10 Dec 2023
Buying a house is a major event in most people's lives — but also one that can be expensive and stressful. However, exactly how expensive and stressful it is can hinge on how well you prepare for the property purchasing process. One way you can do this — while saving yourself money and shortening your repayment period — is by preparing a decent-sized deposit. Of course, this is easier said than done. Here's why saving for a larger deposit is a good idea and a few practical tips on how you can do so.
A deposit consists of the funds you put forward as a down payment towards purchasing a home. When you buy a home with financial assistance, you'll subtract this deposit amount from the property's asking price, and by extension the finance amount you apply for. A larger deposit can result in lower monthly payments or a shorter repayment period. It can also protect you against future interest rate increases. Banks can view applications with a larger deposit more favourably as it can indicate that you're better prepared for the purchase or present a lower risk to them.
The first step towards saving for a deposit is setting a budget. This will inform your deposit size in proportion to a property's asking price. It's important to remember that you're forecasting payments you'll be making over the next few decades. As life is unpredictable, calculating a deposit sum at the larger end of the spectrum can give you financial leeway in terms of affordability, helping you weather future financial storms without as much stress on your lifestyle and finances.
Putting away money each month after you've been paid is the natural first step towards saving towards a deposit. Here are a few other ways you can add to this amount:
Most people make monthly recurring payments towards essentials like cellphone contracts, home insurance and internet connectivity. You may have been paying them for years, automatically accepting their annual rate increases out of convenience. Taking stock of each recurring payment you make can help you determine if each one still meets your needs or if you can cancel or downgrade any of them. By revisiting your insurance coverage you could find that you qualify for a no-claim bonus or rate decrease as a long-time customer. If this doesn't apply to you, you could seek out competitors that will offer you the same coverage or services you currently use but at a lower rate.
When it comes to making most purchases, there's power in groups. Having a group of friends, co-workers or neighbours contribute towards a single shared purchase can lower each item's cost per household. A simple way to do this is by buying groceries or other household essentials in bulk directly from a distributor or retailer and sharing the cost among several people. It can also take the form of sharing a single resource or service amongst several people. For example, a group can pay for a full-time gardening or cleaning service where one person uses the service for two days before passing it to the next person.
Most households have a shelf or two filled with unused items that are taking up valuable storage space and gathering dust. This can range from baby items your kids have outgrown to gifts from a relative you have no use for or even sports equipment you never got around to using. There are websites and social media groups where you can sell used but in good-condition items for extra cash. You can use these same groups to purchase items you need at a reduced price. This can include costly but essential purchases like tools, appliances and furniture.
South Africans are a nation of meat eaters and many of us consider it to be a staple part of every meal. As food costs have increased over the past few months, phasing out or reducing your meat consumption could shrink your grocery bills. You could start by having one day of meat-free meals a week and increase the frequency as you become more familiar with vegetarian cooking and meal preparation. In some cases, switching to a more varied diet filled with fresh produce can improve your health outcomes, which could in turn qualify you for certain medical aid perks.
While you know that having a bigger deposit will feel good, it's easy to lose sight of the end goal during daily life. When you start to forgo treats or cut back on certain fun expenses, you can feel like you're depriving yourself. In some cases, this can prompt you to temporarily or permanently abandon those saving money measures. To keep yourself on track, you'll need to make the process as fun and engaging as possible. For example, you can make a bet with friends or co-workers on who can save the most money every week and also use them as accountability buddies to keep you from making unnecessary purchases.
Many of the products we buy or services we use have been chosen by us because they make our lives easier and more convenient. Unfortunately, this convenience can come with added costs, which is why downgrading these types of purchases can save you money. It can be as simple as forgoing pre-cut fruits and vegetables for whole, unwashed fresh produce or switching to doing your nails at home instead of saving time and having them done by a professional over your lunch break.
The tips listed above are just some ways you can increase the money you save towards your property purchase deposit. It may take time and sacrifice but once you've secured your home at a more affordable price, you won't regret it. SA Home Loans can help you better prepare for the entire process and guide you through it. Contact our team today for more advice on what you need to know.