You Want a House Deposit or Want Cash to Invest. Now what?

It is not unusual for a client to say or decide that they would like to get a home deposit together or would like a money pot they can invest in property or the stock market.?

Making the decision is easy. Now what?

You see many come to me thinking I am the Genie with all the answers and with a click of my fingers the deposit and amounts for investment are instantly available.

If only.

But if I could do that then you can bet your bottom dollar I would not be clicking my fingers for your deposit – it will be for Bentley Continental in Black with white interior and 20 inch wheels. And not for you either. That would be for me.

Anyway, I digress.

But there are a few tips and methodologies that do work if followed consistently.

Now, if you were to speak to an ordinary accountant or financial planner, they will instantly tell you to open Excel and undertake a budget and then stick to it.

But I am not an ordinary accountant so I will tell you not to bother. That’s because its stupid. I have yet to meet anyone who creates a budget and consistently compares it to what has actually happened year in year out.

There is nothing more depressing than sitting down with a spreadsheet for company and working out where your money goes. The big stuff is easy. The personal stuff? Not so easy.

And then you have a conversation with your partner to try to estimate the number of condoms you will need in a year which opens a can of worms. At best you will lose the reason to live. I personally would rather have my spleen ripped out that sit with my wife working on a budget.

But to then sit with her regularly to see how much more we spent then we budgeted on? That would be insane because I would talk about the amount of money she has spent on dresses and high heels, and she will equally show why I have an Ultra Platinum Star rating when it comes to shopping on Amazon.

This inevitably leads to a war not seen since 1945. Which I lose. Obviously.?

But having said that a basic idea where your money goes it a good thing. But keep it simple.?

Here are my steps to building a deposit or ensure you have funds to invest for your future.

• Decide on a savings percentage & timescale.

When it comes to savings most people do it the wrong way round.?

Most spend first and if there is anything left over, they put it to savings.?

I am going to tell you to flip this upside down. I going to tell you to save first and whatever is left you can spend.

Most people also have no target so don’t know if they are going to get there.

So, decide on an amount and a date.

Let’s take an example.??

Joe and Jane have net household income is $120,000 or $10,000 per month (this is what hits their bank account).

Now if they want $100,000 deposit and currently have $2,000 in savings, they need to save $98,000. if you want to do that in 2 years that is going to be successful as undertaking electrical work wearing boxing gloves. This is because you would have to put 49% of net income to savings.

49% is too high. Generally, I find that 10% to 20% of net income is achievable. I have some clients who have tried 30% to 35% but it puts a strain on finances and can cause more stress. Expect fireworks at the least.

So, if they decide to save 20% of net income the yearly amount will be $120,000 times 20% = $24,000 or $2,000 per month, it will take just over 4 years to get their $100,000 deposit.?

In your case play with the numbers and see what works best for you and your timescales.

Once you have decided on your percentage every time money hits your bank account transfer your percentage to a savings account immediately. If the amount of money you receive is more or less the same each fortnight or month, then automate the transfer to savings so you do not have to manually do it.?

• Know the basics.

It is easy to estimate:?

• rent, mortgage payments, light, heat, rates and general household costs, insurance, maybe school fees and car running costs.?
• Make a best guess for groceries and other household costs and other unexpected things such as medical and repair costs.?
• Include in this family things like eating out, cinemas and kids’ expenses.
• DO NOT include adult personal expenses. No Jimmy Choo shoes or James Bond Omega watches.

Remember it is a basic estimate – do not try to be accurate because it never will be.

This can literally be done on the back of an envelope. Let’s say Joe and Jane household expenses come to $6,500 a month.

So, we know we receive $10,000 a month and $2,000 goes into savings and $6,500 to run the household, leaving $1,500.

• Personal expenses cause World Wars.

The trickiest bit is personal expenses, and this causes many wars at a nuclear level in almost every household.

Over the years I have tried everything you can think of under the sun to make this work. Finally, after many years of sweat, tears and late nights I think I have finally cracked it.?

And for my perseverance I should be awarded a Nobel Peace Prize for the peace and calm this will bring to many households. But then family lawyers who specialise in divorce got involved saying not all mankind would benefit so I lost out on my prize. Damn them!

Anyway, in Joe and Jane’s case we know we have $1,500 left over after the transfer to savings and household expenses.

What they should then do is allocate a set amount every month for their personal expenses and transfer this to two personal accounts with their own debit cards: one for Joe and one for Jane. They could do 50% each or any other percentage they decide.

So, in our above case $750 is transferred to Joe and $750 is transferred to Jane.?

What they do with it is up to them. Jane may decide to blow it all on a spa treatment or spend little and allow it to build up for those special blue pear drop earrings she ‘needs’.

Equally, Joe may decide to he ‘needs’ those supercool sunglasses that George Clooney wears.

But once it is gone, its gone so if you use it all up there is no more until the following month.

Now the biggest problem? Is the amount allocated enough? That only you can decide. When I do this with clients some say the amount for personal expenses is not enough, so we change it by reducing the amount of savings. But remember the more you feel you need for personal expenses, the less you save, which means it takes longer to build your stash of cash.?

Why does this System Work?

Well, there are a few ways this will help you:

• You have a strategy which is not based on hope.

Many hope they will get a deposit or savings. But hope is not a strategy.?

The system above puts savings as a priority.

• Your bank will love you!

You can easily explain your financial affairs to a broker, or your bank and they conclude you are in control of your finances. If they believe that you can sometimes get better rates and deals.

• There will be fewer wars at home!

Because personal expenses are separated you will find you don’t care who spends what because it was allocated to them anyway.?

And there are some people who feel guilty about spending money. They no longer will because they are spending money that is allocated to them for them.