Saving that essential deposit

Maria Bekiaris puts you on track to reach your target

Maria Bekiaris

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ACCUMULATING THE CASH you’ll need for a deposit on your first property can be the toughest part of getting your foot on the property ladder. With a house in Sydney setting you back around $550,500 (the median dwelling price as at the end of March, according to RP Data), you’d need to put away between $27,525 and $110,100 depending on whether you’re aiming for a 5% or 20% deposit.

So if you want to buy a property in the near future you will need to get cracking. Let’s say you want to save $30,000 in four years. You’d have to put away $564 a month, but if you want it sooner – say two years – you’d have to save $1186 each month. It can be a good idea to work backwards so you know how much you should be putting away each month to reach your goal in the time frame.

Then you need to figure out how to achieve your target. Work on a budget to see where your money is going and how much you can realistically save regularly. Look for ways to maximise the money you can regularly stash away.

If you’re paying rent, that will definitely limit how much you can save, as it is probably one of your biggest expenses. Look for ways to minimise that cost – consider moving to a smaller place or further away where you will probably pay less rent. You could also think about moving in with your parents for a while to avoid rent and boost your savings.

Also think about how else you can cut costs. It doesn’t have to be earth-shattering – even the small “boring” things like shopping around for better deals on your utilities or phone bills and taking your lunch to work can put more cash back in your wallet.

Think about how you may be able to generate some extra money. You may consider temporarily getting a second job to boost your savings. You could also sell things you no longer need.

Once you’ve worked out how much you should be saving each week or month, the next decision you’ll need to make is where you’ll stash your cash. You really want to maximise the return on the savings.

The right option will depend on how much you can regularly save, the time frame you have in mind and the level of risk you’re willing to take.

One of the best places to stash your cash is a first home saver account, but you’ll need to take a four-year view. The government will pay you a 17% contribution on the first $6000 you deposit in any financial year – to a maximum of $1020. You can use your money for a deposit when you have contributed at least $1000 in at least four financial years. The other bonus is that your earnings will be taxed at only 15%. See our cover story on page 32 for a list of providers and interest rates.

If you don’t want to tie up all your money, you may opt to just deposit the $6000 each financial year into a first home saver to get the maximum contribution, and put your remaining savings in a high-interest online account or term deposit. See the tables on page 97 for some of the best-paying accounts. You’ll miss out on the tax benefits, though.

If you have a longer-term view of five years or more, you may consider a managed fund or ETF. Of course, these are riskier and you may have to be more flexible with your timing.

Maria Bekiaris is Money magazine’s deputy editor. She has a background in insurance and has been with Money for 12 years.

NEXT MONTH: Joining forces with family or friends to buy property

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