We recently read an article about how many coffees one would have to forgo to save for a deposit on a house. The answer was… quite a lot!
We think expressing home ownership in terms of coffees is a bit silly and misses the point. The issue is really pretty simple. Having enough money to afford a house is all about saving. A fraction of every dollar that passes through your pocket or purse needs to be saved – it’s as simple as that. It’s that fraction which, with the power of compounding, will grow into a significant sum, and it’s surprising how quickly.
How big that fraction should be will depend on lots of things: like how quickly you want to accumulate savings, how much you need or want to save, your income, and how much you are prepared to not spend today. Once you have figured out what percentage of your income you want to save, then all you need to do is set up an automatic payment from your wages/salary or from your bank account into a savings account. It’s the simplest plan in the world.
Here’s a tale of two families, the Spenders and the Savers. The Spender household has an annual income significantly more than $100,000. After 20 years of work they have a large mortgage, very little equity in their home, and not much in the way of savings. The Saver household has only about half the income of the Spenders, but they have just paid off their mortgage and can now look forward to another 20 years of accelerated savings.
Quite simply, the Savers have out-saved the Spenders, despite having only half the income. The funny thing is the Savers still enjoy a cup of coffee every day and an annual holiday with the kids. It’s just that they know a dollar saved is a dollar they will not have to find in the future.