Now in Melbourne, the median house price has increased and is seemingly stable sitting at around $700,000. Even saving for a 10% deposit for a home like that looks way beyond our reach, let alone the recommended 20%.
So what are we supposed to do? Just rent for the rest of our lives?
Well, we could – but there’s still a way to achieve that monumental savings goal – Here’s how:
Start an actual savings plan
Before you even start to put that first dollar away, you’ve got to commit to three things:
1. Drawing up a budget, and sticking with it
Too many people have little to no knowledge of how much their lifestyle costs them, yet they know exactly how much they earn each week, (often to the dollar). This is a problem.
Understand what you’re spending and where that money is going. If it’s an unnecessary expense, get rid of it, and contribute that cash into your home deposit. You’d be surprised just how much money you’re wasting every month.
2. Clear the debts first, then start fresh
It’s difficult enough to attempt to save for anything without debt, let alone with it. Prior to opening a savings account, free up your financial situation of any personal debts first including credit cards and car loans. That money is better off in your own pocket – You should be looking at this as your first milestone.
3. Set up a savings account
Now, you can set up the account and make sure it’s specifically allocated for one purpose – saving for your deposit. You’ve cleared your debt and now understand your budget and expenses. This is when you start saving. Many people will try and undertake these three steps back-to-front or in another order, quickly discovering that it just doesn’t work.
Try and open an account that has the highest possible interest with the lowest possible fees. Also, setting up an automatic payment into that account each month will assist you greatly. Generally, if you don’t directly know about, you won’t miss that percentage of income being transferred. This will also eliminate the temptation to buy luxuries or go out to dinner at a fancy restaurant on Saturday night.
Get into the saving mentality
If you’re not prepared to make some weekly or routine sacrifices, then you can add months, if not years onto your home deposit goals. A 100% commitment now, will lead to buying that dream home later.
Here’s some tips to transition your mood into a saving-orientated one.
1. Set a desired amount, and within a particular timeframe
Just remember that the longer it takes to save a deposit, the more likely the chances of house prices increasing. Set an amount according to your desired total deposit and working towards it, working within a set timeframe. You’d be surprised how significantly more motivated you’ll be, doing whatever it takes to reach the goal before the date.
Also, having an actual date marked on the calendar with a big smiley face drawn next to it makes it very real in your head, thus further motivating you to succeed.
2. Keep up to date with interest rates
Interest rates may be at an all-time low now, at the beginning of your savings venture, but what about in 6 – 12 months from now? Interest rates fluctuate, and it’s always a good idea to keep a close eye on what’s happening with them before making any major decisions.
Every homeowner or investor should establish a buffet to allow for things like unexpected or immediate repayment increases.
3. You should never sacrifice everything along the way
Just cut down on the major, and unnecessary expenses. Still go and have that afternoon tea with friends or occasional night out – just cut back a bit. After all, you need to reward yourself once in a while for doing such a great job reaching your savings milestones, right?
4. Remember why you’re doing it
Although it can seem like your goal is just too farfetched to actually achieve, it never is. Constantly remind yourself of why you’re making all these sacrifices. Think of what you going to have in 18, 24 or 36 months from now. In the beginning this may seem like a million years away, but if you keep motivated and focused on the prize, you’ll absolutely get there.