Saving for a deposit is a major hurdle for First Home buyers, with the average saver in Australia taking more than 10 years to build up a 20% deposit. First Home buyers in Sydney, however, may take up to 15 years according to some estimates, with the average First Home buyer in Melbourne not far behind.
It is easy to see why First Home buyers can find the challenge of saving a large deposit so daunting.
This is a situation, Hamish Ferguson, from Vision Property & Finance is familiar with. He is one of Vision’s property finance experts and is responsible for helping to educate and guide First Home buyers as part of the breakthrough First Home Buyer Program.
“Saving for a home deposit is one of the first things that comes-up in conversation with clients.”
Hamish finds people generally fit into one of three categories: those who have saved enough to purchase now; people who almost have enough for a deposit; and then there are the First Home buyers who are starting from scratch and need some guidance as they build a savings plan.
“We work with clients as they navigate their way through the process of applying for a loan. Along the way, we can help them to understand good budgeting principles and become better savers, so they can shorten the journey to owning their own home.”
First Home Buyer Better Budgeting Principles
Going through this process and learning good budgeting principles is often the catalyst for changing long-held bad money-management habits that can stop people from reaching their financial goals.
The first principle of better budgeting is about understanding what your goals are with each item you spend money on. Hamish finds that clients will often realise at this point that a lot of their spending moves them further away from their financial goals rather than towards them.
Use 3 Accounts to Plan Where Your Money Goes
The second principle for successful budgeting is to make sure every dollar spent is accounted for.
“Very often people spend money almost unconsciously. They’re so used to paying for something habitually they can forget to track what it is costing them. People are also not always conscious of the need to plan for items they will be purchasing in the future.”
Hamish’s solution is to divide your money between three different accounts and use these accounts for items with different payment frequencies.
One account receives all of the income and is used for items that are usually paid for during your pay cycle (let’s pick fortnightly as an example).
“Rent, groceries, and fuel are examples of some items that fall due in the next fortnight. Your income arrives into your primary account and the only money left in this account is there to cover these basic yet frequent costs.
The second account covers all the items that come up during the year we need to plan for.
“These items could include; your car repayment, credit card payment, electricity bill, car registration, health insurance, subscriptions, school fees, and perhaps things you can’t always plan for, like doctors’ visits and medicine.”
Hamish suggests a third account should also hold the money for your ‘reserve’, ‘sinking’ or ‘future’ funds. Whichever name you give them, the idea is that these funds are set aside for a specific purpose to use in the future.
“Typically, we find people don’t make room in the budget for things they will need in the future because it is so far away. For example, if we don’t budget for a time in the future when we will need to replace our car, the funds won’t be there to draw down on when we need them. It can come as a big shock!”
The same can be true for any other item we want to buy in the future, whether that is a holiday, Christmas gifts, saving for retirement or a First Home Buyer deposit.
When you learn a better way to plan your spending you will find your financial goals, no matter what they may be, easier to achieve.
Are you thinking of buying your First Home?