Rising house prices, stagnating wages and the COVID-19 pandemic have created an economy making it seemingly impossible for first time buyers to get their foot through the proverbial door of the housing ladder. Owning a house can often seem like a pipe dream but with carefully planned budgeting and efficient use of savings its a possibility. In this blog post I will explain how to best save for the deposit on a house.
Step 1:
Make a budget. You are about to make the most important, expensive purchase of your life (unless you plan on owning any lambos anytime soon) so you need to get an understanding of what you actually earn and what you actually spend, those coffees add up. Utilise a budget to properly understand how your money is been spent and the areas you can cut back to save more money. Remember, every pound saved is a pay rise.
Step 2:
Stop relying on a savings account. I hear so many people holding their house deposit fund in a 0.1% savings account. DONT DO THIS, you are wasting so much money. The UK government currently has a scheme called LISA(lifetime ISA) where any money you deposit, up to £4,000 a year they will add on 25%. This means if you hit that £4,000 savings goal, you get an extra £1,000. On top of this, because the account can only be used for a house deposit or retirement the banks know your money is likely to be around for year, so are willing to give you better interest rates, up to 1.1% a year sometimes even more. So not only do you earn the 25% from the government you also get 1.1% in interest on top. If you plan to buy your first house with a partner then you can combine your accounts to pay the deposit effectively halving the money you need to save personally.
Step 3:
Check you are paying the right tax amount and utilising any tax credits. You can get on average £60 a year shaved off your tax bill if your work uniform would not be reasonably worn outside of work hours i.e. if you work in Tesco's you're unlikely to wear that uniform to the pub whilst if you wear a suit to the office it would be reasonable to wear that to a restaurant or a wedding so it's not tax deductible. If you work in healthcare then you can even be entitled to extra tax credits for socks!
Step 4:
Pay yourself first. We all love payday and what do we all do on payday? Buy something we have being eagerly awaiting the whole month. Your first 'purchase' of the month should be to your deposit fund. You might be thinking "what difference does it make when I pay myself?" well, by paying your deposit fund the day you get paid you are locking that money away and effectively cutting your budget for the month. You can't overspend on your food shop thinking you still have that £150 because its already gone. Pay yourself first and avoid being left dry at the end of the month with no savings locked away.
Follow these steps and you will be ahead of the game when it comes to saving for that house.
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