In the current economic climate, saving up enough money to build a new home is no easy feat.
This is especially true if you’re looking at buying in one of the many regions across Australia that have enjoyed strong growth in recent times. Nowhere is this more apparent than in Sydney, where residential property prices increased by an astonishing 18.9 per cent between June 2014 and June 2015, according to figures collated by the Australian Bureau of Statistics. Melbourne, too, enjoyed strong results, with the cost of housing in the Victoria capital rising 7.8 per cent within the same time period.
With house prices are on the rise across many parts of the country, making it somewhat challenging for people to save the traditional 20 per cent down payment. While some lenders will provide you with loans of to 95 per cent of the home’s value, these mortgages do come with some strings attached.
You may need to buy LMI if your loan is more than 80 per cent of the property’s price.
Due to the fact they involve more risk for the bank, Finder.com.au noted that loans of more than 80 per cent of a property’s purchase price require you to buy lenders’ mortgage insurance (LMI). This layer of protection can cost thousands of dollars and put further stress on your finances.
With this in mind, you should ideally save for a minimum deposit of at least 20 per cent. Not only will this help you avoid paying LMI and other expensive fees, you’ll also be able to greatly reduce the amount of interest you pay over the course of your loan, providing you with greater financial security and making the purchase of your new home that much more affordable.
The advantages of saving for a large down payment are clear, but without a defined strategy in place, you may never be able to hit your savings goal. Get your finances in order and set an effective weekly budget by following these five steps:
1. Set an objective and a deadline
Yourmortgage.com.au noted that the first step to creating a successful budget is to establish a realistic goal. After assessing your finances, work out the cost of your desired home and calculate how much you’ll need to save each week to purchase it. Putting your objectives in writing solidifies the process and will also encourage you to stick to your commitment over the coming weeks and months.
2. Calculate your income
After setting your saving goals, the next step is to determine how you’re going to fulfil them. This, of course, involves recording your income from salary, bonuses, returns from investments and any other sources that generate you wealth.
If this process reveals that your income is a little lower than you’d expected, it may be time to consider how you can boost it. Think about how your skillset could earn you money outside your main place of employment, push for a pay rise at work or use the internet to find freelancing opportunities within your industry.
3. Work out your expenses
To establish how much you might reasonably expect to save, you’ll also need to determine your expenses. This will allow you to identify where you’re spending the most amount of money and areas in which you can tighten up your spending.
There are many possible ways to achieve this, and if you’re serious about saving up to design and build your dream home, you may need to sacrifice some day-to-day luxuries. Cutting back on discretionary spending could enable you to greatly increase your savings, considering that the average Australian household spends $161 per week on recreational goods and services, according to research from the Australian Securities and Investments Commission (ASIC).
Using public transport, taking homemade lunches to work and ditching the daily coffee are all good places to start. It make might seem insignificant at first, but these small changes can add up to big savings over time.
4. Create a plan of attack
After developing a more thorough understanding of your financial situation, it’s now time to think about the practical steps you can take to minimise your expenses and boost income.
5. Review your budget in a month’s time
Finally, it’s worth remembering that saving is very much an ongoing process, and you won’t be able to correct bad spending habits over night. With this in mind, it’s important to review your budget on a monthly basis to see what’s working, how you can improve the plan, and areas where you may need more resources to deal with day-to-day purchases.
If you’re sharing the financial burden of the new home with your partner, this also gives you the opportunity to make sure that you’re both on the same page and are committed to the savings strategy.