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How to Save for a Home Deposit in 18 Months While Renting

By Carol Birrell

The Australian property market is showing some signs of slowing down, especially in overheated areas such as Sydney and Melbourne, which have both enjoyed a phenomenal spike in values in recent years. A recent report published by the Switzerland-based bank, BIS, shows Australia has enjoyed the most sustained property market upswing than anywhere else in the world. Property prices in Australia have been steadily rising since the 1960s, which is great news for homeowners and investors, but it makes it very hard for first-time buyers to get a foothold on the property ladder. Wages have failed to keep abreast of property prices, so many first-time buyers are locked out of the market and forced to stay in rental accommodation long-term.

In 2016, Bankwest revealed that first time buyers took, on average, 4.4 years to save up a 20% deposit. A median-priced home cost $518,000, so borrowers would need to save up an eye-watering $103,600 just to afford a down payment. The situation is even direr for a single person, as their saving capacity is halved.

Lending Criteria and Affordability

Tightened lending criteria and affordability constraints are dampening down the property market. If the market continues to slow down, there could soon be a glut of more affordable properties entering the market, which is good news for first-time buyers. But, before you are in a position to buy, you need to have a 20% deposit saved. For a couple living in the rental sector, it is no easy feat to save up the required sum.

To help illustrate how a regular couple can save up for a home deposit while living in a rental home, meet Josh and Samantha.

Josh works as an insurance underwriter. He earns $90k per year. His girlfriend, Samantha, earns $22k a year in her job as a waitress. Despite the fact they both work, they don’t have much in the safe of savings because they love to socialise with friends, take regular holidays, and spend money on hobbies. Josh owns two cars and Samantha has two rescue dogs. They both visit the gym and both enjoy eating out and drinking barista coffee.

Between them, Josh and Samantha earn $112k per year, which equates to $9k a month. They pay $2,500k a month on rent, $320 on utilities, $700 a month on eating out and socialising with friends, not to mention a ton of cash on credit card balances, car loans, holidays, new clothes and other miscellaneous expenses. At the end of most months, neither Josh or Samantha have any money left, but if they want to put aside the required sum of money to reach a target of $103k in 18-months, they are going to have to get to grips with a savings plan.

Let’s look at where Josh and Samantha can make some serious savings on their monthly expenditure. Fortunately for them, it is perfectly doable.

Create a Budget

Creating a budget is the key to saving. You can’t make savings if you don’t know where your money goes. Because they are keen to buy a home and settle down together, Josh and Sam sit down one evening and go through their personal finances together. Like many couples, they have a joint bank account, from which bills are paid, but they also have their own separate bank accounts for personal spending.

It is important to be completely open about your spending habits when you are in a relationship. Money is the number one reason why couples split up, so be clear about your personal finances and don’t try to hide debts from your partner or it could come back to bite you later.

With all the information in front of them, Josh and Samantha realise that they spend more money than either of them realised. They both have gym memberships and Josh also pays for personal training sessions each week. They are also surprised to see how much money they spend on nights in the pub, meals out, and takeout food.

Cut Back on Spending

Faced with the truth of their spending habits, Josh and Samantha can see where savings can be made. It won’t be easy, but they reckon they can save up $103k in 18-months if they cut back on unnecessary spending.

To make this happen, they both agree to make some immediate savings and then to cut back on wastage.

Move to a Cheaper Apartment

The first thing they do is look for a cheaper rental home. Their current lease is about to expire. They love the neighbourhood, but it’s quite expensive, so they resolve to move to a cheaper area and save some money on rent. They look online and find a few potential properties. This will save them around $1,000 per month.

Cut Back on Household Spending

They also realise that they can save money on other expenses. They agree to cancel the gym memberships and work out together in the local park. Both enjoy running and cycling, so it won’t be a stretch to go for a run or go cycling together. Josh also decides to try and cycle to work. His workplace has a shower and there is a cycle route part of the way to work. This won’t work for Samantha as she works late shifts, but it will still save them money in fuel and other transport expenses.They also believe they can make extra savings by changing to a cheaper health insurance plan, looking for cheaper utility suppliers, and not upgrading to a new smartphone each year.

Entertaining and eating out is a big expense for them both. Josh calculates that he will spend around $20,000 over 18-months, simply by going out with his friends for a few beers. He enjoys meeting his friends, but he decides to save 50% of that sum by not spending so much money in the pub and staying at home on a Friday night.

Josh and Samantha love to travel and they typically spend around $7-10,000 on trips away each year. They both agree that until they have saved up for a home deposit, they won’t book another trip away. Josh’s mum lives in Melbourne, so they decide to spend their next holiday with her to save money. They can also save money by asking a friend to dog-sit rather than putting the dogs in the kennel for a week.

By the time they have done the maths, Josh and Samantha realise that saving the required $5,700 a month they need to meet a target of $103,000 in 18-months is achievable.

They calculate how much money they can save by not frittering away money on unnecessary things and vow to place every spare dollar in a high-interest savings account where it will accrue interest over 18-months.

At the end of 18-months, they have enough money saved for a 20% home deposit. The good news is that their new spending habits have become so ingrained that it no longer feels like hard work watching every dollar. In fact, both Josh and Samantha have enjoyed watching their savings grow and they are quite looking forward saving up to furnish and decorate their home so they can start a family when the time feels right.

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