Saving for a Home Deposit

How Australian Families Can Save for Their First Homes

Aug 13, 2009 Wei Yin Wong

Australian households can raise a home deposit by using government incentives, living on a single income before babies arrive and choose the right savings products.

Purchasing a home is probably the biggest investment the average Australian family ever makes. Most banks and financial institutions offering home loans will require a 10% deposit of the purchase price for first-time home buyers. This means young families must work towards saving for a home deposit.

The following are some practical tips for Australian households to save for their first homes.

Open a First Home Saver Account

Established in 2008, the First Home Saver Account is a simple, tax-effective way for Australians aged 18 and above to save for a deposit to buy their first homes. It works through a combination of government contributions – 17% on the first $5000 of individual contribution made each year to the account – and low taxes. Go to the First Home Saver Account website for more details about the eligibility to open the account.

Use the First Home Owner Grant

This is another government incentive to help Australian families buy their first homes and to offset the effect of goods and services tax (GST) on home ownership. Those eligible for the First Home Owner Grant will receive a payment of up to $7000. Some Australians may also qualify for additional home incentives and bonuses if the property purchased is worth under a certain amount, depending on the state where the house is located.

Live on a Single Income before Babies Arrive

If there are no children and both partners are income earners, it is wise to learn to live on a single income way before the babies arrive. This helps increase the household savings significantly and prepare the new parents for the financial challenges that await them once there are more mouths to feed.

Choose the Right Savings Products

With so many savings products flooding the banking industry, finding the right one can be tricky. Choosing the right type of investment depends partly on how long it will take to save the targeted amount of home deposit.

Those who wish to save a deposit in a short time, say less than four years, can opt for cash management trusts that are secure, pay good interest rates and flexible. Families who have more than five years to raise a home deposit will have more options. These include investments in managed funds (ideally a fund that invests in both Australian and international shares), cash, fixed interest and property.

Investing in shares will bring more returns but is more risky as well. To reduce the risk, start selling the shares when the target amount is almost reached. Then transfer the money to lower-risk savings products like cash management trusts or fixed-term deposits.

Families should try to save as much as possible for a home deposit. Australian families are fortunate because government incentives such as the First Home Saver Account and First Home Owner Grant schemes help them raise money to buy their first homes. They can also try to live on a single income before children are born and choose the right savings and investment products to accumulate more funds.

Found this article useful? Read also Principles of Saving for a Home, Effective Household Money-saving Strategies and Becoming Successful Money Savers.

References:

First Home Saver Account Website

Power, Trish and Drury, Barbara. Investing for Australians for Dummies. Milton: Wiley Publishing Australia, 2008.

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

Save as Much as Possible for a Home Deposit