Why you need to start NOW if you ever want to buy a house.

OK lets take an average Kiwi looking to get on the property ladder. You’re 35, you got married a couple of years ago and now you’re thinking of starting a family. Wouldn’t it be nice if you could have your own home. A backyard with a garden and space for junior to play. Walls you can paint and garage you can have a workshop in, a kitchen you can upgrade.

However house prices have really gone up in your area, and a 20% deposit is now well over $100,000. You’re thinking of going down to one income for a few years to start a family, how in the HELL are you going to save up $100,000 before you’re 40?abode-987096_640

The truth is I think you need to plan for the financial decisions you make in your thirties while you are still in your twenties. Even if you are single, a free spirit roaming the country currently never planning on settling down it can’t hurt to plan ahead. You need the power of time when it comes to accumulating enough funds for a deposit.

But does your average graduate or school leaver think like that? A young person finally getting a paycheque after years of schooling isn’t thinking about what they might want 15 years down the road. They have disposable income they are primed for spending. Hindsight is a beautiful thing but I only listened to about 1% of things people over 30 told me.

If I was young again I’d be maxing out my kiwisaver from day one. 8% of income plus 3% match plus tax credit will add up to a nice chunk of change by the time you are ready to buy a house. Hopefully chunky enough that you don’t have to withdraw all of it for the deposit. I like kiwisaver as a vehicle for saving a house deposit over the long term for young people mostly because the money is untouchable for anything else. You can’t decide to blow it on a trip to Thailand with your girlfriends. Its LOCKED DOWN!

Then I would match that again into a regular savings account. Yep another 8% of wages into the lowest risk high yield deposits you can find. And I’d whack a portion into an index fund because its not just enough to save money, you need to invest money! Now that portion you’re not planning to spend it in a hurry, you need to leave it in the market and add to it regularly to gain the benefits over the years.

This gives you a 16% savings rate plus a bonus of the 3% employer match. So pretty close to 20%. Set it up and forget about it until you get a pay rise, adjust your savings to match. Now 20% may seem like a lot, but it’s really not. You’ve been living on next to nothing while you were finishing your schooling so avoid inflating your spending to make 80% of your pay packet disappear each week. You can probably save even more. Keep upping the amount by 1% of your wages every pay day till you hit the sweet spot. Your savings/investing rate is directly linked to your ability to become financially independent. So keep an eye on it, don’t let any bad spending habits erode your savings habit.

Balance your budget with a Potato
Balance your budget with a Potato

If you start saving like this from your very first paycheque you won’t even feel the pain of missing that money. Despite what you end up doing with your life you’ll have plenty of capital for making those big financial decisions in the years ahead. You’ll have more freedom than many of the adults you know.

Depending on your job and social circle there is a lot of pressure to upgrade your lifestyle rather rapidly. But when I think back to my student days, well I was broke sometimes but things were uncomplicated. The house we rented was old, with internal windows and we didn’t have worry about maintenance. We split the bills 5 ways so everything seemed cheap.I walked everywhere and lived with all my friends in flat. The furniture was old and it didn’t matter if you spilled a bit of beer on it. On sunny days we’d drag it out to the porch or garden. I was happy and yes its unrealistic to stay living like a student forever, but the longer you can hold on to the uncomplicated liftstyle the bigger headstart in life you’ll have.

Millennials are often being underestimated, I think they are a very interesting group. About half the ones I know are barely interested in wealth and the other half are very motivated in following their goals, but they may not be related to wealth in any way. I’m not sure if its because they have already decided that they can’t achieve the homes and assets of their parents generation, or if growing up in a world with global warming and population explosion has made them search for meaning in other ways. So maybe that first home isn’t part of the life plan, well that doesn’t mean that saving investing that money isn’t a good idea. Money isn’t just something your parents generation obsess over, money in the bank is actually stored freedom and choice.

You never know what you’ll need the money for. It could allow you to retrain in an exciting new profession, take year off work to travel, quit that soul destroying job, allow you to invest so you can always be financially free and buy that first home. Give that gift to your future self.



4 thoughts on “Why you need to start NOW if you ever want to buy a house.”

  1. It is a different world than when I started my adulthood in the late 70s. Then home ownership was pretty much plan “A” for many people. Today it seems it is 50/50 with folks as part of their lifestyle strategy. To be truthful we bought a small home at age 19 (1 year after marriage) as a hedge on inflation, not as an investment. Both of my daughters have bought homes by taking advantage of the lower prices during the past recession and housing crisis. It did come about because they kept debt to a minimum, saved and had cash available for a down payment to take advantage of lower housing cost and interest rates. I think your post hits on some good wisdom. Even if you don’t think home ownership is something for you, living below your means and becoming a smart saver allows people to follow their lifestyle dreams sooner than those who do not. Whether that dream includes home ownership or not.

    1. I’d you’re right, a lot of people are ditching homeownership as the number one plan. Here in New Zealand owning your own home is so embedded into the culture and national psyche it’s a hard dream to let go of. I certainly see the benefits of renting and some cases I’m sure it makes better financial sense too. Still it’s nice to have the choice! We have a very inflated housing market at the moment, quite similar to Vancouver or San Francisco so lots of young people are really having to think outside the box if they want in on the housing market.

  2. Great points here! House prices are similarly a bit crazy here down under however it’s still very much possible to own a place provided you don’t want a McMansion to start off with 😉

    I would have started when I was 15 (when I earned the first pay) if I had my time again although mid 20’s is a decent age to start 🙂

    Cool post here, thanks!

    1. Hindsight is 20/20. Cliche, but so true. When we bought our place (10 years ago!) we were kicking ourselves because we thought we had bought at the top of the market. Little did we know what would happen to the Auckland market.

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