Buying a home is the ultimate goal for many of us. But increasing property prices isn’t really helping us work towards realizing this ultimate goal. Many of us will need finance from a commercial bank to make that all important purchase. But before that can happen, potential homeowners need to contribute around 20% of the purchase price based on current market lending requirements. Bearing in mind that property prices aren’t cheap, 20% can sound quite a lot of money, and it is. So what can one do to come up with the 20% deposit? Here, we list some of the ways that can help you reach the ultimate goal.
Under current superannuation laws, Papua New Guineans can actually dip into their superannuation savings to assist with a deposit of a home loan. There is a compulsory rate at which superannuation contributions are to be deducted. You should consider contributing above the required rate. Say if you contribute 5% of your gross pay, you should consider topping this up by another 2% or whatever rate that doesn’t affect your living expenses budget too much. The other benefits in contributing extra is that if you contribute more to your superfund and the superfund invests your contributions successfully, you’re bound to get much higher interest credited to your account from the investments. Secondly, there is the obvious tax advantage in having your salary contributed to your super savings as opposed to a portion of it heading to the tax office. Like any investment, superfunds are also at risk in their investments but they have the expertise and experience to invest money that they think will provide the best possible returns.
Like superannuation, the same effect of contributing can help you increase your funds through principal and interest. However, the difference between superfunds and savings and loans societies is that the latter is voluntary. But it’s worth joining a savings and loans society that has a proven record of good management and good results. The other positive thing about savings and loans societies is that your contributions are deducted from your gross fortnightly salary and not the net or your take home pay. You get a tax benefit through this system and save more than you would if your contributions were deducted from your net pay.
Most of us have bank accounts with commercial banks. Have you ever thought for a moment and considered the type of accounts on offer, the benefits and conditions attached to the account? If you haven’t, you should consider or approach your bank to find these out and consider opening an account to meet your needs. If your needs are to save for a home, you should consider choosing a bank account that is a high interest savings account.
Most of us want our own home or at the very least privacy. Because of the need for privacy, we tend to look for rental properties. There is nothing wrong with this except that when you do rent, you’re doing it at the expense of saving it to buy your own home. So if you do have the opportunity to stay with family, you should consider this seriously because by staying with family you can save that money you would pay on rent in your savings account for that all important home loan deposit. We do realise that in Papua New Guinea, staying with the extended family can be quite expensive too so you will need to weigh up the pros and cons before making the decision.
Many of us are employed and do not have the time and money to go into business. But venturing into business is high risk but as with any investments the higher the risk the higher the potential rewards. Obviously, this is going to take some time planning but if you do have an opportunity to enter into business while working, your savings for a deposit could be fast tracked if your business venture becomes successful. If it doesn’t, you could possibly lose a lot more than you planned. Think about what business opportunities are out there, how much risk you can take, your ability to work on the business and the time you’re likely to invest in the business and of course your finances. Some people have taken this road and come out quite positively, others have not.
6. Your lifestyle
Some of us don’t realise that we spend too much on unnecessary items. Betelnut, alcohol and cigarettes can take a large portion of the budget without us realising. And if you count how much you’ve spent on these items in a year, you’ll be surprised at the amount. A change of lifestyle in ditching unnecessary items or at least minimising them can actually save you quite a lot. Have a look at your own situation and consider the options you have and determining what changes you need to take and stick to them.
Most of the above options are ones you’re best doing early in your life. Obviously, if you’re at the end of your working life the above might not be of much use to you. Firstly, because no one wants a fresh mortgage on retirement and secondly because banks are reluctant to lend out money for home finance to those that are nearing retirement. On the flip side, this information could be handy to you when advising your kids about buying their home. Best to start early!