If you’re aiming to step onto the property ladder for the first time, budgeting to upgrade to a bigger place for your growing family or investing in a long-term asset, knowing how to effectively budget and save is the foundation of your homeownership journey. It’s a skill you can take with you when it comes time to comfortably manage your mortgage repayments, too.
At Best Financial Planners, we’ve helped countless Australians with all types of financial guidance, including how to build their savings to purchase their first home or next property. Our team of expert financial advisors understand the challenges buyers face to save enough money to secure a home in the face of rising costs and stagnating wages. But we also know that with the right guidance, the dream of homeownership can become a reality sooner than you think.
In this guide, we’ll cut through the jargon and fluff and deliver real, practical advice and guidance, along with realistic examples and estimated figures – from setting a savings goal and understanding upfront costs, to managing spending habits and finding extra income opportunities. You can also choose a financial planner to analyse your financial situation and create a tailored budget, but you can get started with these smart, realistic strategies that can be applied no matter where you’re starting from.
Know how much you’ll actually need
With all the updates to first homebuyer schemes, advice from non-professionals thrown around on the internet and an intimidating market to go up against, knowing how much you’ll need for a home deposit is still clouded in ambiguity for many people.
Having a target, while being incredibly motivating for savers, also helps you understand how far away you are from your goal of buying a property. In most cases, a deposit that is 20% of the purchase price is the ideal minimum amount of money to buy a house. With a deposit of over 20%, you’ll avoid paying Lenders Mortgage Insurance (LMI), which protects the bank if you default on your loan, but offers you no benefit.
For first home buyers
There are more options for you if this is your first time buying a home. The first home guarantee is a program that involves the government acting as a guarantor of the home loan, which means no LMI is required, and you only need a 5% deposit to buy a home.
Just remember, the smaller your deposit is, the higher your total loan balance and the more interest you’ll need to pay. But on the other hand, the 5% deposit scheme may help you get into the market faster and stop paying rent sooner. Determining which is the most financially wise move is a case-by-case task, depending on the current market conditions, your personal situation and your desires. If you wish to own a home as soon as possible, don’t let this deter you from capitalising on the 5% deposit scheme; it’s designed to get you a home faster!
So, how much do you need?
Let’s break this down against some property prices:
| Property price | 20% Deposit | 5% Deposit (for homebuyers) | Likely LMI if deposit <20% for non-first homebuyers |
|---|---|---|---|
| $600,000 | $120,000 | $30,000 | ~$8,000–$15,000 |
| $750,000 | $150,000 | $37,500 | ~$12,000–$25,000 |
| $1,000,000 | $200,000 | $50,000 | ~$18,000–$35,000 |
While opting for a lower deposit – say 5% as a first homebuyer or 10% for non-first homebuyers – helps you buy sooner, you’ll still need to show a history of strong savings habits to your lending bank and be prepared for extra costs. The financier will also go through your recent spending history to ensure your income minus outgoings results in enough money to service the home loan.Â
Don’t forget the upfront costs
In addition to your deposit, you’ll also need to budget for:
- Building and pest inspections –Â you may need to purchase multiple inspections for different properties during your search
- Stamp duty – can be tens of thousands of dollars, depending on the state and purchase price, but there are first homebuyer extensions and concessions. You can use online stamp duty calculators and check the details on your state government’s website.
- Loan application and lender fees
- Conveyancing and legal fees
- Insurances for your new property and strata fees if it’s part of a body corporate
- Moving and set-up costs
Many of the upfront costs are relative to various states and locations across Australia, the property purchase price and whether this is your first home or not. You can use an online calculator and fill in the form to avoid being blindsided by these additional expenses.
Assess Your Current Financial Position
With your targets laid out, the next step is to get a clear picture of where you stand right now.
There are three primary tenets in understanding your financial position – your income, expenses and current savings, assets and liabilities. Here’s what you need to know about each to determine an extensive picture of your circumstances:
Your income
Calculate your net (after-tax) income from all sources. Your primary source of income is most likely your day job. Secondary income streams can include all different types of active andpassive income. Consider if your assets are generating any passive income for you, like bank savings interest, share dividends, digital products you sell online and money from side hustles. Are you receiving any government payment or grant and scholarship money? These can count towards your annual income.Â
Your expenses
Take a deep dive into your monthly outgoings. There will be fixed expenses (rent, utilities, phone, internet, insurance, etc), variable outgoings (food, fuel, subscriptions, entertainment, etc) and irregular ones (gifts, holidays, annual bills, etc). You can use one of the many digital apps or platforms to upload your bank statements, and it will categorise your expenses for you.Â
Your assets and liabilities
Finally, do an inventory of your assets and liabilities. For your assets, include your savings balances, superannuation, valuable possessions like your car and any shares or other investments you own. Liabilities include any credit card debt, student loans and other debt.Â
When these three tenets are determined accurately, you have all of your financial figures laid out clearly – and you easily see what you need to move around to reach your financial goals.
Set a realistic & calculated savings goal
Once you know your deposit target and where you’re starting from through the steps above, turn that number into something manageable by breaking it down.
For example, to save a $40,000 deposit:
- Over 3 years = ~$1,110/month
- Over 2 years = ~$1,667/month
- Over 1 years = ~$3,333/month
If that sounds daunting, remember: this is a long-term goal. What matters is consistency, and if you need to lower the numbers and extend the time to suit your income and expenses, then do that!
Step-by-step: how to save for a house deposit
Now, here comes the real work, saving for your deposit. However we find that, for some people, saving is a mind game, and when you get in the right mindset, holding back on spending on something you don’t need and using the money to invest in your future is super rewarding. Once you feel the thrill that can come from saving money, it can become more of a game. But this is only the case for your disposable income – many people don’t have much left over once all their expenses are paid. So, a tried and tested way to save is to construct realistic savings goals that ensure you can support yourself while building a deposit.Â
A successful savings plan hinges on your ability to balance everyday life with future goals. Here’s exactly how to save for a house deposit:
1. Start with a clean sheet
Download a budget Excel template or use an app. List out your monthly income, all fixed and variable expenses and then your minimum monthly savings commitment in the template to outline your cash flow.
2. Portion your spending
The purpose of dividing your spending opens up the door to realigning your spending with popular savings methods of categorisation. The 70/20/10 method has helped many people tighten their budgets and realise how much extra they could hold on to if they made some changes. This method requires you to use 70% for your living expenses, 20% for savings/= (building that deposit) and then 10% for lifestyle/fun.
You can play around with these proportions, depending on how fast you want to save, and if you don’t want to sacrifice too much lifestyle. Finding spending proportions that work for you is a bit of science, and it’s even one of the top financial planner questions we get asked. But once you’ve determined percentages for each category that will accommodate your savings target, the budget for a house deposit is born.
3. Cut and reallocate costs to align with your savings method
This is where the magic happens. Most of us spend more than we realise and more than we need to on non-essentials, and a few small changes can snowball into thousands saved each year.
Once you do a spending audit, you might see that you’re actually spending 25% of your income on fun/lifestyle. Now is the time to figure out how you can reduce that percentage to your target of 10%. Here are some of our top tips to cut costs for your budget:
- Meal prep 3 days per week to avoid takeaway.
- Limit café coffees to weekends or a couple of times per week
- Meet your friends at one of your houses for dinner or drinks instead of going out to a restaurant or bar.
- Cancel subscriptions you don’t use. If you have multiple streaming subscriptions, a great way to cut costs is to rotate streaming services each month and cancel them once you move on to the next.
- Replace music subscriptions with free or ad-supported versions.
- Practice ‘sleeping on it’ or 24-hour rules when making purchasing decisions. This can really help you cut down on impulse buying.Â
- Switch energy, utility and internet providers – comparison sites often unlock deals that save you some big bucks.
- Assess your current living situation – can you move to a cheaper rental or get a flatmate?
- Plan a no-spend weekend once a month – fill it with beach or hike days, library visits and cosy dinners at home.
You can find more financial hints and tips on our website. You don’t need to apply every tip someone shares with you, but if you can identify a few solid ones that are easy enough for you to implement and can help you quantify a reduction in expenses that gets you into the budget target, you’ll make fantastic progress.
Consider ways to increase your income
If your budget is already tight or you want to reach your goal faster, growing your income is the next avenue to explore. Can you ask for a pay rise at work? Do you have the capacity to take on an extra shift? What side gigs and passive income can you generate? Things like babysitting, working hospitality shifts, doing freelance services or renting out assets like your car or clothes can really help give you extra breathing space when budgeting. Also, make sure your savings are sitting in a high-yield interest account – the interest paid on your savings is passive income and can accelerate your progress.
Or maybe you’re making other sacrifices in your income for your future, like through a salary sacrifice or voluntary super contributions. While these are fantastic for financial wellbeing in your golden years and to give you enough money to retire at 65, you might want to pause them while you’re budgeting for a house deposit to give yourself more saving power.
The best time to start is today
Saving for a house deposit can feel a bit like rolling a boulder up a hill at times – everything feels stacked against you, especially when property prices are high and everyday expenses keep climbing. But with the right planning, budgeting and consistency, it’s absolutely achievable. By understanding exactly how much you need, assessing your financial position, setting a realistic savings goal, trimming unnecessary costs and even boosting your income, you can move from dreaming about owning a home to doing it.
Remember, it’s not about perfection or sacrificing the things that make you happy in the process. It’s better to find budgeting methods and ways to cut costs that suit you. Whether you’re saving for a 5% deposit under a first-home buyer scheme or aiming for the full 20% to minimise loan interest, every dollar counts.
If you want to sit down with the professional advisors at Best Financial Planners, we can help you not only plan a budget but also optimise your income and savings to yield the best progress towards a house deposit. Contact us to get started. Either way, the earlier you start and the more strategic you are, the faster you’ll get there. And once you reach that goal, you won’t just have a deposit – you’ll have financial discipline and momentum that will serve you well into your future as a homeowner, and even start proactive retirement planning for your golden years.
