In your financial life, the most important savings goals is likely to be when you save for a deposit.
Why? The more you save upfront, the less you pay the banks. And the difference could be huge.
What if you can muster an extra £50,000 before you commit to a £500,000 mortgage over 25 years at 5%?
You will pay £35,000 less in repayments.
When you decide to save for a deposit, commit to a mortgage, and basically become all grown up, it is a good idea to do a little preparation.
If you haven’t the resolve or desire to buy a house just yet, take a look at your upcoming considerations in Should I buy a house?
You probably have a rough idea of your price range. But when you’re looking at 20+ year commitments and fluctuating interest rates, a rough idea is too risky. you need a sturdy budget behind you.
Start by tracking where your money comes from, and where it goes. ONENUMBR is an excellent, free tool to get started with your budget. Likewise a pen and paper or a spreadsheet – anything that gets you scribbling down all the cash and costs that come to mind.
Make sure whatever you use is accessible on the go, because tracking those unexpected, easy-to-forget small purchases can add up to big surprises.
Once you start to find where your money is going, you can start to tweak where you would like it go.
Is that weekly lunch expense too much? Give yourself a smaller amount to spend. What about your grocery bills or energy costs? Look to cut out the excesses wherever you can, allocate a set amount for each item, and try to stick to it.
You are now telling your money where to go, rather than passively watching where it is going.
Again, ONENUMBR can help you set this budget and tell you money where to go.
After you track your money, you will (hopefully) notice some money left over.
After you prepare a strong budget, you will (hopefully) notice even more money left over.
Use that amount as the basis for a regular savings plan. If you really want to push yourself, allocate slightly more than this amount a see if you can further reduce your costs of living.
ONENUMBR allows you to do all of this – track your costs, set and tweak your budget, and set your financial goals.
Put yourself in control of your money in these early stages. The temptation to spend more than you want increases the closer you get to buying. The people you’ll be talking to then are real estate vendors, home-sellers and money-lenders. These folks all have an interest in getting you to stretch your budget.
Now that you are in control of your budget, and can allocate a set amount towards your goal, set up a regular savings plan.
The good old piggy bank is alive and well, but it has a new name. It’s called a Savings Account, and these are now mostly online. Most financial institutions offer online savings accounts, and transferring money to and from them is easy through internet banking. Open one as soon as possible, and get your cash into it.
This step is crucial. If you have to manually transfer your savings, it is very easy to skip or forget a contribution. Get automated contributions going into your savings account, ideally straight from your employer.
Or if not from your employer, set-up automated standing orders or regular payments from your account into your savings account. The more automated the process of saving, the easier it is to stick to it.
Are you trying to save for a deposit with a partner? Then set up a joint account, and have both of both of you can contribute to this. Get employers to pay a portion, or your whole salary, into this account, and only withdraw what you need.
Do you have any birthdays, weddings or engagements coming up? If people are generous enough to give you gifts, request cash, and put it straight to work.
If you are currently wondering how to save for a deposit, you’ve probably started reviewing the properties you’d like to buy.
Keep an eye in property right throughout the savings process; regularly read the property sections of your favourite websites, go to open houses, speak to vendors, buyers and sellers. Get a really good feel for your market and make note of any changes in prices and demand.
Doing this in conjunction with your regular savings plan will give you a great idea of what you can afford. If you are saving $100 every month, and spend $100 in rent every month, assuming everything else stays constant, you should be able to afford mortgage repayments $200. If your ideal house comes on the market and repayments will be $150 per month, you will be armed and ready to strike.
Mortgage calculators will be a very important tool. Every time you notice a change – in interest rates, in your deposit, in house prices – check how that changes your potential repayments.
As you can see, these processes are likely to run concurrently. At the same point in time you might be doing property research, using mortgage calculators, contributing to your savings plan and monitoring your budget.
So if you do want to buy a house, take that first step. Start doing one of these right now. Jot down your regular costs on a piece of paper, look at the property pages in the newspaper or read a review of the best savings accounts.
Take a small step and start building some momentum.
Been there, done that?
Have you heard all this before? Are you an old salt when it comes to saving for a deposit? What tips and techniques work best for you?
How to Save for a Deposit in 3 Steps by Glenn Hamblen