Part 3:

How can I save a deposit?

Man searching for home loan deposit This is where the hard work begins.

To save a home loan deposit, there are three main steps to take:

  • Look at what you’re actually spending
  • Think about the kind of lifestyle you’re comfortable with
  • Plan out your future spending and make sure your savings are set up in the most lucrative way

Let’s talk about each of those steps in turn.

< Read the previous article in this series to learn: What can I use as a deposit?

1. Examine your spending

Magnifying glass and walletThe first step to saving a home loan deposit is to take a good look at your own spending. A lot of us don’t actually have a good idea where all our money goes each month. But in order to build a workable budget and save your home loan deposit, you’ll need to be able to account for every dollar.

Does that seem like a pretty mind-numbing task? Fortunately, there are tools out there that can help you.

If you have online banking (and who doesn’t these days?) your banks may have web-based platforms that allow you to go through and categorise your spending. You can tag similar transactions so that they’re grouped together, and the bank’s online portal will give you a snapshot of what you’ve been spending and where.

But there’s actually an even easier way to keep track of all your spending.

There’s a handy app called Pocketbook that you can download for free for iOS or Android. The app uses machine learning to scan through your bank account and categorise all your spending. It will deliver you a complete snapshot of your finances based on:

  • Where all your money is going
  • When your bills are due
  • How much you can safely spend during each pay period.

As you keep using it, Pocketbook gets better and better at correctly categorising your expenditures and income.

The great thing about figuring out where each and every dollar is going is that you can identify some easy wins. You may have automatic payments going out for services you haven’t used in ages, like that gym membership you’ve forgotten about.

These are relatively painless items to trim out of your spending, but you might not even be aware of their existence until you take a good look at all your expenditures.

Knowing where your money is going should give you a good idea of just how much extra money you have each month to devote to savings, and what expenditures you can eliminate to free up even more.

Once you’ve got a better idea of your spending it’s time to take an honest look at your lifestyle, and ask yourself some tough questions. How much are you willing to sacrifice to reach your home loan goals?

2. Assess your lifestyle


There’s no shame in wanting to maintain your current standard of living. It just means that you might need to reassess whether or not now is the best time to think about getting into the property market.

So you’ve gone through all your spending and figured out how much of your money is going to things you need versus how much is going toward things you want. The next step is to have a look at that “things you want” category and decide just how much you actually want them.

In recent media coverage, smashed avocado on toast has become a sort of symbol for millennial excess and entitlement. The argument goes like this: young Australians are wasting their money on frivolities like smashed avo. If they just reined in their lavish spending they’d all be able to afford a home loan deposit.

Yes, it’s ludicrous, but there’s also a grain of truth to it. Breakfast aside most of us spend quite a bit of money on life’s little luxuries, and that this spending can really add up.

But here’s something very few of the finger-wagging baby boomer pundits will tell you: there’s nothing wrong with enjoying these little luxuries. What you spend and where you spend it is entirely your business.

It does mean, however, that you need to assess how much you’re really willing to sacrifice to get into the property market, and whether saving a home loan deposit is a feasible goal for you. With this in mind, it’s time to ask yourself some tough questions.

  • Are you willing to sacrifice a great deal of your current standard of living to save a home loan deposit?
  • Are you willing to consider drastic measures, such as moving back home with your parents for a period of time, or taking on extra employment to boost your income?
  • Are you willing to forego social events, holidays, takeaway food, new clothes or other little comforts in order to maximise your saving potential?

Don't feel bad if your answer to these questions is no. There’s no shame in wanting to maintain your current standard of living. It just means that you might need to reassess whether or not now is the best time to think about getting into the property market.

If the answer to any of these questions is yes, you’ll need to start putting your plan into action by trimming out nonessential spending and building a budget.

3. Plan your budget

A good budget should be realistic and flexible, but since you’ve got a substantial savings goal, it will also need to be aggressive. That means you’ll need to cut out a lot of non-essential expenses.

A lot of people use the 50/30/20 rule for budgeting. This model allocates 50% of your after tax income for necessities like bills, rent and groceries, 30% for entertainment and 20% for savings. This is a good, workable ongoing budget.

But because you’re saving toward a home loan deposit, you may want to allocate even more money to savings. This means finding areas in the 30% entertainment budget where you can tighten your belt. Potentially, it means trimming items out of your 50% necessities budget too.

The 50/30/20 rule explained

Split your after tax income into the following buckets:

50 rule

50% goes towards bills, rent and groceries

30 rule

30% goes towards entertainment

20 rule

20% goes towards savings

Here are some tips for managing your budget:

Categorise your spending

The first step is to categorise your spending. If you’ve followed our advice and assessed your current spending patterns, you should have already done this.

One bank account that categorises your spending for you is the Macquarie Platinum Transaction Account. With this account, you can keep track of your spending via your mobile banking app, and choose to track your purchases by category, merchant or even location. It will then produce spending trends based on your personal spending habits, so you can see each month where your money is going and where you have capacity to save. You can read more about this account here.

If you’re using an app like Pocketbook, you should have a good idea where all your money is going. Go through at least a couple months of spending to get a good idea of your regular spending patterns, and don’t forget less frequent expenses such as quarterly or annual bills.

Pocketbook2 The basic screen you'll see after linking your bank accounts to Pocketbook.
Pocketbook1 In the 'analysis' section, you can see the example above is spending a large chunk on entertainment, and therefore can be cut down.

Once you’ve categorised your spending, look for obvious areas of waste. As we mentioned before, you can chalk up some easy wins by cutting out payments going toward services you either don’t use or seldomly use.

Next, look at some less obvious areas:

  • How much are you spending on eating out?
  • How much are you spending on groceries, and are you shopping as economically as possible?
  • What amount of your pay is going toward non-essential entertainment expenses like alcohol?

These are all areas of potential savings.

You’ll also want to identify if you have a particular area of weakness when it comes to spending. Are you bewitched by the allure of a good bargain when online shopping? Does the siren song of coffee call to you multiple times per day? Knowing common areas where you struggle to rein in your spending can help you figure out ways to change your habits.

Finally, look at some outside-the-square savings opportunities. Are you willing to save on rent and utilities by moving back in with your parents or at least moving into a cheaper house? Are you getting the best deal possible on your Internet and mobile phone plans? Can you save money on utilities by switching providers or changing your billing plan or useage?

Once you’ve identified areas for potential savings, you can start allocating your funds.

Use a budgeting tool

Trying to keep a budget in your head is setting yourself up for failure. Likewise, pen and paper or spreadsheet budgets can be difficult and tedious to maintain.

Try to find a budgeting tool that helps do the work for you. There are plenty of great apps out there, both web-based and mobile:

  • If you’re looking to build a fairly simple budget, you can use the budgeting tool on the MoneySmart website from the Australian Securities and Investment Commission (ASIC). It allows you to build a budget by entering your regular expenditures across a variety of categories.
  • ASIC also has a mobile app called TrackMySPEND that allows you to set savings goals, and to keep track of them as you go.
  • Goodbudget is another handy app that allows you to track your spending in each separate category, so you know how much you have left to allocate to different expenses.
  • As mentioned earlier, for ease of use and all-around functionality, we like Pocketbook. Where the other apps require you to input your information manually, Pocketbook links to your bank account and tracks your spending in real time. You can set spending limits and the app will notify you when you're near your limit.
Budget planner screenshotThe MoneySmart budgeting tool lets you type in your various expenses.
Budget planner screenshot 2It'll then give you a summary of where your money is going and your surplus.

Allow for emergencies

Regular bills aren’t too difficult for those who are disciplined with their finances. But anyone's budgeting can be derailed by unexpected emergencies. No-one can foresee events like sudden car repairs or vet bills, but you can prepare for them.

Set aside a certain portion of your budget for emergency expenses. That way you won’t deplete your home loan deposit savings should an unexpected event require some quick cash.

Developing this discipline is a great idea as you head toward home ownership. That way your regular home loan repayments aren’t thrown off track by sudden repairs or an unexpected bill.

Be realistic

The key to success with your budget is to be realistic. If you’ve made your budget too spartan, you’ve set yourself up for failure. Similarly, if you’ve severely underestimated your regular spending on necessities, you’ll find your savings coming up short.

This being said, try to keep in mind that all the sacrifice and hard work is for a limited period of time. You’re working toward a goal, and if after you reach this goal you should be able to settle into a more relaxed budget (such as the 50/30/20 model we mentioned before).

Pay your debt first

It may seem counterintuitive to devote money elsewhere when you’re trying to save for a home loan deposit, but one of the best strategies you can employ is to get yourself out of debt.

Any debt you have is going to decrease your borrowing capacity when you apply for a home loan. When you have yet to save a deposit, actually applying for a home loan may seem a long way off, but you need to take steps now to put yourself in the best position.

The interest you’re paying on servicing any debt you have is eating into your ability to save for a home loan. If you attack your debt first, you’ll end up with that much more to devote to your home loan deposit savings goal.

Consider separate accounts

A handy trick to managing your spending is to consider keeping your money in separate accounts for separate purposes. You’ll want to have your deposit savings in an account that’s accruing a decent amount of interest, but you can further split your funds into an account for necessities and an account for entertainment. This makes it easy to keep track of your finances.

AMP's Bett3r Account is ideal for this. It's a handy three-account bundle with linked Pay, Spend and Save accounts. You can set personal savings goals and this account will automatically categorise your money to help you meet them. The liked Pay Account sets aside money for bills and other regular expenses, and automatically sends money to your linked Save Account. Any money that is left is sent to the Spend account. You can read more about this account and apply online here.

One warning though: make sure any new accounts you open don’t come with account-keeping fees. Otherwise, you’ll simply be adding another unnecessary expense.

4. Maximise your savings

MoneyNow that you’ve figured out how much from each pay cycle you can devote toward your home loan deposit, you need to make sure you’re getting the most out of your savings. This means you’ll want to put your money in a high interest savings account.

But what kind of high interest savings account should you choose? The answer to this depends on how much flexibility you think you’ll need.

There are three types of savings account that generally offer higher rates of interest, and each one is suited to different sets of circumstances. You’ll need to decide which one sounds best for your situation.

Bonus saver accounts

These accounts offer you an interest rate bonus if you meet certain conditions. The conditions might include depositing a certain amount each month, not making withdrawals or keeping a certain minimum balance.

Bonus saver accounts can provide you a great incentive to save by boosting the savings rate you’re receiving if you meet the account’s conditions. If you don’t meet the conditions, your account simply reverts to a lower interest rate for that month. These accounts typically offer a variable interest rate, which means it can move up and down depending on market conditions.

Bonus saver accounts could be a great way to save your home loan deposit, as they offer a high interest rate but still offer access to your funds should you find yourself in a tight spot. Some great bonus saver account options are as follows:

Introductory bonus savings accounts

Introductory bonus savings accounts offer a competitive bonus interest rate, however only for a set period of time. These accounts usually offer the bonus interest rate for about three to six months after opening the account, after which the account will revert back to the standard variable rate which is often much lower. It's a way for providers to entice you to open an account with them.

The pros? These accounts offer a competitive interest rate and can often have less deposit requirements and withdrawal restrictions than standard bonus saver accounts. The cons? You need to be a new customers to receive the high bonus introductory rate. Also, after the introductory period is over your savings will only earn the standard variable rate which is often quite low.

Here's a couple of introductory bonus savings accounts you could consider to give your savings a kick-start:

  • Bank SA Maxi Saver: Earn a maximum variable rate of 2.85% for the first 3 months after opening the account
  • HSBC Serious Saver: Earn a maximum variable rate of 3.10% for the first 4 months after opening an account

Term deposits

Term deposits can offer high interest rates in exchange for restricting access to your funds for a predetermined period of time.

Term deposits range in their fixed terms from as short as one month to as long as five years. During this time your funds are locked away and you can’t get access to them without being penalised. Even if you accept the penalties involved, many term deposits require 30 days’ notice to break.

The interest rates on term deposits are fixed, which means they won’t move up or down during the agreed term. This means you’ll know exactly the amount of interest you’ll be paid by the end of the term.

If you want to lock your money away to keep it safe from the temptation of using it for other purposes, and if you prefer a fixed rate of interest, a term deposit could be a good option for saving your home loan deposit.

Use savings tools

Some bank accounts offer handy tools and features to help you save. These can really help you meet your goal of saving for a deposit. For example, ING offers a feature called Everyday Round Up. Customers can opt to have their daily transactions from their Orange Everyday account rounded up to the nearest $1 or $5, with the difference being sent to their linked Savings Maximiser account.

CUA offers a similar tool to its customers, called Savings Top-up. This tool allows purchases over $10 made from the CUA Everyday account to be rounded up to the closest $1 or $5 and sent to a linked CUA savings account.

Setting clear, personalised savings goals can help motivate you to meet them sooner. The Westpac Life Savings Account does just this: it allows customers to set your own savings goals, and track your progress online or via the mobile banking app. A tool like this can really help you to visialise your goal and stay on track.

If the process of saving money regularly is not your strong suit, there are plenty of savings tools available to lend a helping hand.

Other investment classes

You don't necessarily have to save for your deposit using a straightforward savings account. In fact, you might find that putting all your deposit money into a savings account results in you chasing a moving target.

Allow us to explain:

Some of the best high-interest savings accounts out there currently accrue 3% interest. The problem with this is that house prices could appreciate much faster than that. For instance, the latest CoreLogic figures show that Sydney house prices have risen just over 11% year-on-year. That means if you're putting money in a savings account at 3% interest, house prices could be rising faster than your ability to save and accrue interest.

So what can you do?

You could think about investing in an asset class that's likely to see a stronger return, such as shares. Or, for that matter, you could consider putting your money in the asset class that you want to buy. In other words, property.

Fortunately, there are ways to invest in the property market that don't involve buying a house. For instance, Real Estate Investment Trusts (REITs) are funds that invest in real estate, allowing investors to buy shares and get returns based on the performance of the properties in the trust. They're often traded on stock exchanges like the ASX. Investing in an REIT could allow you to get a rate of return closer to the growth in house prices.

Alternatively, you could take a more hands-on approach through fractional investment. This is a relatively new concept in Australia, and it involves companies purchasing properties and then selling shares in the individual properties to investors.

Investors are compensated based on the property's rental returns, and the shares change in value as the property's value changes. BRICKX and DomaCom are a couple companies in Australia offering fractional investment platforms.

The advantage of an REIT is that it gives you exposure to a broad range of properties. The advantage of fractional investment is that it gives you control over the properties you choose to invest in. Both have the potential to generate higher returns than savings accounts.

But there is one huge caveat here. Investments like these can fall in value as well as rise. While your savings are guaranteed to accrue interest, there's absolutely no guarantee that an investment in an REIT or fractional property platform will rise in value. So consider carefully before putting all your deposit funds in an asset class that could put them at risk.

You can look at various A-REITS and other Exchange Traded Products (ETPs) on the ASX website.

5. Maximise your income

It's vital to decrease your expenditures when you're saving. But you might also want to look at ways to increase your income.

You could start by asking for a raise. If you've been at your job for some time and you feel confident in your performance, don't be afraid to ask your boss for more remuneration. You could offer to take on some extra responsibilities in exchange.

If you feel your salary is maxed out right now at your current job, there are still ways to make additional income. It could be time for the fabled "side hustle".

There are a variety of ways you could pull down some extra cash, particularly with the advent of the sharing economy. If you have a car, you could sign up for a ride-sharing service. If you have an extra room in your current house, you could look at renting it out on Airbnb.

You could even consider starting a business on the side. There are some great books out there that can help walk you through the process. In particular, you might want to check out:

If you’ve followed the tips above, you’re on your way to saving a home loan deposit. The road ahead can seem long and arduous. Fortunately, you may not have to go it entirely alone.

In the next section, we’ll outline some of the help that’s available for first home buyers, and how you can access it to make saving your home loan deposit easier.

Continue to part 4

Other parts in this guide

Or you can start comparing home loans now

Rates last updated September 24th, 2018
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$0 p.a.
Pay no deposit or LMI and get a discounted rate with this family pledge loan. Requires a family member to act as guarantor. NSW, Qld and ACT only.
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A low deposit mortgage with a competitive rate and plenty of flexibility. QLD residents only. Eligible borrowers can get a 15% discount on home and contents insurance for the life of their loan.
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A simplified mortgage with a low interest rate and a redraw facility.
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A low deposit mortgage for aspiring home owners. Fees are low and you can make extra repayments.
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Special Owner Occupier Rate. Free Offset Account.
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New customers can score a discounted rate and access to a redraw facility.
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Switch to this loan and get a $1,500 refinance cashback. Discount off the standard variable rate and no application fee.
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A special investment rate and an offset account.
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Split you home loan for free with one of the lowest fixed home loan rates.

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Important Information*
UBank UHomeLoan Variable Rate - Discount offer for Owner Occupiers, P&I Borrowing over $200,000

Take advantage of a low-fee mortgage with a special interest rate of just 3.59% p.a. and a 3.59% p.a. comparison rate. Essentials - Variable (Owner Occupier, P&I)

A competitive interest rate home loan with interest only options. Interest rate 3.64% p.a.
comp rate of 3.66% p.a.

Greater Bank Ultimate Home Loan - Discounted 1 Year Fixed LVR ≤90% ($150K+ Owner Occupier)

Loans over $150k get a discount off an already low fixed rate. Available for NSW, QLD and ACT residents only.

Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer ($150k+ Owner Occupier, P&I) Discount 1

New borrowers or refinancers can get a discounted rate with this package loan. Bonus $1,500 cashback for refinancers.

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