In today’s climate, the Kiwi dream of buying a home seems increasingly out of reach. However, by taking a few steps now and getting a plan in place, owning your first home may be a little bit closer than you think.
With a savings plan and a few life style changes, that initial first home deposit might not seem like such a daunting sum to pull together. So, if you’re considering joining the New Zealand property ladder for the first time and signing up to a mortgage, check out our tips and tricks for saving money for your first home deposit:
1. Pay off any high interest consumer debt (if you have any)
Not all debt is made equal, you should take a look at any debt you have and pay off those with high interest rates. E.g. a credit card or short-term loan...
This step is important! The interest on consumer debt is at least 3 – 5 times of what you pay you’ll likely pay on your mortgage or what you’re likely to get in investment returns from KiwiSaver or elsewhere e.g. If you're putting money into investments that generate a 5% return for example, but have debt that's increasing at 9%, you're putting yourself at a disadvantage and not increasing your overall net worth.
This is why it makes sense to either pay this off completely and ensure you’re able to pay off your high interest debt in full before you do anything else.
2. Save every dollar you can
Great so you’ve paid off any high interest debts you had and now you can focus on the good stuff, saving. But It’s easier said than done, so we’ve helped by breaking down this tip into more bite size pieces of information so you have somewhere easier to start:
Conduct an audit on all your unnecessary spending
We’re ripping the band-aid off with this first tip, and those of you who might enjoy little indulgences like daily coffee probably won’t like what we’ve got to say. It starts with you doing a complete audit of your expenses and seeing what things you can simply stop spending on - think of it as short-term pain for long-term gain.
Where are you spending that you just don’t need to be? Sure takeaways a couple times a week are nice, but what is that costing you each year? Here are a few places to get things started on your audit. What do you spend each month on…
- Eating out - that means coffees, takeaways, sweet treats, and that weekly drink with your mates
- Your grocery bill – was that $10 tub of ice cream really necessary? What indulgent extras can you leave on the shelf or buy a cheaper version of?
- Vacations – everyone deserves a holiday, but if buying a house is top of your goals list, swap a holiday at the beach for a staycation this year
- All the other extras – think concerts, new clothes, subscriptions etc…
We don’t want to sound like the fun police, but we’re here to provide you with a friendly little reality check. If you’d like to get to your savings goals faster - once you’ve reviewed all of these expenses, ask yourself what can you realistically cut out or cut back on? If that drink with your friends is the highlight of your week – leave it in, but cut back your spending in other areas.
Review your household bills
You might be shocked at how much you can save by checking some of your household bills from the last year. Changing your broadband provider can save you up to $300 per year, and you could save a similar amount by reviewing your power provider too. Making the change isn't as annoying as it sounds, it can be done from your couch in just a few minutes.
- To help get you started, we suggest you review your broadband using Broadband Compare. Go to Broadband Compare
- You can find the cheapest power provider using the Government website Powerswitch. Go to Powerswitch.
Trade Me everything
Okay, maybe not everything, but how many things do you have lying around that house that you don't use or have been meaning to get rid of? Depending on who you ask, the average home can easily have between $800 and $2,000 of unwanted or unused items that could be sold online or at a car boot sale. If you haven't used it within the last year it's probably safe to go in the 'to sell' pile.
3. Budget. Budget. Budget.
Okay so you’ve followed tips #1 & #2 and you’ve reviewed your expenses, but how is the rest of your budget? What are you spending this year versus what you are making? You might be surprised to find that your spending exceeds what you earn. Budgeting makes sure you'll have enough for the things you need and the things that are important for you and shows you where you can trim the fat on the other unnecessary stuff.
Starting a budget and being confronted by your spending can seem daunting, but once you dive in and take control, you might just start to feel better about your financial decisions.
Not sure how to begin? Here is a great starting point on learning how to create a budget.
4. Start a side hustle
Sometimes cutting your costs might not be enough to get you to your savings goals in the timeframe you'd like. If you've got an in-demand skill set or a special craft then having another revenue stream can be a great way of saving up some extra money. We're not saying you should work two jobs forever, but ask yourself if a side hustle is sustainable for the short-term to get you closer to your first home loan. As an added bonus, when you focus your free time on earning extra income instead of going out and spending it, you're side hustle could save you even more money.
If you're not sure how to find work freelance work, start by checking out websites like the Unicorn Factory, The Freelance Village, Upwork and fiverr.
5. Make your money work for you
For some people, their first home deposit will be sitting in a bank account, which may be the right option for them. For others, there are other potentially better places to be saving for a first home deposit, like with your KiwiSaver. Understanding what your options are and what one is most suitable for you is up for you to decide, but it's important to remember that saving and investing are very different.
We believe KiwiSaver is one of the best options to help you save enough to get on the property ladder. But why is KiwiSaver a great way of saving for your first home?
- It's a separate account you won't have access to until you're ready to buy a house. (You might have great self-control, but let’s face it - sometimes it's tempting to spend some of your savings, especially when the money isn’t in a separate account or an account you have easy access to.)
- It's an automated process. The money is deducted from your paycheck, so you don’t have to decide between your savings account and your Friday night drinks. You won’t even see the money go.
- You get free money from your employer! When you're contributing, your workplace will match your contribution up to 3 or 4% (depending on the employer).
- Even more free money from the government. You get $521.43 from the government if you save more than $1042.86 between 1 July and 30 June each year. And if you're saving for a house, we bet that you've contributed enough to receive the $521.43. The harder your savings work for you - the less saving you need to do.
Hopefully this helps in getting those creative wheels turning, and gives you a better idea of the different ways you can save for your first home! We recognise how hard it is to save for the things you want (especially your first home) and we want to make it easy for you to make the right decisions.
A great place you could start is by using the kōura digital advice tool which will allow you to build a personalised portfolio that you can use for your KiwiSaver fund or use the asset allocation to invest in non-KiwiSaver managed funds (you can read up more about this here).
