Millennials Can Buy A Home and Eat Avocado Too: It Takes Savvy Saving

By Sarah Templeton, Westlawn Wealth Adviser
SMSF Specialist Advisor™
30 April 2018

There’s a lot of talk about millennials and money these days. There’s also something to be said about savvy saving. Social media flared up when Australian millionaire and property mogul, Tim Gurner made the famous “avocado toast” comments predicting that the money millennials were spending on avocado toast might just be preventing them from saving for their first home. The debate around the ‘avocado factor’ is still alive with millennials and their supporters sharing the many challenges beyond the lure of $19 ‘avocado smash’ facing young people in their pursuit to own a home of their own.

The latest prevailing survey showed that fewer young Australians are buying first homes than millennials anywhere else in the world — the numbers were only less in the United Arab Emirates. Rising real estate prices and stagnating salaries are the main factors slowing down the dream, said Louisa Cheang, global head of retail banking for HSBC, recently.

Yet despite the challenges and the media’s critical eye, many millennials are saving for their first home, buying their first homes, and working out ways to do it all while also indulging in fresh avocado treats — prices of which are, indeed, rising.

Here’s how to do it

Savvy saving. While Tim Gurney’s avocado comments were controversial, his advice on how to get into the property market is important. “You’ve gotta get your foot in the door and you’ve gotta get slowly up the property investment ladder. The people that own homes today worked very, very hard for it, saved every dollar.”

What You’ll Need

  • Ideally, you’ll need to save 20 percent of the property price, plus fees and extra costs such as stamp duty, which first home buyers typically need to pay for. Banks will lend to first home buyers who have less than 20 percent — in these cases, there will be extra costs incurred.
  • If 20 percent is not possible, lenders mortgage insurance will cover the extra. LMI does come with a higher interest rate than a mortgage — seek advice from experts at Westlawn and be thorough in your research to find the most appropriate and fair insurance for your circumstance and lifestyle.
  • Factor in ongoing costs when living in your first home: council rates, utilities such electricity, water and gas, as well as transport. There is also the cost of setting up a beautiful home. It is important to understand what your repayments look like and factor them in to all of your costs, especially if there is a change in interest rates.

How You Can Get There

  • Savvy saving really comes down to creating a savings plan: decide on an amount you ultimately want to save, the time in which you’d like to save it, and research and calculate the percentage of income that will get you there appropriately for your circumstances and lifestyle
  • Seek expert advice from financial and tax advisers at Westlawn to help set up a savings plan and help to guide you through
  • Consider living with parents, family, or friends for a period of time to save money
  • Find a spending formula that is effective and appropriate. For example, the 50-30-20 rule: ideally, 50% of your money is spent on essentials like housing and electricity; 30% should go towards lifestyle, like gym memberships and food. The remaining 20% should go towards savings or paying off any debt you might have.
  • Subscribe to a budgeting app that will keep track of your savings goals and spending habits. Choose a simple, sophisticated app that will send alerts and reminders, and may help you create new spending habits without too much sacrifice.
  • As you get closer to a deposit, research, seek advice and be wise in choosing a bank that offers the best value and most appropriate mortgage for your means and ultimate goals.

How To Drink Lattes and Save

  • Factor your lifestyle and goals into your budgeting — travel and restaurants are still possible in a savings plan. Subscribe to an app with a function that calculates and tracks both actual and projected spending, and helps you prioritise.
  • Pick your sacrifices: planning allows for important life experiences and indulgences, just perhaps not all of them. Consider one or two lattes a week, rather than five or seven. Plan one big trip in the future and add that to your overall savings goal.
  • Small change can make a big difference: savings apps such as Digit monitor spending habits and guide on areas to save a few dollars.
  • Prioritise saving, work hard but also remember what’s important in your day to day living.

Seek savings advice from a Westlawn Wealth Adviser today by:

  • Calling us on (02) 6642 0433
  • Emailing planning@westlawn.com.au

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