Saving a deposit for a home all comes down to balance, and making decisions about where you are going to spend your money.
There are many apps out there that can help you track your spending, and some banks have built in budgeting software linked to your bank accounts (NAB is one).
That said, it’s one thing to spend a lot of time tracking what you spend, and quite another to make changes so that you can save! While it could be useful to track expenses initially to identify your costs, you want to establish a new pattern that can be maintained and will form a lifetime habit. Read on for ways you can do this!
Simple savings strategy
Open three bank accounts. One is for SPENDING, one is for BILLS and one is for SAVINGS.
SPENDING – have your wages paid into this account. Immediately transfer a set amount to your bills account (see below how to calculate this) and transfer half of what is left to your savings account. The rest is yours for groceries, clothing and entertainment.
Set up an automatic transfer if you can. Once you are used to not having the money available you will adjust your spending habits to fit.
BILLS – this is for your regular monthly expenses such as phone, internet, rent, car loan, insurances, etc. The fixed amounts that are essential and don’t change each month. Look at what you have spent in the last few months and identify these costs. Your bank statements can help you with this.
If you have accounts that you pay annually, then divide the payment by 12 to approximate a monthly cost. Transfer the average monthly cost of these fixed expenses from your spending account to the bills account. Some months you won’t spend all of the allowance, and some months you will spend more… but it should all average out.
Ask yourself if there is any scope to reduce these costs. For example, you could switch to a different phone plan or cancel a membership if it’s something you are not using. Even a small change can make a difference.
SAVINGS – try saving half of what is left of your wages after you have transferred the fixed costs to your bills account. If you can’t do half, then do a third. If you can’t do that then do a tenth.
Find out what works for you, but develop a savings habit that’s not negotiable. Sometimes you may have to dip into this account for emergencies, and that’s ok…. But make sure it’s an emergency and not just because it’s there!
Bonus strategy – Cash
Pay yourself a weekly cash allowance and use that for your purchases instead of ‘tapping’ your card. You will become much more aware of your spending, and won’t spend more than you have budgeted.
When you go out, set yourself a strict limit as to how much you are willing to spend. If you have decided you will spend $30, then don’t let yourself dip back into your account to spend more.
Bonus strategy 2 – Home prepared meals
Try to cook more at home.
Have some stand-by recipes that use simple pantry items and make sure you always have these on hand for when your spending account is getting low by the end of the week.
Prepare your lunches rather than buying them.
Bonus strategy 3 – Restaurants and socialising
You don’t have to live like a hermit! If you know you are going to a particular restaurant then see if you can find their menu online before you go, and make your meal decision before you are at the table. You will choose within your budget rather than deciding quickly when you are hungry!
See if you can find good restaurants that are reasonably priced and suggest those to your friends when you are going out.
If you are going out for drinks, then stop once you have reached your spending limit.
Find low cost or free alternatives for other activities, such as half price Tuesday at the movies, or suggest a BBQ at the park or beach with your friends.
Remember the cash strategy!
You are in control
You don’t have to deprive yourself of something that you love to do… but make sure that you are not spending your money on things that you don’t really enjoy. Save your money for what you really want. It may be a house, but these tips are equally valid if you want to save for a holiday or a new car!
Please don’t hesitate to contact me if you have any questions regarding any of these points.