This is a guest post in collaboration with the Society One.
Saving for a deposit on your first home may seem like a titanic effort, particularly if you didn’t start saving as a toddler. But it doesn’t have to be.
With a little patience and long-term vision, anyone can take steps towards securing a deposit for their first property.
Unless your spending habits are particularly extravagant, developing a responsible blueprint to achieve your financial goals doesn’t need to cramp your lifestyle.
Here are three simple ways to get you started:
1. Spend Less Than You Earn
‘Spend less than you earn’ may sound straightforward, but it’s easier said than done – especially if you’re not in the habit of keeping an eye on your expenses. An important step to taking care of your household budget is reducing your main expenses.
Try to track your expenditure in a spreadsheet for a month or use an app, such as Homebudget or Pocketbook. By doing this, you’ll be able to identify items where you might be spending more than you should. Perhaps it’s buying lunch everyday, overpriced coffees or expensive meals?
When you’re able to identify where all of your money is going, you’ll be able to make smarter choices about what’s important and where you can start making some cutbacks.
2. Consolidate Your Debt
Debt consolidation is smart. Unfortunately, a lot of people need hit troubled waters before considering it as an option. Considering your first home mortgage will probably be your biggest debt, it’s best to learn how to tackle your debt now rather than later.
Consolidating all of your loans, including credit card debt, into one, easy to manage regular payment at fixed rates, over a determined period of time is the best way to clear debt faster and save money.
According to the Reserve Bank of Australia, the average standard interest rate on credit cards was 19.75% pa in December of 2014. Add to that annual fees, late fees and other charges, and the credit card, although convenient, is one of the most expensive type of loans you will ever have.
If you are serious about paying off your debt, break the habit of paying only the minimum required each month. According to MoneySmart.gov.au calculator, it would take you over 43 years to pay off a $5,000 credit card balance this way.
Before you jump in, do your research and find the product that’s best for you. There are a lot of new credit providers with interesting propositions that specialise in debt consolidation products. For example, Peer-to-Peer lending is an innovative new way to crowdsource your loan directly from investors, all online, without the need for a bank. Rates can be up to 4% lower than the average rates of the major banks, if you have good credit.
3. Use a Personal Loan to avoid Lender’s Mortgage Insurance
There are ways you can come up with that 20% deposit on a property and still avoid Lender’s Mortgage Insurance (LMI).
Hitting up your friends and family for a bridge loan is one way to do that, particularly if you can structure it as a balloon payment that allows you to pay all the interest (and maybe even the capital) at the end of loan, rather than as regular principal and interest repayments on top of your mortgage obligations.
If you would rather not ruin your friendships over money, try borrowing from complete strangers who are interested in investing in you.
A Peer-to-Peer unsecured personal loan for 1 to 3 years can be a great way make up the shortfall on your deposit and help you avoid LMI. However, you’ll need to have the discipline and cash flow to manage your personal loan obligations and mortgage payments responsibly, while ensuring you don’t accumulate debt anywhere else, like credit cards.
Looking after your money doesn’t mean you need to pinch every penny – it is about being smart with your finances, evaluating different options and making sure your money is working as hard for you as you are for it.