Budgeting for Your Home Loan Deposit

Saving for a home loan deposit can seem like a mammoth task, particularly when you don’t have a saving strategy in place.

With this in mind I’d like to put forward a few budgeting suggestions to make the process a bit easier.

I will lay out a very basic four step process which will give you a fundamental budgeting strategy.

These steps may seem simple but they are important to follow as they can remove a lot of stress and margin for error from the process.

1. Understand your money.
2. Set your savings target.
3. Draw up your savings plan.
4. Start saving!

Step One

The first step is the most important of the process. The key to any budget is understanding and monitoring the movements of your money. If you don’t know exactly how much you can save then you could set yourself up for failure.

To find out your saving capabilities you need to study your transaction statements.

I recommend printing out at least an entire month’s worth of statements. Or if you predominately use cash keep a notebook of your spending.

As you look over these you need to focus on your expenditures.

Look at every single expense and try to label it as either a ‘mandatory expense’ or an ‘optional expense’.

Your mandatory expenses will include rent, bills, groceries, petrol etc.

Your optional expenses will include things like movie tickets, restaurant dinners, and other leisure activities.

Calculate how much of your money is going towards mandatory expenses and how much is going towards optional expenses. As a couple you need to add your income and expenses together to make these calculations.

This will give you a good idea of how you are spending your money.

In some cases you might be able to find ways to lower your mandatory expenses, but generally the majority of your savings will come from setting limits to your optional expenses.

This might mean going out for dinner once a week instead of twice a week, or deciding to make your own lunch rather than buying lunch each day. 

Look at what limits you can put in place and come up with a dollar figure that you can put aside each week or each payment period, but make sure your figure is realistic and achievable.

Step Two

Next set your savings target. To do this you need to decide how long you are willing to save for and what sort of home you would like to buy. In most cases your first home won’t be your dream home. Buying an affordable home can be a stepping stone to your ideal property however, so set a realistic goal.

Step Three

Now move on to step three and write up your savings plan.

This should include:

• Your weekly allowance for each expense (e.g. Groceries: $100, Entertainment: $50, Bills: $150)
• Your weekly or regular savings deposit
• Your savings period (include here the number of savings deposits)
• Your savings target

While this savings plan sounds very simple you also need to consider your savings method.

Separating your savings from your spendings is the best approach, so if you don’t already have a separate savings account you need to establish one.

Once this is in place set up an automatic transfer to savings as your pay arrives in your account, or speak to your employer and organise for part of your wage to be delivered directly into your savings account.

You can detach most savings accounts from internet banking as well, meaning you can only withdraw money from them by visiting a branch.

Step Four

Once your plan is drawn up it is time to start implementing it. Remember, your budget is only as good as your last review.

Make sure you monitor how well you are sticking to your plan and what areas need to be improved or adjusted. This is where laying out an allowance for each expense is extremely important.

You won’t get it right the first time. It is something that you need to refine over time.

I recommend reviewing your budget at least once a month.

This process may seem like a hassle and you may think that you are capable of saving without a plan, but there is great benefit in understanding your money and creating a savings plan pays great dividends.

If you follow this basic budgeting strategy you will see improvements in your savings, and hopefully this will mean you will be able to put that deposit down on your home sooner.

Don Farquharson,

Loan Solution Expert

Owner & Principal Lender of All About Loans