What’s the most difficult part of buying a house? If you ask most people, probably the deposit. The deposit is the big chunk of cash that you have to save up to convince the bank that you’re really serious about buying a house and that you’re willing to risk your own money in the process.
The good news is that the housing market has rebounded sharply in the last few years, thanks to the improving job situation as well as the growth in the global economy. But for people wanting to buy a house, this has meant rising deposits. Currently, the average home price is standing at around $200,000, perhaps a touch over. With most mortgage brokers asking for a 5 percent deposit, that means that families have to pay out around $10,000 to secure their new house and a mortgage. For many families, that’s a lot of money to have to save up, especially those on modest incomes.
The idea of being able to save $10,000 in a year sounds fanciful, but it is possible if you and your partner work together and follow these tips.
Save Less For Retirement
Saving for a home is never without costs, and one of those costs might end up being your retirement. It’s a good idea to keep putting money into your retirement fund up to the point where your employer will match your contributions. This is usually capped at around 6 percent of your earnings. Paying in money above this probably isn’t worth it so it might be worth pulling back on your extra retirement savings while you’re trying to get the money together for a house.
It’s worth remembering though that you’re not actually losing money overall. Houses, like retirement plans, are also assets, meaning you’re just transferring your money from one asset to another. In the future, you’ll be able to sell your house and get the money back that you put into it.
Work More
The obvious way to supercharge your savings is to work more and work harder. It’s tough, of course, but a small amount of additional effort over an extended period of time can yield fantastic results. Suppose for instance you did an hour of work online, like tuition, every night of the week. That could net you an extra $400 a week, or $20,000 a year, easily enough to cover your deposit.
If online work isn’t available, there are other opportunities elsewhere in the economy that could bump up your income. You could work with Uber and drive people around in your car and get paid for it. Or you could join Airbnb and rent out bits of your existing home to business people and holidaymakers.
Finally, you can approach your boss and ask them for overtime or a raise or a new job in a better-paid position.
Downsize First
If your rent and living expenses are taking up a significant chunk of your monthly income, it can be hard to set aside any money for savings. That’s why many people are now downsizing first before moving to somewhere bigger. They’re looking for cheap rented accommodation that does the job so that they can move out when the time comes and find the house that they really want. Having lower rent and lower bills means that there’s more money left in the pot to buy a house in the future.
Moving to a smaller apartment could drop your rent from $1,000 a month to just $700. If you don’t have kids, moving is even easier. And remember, the added bonus of moving to a smaller place is the fact that you’ll have less stuff to move when you find a home that you actually want to buy.
Create A Monthly Budget
When people see a new house for sale, they immediately begin thinking about what it would be like to live there. The only problem is that they don’t adjust their behavior. They keep spending money like they always did, and slowly that new house becomes a pipe dream.
The best way to avoid this problem is to create a budget. Today, there are literally dozens of apps that help with personal budgeting and finance that you can use. One of the most popular is Mint, a budgeting app that connects to your bank account and allows you to break down your spending into categories so that you can see where most of your money is being wasted. Most of the time, it’s being blown on stuff you don’t need, like fast food.
Once you’ve got your monthly expenditures figured out, then it’s time to start hacking away at all of the stuff that you’re doing that is unnecessary. The difference between your income and your spending is your target saving amount for the month. Once you’ve cut out drinks at lunch time, take out meals, the morning coffee, scratchcards, cigarettes and Netflix movies, you often find that you’ve got an extra $200 to play with each month and put towards your deposit.
Always Save Your Windfalls
Studies have shown that when people get windfall payments, like tax rebates, they don’t save them. Instead, they go on a spending spree, treating themselves to all the stuff that they always wanted. The only problem with this is that you’re not really spending anybody else’s money. If fact, you’re spending your own: it’s just that it was taken away from you and then given back at a later date.
For this reason, it’s a good idea to save all windfall payments you receive, especially if it’s from the tax authorities. The cool thing about windfall payments is that they aren’t included in your budget, so they just count as extra savings when they arrive. There’s usually no need to dip into them when you’ve got your budget dialed.
Quarantine Your Savings
Many people find it really hard to keep their hands off their savings. Having all that money just sitting there in the bank, ready to be used at any time, is just too tempting.
The good news is that banks know this and so they offer people another way to save their money. One option they offer is one-year or five-year savings account. For these accounts, you pay in money at the beginning of the period, and you can’t access it until the term is up. At the end of the term, you end up with the original money you lent, plus some interest.
The good things about these accounts is that they earn more money than do regular savings account or current accounts.
Make Saving Automatic
Saving shouldn’t be something that you have to remember to do. It should be completely automatic, relying on modern technology instead. The level on which you do this is up to you, but one of the best ways is to go to your payroll department and get them to send a chunk of your money into a separate account every month. Having money siphoned off like this means that you won’t miss it and that you’ll adapt your budget around your real disposable income.
Save On Big Ticket Items
It’s not popular, but another way to save money is not to go on holiday. “Staycations” are becoming increasingly popular among people wanting to save up for a deposit, and with the average holiday costing more than $1,500 per person, it’s not hard to see why. Cutting out big expenses aren’t always pleasant, but they can be necessary for helping you get to where you want to go.
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