Thu 22 Mar, 2018
How To Save For Your First Investment Property (and Still Eat Avo on Toast for Brekkie!)
There’s been a popular conception in Australia that young people are not priced out of the property market, they’re simply unwilling to put down their expensive, avo-laden brekkies and get saving.
Perhaps the notion isn’t without substance; avocado on toast – and the brunch culture that propelled it to popularity – generally costs millennials upwards of $18 a pop. That’s a lot of money for a slice of sourdough smothered with the green stuff - even if it is served with a poached egg and an obnoxiously placed edible flower.
How are young people expecting to get on the property ladder if they’re dropping dollar on such lavish feeds?
The good news is, we’ve rounded up some top savings hacks that’ll help you stash enough cash to buy your first investment property without giving up your fave weekend brunch.
Swap Your Gym Membership for Home Workouts
Have you fallen victim to fitness cults like Crossfit, F45 or pricey personal training sessions? This super-fit culture is costing some of us up to $80 a week, so if that’s you, it may be time to check in with your goals. Sure, your health and fitness is important, but if you’re serious about your saving and investments, prioritise your finances for a while.
Ditch your pricey gym membership and opt for home workouts or running instead. Free workout videos on YouTube can drastically free up cash for your savings pot.
Potential savings over 2 years: $8,320 (based on $80 per week)
Slash Your Takeout Coffee Intake
We know, we know. We’re probably not the first to tell you to cut down on your $6.50 iced latte addiction if you want to buy a property. But there’s no need to give it up completely. Big-time saving is all about making small lifestyle changes that are maintainable. Try only buying a coffee every other day instead of every day – you’ll be surprised at how quickly alternating your caffeine spend becomes a habit.
Potential savings over 2 years: $1,352 (based on buying 3 x $6.50 coffees per week rather than 5 - which would add up to $3,380 over two years)
Save a Percentage Of Your Regular Income Consistently
Take a leaf out of The Barefoot Investor’s book and segment your saving in percentages. That way, your savings plan scales up in line with your income. This is a great strategy if your income comes from multiple sources, like invoices or multiple employers. Saving a certain percentage, like 20%, of all income you receive keeps you on track and ensures that all your income-producing activities are contributing to your end goal.
Potential savings over 2 years: salary dependent!
Take Out Cash Instead of Using Pay Pass
Serial tapper? Many of us are. Being able to tap your card without manually inputting a PIN or taking any real responsibility for your spending is often the cause of unconscious splurges. Calculating how much you can realistically afford to spend on day-to-day life and withdrawing that amount in cash each payday can keep you more accountable and reconnect you with your spending habits. Try leaving your cards at home, or only carrying a credit card for real emergencies, too.
Potential savings over 2 years: The sky’s the limit.
Save All Your $5 Notes or Gold Coins
Using cash over card means you’ll find your wallet weighed down with more change than usual. Savings experts have dubbed stashing every gold coin or $5 note every time you get one as the new savings hack.
The theory is, that the insignificance of these small denominations can add up to big savings without you even realising.
Potential savings over 2 years: $2,000 (based on receiving $83 a month in loose change and fivers)
Pick Up Extra Jobs on Go Fetch or Air Tasker
If your problem is more about not having enough cash than spending it in the wrong way, supplement your income by signing up to Go Fetch or Air Tasker and carrying out small tasks or running errands for other users. Dedicating a couple of evenings a week to earning extra cash could get you on the way to deposit-ville in no time.
Potential savings over 2 years: $1.200 (if you do one $50 job a month!)
Write Down Your Spending
Keep a spending journal for one week of each month to see how you’re tracking. If bad habits are starting to sneak back in or you can identify other unconscious spending emerging, writing it down and taking responsibility for it can nip it in the bud much sooner.
Potential savings over 2 years: Realisation dependent.
Keep Track of Who Owes You Money
Regularly finding yourself grabbing the office coffee order or being the one to pay for dinner when there’s a ‘no split bills’ policy, only to find your cash never works its way back to you? It can be hard to ask for money from friends, family and colleagues, but think of it like this:
If you pay for one extra $4.50 coffee a week, one extra $9 glass of wine a fortnight, and one extra $30 meal a month, that adds up to $1,656 over two years! Splitwise is a handy app that can help you divide up spending in your office, household or friendship group, and easily record who’s owed what. Download it now and keep track of your missing dollars!
Potential savings over 2 years: $1,600 and more… depending on how generous you are with your friends.
Now, About That Investment Property
Remember that investment lending generally requires a 20% deposit, which at first may seem like a daunting prospect – but it’s actually very achievable. Assuming an after-tax salary of $60,000, saving a modest 20% of your take-home income for 2 years can pocket you almost $20,000. Cutting out gym memberships, slashing coffee spending, and being more mindful with your outgoings can get you well on the way to that deposit goal in a very short space of time.
Alternatively, you can stash your savings in your superfund, and then commence a self-managed superfund to buy your investment properties. The feasibility of this strategy depends on your super balance, investment knowledge and attitude to risk, but for some, it’s the best way to get started on building a property portfolio as many of us don’t have as much cash lying around for a deposit as we do in our super.
You generally need $150,000 as a minimum to get started, as SMSF lenders require you have at least a third of the value of your chosen property as a deposit when you purchase through an SMSF. However, you don’t have to go it alone, you can pool your super with your partner.
For more information on buying property with an SMSF, click here.