Saving up for your first home isn’t easy. Even for many of us at BigPay, it’s a long road ahead on the journey to owning our first home.
But fret not - home ownership isn’t impossible just because it’s a little down the road.
At BigPay, we’re all about making smart decisions about money and your financial wellbeing. If you’ve followed our #LetsTalkMoney series, you’ll have learnt to avoid nasty bad debts and build upon good ones.
This week, let’s talk about the 3 things you can (and should!) do to save for your first house or first home.
No. 1: Nail your income vs budget to the dot
Oh yes, we love our quotes, don’t we? While many can be horrible cliches, this one speaks volumes about managing your money as your income grows. Remember the 50/30/20 rule?
Well, if your priority in the next 3-5 years is to save for your first home loan, the first step is to supercharge the 20% (as a portion of your income into savings) into 40%.
Wait, you say - doubling down on savings by cutting down on your wants is just the first step?
Yes, and that’s because we’re all victims of the “lifestyle” trap that sneaks its way into the 50% (the “needs” category).
You see, when our income increases (pay rises, bonuses etc), we’ve been taught to think that we deserve an upgrade to our quality of life. Whether it’s taking a new loan for a spanking new car, switching to branded toiletries or even choosing an upscale supermarket for groceries.
If you’re now earning RM6,000 monthly compared to RM3,000 a few years before, would you spend RM3,000 on “needs” (vs RM1,500 previously), or give yourself the capability to save perhaps an extra RM1,000?
We’re saying, after a certain point, it may not be wise for that portion of “needs” to remain at 50% of your salary!
A personal tip: Whenever I save enough for a no-fee fixed deposit, I’ll lock it in! This way, the temptation of a brand-new iPhone 11 is always kept off-limits while I earn some interest!
No. 2: Hustle & find more ways to earn money
You don’t need superficial labels to get started with a side hustle. Money is money, and people with more money are the ones who make money in more ways than one (their day job).
Case in point: we all have that one friend who goes in a frenzy during festive seasons - baking cakes for Christmas or making delicious roasts for Chinese New Year.
There’s a simple reason why - it works. Festivities are where people are willing to spend on more things and spend more on things.
If you’re particularly skilled in the kitchen, consider cashing in on festives like the Valentine’s Day or Mother’s Day celebrations.
If you have a vacuum cleaner and some cleaning tools, try offering spring cleaning services for a fee.
If you’re great with design, try approaching old-school companies with a spanking-new proposal for festive promotions.
After all, an extra RM 500 a month is RM6,000 a year, and RM30,000 after 5 years. It adds up quickly!
No. 3: Consider an alternative source of funding
The most often-heard barrier to a first home? The down payment.
Yes, forking out RM50,000 on the fly is no small feat. And no, taking up high-interest loans or debts to fund your down payment isn’t a good idea either.
If you’ve been employed for some time, you should have a healthy balance at your EPF Account 2 that you can tap into.
Yes, conventional wisdom says to not touch your retirement funds, but here’s why it can be a viable way to fund your first home.
Let’s say you’ve withdrawn RM25,000 for your first home of RM250,000. If left in the EPF for 35 years on its average of 6% yearly return, RM25,000 will turn into RM192,152.
When your loan is done in 35 years, that initial RM 25,000 would have translated into at least RM 250,000 (as the house is now yours).
However, do keep in mind that a large part of that final valuation will be financed by your monthly mortgage payments - but if you factor in the increase in property price (which, according to EdgeProp, can often be in the 100%+ within the Klang Valley), taking out a sum from your EPF is one of the best ways to kickstart your home ownership journey!
Of course, we’ve heavily simplified the above scenario, but isn’t it a smarter option to put your EPF money to work while securing yourself a house?
That being said, there’s a lot more to money management for your first home than just the 3 things we mentioned above – but we hope this article serves as solid pointers and inspires you on your journey to home ownership.
Let us know what you’d like to read more about in the comments below for our next piece on BigPay’s #LetsTalkMoney series!
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