How to save for a house deposit while still paying rent
Saving enough for a house deposit while you're paying rent is challenging, but it can be done.
Saving enough money for a house deposit while you're paying rent can seem impossible, especially if you're in a major city like Sydney or Melbourne. Moving back in with family could be a great way to dramatically reduce your living expenses, but this is a luxury that not everyone has. For a lot of us, avoiding rent while we're trying to save a deposit is simply not an option.
So if moving back in with family is off the cards, how can you save up a deposit while still paying rent? Here are six tips to get you started.
1. Figure out your current borrowing power
Like any goal, it really helps you stay motivated if you know what you're working towards. As a first step, figure out your current borrowing power. This will give you an estimate of how much you might be eligible to borrow, based on the repayments you can afford with your current income and expenses. With this in mind, you can get a better idea of the type of property you can aim for and how much you'll need for a deposit.
For example, let's say you're looking at properties priced at $500,000. It's ideal to have 20% of the property's value saved as a deposit as this can help you avoid paying lenders mortgage insurance (LMI). So on a property of this value, you'd need to save a deposit of at least $100,000 to avoid LMI. Then you can apply for a loan for the remaining $400,000 (this is why it's handy to know what your borrowing power is).
Based on the current savings you have, you can now work out how much more you'll need to save in order to have a 20% deposit on a property in your price range. Going back to our example above, if you're looking at properties in the $500,000 range and you already have $50,000 in savings, you'll need to save another $50,000 to have a 20% deposit.
Based on how soon you want to buy your property, figure out how much you'll need to save each month in order to have the full 20% deposit saved by then.
2. Open a dedicated savings account for the money you save
Now that you know exactly how much you need to save each month and for how long, consider opening a dedicated savings account for your goal. Keeping your money in a regular transaction account while you're saving your deposit generally means it won't earn any interest. Plus, with the money readily available to spend, you could be tempted to use it for everyday spending.
A high interest savings account will help your money work harder by paying interest on your savings. For example, if you're aged between 18 and 29 the Westpac Life Savings Account pays up to 3% p.a. variable interest on balances up to $30,000 when you grow your balance and make five eligible debit card purchases from your linked Westpac Choice account each month.
Bonus interest can be a good tool to keep you motivated, as you'll be rewarded with extra interest each month you meet the account criteria.
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3. Reconsider where (and what) you're renting
You might be surprised by how much cheaper the rent is by simply moving into a neighbouring suburb. Have a look online at what's available to rent in the suburbs close to where you're living to see if there's any opportunity to save.
Look at where you're currently living and ask yourself if you're paying extra for something that you don't really care about or benefit from. For example, if you live close to a train station but you drive everywhere, you might find it cheaper to rent a place that's further from public transport. Or if you live close to the beach but you never have time to go, it might be worth the extra savings to live a bit further away.
If you don't want to change where you're renting, perhaps you could change what you're renting. A studio apartment is much cheaper than a one-bedroom place, and a one-bedroom place is often a lot cheaper than a two-bedder. Maybe your place comes with a garage you don't need or a communal gym or pool that you never use. Switching to a different place in the same suburb can also save you money if you're willing to sacrifice a few of these things.
4. Consider living with a roommate (or switching rooms)
If you don't want to change where you live or the place you're renting, maybe you have a spare room you could rent out. Yes, living with a roommate does have its downsides (especially when you're both wanting the kitchen or shower at the same time!). However, there are benefits too – a big one being that you can split the rent.
If you've already got a roommate and you're paying more rent for the larger room (or maybe you get the garage or car spot), consider switching. That way you don't need to move house to save some money, you can just move rooms.
If you don't currently have a roommate and you're fine with moving to a new place, you'll find it's usually cheaper to split the cost of a two-bedder than to pay for a studio or one-bedder yourself. Just remember to look for a roommate before you move into your new place to avoid the risk of paying the full rent yourself while you're searching for a flatmate.
5. Negotiate your rent
If you've noticed you're paying a bit more in rent compared to similar rentals in your area, it could be a good time to negotiate your rent. Average rent prices in some major cities have dropped by around five per cent, while many regional towns are seeing even bigger reductions.
Landlords don't want to lose good tenants, so chances are you'll be successful, especially if you're living in an area with an oversupply of rentals.
6. Look for ways to increase your income and reduce your spending
These days there are 101 ways to make money with a side hustle; it's just a matter of finding one that works for you. Whether it's driving for a ride-share company, selling your unwanted items online, doing some freelance work, tutoring or renting out your car, there are lots of ways to make a bit of extra cash.
While you're also looking for ways to bring in more money, look for ways to spend less money too. Take a look at your spending habits over the last few months to find opportunities to cut back. This could be spending less on takeaway foods, making sure you've just got the one streaming service or even switching your monthly phone plan to a cheaper option. If you need some inspiration, here are 50 easy ways to save money.