Principles of Saving for a Home

How Families Can Build a Deposit to Buy Their First House

Aug 11, 2009 Wei Yin Wong

To build a home deposit, start saving early, invest money in the right place, reduce credit card debts, know that all home buyers are different and allow for failure.

For many young families, buying their first home will be their biggest dream and commitment. Unfortunately, the task of saving for a home is not an easy one for the average family. Often, the plan goes awry because the decision makers within the family are not sure on how to start building a home deposit.

The following are some principles of saving for a home that would-be home buyers can use to help them stay focused and on track.

Start Saving Early

Even if owning a home is not part of a couple’s five-year financial goal, they should actively start saving. In fact, the earlier they start, the better it will be. When savings are deposited early and regularly, the couple will have built up a decent amount of money by the time they seriously consider buying their own house.

Invest Money in the Right Place

Saving money is one thing, making it grow into a substantial amount is quite another. It all depends on where the money is put and how it is invested. The everyday bank account is convenient for daily transactions but offers extremely low interest rates. So that’s definitely not a great place to save for a home.

Try other savings and investment options with higher returns such as term deposits, online savings accounts, mortgage trusts, managed funds and shares. However, do read the fine print before signing up for any of these financial products. Some come with fees or can be risky investments.

Reduce Credit Card Debts

Most household debts are caused by credit card debts. The buy first, pay later principle only works well with those who are disciplined about credit card management. Those who pay only the minimum repayment or pay after the due date are often slapped with high interest and late payment charges. So use credit cards wisely. Can’t pay off the credit card bill in full at the end of the month? Go get a card with a low interest rate. Consolidating all existing credit cards into one single card can also help.

Know That all Home Buyers are Different

How soon a family can afford its own home depends on a lot of factors – the family income, number of dependents, lifestyle, preferred suburb to live in, the extent of self-discipline, financial help from parents, etc. What works for one family may not work for another. Not surprisingly, some families can own their dream homes sooner than others. Work out different possibilities with the spouse and be prepared to face the unexpected.

Would-be Home Buyers Should Allow for Failure

Nobody likes to fail. But to be realistic about what is achievable when building for a home deposit, do allow for failure. This is particularly important for those with very little fund or can’t secure a low interest rate loan. If a savings target is not met, don’t despair. Stay focused and try other approaches to save more and reduce debts.

Saving for a home requires discipline, commitment and focus. Principles to build a house deposit include saving early and regularly, investing money in the right place and reducing credit card debts. Would-be home buyers should also realize that all home buyers are different and therefore will need different strategies and time frames to get their dream home.

Found this article useful? Read also Money-saving Strategies for Families, Saving for a Home Deposit and Effective Household Money-saving Strategies.

References:

Cerexhe, Peter. Only 104 Weeks to your Home Deposit. New South Wales: Allen & Unwin, 2007.

Blue, Tim. The Seven Ages of Money. Australia: Choice Books, 2003.

The copyright of the article Principles of Saving for a Home in Family Finances is owned by Wei Yin Wong. Permission to republish Principles of Saving for a Home in print or online must be granted by the author in writing.

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