How much will I need to save for my first home?

For many young Australians, the dream of owning their first home can seem unattainable, given the high median home values across the country. However, with the right investment strategies, it's possible to achieve this goal faster than you might think.

Rising living costs, including rent, food, transportation, and utilities, are making it harder for young Australians to save for their first home. According to recent research, it's becoming increasingly difficult for people to save 20% of their pay per month. The good news is that investing in a diversified portfolio of growth or high-growth assets can help you grow your savings faster and achieve your savings goals sooner.

To determine how long it will take you to save for your first home, you need to calculate how much you can realistically save each month and the potential returns on a diversified portfolio of growth or high-growth assets. The table below shows the median value of a home in some of Australia's major cities:

Investing in a diversified portfolio of growth or high-growth assets is an excellent strategy to help you achieve your savings goals faster. The average return of the InvestSMART Growth Portfolio since inception is 6.25%pa, while the InvestSMART High Growth Portfolio has returned 7.45%pa since inception. This means that the returns on your investment will compound over time, accelerating your savings growth.

So, how long will it take you to save for your first home? The answer depends on several factors, including the median home value in your desired location, your monthly savings capacity, and the returns on your investment portfolio. However, you can use a simple formula to estimate how long it will take you to achieve your savings goal. Divide the median home value by your monthly savings capacity and then divide the result by the annual return on your investment portfolio. For example, if you live in Sydney and want to save for a deposit of $206,227.60 and can realistically save $1,500 per month, it will take you approximately 9 years to achieve your savings goal if you invest in a growth portfolio with a of 6.25%pa.

But there's a catch. That deposit value of $206K is based on house prices today. As we know, house prices do not stay stagnant. A report by Core Logic shows the annual growth rate of the average property price per city with Melbourne being the highest at 5.9%pa and 4.7%pa the lowest rate in Perth. If we take the middle ground 5.3%pa and apply that to Sydney prices your deposit increases to $328,248. This extends your savings timeframe by an additional two years. Of course this needs to be taken with a grain of salt as we do not know the future growth rate, but you do need to keep it in mind when setting out.

To accelerate your savings growth, consider implementing some tips and strategies, such as reducing expenses, increasing income, and automating savings. For example, you could reduce your daily coffee habit, bring your lunch to work, or use public transportation instead of driving. You could also explore opportunities to increase your income, such as freelancing, part-time work, or starting a side business. Finally, you could automate your savings by setting up a direct debit from your salary account to your investment portfolio. Every little bit counts as shown above with prices akin to trying to jump aboard a moving train.

Owning your first home is a dream that can be achieved with the right investment strategies. Map out a plan but be lienient on yourself if you do stray from it from time to time. There's going to be times you can save more and there'll be times where you won't be able to put away as much. We know life isn't as neat and tidy as a spreadsheet. But don't feel like you'll never get there or you need a set amount before it's worth trying to start. Just start.

Click here to check out this property savings calculator over on our parent site, InvestSMART.