When it comes to saving for a property purchase, getting to a 20 per cent deposit is the goal that most people strive for. That can be a lot of money if you are just starting from scratch,. so, how do you go about saving up a deposit?
Here are 6 strategies for building up your property purchase deposit.
Pay yourself first
If you wait until the end of each month to see if there’s anything left to save, the answer will more often than not be “no.” Rather than spend like normal and then try to save, consider moving money from your bank account into your savings just as soon as you get paid.
The reason this concept makes a difference is that it taps into the psychological side of saving. You'll be less tempted to spend your hard-earned money if you don't see the dollars in your main bank account. As the saying goes, "Out of sight, out of mind." That's exactly what you're going for here.
If you really want to take this concept up a notch, you can automate your savings so that a set amount of money gets moved every two weeks or every month, depending on your preference. You can set it up so that the money comes out of your account right after you get paid. Using this method, you can save for your deposit without even lifting a finger.
Reduce your monthly expenses
I know, I know. Everyone suggests this one. There's a good reason for that, though. When you think about it, saving money involves nothing more than a simple math equation:
Money Earned - Money Spent = Money Saved
Here, we’re talking about reducing the amount of money you spend on a monthly basis. It doesn’t have to be painful, either; for example, if you eat out regularly, consider buying the ingredients to cook yourself a nice meal at home instead.
The average Aussie spends approximately $152 on food expenses beyond the usual groceries for cooking at home. If you were able to reduce this by 25%, you would add approximately $2000 a year to your savings.
Start a side business
If you’re not keen to spend less, the other half of the equation involves earning more. A great way to do this is to start a side business. Your side business can involve everything from cutting grass for others to selling products on Etsy and beyond. You’d be amazed at what people are willing to pay for!
If you’re not sure where to begin, a website like AirTasker or Upwork can be a great place to start because often there are not many costs to get started. There, you can browse the types of jobs that people are looking to pay for in order to get some inspiration, and you can even sign up right on the site to start performing paid tasks for people, generally without the need for expensive equipment.
In practice, you may find that you can work an extra 2 hours each morning on the weekend a week at $30 an hour. Over a year of 48 weeks, this would add potentially $5,760 to your deposit savings before taxes.
Sell things you no longer use
Research from Gumtree shows that 89 per cent of Aussies have unwanted items in their homes, with an average of 23 items per home.
The average value of these items is $5,300, meaning that you might be able to make some serious progress toward your deposit savings by selling unwanted items around your home.
If you’re looking for a place to list your items, you can sell them on Gumtree, eBay, or Trading Post. All three are reputable sites with a high volume of buyers and sellers.
Rent out a room in your home
If you currently own your home, renting out a room can be a great way to supplement your income and get one step closer to saving enough of a deposit. Check local listings in your area to get an idea for the price you can charge. You can rent a room in your home on a short-term or long-term basis; either way, be sure to do your research in order to understand what’s involved in the process.
Single rooms in major cities such as Melbourne can rent out for anywhere from $150 to $350 per week. That's up to $18,200 per year in your pocket.
Invest with a co-purchaser
With property prices on the rise, investing with a trustworthy friend or co-purchaser can be a great way to get into the market sooner. Assuming 50/50 ownership, this means you’d only have to save up half the amount you would if you wanted to buy the property alone, which can really take the stress out of saving up enough for a deposit.
Another benefit of purchasing property with another buyer is that if you live together, it cuts all of your recurring expenses in half. Home ownership isn't cheap, and it seems as though there's always something that needs fixing. That leaky roof won't hurt your pocketbook nearly as much if you only need to cover half the cost, however.
When going this route, it's important to understand the legal and financial implications of joint ownership. For example, if you try to take out a new loan after purchasing a property jointly, the bank will likely evaluate your financial situation as if the entire mortgage were on your shoulders. This could make it trickier to qualify for a new loan in the future.
When looking to purchase property with a friend or family member, talking things out and understanding the risks and implications in advance are key to avoiding unexpected surprises in the future.