Firstly, let’s start with the single most important money habit for everyone.
It’s known as the ‘pay yourself first’ rule, but I like to call it, ‘you can’t touch this’ money.
On my 40th birthday my family gave me 40 token gifts of things that represent me.
One of them was a moneybox.
I have always been known in my family as being a good saver. Yes, I was always very good at saving money.
My problem, however, was that I was also very good at spending it!
I would save all my money, and I would have a large sum, like five thousand dollars (which at 25 years old was a lot of money for someone on a casual wage, and it was a lot of money for me), and then I would blow the whole lot and have to start from scratch to save again (which felt like it would take forever!).
First it was a holiday, second it was another holiday, and third it was our wedding!
After that third time I knew I needed to do something different because with the way I was going I would never have any long-term savings.
My husband on the other hand, was good at saving money, and good at not spending it all. He taught me a very valuable lesson.
Like me, he started with nothing, but what he did differently was that whenever he earned money, he would put a little bit of that money aside that he wasn’t able to touch.
At all!
No matter what.
That’s right; this was the ‘you can’t touch this’ money!
Wherever you are in your home loan journey, you have to put money aside, no matter what. Money that you can’t touch. Money that you can’t touch for a car, a holiday, a wedding or anything other than a deposit on your home, repayments or for investment purposes. This is money you want to grow. You can eventually use it to put towards your home loan when you get one, or some other form of investment.
You can’t touch that money.
Period.
We purchased our first property when we were about 30 years old. After we got married we saved every little penny we had. This turned into our ‘you can’t touch this’ savings, and this helped us to save a healthy deposit for a house. If you are buying before you are 25 years old you may not have had time to build up a strong deposit, but if you have some kind of deposit none-the-less, you can still get into the market and be well ahead of where we started off in our 30s.
The sooner you start, the easier it will be later.
And even if you start later, it’s never too late, you can still do it.
How do you decide how much to put aside?
Well, that’s up to you. How much do you currently earn? Are you saving for something like a car, a holiday, a wedding or a house deposit?
If you are done with large initial lifestyle expenses and you’re on to saving for your house deposit, then go ahead and start putting aside your repayment amount that you have worked out earlier. Put this aside as if you already have a home loan (remember the weekly/fortnightly/monthly repayments from Step 2: Calculate—put that aside).
If you are saving for a holiday or a wedding or for something else you plan to spend it on, then put money aside for your savings and then also put at least some money aside, such as 10% of your income into your ‘You can’t touch this’ money. Give them two separate accounts: (1) savings account; and (2) ‘You can’t touch this’ money account. Of course, you can put as much into your ‘You can’t touch this’ money account, but 10% as a bare minimum is a start.
Yes, you may have less for your holiday or wedding or whatever; but so be it, at least you will be building your home loan deposit (you will thank yourself for this later!). Otherwise, after your holiday or wedding you will have to start from scratch again.
This is the first main money habit and an important one to building wealth. You will thank yourself for later.
How to save your ‘You can’t touch this’ money
The easiest way to save this money is to schedule an amount to automatically come out of one of your accounts into your ‘You can’t touch this’ money account.
Choose an amount, schedule it, then you won’t have to think about when to move the money across or how much to put in, it will just happen automatically. Schedule in some time to review this, such as every month, so you can increase or decrease the amount if circumstances change. Put a reminder in your phone to check in on your automated savings.
Schedule it to happen when you get paid. For example, we used to get paid on a Wednesday so I would schedule it first thing Thursday morning to make sure the money was available.
If you can’t schedule this because you get paid different amounts each time you get paid, work out how you can make it easy for yourself to do this as soon as you get paid. Can you schedule some of the savings and put a reminder in your phone to top it up.
Treat it like a bill. You have to pay your bills so how do you remind yourself to pay those? Give yourself the same reminder for your savings.
How can you make it easy to transfer your money to your ‘You can’t touch this’ money account?
Let’s keep building those money habits. In the next chapter we build on this habit with four new habits.