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?
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 more than 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 more than 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 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 home 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 will need a wholesome deposit and a healthy credit score. This involves repaying all 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. An 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 city to city, if your income level falls below $95,000 as a single of $150,000 as a couple, you could be eligible for a subsidy. The government announced it would lift the First Home Loan and Grant on April 1, 2021 to help more families into their first home. The amount you are eligible for is based on the number of years you have been an active contributor to KiwiSaver, however, keep in mind there is a cap on how much you can pay for a property if you use this scheme.
Remember, first home buyers can draw on their KiwiSaver to purchase their first home. If you have been a KiwiSaver member for at least three years, you may be eligible to withdraw your contributions, your employer’s contributions, the government contributions, interest you have earned and fee subsidies (if you got these). You must leave $1000 in your account, and you cannot utilise funds transferred from an Australian Complying Superannuation scheme. For more details about how to use your KiwiSaver, you should talk to your KiwiSaver provider.
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 concessions 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.
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