Kick-Start Your Deposit Savings Plan
With tightening lending conditions, borrowers are facing higher deposits to secure their loan. Duncan Hughes, writer at the Financial Review states:
“Deposits required for nearly eight-out-of-10 loans have increased from a minimum of about 5% of the property price to about 15% of the price for investors and 12% for owner-occupiers.”
But don’t let this scare you, the dream of home ownership is still extremely viable and below are four tips that will help you save for a deposit and get you on that prized property ladder.
1. Wealth mentality and goals
The power of saving is great, but the power of a wealth mentality is greater. A wealth mentality is a state-of-mind that is geared towards creating wealth. When saving for a deposit, this is the most fundamental tool you can utilise. Creating a wealth mentality is best done through the adoption of consistent habits like setting small achievable goals that you can tick-off when reached. At first, the impact may not be visible, but over time, it will compound to a great force. In the words of Warren Buffet “Chains of habit are too light to be felt until they are too heavy to be broken”. Setting saving goals is a powerful way to attain a wealth mentality, write them down, and tick them-off. Not only will you gain satisfaction from it, you’ll be one step closer to securing your dream home.
Most of us look at our financials from a day-to-day or week-to-week perspective. Change this, take a step back and see the big picture. Are you falling for the trap of ‘showy’ costs like expensive cars that you could trade-in for something more affordable? Are the kids sneaking chocolate and treats into the shopping basket? Possibly, you’ve had the same phone and internet plan for 5 years, try re-negotiating. The more dollars you are saving, the closer you’ll be to the lifestyle you really want.
3. Investment products
Due to low interest rates, many of us view our savings account as a store of cash, when in reality, they’re meant to grow it. You work hard, so there is no reason why your money shouldn’t either. Term deposits and index funds often provide efficient ways of doing so. A term deposit is where you deposit a sum of money with the bank for usually between one month and five years. These accounts pay higher interest rates then your standard savings account, with the added benefit of locking your cash away for a fixed period. Alternatively, you can try your hand on the stock market with market tracking indexes like the ASX200. These funds automatically buy and sell an even share in the top 200ASX listed companies as they enter and leave the index. In laymen terms, it tracks the market. As decisions on buying and selling are purely made on stock size, fees are kept low. Say you invest $5000 and the ASX200 sees 8% growth, your $5000 will also see 8% growth less fees. In addition, it is the effect of topping up your initial investment every week through your savings habits. Utilising this product and your habits, you will have the 8th wonder of the world – compound interest – working for you to get you your deposit. Please talk to a qualified professional before making any decisions.
4. Deleting debt
If you are unfortunate enough to have any kind of debt that you need to reduce, seek advice on the best way to tackle it. Debt can be a stressful situation to be in, but before you can start saving, you need to alleviate the pressures that debt is having on your life. Not only will this make the entire home-buying process a lot easier to deal with, it will allow your lender to give you the required amount to purchase the Great Australian Dream.
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