Savvy budgeting will get Millennials bond approval
Millennials, or those up-and-coming home buyers who are 30 years old and under and make up the future home buying force, face some challenges in the current market. Many Millennials are in the process of starting their careers, and have large student debt that they need to pay off.
Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa explains that the result of this will likely be a delayed entry into the property market, with many Millennials needing some time to find their feet and build up the necessary savings to purchase their first property.
“For the majority of Millennials, as with most first time buyers, the biggest hurdle to overcome is getting together the money for the deposit,” says Goslett. “This is especially true considering that banks are asking applicants for between 10% and 30% of the property’s asking price to qualify for finance”
According to Betterlife bond application statistics, the average deposit required by first-time buyers during the month of June was 21.17%. Based on the average purchase price of approximately R860,000, the deposit amount required is roughly R182,000.
Saving a large amount such as R182,000 may seem insurmountable to those paying off student debt, renting an apartment, vehicle finance, and, and, and… But Goslett’s advice is that the best way to accomplish big goals is by starting small and remaining consistent. “It can be achieved by breaking the amount down into smaller, more manageable goals,” he says. “Start out setting aside small initial amounts, the amount can be increased at a later stage.”
Saving tips for home buying
#1 Be smart about it
Find the difference between your current rental payment and the estimated bond repayment, this should include other monthly costs such as bond insurance, homeowner insurance, rates and levies. If possible the difference should be set aside as savings.
“The benefits of this strategy are twofold,” says Goslett. “Firstly it will build up your savings, and secondly it will help you to adjust to the anticipated cost of owning a property.” Buyers who are struggling to meet their monthly savings goals might need to adjust their household budget and bring it in line with what they can realistically afford.
Inspiration: keep a visual dream board of your dream home, It will keep you motivated to reach those saving goals!
#2 Make your money work for you
The first place to look for savings is the property you are renting. According to Goslett, if the rental is more than 30% of your monthly income it is too much. You should then consider scaling back by moving to a more affordable rental property.
To find more savings the potential buyers will need to assess their current spending closely, scrutinizing every expense. Goslett says that some of the easiest ways to do this include taking packed lunches to work, joining a lift club, or cancelling your gym membership and exercising for free at home or outside.
There is the concern that while Millennials are building their savings, rising home prices and interest rates will make it more and more difficult for them to get onto the property ladder. While there is merit to the concern, it is best not to rush into buying property until you are completely ready. “it is best to have a solid financial foundation and be confident that you can make the commitment that home ownership requires,” says Goslett. “Even if it means paying a slightly higher price at a higher rate.”
There are some really fantastic smartphone apps that will help you take control of your monthly budgeting:
- 22seven is a free app that helps you manage your money easily and invest smartly. The app lets you link all your accounts and transactions – bank accounts, credit and store cards, investments loans and rewards. You will be able to see what your money is worth, what you have left to spend, and what you can borrow if needed.
- YNAB (You Need A Budget) is based on the methodology “Give every Dollar a job”. The methodology coupled with award-wining software means you know exactly what you can spend when and on what and your budget is easily accessible from all your devices.
- Goodbudget helps you budget with a ‘why?’ using the envelope method. You will know exactly how much you have to spend, save, and give towards what’s important in life. The idea is to allow you to enjoy your money, using what you have allocated fully without guilt.
Tools you already have
- An acquaintance told me about her and her partner creating Whatsapp groups for each of the major spending items in their monthly budget. At the beginning of the month they then allocate a rand amount to each item and every time one of them spend money on a specific budget item they subtract it from the current total for that budget item. They have emergency overruns for each item, but generally when the allocated amount is finished that budget item has run out for the month.
- Consider meal planning. If you plan your meals carefully you will know exactly what to buy. It will assist in preventing over-spending when shopping as well as minimising food going off and losing money that way.
- Shop online. Take advantage of online stores and the regular savings they have. Takealot.com has daily app deals as well as other regular specials. Yuppiechef regularly has great deals in conjunction with ebucks. Shopping online for groceries will also save you money by limiting unnecessary spending.
In addition to the better known systems linked to major stores (PnP smart shopper, Click’s Clubcard, Dischem) and banks (ebucks etc.)there are some other reward systems you may not be aware off:
- Samsung Rewards for Samsung smartphone users. The phone user downloads apps or does surveys for points. The points can then be used to buy flowers or movie tickets.
- Snap and Save – Once you have the app downloaded you can book offers on various goods such as fruit and veg, milk, canned goods, before you go do your shopping. Once you have your till slip in hand you simply take a photo of the items that you booked and earn money points that can be used at shops such as Dischem and PnP.
- Eezi coupons from Checkers. If an item you are purchasing has a coupon available you simply enter the coupon code at the till and get the money refunded.
- Spur’s family card. You build up points in increments of R50 till you can save a big chunk off of your next meal. Users also receive a R50 voucher for use in their birthday month.
Foodie tip: You can convert your PnP smart shopper points into Yuppiechef vouchers!