If you’re a first-time home buyer, you could be lucky enough to be approved for a 100% bond, but if you aren’t, a 10% deposit might be required. This could be a daunting prospect. However, a few financial tweaks to your lifestyle and spending habits could get you a foot in the property door and, once you’ve purchased a property, significantly reduce your long-term bond repayments.
According to Buyisile Maseko, growth head at FNB Home Finance, you can take these five steps to immediately start saving for a deposit:
1. Save first – Before you start cutting back on all your expenses, you should come up with a definite savings plan and time frame.
In order to stay motivated, you will need to strike a balance between saving and living within your means on the one hand, and the temptation to overspend every time you go shopping, says Maseko.
The best way to do this is to decide on a specific amount to save each month and put it aside when you pay all your accounts, he adds.
If you manage to add a little more to your minimum savings amount during the month that would be a bonus and as you get into the habit of saving, you will enjoy finding creative ways to reach your goal faster.
Put your savings away at the beginning of the month. Aiming to save what’s left over is not as efficient. And put your savings into a call account where you can reach them if you need them, but it’s not easy to access them on a whim. You’ll also get more interest.
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Also consider opening a separate bank account for your deposit savings. Opening an account specifically for your deposit savings offers you the best interest rate and the lowest banking charges, this also helps to remove the temptation of using the funds as you can’t access them as easily.
2. Consolidate debt to pay a lower interest rate – you need to work at paying off any credit card or store card balances as soon as possible, and then diverting whatever cash was going towards those debts into your deposit savings account.
A good way of doing this is to consolidate your debt (e.g. clothing account, furniture accounts, micro loans, etc.) into a single loan with lower interest. This will not only save you on monthly admin fees, and help to simplify and ‘declutter’ your debt, but also result in you paying less interest over the term of your loan, says Maseko.
He says these savings can make a big difference in how much you pay and give you room to raise your deposit.
Keep one credit card for emergencies only (the one with the lowest interest rate) and stop buying anything on “budget” terms, or layby, or hire purchase. In addition to boosting your savings, this will also improve your credit profile and your chances of being approved for a home loan.”
3. Manage your discretionary purchases – Telco services, such as data and airtime, are a big spend for most people. Most telco providers do however offer special deals and it’s important to take full advantage of these in order to generate some savings.
Also, look at how much you are spending on take out. Preparing your meals is a significant saving. Keep takeaways for emergencies only, or a once-a-month treat.
4. Downscale temporarily by giving up luxuries and convenience – Another consideration would be for you to downscale your lifestyle i.e. moving to a smaller rental unit for two years for you to pay less rent.
It’s only temporary, and when you leave the smaller place, it will be to move into your own home, which could be considered a worthwhile sacrifice. You’ll find that giving up the ‘little luxuries’ for a while can make a really big difference to the time it will take to accumulate a deposit.
Take a break from any expensive subscription for a few months - for example, your digital or entertainment subscriptions. Take up running instead of a gym subscription, or stick to home-cooked meals instead of eating out or buying takeaways, and you’ll be stunned how much extra you’ll be able to save towards your deposit.
5. Save all extras and use your loyalty programmes effectively – Put all your bonuses, tax returns, gifts, or commission into your savings account. In addition, free rewards programmes can give great value to customers.
Once you’re ready to put down your deposit, remember not to exceed your budget - it’s easy to fall in love with a bigger home, but remember - this is your start-up.
Buyers should purchase what they can easily afford and look for homes that offer letting opportunities, says Maseko.