How much to save a month for a deposit on your home

Carin Smith
2018-07-05 07:58
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The only realistic chance you’ll get at owning property is through financial discipline, according to Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa.

He offers first-time buyers some handy advice to save for their first home:

Minimum needed

"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 transfer costs and various other expenses on an entry-level property," says Goslett.

While it is possible to take out a 100% access bond, it is still advisable to have as close to this amount as possible saved in order to cover various ad hoc expenses that come with purchasing property.

Bargaining power

"Having the money readily available will also increase your bargaining power when it comes to negotiating interest rates on your home loan," Goslett explains.

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?

"Realistically, first-time buyers can expect to save for a period of around five years before they reach their R100 000 target. Any shorter than this, and the buyer will have to be putting away a huge chunk of their earnings each month," Goslett explains.

How much per month?

* 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;

* A shorter savings span of a year will force the buyer(s) to put aside a whopping R8 300 per month.

"Depending on where you are in life, perhaps you 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, this may be conceivable, says Goslett.

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."

Financial advice

The first step, in his view, is to find a financial institution that can help you reach your savings goals. It is better to put your monthly contribution into a tax-free short-term investment that yields higher returns than a normal savings account at your bank, he suggests.

"Chat to your financial adviser 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," he says.

Cut back

"The next step is to cut back on unnecessary expenses. Pay off your clothing and other store accounts and close them as soon as possible."

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,” Goslett adds.

Part-time job

As a final piece of advice, Goslett suggests taking up a part-time job to earn extra cash to put into savings.

"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," he says.

Tutoring pays roughly R200 for just two hours a week; freelance writing at R2 per word pays R1 000 for one 500-word article; babysitting and weekend promotional work usually pays around R150 per hour.

"These are just a few of the options that are readily available to anyone who has the necessary skills and time,” he says.
 
"Admittedly, 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."

* It's National Savings Month. Do you have a successful savings plan or story to tellShare it with us now and help others on their journey to financial freedom. For more on savings visit our special Savings Issue.

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