First-home Saver? Here’s A Low-Stress Path To A 20% Deposit In 36 Months

To tell the truth, it can be very overwhelming to save to buy your first house. With rent, additional bills, and the simple process of living and enjoying life, it does not appear possible to pull a 20% deposit. However, there is some good news: With a good plan and some clever thinking, you can actually save that deposit in three years without having to live on two-minute noodles or do without one or two weekends out with your mates.

Let’s break down how to make it happen.

Why 20% Matters (And Why It Is Worth the Wait)

Let’s start with the “why” before getting into the “how.” Of course, you can make a smaller down payment, but a goal of 20% will provide you with some serious benefits. You will not have to pay Lenders Mortgage Insurance (LMI), which can cost between $10,000 and $50,000 depending on the mortgage. You will also enjoy the benefit of better interest rates and lower monthly payouts, which translates to more available money in the budget after you become a homeowner.

Consider it in the following way: a year or two of saving now would save you tens of thousands over the life of your loan. That’s worth the patience.

Do The Math: What Are You Really Working To Do?

The initial action is to get crystal clear on your target. We are going to use an example where you are looking at a property of about $600,000 (which is realistic in most parts of Australia, outside of Sydney and the inner suburbs of Melbourne). A 20 percent deposit implies that you should have $120,000, and you will have to pay stamp duty, conveyancing and building inspections, and other expenses amounting to $15,000-$25,000. That would be about $140,000.

Divided by 36 months, that’s approximately $3,890. Sounds steep, right? But, keep it in mind—you need not do this all by yourself. If you save with a partner, that number reduces to approximately $2,945 each month. Suddenly, it seems possible.

These figures should be adjusted depending on your local real estate market. Your target may be smaller in case you are searching in the regional or outer suburbs. You may have to save more, in case you are set on the Eastern Suburbs of Sydney or the inner north of Melbourne. With a definite figure, you have something tangible to strive for rather than a mere dream.

Create Your Savings System (Automation Is Your Friend)

The best way to save is to make it automatic. Open another high-interest savings account specifically for your house deposit—somewhere not too easy to access on impulse. Savings accounts are usually competitive in interest rates charged by banks such as ING, Macquarie and UBank.

Arrange an automatic transfer on your primary account on payday, and you have no time to spend it. Better still, consider your savings as one bill that cannot be negotiated. Pay yourself first just like you pay your phone bill or rent bills every month. This mere change of mentality changes a lot. Instead of saving what’s left after spending, you live on what’s left after saving.

This is a good time to begin with the amount that you can handle without problem, though it may not be up to your optimal monthly goal. You can go upwards whenever you receive pay increments or learn how to keep costs down.

Increase Your Revenue (Since It Is Better to Earn More than chop everything off)

Although budgeting is a factor, you can only cut so much till life is made miserable. At some point, you must focus on the other half of the equation: making more money.

Are you able to take some additional shifts at work? Negotiate a pay rise? Start a side hustle using skills you already possess? Even an additional $500 a month will add $18,000 to your deposit account over 3 years, which is a lot.

Consider your interests and talents. Good at graphic design? Provide freelance services on such sites as Airtasker. Enjoy fitness? Think about working as a part-time personal trainer. Love animals? Earn some extra cash without a significant time investment by walking dogs and pet sitting using Mad Paws or Pawshake.

The beauty of this side income is that it’s only temporary. You are not obligated to work two jobs permanently, only until you’ve saved your deposit.

Being a smart spender does not mean not to have any fun.

This is where the bulk of saving advice goes wrong—that it tells you to eliminate all that is pleasant. Skip your daily flat white! Shut down all your streaming services! And have no more counter meals! This would be effective in a couple of weeks, but not in three years.

Rather, take conscious spending. Hold on to everything that truly brings you happiness, and get rid of what you actually do not miss. Perhaps you maintain your Friday night dinners out with friends but you will cook more on the weekdays. You could be holding onto one streaming service rather than Netflix, Stan and Disney Plus at the same time.

Consider the subscriptions and memberships. Are you really getting value from that gym membership? Can you go to the beach or the local park and work out there? Are you a real Foxtel sports channel watcher? These minor repeated costs are accumulated very fast.

Here is a very strong rule to follow: prior to any non-essential acquisition, you turn the price into house deposit dollars. That $200 pair of sneakers? That’s $200 closer to your own home. You will still buy them sometimes, and that is okay, but more often than not, you will come to the realization that the purchase is not worth forfeiting your goal.

Government Schemes: The Secret Weapon.

Don’t leave free money on the table! Australia has a number of schemes that are specifically aimed at assisting first-home buyers, and they could speed up your schedule by a huge margin.

• First Home Owner Grant (FHOG): You can receive up to $10,000-$20,000 as a first-time buyer or builder of a new home depending on your state or territory. States have varying qualification criteria, hence what is on offer in one location may not be on offer in another area where you intend to make purchases.
• First Home Super Saver Scheme (FHSSS): It is a brilliant idea that allows you to save towards your deposit in your super fund where you will enjoy the concessional tax treatment. You have the option of contributing up to $15,000 a year (maximum of $50,000 in total) and withdrawing it so that you can deposit it. You will save thousands on tax compared to if you had saved in a bank account.
• Stamp Duty Concessions: most states provide discounts or exemptions on stamp duties on first-home purchasers which can save you a range of between $10,000 and $30,000 dollars depending on the price of the house.
• First Home Guarantee: This is a federal program, which allows first-home buyers to buy with only a 5 percent deposit, and the government guarantees the balance. Although this article intends to save 20, this scheme can enable you to get into the market much earlier in case of a change of circumstances.

Sunshine coast financial advisors or advisors in your locality can help you maneuver around these options and get the best out of all benefits available. They will make sure you don’t miss a state or federal scheme that will increase your deposit.

Take The First Home Super Saver Scheme into Account.

FHSSS should be mentioned particularly, as it is one of the least used services that the Australian first-home buyers should use. Here’s why it’s so powerful:

Making voluntary concessional contributions to your super (up to $15,000 per annum) would result in paying only 15 percent tax, rather than your marginal tax rate. If you are earning $80,000 a year, your marginal rate is 32.5 percent, so that is a massive tax cut. Over three years, the tax benefits alone could add approximately $10,000 to your deposit.

It has withdrawal taxes, but then you will still be much better off than you would have been with saving in a standard bank account. Discuss this with a financial planner or the ATO to know precisely how this will apply to you.

Where to Put Your Money: Diversify.

Although your main savings are supposed to be in a safe high-interest savings account, then you should consider diversifying some of the amount in your deposit account after you have an excellent base. It is not about taking risks, it is about getting your money to work harder.

Other Aussies opt to save part of their savings as term deposits to the banks or credit unions to get a better interest rate. There are others that consider the conservative investment solutions such as high-interest savings bonds, but you will need to be careful with something that carries a lot of risk when your timeline is strict.

Interestingly, some of the savers buy gold and silver as a hedge against inflation with a small percentage. The Perth Mint provides the alternatives to the Australian investors involved in precious metals. Although this cannot be your main alternative, gold can be a source of stability when the traditional markets are fluctuating. All you need to remember is, with any investment, there is a level of risk involved and therefore, do all your research before getting down this road and maybe seek the advice of a financial advisor.

Your Future Home Is Waiting

Saving this deposit in three years is actually feasible with the correct strategy. It requires discipline, of course, but not deprivation. It involves planning, not perfection. Every month you will save more or save less, and that is absolutely normal.

It is a matter of beginning, perseverance, and never giving up on the goal. You are three years away, with keys to your own Aussie home, either a small apartment with a balcony, a weatherboard cottage with a backyard for a barbie, or a modern townhouse, near the beach. That feeling? It’s all the automatic transfers, all the side hustle hours and all the careful spending choices you will make today.