Welcome to Money Monday! This is a weekly column where we discuss all things finance. From budgeting and saving to responsible buying and investing, we will share knowledge and help you think about controlling your finances differently so that you can achieve your financial goals faster. This week we are kicking off with tips on saving for a property deposit. DISCLAIMER: Please note that this column does not replace professional financial advice and it is intended for information purposes only. I try to give most accurate information on personal finance, but it may not be the best course of action for you, therefore, I recommend that you consult a finance professional before making serious financial decisions.
During a quick coffee break, a friend of mine takes a call. She’s talking to a property broker. “My deposit will be about half of what you just said” she explains to the woman on the other end of the phone. With frustration and embarrassment evident on her face she continues “I am looking for a shared ownership property… I can only afford this much…” I try not to listen to her conversation but I cannot help but notice the desperation in her voice. By now she sounds less confident. As she shrinks in her chair and puts the phone down, I catch her glimpse and raise the inner corners of my eyebrows as if to ask “is everything ok?”. My friend then lowers her eyes and looks at the floor before she gathers her thoughts and with a deep exhale begins to tell me her wish of owning a property. She tells me that she is sick and tired of living with strangers and she no longer wants to have roommates, flatmates or anything in-between. She wants to feel dignified and independent. But without a large deposit, a six figure salary or a partner to split the bill with, she is struggling to get on the property ladder. I absolutely feel her pain. Raised by a single mother, my family didn’t own a home until I was already an adult. Now, I am too saving up for a property deposit.
Renting in London is one of the most expensive things you’ll do in this city. With most, decent studio apartments starting at £1,000+ per month, we are left with little money for anything else. As millennials without financial support from parents, trust funds, pre-existing savings or lottery wins we have limited options. While this makes saving for a deposit difficult, it’s not impossible. I find that the key to saving enough money for a deposit is setting a goal then respecting the time you give yourself to save, how you discipline yourself and track your income and expenses.
I always think about my mother who managed to buy a home with an abysmal salary and 5% deposit and so bellow I have listed a few, simple but effective methods that I have learnt from experience, friends or financial planning books. Although, I am in the process of saving for a property myself, the methods I share, have worked for me in the past. I saved enough money in two years time to pay for my master’s degree upfront. In hindsight, I realise that I could have used that money for a property instead, but here I am again, saving all my spare pennies, but this time for a place I can call my own.
1. Create a basic budget
Firstly, if you are not already budgeting then you should start here. To ensure that you know exactly how much money you have coming in and going on a regular basis, draw up a simple budget:
- Write your income amount down (after tax), this will be your salary, any sales income, freelance payments etc. Next to it, write down the date you normally expect to receive it.
- Then write down all the expenses that you are committed to. This is your rent, your utility bills, council tax, memberships, subscriptions and loans. Make sure to note their amounts and dates you expect them to leave your account.
I used the Notes app on my phone to bullet point all my regular income and expenses, which I check and tick off daily against my bank statements. This forms my basic regular in-goings and outgoings budget. In brackets I add information about the balance left on my account.
2. Decide how much you need for everything else and factor that in your budget
Now you may decide to analyse how much you spend on food, clothing and cosmetics. This is an important step to ensure that you look after yourself even if you are trying to be a little more frugal. You may come to the conclusion that you are spending more than necessary on restaurants and should commit to only going out once or twice a month and not exceeding a set amount. For example, you may decide that you can live off of £200 worth of groceries. But perhaps add another £200 for nights-out. It is important that you choose what you are comfortable with. You may then decide that you will not spend more than £100 on toiletries and no more than £100 on clothing expenses per month. Knowing how much you are currently spending on these items will allow you to understand how much you can adjust. Also, tracking exactly how much you’re spending will help you realise if you are excessive in this matter and need to reevaluate your expenses.
3. Are you living beyond your means?
Living beyond your means is spending more than you earn. If you are constantly in an overdraft then you are most likely spending more than you can afford. Overdrafts are great for those unexpected things in life, but should not be used excessively as they tend to cost you more money in the long run and may even damage your credit rating. The budgeting exercise above will help you see if you are spending more than you are earning. You must adjust your expenses to at least break-even every month before you can start to save money. Then, making sure that you have even the smallest amount, such as £10, dedicated to your home fund each month, will allow you to get closer to your goal of saving for a deposit.
If you’re still spending more than you’re earning, then consider these:
Could I ask for a promotion/salary increase at work? Or could I change jobs?
Could I find a cheaper place to rent or perhaps, move back home with my parents for a few months/a year?
Do I need to buy more clothes/accessories/shoes, or do I have the basics I need and, therefore, could abstain from shopping for a year?
Is my going-out budget too large? Could I be more frugal?
Could I save money on my bills by switching providers?
4. Maximise your savings by opening a Lifetime ISA (LISA)
I recommend opening a Lifetime ISA (LISA) account, which replaced the Help to Buy ISA this year. The Lifetime ISA is a type of Individual Savings Account (ISA), designed to help you buy your first home or save towards your retirement. If you are aged 18 to 39, you can open a Lifetime ISA and save up to £4,000 tax-free each year up to and including the day before your 50th birthday. The government will pay a 25% bonus on your contributions, up to a maximum of £1,000 a year. Your Lifetime ISA allowance forms part of your overall £20,000 annual ISA allowance. More about the ISA here.
5. Automate your savings
Remove the temptation of spending your extra cash by setting up a standing order and automatically sending fixed amounts to your savings account. Whether you put just £10 or £100 and more per month, this will help you get closer to your target with minimal effort.
6. Consider unsubscribing from marketing emails
If you are trying to save but keep getting distracted by marketing emails urging you to buy new and exciting items then consider updating your marketing preferences to unsubscribe or reduce frequency of those emails.
7. Sell what you no longer need/use
8. Buy only what you need and not what you want
Some may find this quite difficult to achieve, but I promise you that if you can discipline yourself enough to only buy things that you absolutely need then you will be on your way to saving money. You may find that you can stretch the lifetime of certain clothing pieces in your wardrobe for longer and preserve your bank account balance.
9. Buy produce in bulk and bring your own lunch to work
This tip is quite simple yet somehow was the most difficult for me to achieve. Bringing my own lunch to work can save me over £25+ a week. If you like cooking then consider making dishes with beans, lentils or potatoes, which are cheap, can be bought in bulk but are still good for your health. Please don’t live on 40p noodle sachets!
10. Don’t feel embarrassed if you’re frugal and keep your eye on the prize
Saying no to weekly drinks or dinner dates with friends is hard but if you can only afford to buy the cheapest thing on the menu – then you should do that instead. Don’t feel like you have to abandon your social life just because you are trying to save. I’ve heard of people ordering just tap water and chips at restaurants, which enabled them to still hang out with friends and spend some quality time together. Remember to keep your eye on the prize-your property deposit. It may be a slow journey but it will be so worth it when you get there, and you will get there!
Do you have any tips or questions? Please comment bellow!
Next week I’ll review free budgeting tools and apps so don’t forget to subscribe and stay tuned!