A period of financial uncertainty has encouraged many people to save more money and invest to grow their wealth.
Property prices have been pushed to new highs by cashed-up buyers armed with ample deposits and increased borrowing power boosted by record-low interest rates.
With buyers bidding with more money than ever, having extra cash to spend could mean the difference between securing your dream property or missing out.
Whether you’re buying your first home or upgrading, turbocharging your savings can get you into the property market sooner while building healthy habits, or empower you to take the next step into a longer-term home.
Saving is much more effective with a solid strategy and goal, so it’s important to get the basics right from the beginning.
Tracking and managing household cash flow will help formulate effective ways to save, rather than flying blind.
“Most people are actually yearning to have better money management and better accountability,” says Property Planning Australia managing director David Johnston. “Most people have budgets for short periods of time but then fall out of the habit.”
In its simplest form, a household budget should track and categorise income and expenses, revealing ways to cut spending without adversely affecting lifestyles and options for growing income over time to reach a set goal.
There’s no one budgeting style that’s better than others – a multi-tab spreadsheet with complex formulas might work for some, while others will prefer an old-school paper-based method. The key is creating a tracking system that’s easy for you to use, refer to, and refine as necessary.
An automated saving strategy can encourage healthy spending habits while taking away much of the guesswork of saving.
“One of the things we talk to people about is having a money management system – having really clear separate ‘buckets’,” says Johnston.
A typical “bucket” approach uses multiple fee-free bank accounts to divide money into separate categories. All income is paid into one account which continues to grow, ideally an offset account for existing home-owners. Established amounts for different purposes – based on the household budget – are then automatically transferred to different accounts each week.
Categories can include non-negotiable necessities (such as utilities, rent or mortgage payments, which are direct-debited), variable necessities (such as groceries and transport), discretionary expenses (such as leisure and entertainment) and various saving goals (such as a house deposit, car purchase or holiday).
Savings accounts should have no card access to reduce the temptation to dip in for discretionary purchases.
Low interest rates may be helpful in reducing borrowing costs, but can be frustrating for savers facing minimal returns.
Investing can grow a deposit faster, but the type of property purchase and the timeframe can determine the wisest strategy, says Dale Gillham, founder of wealth management business Wealth Within.
Low-risk options such as bank-issued term deposits may be more suitable for buyers with short investment timeframes.
“You know you’re going to earn a certain percentage on that money, and you know in three months’ time the capital will be there to enable you to do what you need to do,” Gillham says. “If you need to settle on a property, having your money at risk is not a good strategy.”
Buyers with a longer purchase timeframe could consider shares to grow their wealth at a faster rate.
“If you’re new to the market you shouldn’t be going outside the top 50 stocks. If you’re going to build up a deposit, I would suggest people don’t go outside the top 20.”
Gillham says riskier options such as speculative investments and cryptocurrency appeal more to younger buyers, but warns that picking a winner is difficult, gains may never materialise and the chance of losing money is higher.
“If you’re looking at speculative stocks, low-cap stocks and high-risk investments like Bitcoin and all the other ones, then only ever invest money you can do without,” he says.
“If the goal is to get a house, you need to not necessarily look at just returns. Always understand risk.”
Gillham says many people who stick to blue chips, research investments well and have a clear plan and exit strategy not only buy property earlier with a bigger deposit, but continue investing to pay off their home quicker.
“Getting into smart habits that are low risk will get to your goal faster.”