Can’t buy a house? Here are some simple money tips

By David Taylor
@DavidTaylorABC

Saving money can be a demoralising experience.

You know the feeling, you give yourself a pat on the back when you save $20 here and there, or choose to iron your shirts rather than take them to the dry cleaner. Or maybe you cook dinner on a Saturday night rather than eating out. Most people have their little luxuries, and saving often involves going without those luxuries.

So then how painful it is then when you spend, not days or weeks, but years, putting yourself through this austerity so you can buy a home… only to find you still can’t afford one. Why? Well because prices are rising faster than you can save!

What happens then? What can you do with your money if you can’t afford a home but you still want to build some sort of “nest egg”? Let’s answer these questions.

I also want to look at the conundrum many Australians are facing right now where they find they can’t save at all.

Also read: Housing appetite rampant despite crackdown

I’ve got bills, I gotta pay

How do you resolve the financial tension many millennials face today? You haven’t had a pay rise in years, and your costs (utility bills, rent) keep rising. You’ve decided something has to go. You’ve decided you’re never going to be able to afford to buy a home, so the few hundred dollars you have left over every month is now going to something else (not a deposit).

The question is what?

There are a few options. They’re called “asset classes”. They include: shares, bonds and fixed interest.

There’s a heck of a lot to learn about stocks and shares, and that can be daunting, but I want to explain just a few things that might be able to help you out.

Firstly, you don’t have to own property in order to be in the property market. Listed property trusts (traded on the stock exchange) give you exposure to the property market. If you, like many Australians, believe the market will keep rising, it’s a good way benefit from that.

If you decided, more broadly, that the share market is where you would like to put your money, please consider stocks with dividend reinvestment plans. A dividend, for the uninitiated, is like rent for a property owner. Once you own a stock (that offers a dividend), you’ll receive money every so often from the company.

Also read: Are the brakes are on Australia’s economy? ANZ thinks so

It’s a way for the company to say ‘thanks for investing in us’, but is actually management ‘sharing the profits with you’. Anyway, you don’t have to take the money and run, you can use it to buy more stock (reinvest it). If you keep saving, buying more stock, and reinvesting the dividends, you can gradually build wealth over time.

Bonds and fixed interest are also worth considering. Bonds tend to make people’s eyes glaze over, but, over the long term, they can be a very stable and prudent investment. Personally though I’d only look at the government bond market if I had a lot of cash and I was looking to ride out a particularly volatile period in financial markets.

Far more appropriate for millennials, and younger folk more generally, are fixed interest bank accounts. Some accounts on the market offer you rates of up to 2.9 per cent if you’re happy to stick $10,000 plus into the bank and forget about it for a couple of years.

So the bottom line? These investment measures won’t help you to get rich quickly, or afford a house, but they will help you build wealth over the long-run, if you are not able to afford bricks and mortar property.

Also read: Gen Y investors on the rise – just don’t mention risk

What if you don’t have any savings?!

If you don’t have any savings I would encourage you to draw up a budget. Work out where your biggest expenses are coming from, and try to cut back. I think you’ll be amazed at how easy this is when you can see it in black and white right in front of you. Once you’ve started to save, even if it’s just a little bit, building it up over a period of 6 to 12 months… then you will be able to start looking at ways to grow those savings (mentioned above).

If you really can’t find any savings anywhere, I’d suggest calling a free financial counsellor. There are all sorts of ways to cut back on insurance costs and there’s government assistance available too in some circumstances.

I heard you shouldn’t dip into your super? Is that right?

What about the new First Home Super Savers Scheme announced in this year’s Federal Budget? It gives prospective home owners a concessional 15 per cent tax rate for up to $30,000 in savings.

If you’re desperate, I suppose the opportunity to salary sacrifice $30,000 into your super, which you can then use to buy a house, sounds good in theory. However, the first point to make is, what can $30,000 give you? Not much if that’s all you’ve got. The second is that I never think it’s a good idea to bring long-term savings measure forward. Long-term savings are for just that, the long term.

There’s always a way

Saving money doesn’t have to be too painful or complicated, but it is a long journey. Like many long journeys, the first few steps are the hardest. Once you build up a little momentum though, you’ll find you’re creating wealth. You may not have the great Australian dream, but it’ll be something, and that’s better than nothing.

*Disclaimer: This column should not be considered financial advice.