Ask Paul: Where should I save my deposit for my first house?


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Q. I'm a 31-year-old single female with no savings or investments.

I have no debts and own my car.

I have been a low-income earner for quite some time and have only had enough to make ends meet.

ask paul clitheroe first house first home deposit

But I have just started a permanent job earning $61,214 a year before tax. My super contributions are the standard 9.5% and I have a total of $48,000 in my QSuper fund.

My current expenses are $250 a week. In the new job, I have an abundance of extra money. I want to be sensible with it and want to start putting some away for retirement but also want to buy my first house.

I want to buy in the Brisbane area for around $350,000 but am unsure whether to start saving my money and putting it into a term deposit or whether to invest in shares and cash them in when I am about to buy.

I am aiming to buy as soon as I can but would need at least 20% to avoid having to pay mortgage lenders insurance. Or do I hold off and rent? I would be looking at $250 a week, at least, and see this as wasted money. - Rachel

A. I also remember going from my part-time university bar job into a full-time job and being astounded at how much money I had each fortnight.

But it is really easy to get used to spending it, so I am in strong agreement that you lock in your capacity to save.

With expenses of around $250 a week and potential rent of another $250 a week, you will still be able to save some $25,000 a year.

This will quickly build into a 20% deposit.

If the market was booming, you may well worry about falling behind rising prices but this is not a concern at present. Brisbane prices, like those in most of our big cities, are pretty weak at the moment and likely to remain so for some time.

This really suits savers, so my advice is to get stuck into building a deposit for your first house.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Click here to ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. Please view our disclaimer here.
March 23, 2019 9.54pm

Paul, unfortunately you don't answer the question in the headline, which is, "where should I save....?" The question you have answered is, "Should I save....?"

She has asked if she should save for a deposit on a house via a term deposit, or if she should invest in shares to build up the deposit.

The reason this caught my eye is because I have a friend in a similar situation who has asked me how she should go about saving for her deposit now that she's decided she wants to buy a house. My answer is that it comes down to timeframes: how short of the deposit is she, and therefore how long will it take her to save for it. If able to buy in, say, 12 months, a term deposit is the way to go. If it will take her 4 - 5 years to get the deposit together, I'd be recommending indexed funds as these will (based on history!) grow her money faster than a term deposit rate.

Your thoughts?

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