How To Save For A House Deposit

How To Save For A House Deposit

“The secret to saving money is the ability to prolong instant gratification”.

I recently had the opportunity to sit down with a young investor in the Pumped On Property community named Marti.

Marti is an extremely motived young investor who has saved over six digits for his first investment property. When Marti offered to write an article about his experience I jumped at the opportunity to share his story with you all.

Take it away Marti!

Have you ever heard someone say ‘you only live once’ or ‘its so hard to get ahead these days’?

I agree that the cost of living can be expensive, but this doesn’t mean you can’t save money at the same time, it just means you can’t save as much, as fast.

Putting off your expensive holiday and luxury item for a year may give you the time you need to reach your goal.

Rather than giving you the old dot point list on how to save money for a house deposit:

  • Don’t carry large amounts of cash in your wallet
  • Wash your own car
  • Start a coin jar
  • Quit smoking
  • Make a budget
  • Sell items on e-bay
  • Cut up your credit card

I thought I would approach how to save money for a house deposit from a different perspective.

To understand how to save we need to understand what a liability is.

A liability is an expenses that consistently takes money out of your pocket, like a car or a phone. While they both provide a service they also cost you money to maintain. Reducing your liabilities is a great place to begin saving. Ideas include:

  • Reducing your phone service plan
  • Selling or reduce the size of your car
  • Cancelling your credit card debt and paying off any bad debt
  • Cancelling subscriptions that you don’t need

Try to reduce your emotional and impulse purchases.

These purchases are ones that make you feel good for a few days but just end up sitting around doing nothing.

Once the happy (show my friends) sensation is gone you are back to where you were before the purchase, minus the money you paid for the item.

Just because something is on sale or reduced in price does not mean you need to make the purchase.

We are fortunate to live in a wealthy and opportunity abundant country.

Living above your means.

How is your current living situation? Are you still trying to keep up with the Joneses?

Before I make a purchase (I have made some stupid ones) I always think “Do I really need this” “will this item improve my life or will it steer me further from my goal”.

Here are some common examples:

  • Low price electronic devices
  • Alcohol
  • Take away food
  • Car accessories
  • Home decorations
  • Useless gifts for family or friends

To save money your outgoings need to be less that you’re income.

This does not mean going out and getting another job to make more money. It means creating a budget, reducing your over head costs and sticking to a plan till you achieve your goal.

Some other ideas to help you save are:

  • Forward thinking
  • Planing to make one car trip to achieve 4 tasks instead of doing 4 separate trips
  • Purchasing your most consumed items in bulk
  • Taking the bus, riding or car pooling to work
  • Cooking food in bulk to avoid purchasing lunch

Saving money is a skill and it needs to be habitual. Just like getting brushing your teeth.

A technique I use when making a purchase is to roughly calculate the amount hours of work it takes to earn the purchase price of the item you’re considering. It’s an easy way to sort the impulse buys from the real wants.

Setting up a savings account on high interest rate is a great idea.

Albert Einstein said “One of the greatest wonders of the world is the effect of compounding interest”.

What is the effect of compounding?

For me, compounding interest is one way I make my money work. I think of it as every $ in my account being an employee working 24/7 to pay me at the end of every month.

The definition on Compounding interest is:

Interest added to the principal of a deposit or loan so that the added interest also earns interest from then on. This addition of interest to the principal is called compounding.

Your bank account should look like this:

  • Cash account – This is your main source of income
  • Savings account – This is your high interest savings account

The income flow chart below shows you where a normal person’s income is spent.

In most cases the LIABILITIES are in the form of a debt to be paid from a loan (like a flashy car or a boat).

In Example 1 the figures are based on a person aged between 24-30 years, working full time and paying rent.

Example 1

INCOME 100% EXPENSES/LIABILITIES 60% STUFF 35%
 SAVINGS ACCOUNT 0 – 5%

Example 2 is based on the same person. They have reduced their “expenses/liabilities” and opened an interest generating savings account.

This example shows how a person saving for a house deposit carves up their income.

Example 2

INCOME 100% EXPENSES/LIABILITIES 59% STUFF 5%
SAVINGS ACCOUNT 36%

You dont need to live on the poverty line to save for a house deposit.

It simply comes down to self-control, commitment and consistency.

Remember – the work you put in today will reflect your results tomorrow.

Ben Everingham

About

Ben founded Pumped On Property after building a multi-million dollar property portfolio over a 5 year period. His mission is to show you how to replace your income through property investing so you can do what you love…full time.