Saving for a deposit for a home loan can be hard to do quickly, and is even hard for some people to get started at all.
Setting a savings plan is great but in reality it can be hard to stick to without dipping into the savings.
One way to get things moving is to implement the 20 per cent plan. It means you live on 80 per cent of your earnings while putting away the other 20 per cent. This means you won’t be getting hit too hard by the savings and usually makes it more likely you can stick to the plan without folding under too much pressure and biting into the savings.
Each month, put 20 per cent of your income into a high interest savings account and the best way to do that is by direct debit on the day after your wages go in each month.
To implement the plan you can follow these five steps to save your home deposit in three years.
1. Draw up a budget
Take control of your finances by writing down all your income and expenditure and work out how you can stay on top with 80 per cent of your income.
2. Make the necessary changes
You’ll need to make sure that all of your outgoings or expenditures are less than 80 per cent of your income. To increase the likelihood of sticking to the plan it’s a good idea not to chop into spending too drastically. Finding little savings on utility bills for example is a great way to do that.
3. How much will your yearly savings be?
How much you save each year obviously depends on how much you earn, and because you’re saving a nice and steady 20 per cent you can easily work out how much will be put away at year’s end.
If you’re on $900 a week after tax for example, you will have put away $9360 which in turn will mean you’ll have $28,080 ready to put down on a deposit in three year’s time.
4. Maximise the savings
To maximise the money you put away, you can spend time making sure it is being kept in a term deposit or high interest savings account that offers the highest return.
5. Find the best property to lay the deposit down on
Once you’ve put the 20 per cent savings plan in place for three years you should be close to having enough for a home loan deposit. On average this plan will allow you to at least buy a unit in an Australian capital city. You can also find larger property in some regional and rural areas and finding a home loan that requires less than 20 per cent of the value of your property can also help you get the property you want faster.