The increasing cost of living and rising rents don’t mean you have to put your dream of owning a home to rest. While it’s true that rental payments can eat a chunk of your monthly income, making small changes in the way you handle your money can help you build your savings faster.
Practical tips to save money while you’re renting
Paying rent and saving money for a home loan deposit might sound challenging, but it’s possible if you change the way you spend and save. Here are some tips to help you boost your savings while renting a house.
1. Set a savings target
Knowing how much money you need to save is the first step towards achieving your goal. Start by researching where you want to buy a house and check the average price of the type of property you wish to buy in that area. This will help you set a budget for your purchase. However, be realistic about how much you can afford to spend on monthly repayments once you purchase the house. If the type of house you like doesn’t seem affordable on your salary, consider downgrading or looking in another area.
Once you’ve decided on a budget for your first home, you can calculate how much money you’ll need to save for a home loan deposit. It’s advisable to try and save at least 20% of the property’s purchase price as a deposit and also arrange some extra cash to pay for additional costs, like stamp duty and conveyancing charges.
Besides calculating how much you need to save, you must also set a target date for achieving your savings goals. Having a fixed time frame can keep you on track and help you calculate the amount you need to put away each month. However, the date must be realistic and will depend on your income, living expenses, and the size of the deposit you need.
2. Make a budget
Now that you know how much money you need to save in total for a home loan deposit, it’s time to figure out how much you can realistically put away each month to achieve this goal. You could do this by creating a monthly budget that tracks all your income and expenses. When you create your budget, you could consider dividing your expenses into three categories: essential, good to have, and savings.
Essentials include your living expenses, such as rent, utility bills, transport and food. Good to have could consist of things like a gym membership, OTT subscriptions and dining out expenses. The last bucket, savings, is where you include whatever is left after paying for the other two categories. Your aim is to reduce the spending in the first two categories and increase the amount you put into the third category – your savings. You can find several tools or apps, such as the Moneysmart budget planner, Frollo, and Spriggy, to track your spending and set savings goals.
3. Find a good place to save your money
Stashing cash under your pillow is neither safe nor a great way of saving money. Instead, consider opening a savings account in a bank to put away money for your deposit and see it grow faster as you earn interest on your savings.
Even though interest rates on savings accounts have been low for quite some time, some banks have recently increased the interest they are paying on these accounts. You can compare different accounts in terms of the interest rate, fees charged and any other benefits or restrictions to find an account that meets your requirements.
One option you may want to consider is a high interest rate savings account that pays you a higher interest rate on your deposit if you meet certain conditions. For example, you may be required to maintain a minimum balance in the account each month or limit the number of withdrawals you make to earn the bonus interest rate. You should also check the interest rate you’ll be offered if you cannot meet the conditions to earn the bonus rate. If this rate is too low and the conditions are too challenging to meet, you may want to consider a different savings account.
4. Look for ways to cut down on expenses
Setting a budget and tracking your expenses are common tips for anyone who wants to save money. But what should you do as someone renting a house to boost your savings? Two things – try to increase your income (perhaps work an extra shift every week or start a side business) and cut down your expenses. While it’s not always possible to increase your income, you’re likely to identify areas where you can cut costs. We have listed a few ideas to help you out:
- Get a roommate Even though living alone has its perks, sharing your home with someone could be wiser when trying to save money. Having a roommate can help you save on rent and utility expenses, which could boost your savings significantly. You could check with a friend who’s also trying to save money to move in with you. If you’re considering living with a stranger, remember to do proper screening to ensure your safety.
If you’re a single parent trying to save money for a deposit, you could consider using a service like Share Abode that helps single parents network and find people to rent a house with.
If sharing isn’t a possibility, you could consider downsizing to a smaller and cheaper place to save some rental money. An older house might not look appealing, but the temporary downgrade will likely take you closer to buying your first home. You could even consider moving in with your parents for a couple of years while you save money for your own place. They might appreciate the company, and you can contribute to the household expenses to avoid being a burden.
- Negotiate lower prices Finding good tenants could sometimes be a difficult process for the landlord. If you’ve had a good track record as a tenant, you might be able to negotiate a lower rent, especially when you sign a longer lease. If you’ve stayed in a house for a couple of years, you could still go ahead and ask for a reduction, and you might just get it if you’ve been a hassle-free tenant.
Besides negotiating your rent, you can also try to secure a better price for your utilities. You could save money on the internet, electricity, and telephone bills by comparing deals from multiple utility providers and switching to one that provides the best value for your money.
5. Consider other ways to buy a house
Saving a 20% deposit can take a long time, but what if you don’t want to wait that long? There are several options you may want to consider, such as buying a house with a close family member or a friend.
Buying a property with someone could make it easier to save a deposit because the amount you must save is halved. However, there are other things to consider, such as the ownership structure and mortgage payments, which require serious consideration before purchasing a house with someone. You may want to speak to a mortgage broker and also consult a legal professional to understand the different ownership structures and your rights and duties when you buy a house with someone other than your spouse.
Buying a house without regular savings (also called genuine savings) is also possible if you have a good rental history. Some lenders may allow you to borrow up to 95% of the property price without any genuine savings. They understand that paying rent is a huge financial burden, and a history of paying your rent regularly can be used to meet the genuine savings requirement, which means you might be able to borrow money for a house without saving anything regularly. However, you’ll still need a 5% deposit to qualify, but it can come from sources other than your savings. For instance, your parents might gift you money for the deposit, and you could also use the First Home Owners Grant to boost your deposit if you qualify. A mortgage broker can introduce you to lenders who’ll accept rental history in place of genuine savings when reviewing your home loan application, increasing your chances of success.
It’s also possible to purchase a house without any deposit if a close family member will guarantee your home loan. Consider consulting an expert to find out about suitable options for your unique situation.
