harder for yourself than you need to. Many people over estimate the deposit they need to save, and create for themselves what seems like an impossible goal.
Most people reading this article will be saving for their very first deposit. The first property is the hardest one to save for because you have no experience and no equity working in your favour. These tips will help you reduce the deposit you need so that you can buy quicker, buy better and achieve your dreams of your perfect home sooner rather than later.
14. Consider A Lower Entry Point Into The Market, and Work Your Way Up
By far the biggest mistake people make when it comes to saving for and buying their first home is that they want the dream and they want it now. They want to live in their dream suburb, which is often out of their price range.
It is hard to enter the market, but once you are in the market it is easier to work your way up to more properties and better suburbs.
Consider entering the market in a cheaper suburb and working your way towards the better suburbs. Buying your first home is rarely a life decision so don’t stress about having to buy the perfect home right off the bat.
Purchasing in a cheaper area will allow you to save your deposit much quicker and then you can use the growth in equity as a launch pad to a newer and better property later on.
15. Work Out How Much You Really Need To Save
Another mistake new buyers make is that they over estimate how much they need to save. Yes it would be great to save a 20% deposit so you can avoid lenders mortgage insurance, but is that achievable in your time frame?
Maybe you only really need to save 10% or even 5% of your deposit because you can afford the repayments on the larger loan and you would rather get in now before the market prices increase. With the first home owners grant it is even possible to buy a property with a 3% deposit. Do those calculations and look at how much realistic it is to save that type of deposit.
Most people find it easier to pay a mortgage that they ‘have’ to pay than to save a deposit that is technically ‘optional’ to them. The growth you can achieve from owning the property a year or two earlier could actually far outweigh the extra cost of lenders mortgage insurance.
THE LEGAL STUFF: Speak to your lender to find out how much you need to buy a house, and how much you can afford to borrow. Maybe you can lower your deposit to 5% but you can only purchase a unit worth $350,000 not $400,000. Do your research.
16. Use Your Super To Buy It
It is likely that you have a fair chunk of money in super sitting in shares or a managed fund that you know nothing about. Wouldn’t it be nice to tap into that wealth that is yours before you retire?!
WOOH SLOW DOWN: You technically can’t access this money until you are around 65, but you can use this money to buy property by using a self managed super fund.
In some states (if you have a really good accountant) it may be possible to purchase your home as an investment using your super and then live in it and pay rent to the super fund. You may have to buy it in your name (in your super fund) and rent it to your spouse through a real estate agent (paying the 8% fee) at market rates.
But you then can obtain the advantage of not paying dead money to someone else and not being afraid of being kicked out of the property.
ALWAYS consult a qualified accountant if you are considering this avenue.
17. Consider Dual Occupancy For Your Home
If you are in the situation where you feel you need to save a large deposit because you can’t afford the mortgage repayments then you may want to consider dual occupancy.
You could purchase a property, say a 4 bedroom house, and convert it into 2 x 2 bedroom flats. Live in half of the property and rent out the other half. This rent will lower your required contributions and may mean you can afford to purchase the property with a lower deposit.
Interest only loans can also reduce your monthly payments and make the loans more affordable.
18. Consider A House Instead Of A Unit
I must admit this tip is a little obscure, but there are a few reasons how a house can help you save your deposit quicker.
a) Units sometimes need more security – Some units, especially units under 50 square metres, require a higher deposit as security. Because the banks see them as riskier investments they want more security before offering you a loan. Also affording the strata fees can be expensive.
b) Early access can increase the value – This is a bit tricky, but if you purchase a run down property you can ask for early access to get it ready to rent or live in. If you can get early access you can spend that time renovating the property and increasing it’s value. Then get the bank to value it before you move in. If they value it higher than the purchase price you can use your equity as the deposit.
This can be risky if you don’t have the money for the deposit if it gets valued at the same rate as the purchase price even after renovations. Always speak to the seller, your lender and a qualified accountant before attempting this.
19. Invest with a Friend or Family Member
If you go halves in a property with a friend or family member then that can significantly reduce your deposit because you only need half a deposit, not a full deposit.
Always have an exit strategy if you decide to do this. If things go pear shaped it helps to have already decided your way out.
20. Buy And Build (a Duplex)
This is an extension of the tip above about buying with friends and family. You could purchase a block of land and build a duplex so that you each have your own separate house.
You can create separate titles for each of the duplexes or just keep them on one title. Two titles is always great because then if one of you needs to sell it is much more straight forward as you will each own one duplex it.
This can reduce your required deposit because you a buying it together. It can also add more value to the properties than it cost you for the land plus building so you can gain some good equity.
In Closing
Saving your deposit is a big ordeal. It is time consuming, stressful and requires sacrifice. Not every one of these tips will appeal to you. But it is likely that you could use many to these tips together to speed up the time it takes you to save your deposit.
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