6 STEPS TO SAVING FOR A DEPOSIT IN 5 YEARS
According to data recently released by FNB, the average age of a South African home buyer has increased from 38 to 44 this year. That's largely because, if you take a realistic look at the property market, you will discover that you will need a minimum of R100,000 to use as a deposit and to cover the various other expenses on an entry-level property. Even if you take out a 100% access bond, you should still have a large sum saved in order to cover the ad hoc expenses and to increase your bargaining power when it comes to negotiating interest rates on your home loan.
The reality is that younger buyers simply do not have that amount of cash readily available. So, if you need to save R100,000 regardless of the financing option you choose, how long and how much will you have to save before you'll get there?
Doing the Math
In order to reach the targeted amount in five years, a buyer will need to save as much as R1,700 per month. In four years, this amount increases to R2,100; for three years, it climbs to R2,800; two years will see them putting R4,200 away monthly; and one year will force them to put aside a whopping R8,300 per month.
Choosing a Timeframe
Depending on where you are in life, you might foresee a time in the near future where your expenses lessen drastically, and you are able to save aggressively for a short period of time. For recent graduates who have just entered the job market, for example, it is entirely possible - not easy, but possible - to put R4,200 aside for two years while living at home and saving on the expense of renting elsewhere. However, for the most of us, even finding just R1,700 per month will take some doing.
Choosing an Investment
Find a financial institution that can help you reach your savings goals. Put your monthly contribution into a tax free short-term investment that yields higher returns than a normal savings account at your bank. You can chat to your financial advisor to find out what the best options are. In all likelihood, they will be able to find an investment for you that will allow you to put away less than R1,700 a month but still reach R100,000 by the end of five years.
Cut Back on Expenses
According to the 2014-15 World Bank Report, credit facilities such as credit cards, overdrafts and store cards make up 65% of credit usage in South Africa. If you can cut back on this unnecessary spending, you could be putting that monthly repayment straight into savings.
Earn Extra Income
Sometimes, it is simply not possible to scrape that R1,700 out of your existing salary. There are various part-time jobs a person can do to earn a little extra cash that won't take up too much spare time. Tutoring pays roughly R200 for just two hours a week, freelance writing at the industry standard R2 per word pays R1,000 for one 500 word article, babysitting and weekend promotional work usually pays around R150 per hour – and these are just a few of the options that are readily available to anyone who has the necessary skills and time.
Words of Encouragement
None of these steps offer a simple or immediate solution, but not all things in life can run at the speed of a social media feed. By the end of the five year saving period, you will be able to afford a lifelong asset that will offer financial security well into your retirement. At that point, those five years of discipline and sacrifice will look like time well-spent when you consider the overall picture of your life.