Are you self-employed and finding it challenging to save a house deposit when your income fluctuates month to month? The reward of owning your own home will be all the more rewarding knowing you have made every penny count to achieve your goal. One of the best ways you can position yourself for a favourable outcome with lenders is to show a history of regular savings.
We’ve put together a list of 6 simple deposit saving strategies to help you make your home owner dream a reality, with ease. These steps will show you that budgeting with fluctuating income is absolutely possible.
1. Saving as a Lifestyle
One of the best disciplines you can get into is ‘regular saving’. Developing this habit is something that will continue to benefit you long-term. Similar to eating clean or going to the gym, it’s a habit that when practiced regularly can easily become part of your lifestyle and decision making. A great start is to identify a minimum amount you can afford each month, even during lean months and stick to it. Now when business is booming and you’re in a peak month, challenge yourself to double that amount or increase it in line with the higher income months. It can be tempting to reward yourself for all the hard work however, stay focussed on your goal and you’ll enjoy seeing yourself another step closer!
A fun thing you can do is put some research into setting up a savings account that rewards you with bonus interest, it all counts! Perhaps name it ‘House Fund’ and keep this account purely for achieving that objective, watch it grow! You could also consider setting up a term deposit to maximise your interest earnings.
2. Set Your Desired Deposit Goal
This is where it becomes REAL, know your number! Identify where you desire to live and in what type of property then do your research to find out how much you need as a deposit. It’s important also to identify the associated monthly repayments ensuring they are within your budget then add on stamp duty and legal fees to the deposit amount. It is possible to secure a loan with as little as a 5% deposit however we recommend you aim for 20%. The larger the deposit you save, the better off you will be long-term as not only will you save on Lenders Mortgage Insurance (LMI), you will also save on interest by borrowing less.
3. Smart Spending
There’s certainly a difference between ‘needs’ and ‘wants’, we all know the difference even though we may try and convince ourselves otherwise at times! There are a lot of quick and easy ways to save money on wants without feeling deprived in our lifestyle. One great way you can do this is to set certain time periods where you forgoe certain luxuries such as ‘no takeaway coffee for a month’ (or do the numbers and buy a machine) or ‘Dry July?’…. you may find that different things you try actually break a habit and become part of your lifestyle…. more savings!
Small savings add up to big savings, have you reviewed your current expenses? There are unlimited call/text plans out there now for $35-40/month (providing your own phone). If you are currently paying $100/month, this would save you $60/month and $720/year. Try doing your food prep. for the week and make all your own lunches and dinners. Buying lunch 3 times/week at $10 is $1560/year. Here’s a great budget calculator you could try or try a free app such as TrackMySPEND to help you ensure you save according to your plans.
4. Smart Tax Deductions
There are some great income tax deductions available to business owners for expenses related to your business. For example, you may be able to claim home office expenses. The ATO website has some valuable information and is worth reviewing. Working closely with an accountant who understands the nature of your business and is well versed in how you can structure your accounts to maximise your return is a worthwhile investment and long-term asset to your business. You can then use these tax savings to put towards your house saving.
5. Protect Your Income
As much as we can take care of ourselves and feel fit and healthy, life can be full of surprises, and not always the welcome ones at times! Whether it is injury or sickness, income protection insurance can be a smart choice to ensure that if anything should happen, you can protect your ‘House Fund’ savings while you get back on track. Be sure to do thorough research, ASIC’s Money Smart website is a useful resource.
6. Talk to an Expert Mortgage Broker
Although we’ve listed this as Step #7, this is one of the most valuable steps you can take. Mortgage Brokers are assessing their client’s financial position in relation to achieving their goals on a daily basis. They know what it takes to get you from where you are to where you want to go and how a bank will view your position. They may help you with adjustments you can make in your planning journey to be fully prepared for your home loan application and to best protect your credit rating. Getting expert advice early on is always going to generate favourable outcomes, saving you time and money in the process.
Now it’s time to take action! Enjoy working your way through the 7 steps as you jump into the tracks of achieving your home owner goals. Remember, it’s all worth it and it’s all possible!
If you are self-employed and ready to get a solid plan in place for your house deposit savings and a successful home loan application, get in touch for a free consult with one of our expert brokers, (08) 9367 4222, [email protected] or fill out the form on this page.