Saving for a house deposit is no easy feat. It takes sacrifice and discipline, especially if you want to do it fast.
As the steady increase in the cost of living outpaces the growth in household income, saving a house deposit might seem like climbing an impossibly tall mountain. Luckily, equipped with the right tools, any homeowner can reach the summit.
Saving for a deposit can take years, but a well-thought-out strategy can allow your savings to grow at a surprisingly fast rate, cutting the time you’ll need to own your first home in half.
How much do you actually need for a deposit?
The purchase price of your property will tell you how much you need for a deposit. Typically, lenders will require you to have 20% of the purchase price of the property. This means you will only borrow 80% of the property’s value.
In cases when your deposit is below the 20% requirement, your lender will most likely charge you with Lenders Mortgage Insurance (LMI). This protects your lender should you default on the loan.
Read more: How much do you need for a house deposit?
14 ways to save for a deposit
1. Look at your spending habits first
When you’ve got a big savings goal like a house deposit, it’s important to start tracking your spending so you can work out areas where you can cut back.
These days, it’s much easier to track your spending than it used to be with spending tracker apps like Pocketbook that scan through your bank account and categorise your spending. It’s likely your bank already has its own spending tracker technology which does the same thing.
The great thing about tracking your spending this way is that you can easily identify areas to cut back on. You probably have automatic payments going out each month for subscriptions you’ve forgotten about, like a streaming service you don’t use anymore.
Once you have a clear idea of where all your money is going, you should have a better idea of how much you can devote to your savings instead, and what expenditures you can get rid of so you can save even more - especially for first time home buyers looking for a loan.
2. Work out a budget…and stick to it
The key to saving is doing it systematically. Putting your spare change in a jar each week is technically something, but change, by definition, is leftover from your purchases, which may or may not have been necessary.
Determining how much you actually need to be spending every month is a must – and you should prepare to give up several things that, while enjoyable, are hindering your ability to save. What you need to do is budget sensibly by putting together a realistic savings plan that doesn't compromise you or your family's lifestyle too much.
Constructing a budget shouldn't take long; two hours should do. Work out your monthly income and expenses. Estimate your regular expenses such as transport, groceries, lunches, childcare, etc. Include any debts you may be carrying, including credit cards, car loan or anything else that you are obligated to make a repayment on.
The hardest part is identifying and cutting out unnecessary expenses. What items and activities that you enjoy are actually luxuries you can reasonably afford to give up? Most of us don’t realise just how much money we waste on consumer goods that add no value to your life or lifestyle. Consider what you spend in a month on coffee, lunches, event tickets and alcohol. Take a minute to calculate how much you spend on these things and see if you’re not shocked.
You don't want to give up everything, but even doing something simple such as bringing lunch from home three times a week, avoiding your thrice-weekly chocolate bars and reducing your alcohol intake by one drink a night means you will save about $2700 a year. Cut out the coffee break and a packet of cigarettes a day and you’ll save another $3500. Not bad for just a few slight changes in your spending habits.
3. Maximise your savings
An oldie but a goodie, this is a tip that always works if you’re prepared to stick with it. You simply need to pay yourself before you pay anyone else.
To do this, you must make sure that you put aside a portion of your salary into your savings regularly until you reach your deposit goal. By immediately transferring a set amount as soon as your pay hits your account – say, 10% of your wage – you are more likely to stick to the savings plan. A good way to go about this is to get your bank to set up an automatic transfer, ideally into a different bank to make it harder to access the money.
This might mean you have to miss out on a few restaurant meals throughout the month, or you may have to brown-bag your lunch when you run out of cash towards the end of your pay cycle, but it will be worth it in the long run.
Although it may mean further stretching what is left of your pay, it encourages you to spend only on what you need, rather than having available expenditure to make impulse purchases.
4. Pay off your existing debts
This one is not exactly a straight savings tip, but it is by default, as you’ll be saving on interest payments.
Paying off your debts makes sense for two main reasons: it will increase the amount of money you can borrow, and it will free up your cash to use towards mortgage repayments. When paying your debts, it is always best to take care of the ones with the lowest balance or the ones with the highest interest rate.
It definitely pays to set a budget now so you can get rid of your credit card debt and personal loans before you commit to a mortgage worth hundreds of thousands of dollars. If you think you are unable to pay all your existing debts off, consider consolidating your debt into a single loan with a lower interest. Doing this will make it convenient for you to pay off all your debts.
5. Eliminate the luxuries
Although it’s no fun, tightening your budget a little can be an effective strategy for saving money for your first home deposit. You can start by eliminating or downgrading the luxuries from your life, and then using the cost savings to fund a savings account.
You don’t have to skip everything at once — instead, eliminate one luxury per month, pocket the savings, and then move on to the next thing. Over a period of twelve months, you could easily save a few thousand dollars by alternating between life’s little luxuries. For instance, you could:
- Put your cable television subscription on hold for one month
- Take your lunch to work every single day for a month
- Don’t hit the shops for any new clothing for four weeks
- Skip alcohol for one month
These little things will add up eventually and will significantly boost your deposit savings.
6. Downgrade/move back home or in with flatmates
Temporarily moving into a cheaper rental, albeit pokey and inconvenient for a little while, can help you put an extra couple of hundred dollars per week into your house deposit savings.
Another option is, if your parents haven’t renovated your old bedroom into a spa, moving back home – or if that’s out of the question, you may consider living in a share house as these are even more affordable (if you don’t mind others around for a little while). This will help you significantly achieve your savings goal faster.
7. Monetise your spare time
If you think your finances are already stretched to capacity, then it might be a good thing if you consider looking for extra work. Work your skills to your financial advantage by figuring out a way to earn money in your spare time. Whether it’s a casual babysitting job, doing freelance work on websites like Fiverr or Airtasker, selling crafty bits and bobs on Etsy or selling old clothes on eBay, there are plenty of ways you can turn your leisure hours into profitable pursuits.
8. Take advantage of first home buyer schemes and incentives
There are plenty of government schemes and incentives out there to help first home buyers get onto the property ladder sooner. Many states and territories offer help to eligible first home buyers in the form of a grant, known as the First Home Owner Grant. It’s a one-off payment which is usually paid at the time of settlement to your home lender and applied directly to your home loan.
Other schemes include the First Home Loan Deposit Scheme, New Home Guarantee, Family Home Guarantee, Keystart, Homestart, First Home Super Saver Scheme, and stamp duty concessions.
9. Save your $5 notes
This is an easy way to accumulate cash without feeling like you’re sacrificing too much. Simply empty your wallet of $5 notes every day, or every other day, making sure you tuck them into a sealed jar or tin that you can’t access. After a few months, take your tin to the bank and deposit it into your high interest savings account. You’ll be amazed at how quickly the cash piles up!
10. Downgrade your car
Selling your car can immediately put thousands toward your deposit. So – whether you have two vehicles or have a newer model that you are willing to swap for a car that costs less – then you can really see results here.
If you don't have the advantage of rent-free accommodation, there's something almost as good. House sitting allows you to live in and maintain another person's home in their absence in return for accommodation that is often rent-free.
A typical arrangement lasts from a few days to a few weeks, although some last years. The cost to you is minimal, worked out on a case-by-case basis and may involve you having to look after the owner's pets or garden. Usually, you only have to pay the standard utility bills (electricity, gas, phone) or, for longer arrangements, some of the long-term bills such as council rates, water rates and perhaps a token amount for rent.
You will be required to pay a deposit which is refundable when the owners return to their home (and find that it is in the same condition they left it in, of course). Many of these houses tend to belong to affluent owners so, as a bonus, you may find yourself living in a sprawling home in a beachside suburb while saving more money than if you were renting a one-room basement hovel.
12. Sell unused items
Whether you do it now, or when you’re about to move, it won’t make a difference – but getting rid of your unwanted belongings and furniture by the means of selling them online can put a bundle towards your deposit. It also allows for a clean slate when you eventually move into your new home.
13. Use public transport
Taking public transport to work instead of driving, or catching the bus to the bar instead of getting an Uber will help your hip pocket (and your carbon footprint). If you really want to get serious, you may even want to consider selling the car and pocketing the savings.
14. Only pay for things using cash
It may sound counterproductive to spend money when you’re trying to save, but it actually works. The idea is to pay for everything you buy using cash – not EFTPOS, not a debit VISA card, not a credit card, but cold-hard currency. Handing over a $50 note feels way more painful than mindlessly tapping your card.
This article was originally written by Nila Sweeney and was updated by Gerv Tacadena and Emma Duffy on 10.2.22