By Veronica Morgan
Although house prices around Australia have stalled slightly this year, it’s still tough out there for many Gen Ys and Millennials to scrape together a deposit for their first home.
Ideally, you’ll need to save 20% of the asking price plus purchasing costs, but might get away with 10% plus costs if you’re prepared to pay lender’s mortgage insurance.
A question I am often asked by many young people keen to get on the property ladder is how exactly do you come up with such a large amount of money?
Unfortunately there is no way to sugar coat this, you’re going to have to stop spending and start saving!
I recently met with some very motivated young buyers who had all managed to buy their first property by the age of 25. They shared with me four creative ideas on how to save:
- Move in with your parents – if you save $400 a week on rent, that’s over $20,000 per annum!
- Give up your morning latte – one a day adds up to over $1400 a year.
- Pack your lunch and drink tap water – a conservative saving of $10 for every day of work a year equals $2300!
- Save your shrapnel – at the end of the day put all your coins and $5 notes in a jar (it’s surprising how much you can save this way).
If you implement the four steps above your should be able to save over $25,000 in one year with only minor changes to your lifestyle. But it’s still going to take you nearly five years to save enough for a $500,000 property, so here are a few other ideas:
Ditch the car or do a car share
You could save a whole lot more money by getting rid of your car. According to various motoring associations, the annual running cost of a small “micro” class vehicle is over $6,000 per annum (plus registration and insurance). If you really can’t do without your wheels, perhaps you could join a neighbourhood car share scheme. According to Car Next Door, you could make between $2,500 and $10,000 profit per year depending on your vehicle and how often you make it available.
Partner up with your sibling or trusted friend and look at the option of a more affordable investment property. Just make sure that you enter into a co-ownerhsip agreement before you commit!
Super size it
Talk to your accountant about the option of using your superannuation to accelerate your saving goals.
Cut up the credit cards
Or at the very least, keep only one card and reduce the limit to $500 for emergencies only! Alarming statistics from budgeting company Fox Symes reveal that a huge 86% of Gen-Yers admit to overspending on everything from groceries to entertainment, clothes and holidays – and often through credit card use.
Recently I met with a couple who said goodbye to their dream of home ownership when they decided to spend $60,000 on their wedding. Call me a cynic, but given that the divorce rate is almost 50% in Australia, your money would be better used for a deposit on a home!
The good news
I do have a little bit of good news. A number of recent studies have shown that loan repayments are actually easier to manage today than they were for your parents in previous decades. So once you get over that initial deposit hurdle, you’ll find things ease up (well, a little bit anyway).