Smart moves to save first house deposit

After tying the knot in 2009, Justin Mellar, 29, and Elizabeth Schofield, 24, set themselves a goal of two years to save their first home deposit.

Within 18 months of dedicated effort they had saved close to $90,000, enough for a 20 per cent deposit plus five per cent for expenses, and they became the proud owners of a two-bedroom apartment in Melbourne's inner-north.

Consolidate your savings

“The first thing we did was consolidate all our savings into one account so we could see exactly what we had and see it grow on a month-to-month basis,” Mellar says. “It really helps you focus when it's all in the one place.”

Each month the couple paid rent and credit card bills into the high-interest account they set up with their bank, then contributed $2000 to the savings account and lived on whatever was left over until their next pay cycle.

Mellar says having a clear focus within a set timeframe made it much easier to save. “Whenever something came up that would cost money, you could always say, "I'm not going to do that because I'm saving for a house', whereas normally you'd go out.”

Tweak your lifestyle

The couple changed their lifestyle to fit their budget, shopping at food markets and eating less meat to reduce the grocery bill, and doing things such as only seeing movies on the cheap Tuesday night screenings.

“Obviously you just can't stay at home all weekend. We'd still go out but instead of catching a cab in and spending $100 on alcohol, I'd drive and have two drinks,” Mellar says.

Schofield is an interior designer and contributed a set amount of her salary to the savings account, while Mellar owns his own business selling caravans and says the savings plan motivated him to make more sales.

“I worked harder because every extra dollar was going towards the house. Working more also means you spend less - when you're working 9 to 5 you have a lot of spare time to spend money.”

While they were saving, the couple spent some time watching the real estate market and educating themselves on property and finance. They had an idea of the area they wanted to live in and knew they would need to make some compromises.

“You have to compromise, you can't get exactly what you want if you've got a budget," says Mellar. "We ended up buying a property that wasn't done up – it's still liveable, we just want to do some renovations down the track.”

Set a clear deadline

Finance journalist and author Peter Cerexhe says saving up quickly is the only approach to take. “You can't let it linger or you'll be distracted and spend what you save,” he says.

Cerexhe says a detailed plan over a specific timeframe is the way to keep up motivation and focus.

“The first rule is that you have to have a plan - this is not like saving to go to Bali for a two-week holiday. The second rule is that for most of us we have to increase our income and decrease our expenses at the same time," he says.

"It is not prudent to think you can do one but not the other. Because the risk you face is that having saved $10,000, you might have a setback in your life, at work, or something happens, and you decide this is all too hard and you go out and buy a sofa.”

Cerexhe, author of 104 Weeks to Your Home Deposit, says it's important to have a deadline in sight when you're making sacrifices.

“We find it difficult to save money if we think our suffering is endless," he says.

"What I'm suggesting is you've got to attack that and break that fear by saying, 'This is not going to be endless, there is an end, at this date we change back, we change course'. You've got to remove that from hanging over you.”

Break sacrifices into chunks

You might have a two-year savings goal, but that doesn't mean you need to sacrifice everything for two years – it's important to keep some spontaneity and flexibility, says Cerexhe.

“When people talk about this they say, 'We'll stop having coffee, we'll stop going to the movies, we'll stop having holidays, we'll move in with your parents'.

"These are all terrible ideas because usually when people talk about it, they make it sound like it's forever. But they're all great ideas if you break them down into small timeframes.”

Cerexhe suggests ideas such as moving in with your parents for only 10 weeks a year, or perhaps moving one suburb further out for one year, or just six months.

“The point is to break it down into manageable timeframes. By all means give up coffees one or two days a week but move them around. One week you save on coffee, one week you don't go to the movies. You choose your timeframe. Rotation is the point, so you're not giving up everything all the time. Because even small amounts of saving can add up over time.”

The other side of the equation is income, and Cerexhe suggests asking an employer for more hours of work, or even working and taking an extra job during your annual leave.

“Just for two years, or just a week or two weeks for two years. There's thousands of dollars that can be made in that way if you set your heart on getting this home loan without it being a major disruption on your life.”

Savings habit

Since moving into their new home six months ago Mellar says they've loosened up their savings plan . “We are enjoying ourselves a bit more now,” he says.

However, they've still kept their savings habit and have saved $10,000 in six months, which will go towards the first phase of their renovations.

“We've saved enough to do the bedrooms and bathrooms, then kitchen and lounge will come after that," says Mellar.

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