Holiday Or House Deposit? Crap, I Hit Tipping Point

The realisation hit my wife and I like a tonne of bricks. With a mixture of fear and disbelief, we turned to each other: "Oh no. we're being…responsible?" For the first time ever, we craved furthering our house deposit much more than the expense of a trip away. It's a major switch, and I didn't see it coming.

Setting goals is an evolving process and that's what this post is about. Well that and the fact that (yes, you're right) we should have been saving a lot sooner.

Priorities Change, And That's OK

High on travel bug venom, we've always admired friends who instead opted for houses and strollers. "One day" we said. Normally that's short code for procrastination, but sometimes you're just at the right point to make certain decisions.

Spending the better part of my twenties overseas and travelling was a clear and conscious decision, and I'm as grateful for that opportunity as I am proud of our recent decision to focus on settling down. I embrace those choices along with my underlying mistake: house savings and travel needn’t be an either/or proposition.

Don’t get me wrong: there's already enough Lifehacker in me to make sure I split my pay cheque into bucket for each of my goals. My wife and I have purchased and paid off a car over the last few years, and have no debts. But alas, one of those buckets should have been for a house deposit, no matter how small the trickle of coins was or how insurmountable the housing market seems. Consistency and discipline is key. As countless Lifehacker posts will explain, it’s about taking small steps to going frugal without making yourself miserable.

Moving Forward

I’ll admit I’m a little OCD at times, but I'm determined to now use that in my favour. I've turned our buckets into separate accounts to further remove temptation, and we’ve drawn-up a detailed budget to track spend and better spot areas where we can shave costs. Between Google spreadsheets and Google calendar we're able to see easily track/update/share expenses and when they're due.

Finding new ideas to save costs has become fun in some sort of sick and twisted way. We’re also cooking again and eating healthier as a result, and heaven forbid -– giving up the cancer sticks will even pay for me to go back to the gym. For someone so into science and rationality as I am, it’s kind of stupid that I smoke to begin with. Still, this post is about owning your choices (good or bad) and course correcting now instead of later. Moving forward and maybe -- just maybe -- putting something aside to have a nice romantic dinner once in a while.

So that's where I'm at right now. Have any secret ninja tips you can share? Tell me in the comments.


    Save the cash from giving up the gaspers. Don't waste it on a gym, there's a massive money sink that a lot of people get suckered into coughing up for on a monthly basis. lifestyes change and people find they can't get to the gym often enough to take advantage of the sunk costs.

    You have enough self control to do exercises to be fit without going to a gym. There's plenty of free apps out there for phones that can give you the push you need, be it C25K or Workout Trainer. And you can do many things at home that'll help you get fit, without resorting to weight or rowing machines at gyms.

    So funny the people go travelling and then bitch that they cant afford house later.

    Straight from uni got job bought first house at 23 paid off then bought my second house ( trade up ) and debt free by 29 then traded up to third house debt free at 35 with $2m house. Now I go travelling, but stuff me if I stay in shitty accomodation.

    ( had my first car til I was 30 then I only bought a $16k one when I could have afforded alot better ) I dont make fatastic money but i refuse to waste money on crap.

    You have to understand its the multiplier early in your life that sets you up. Saving like crazy after 35 and I doesnt change how much you have. The key is early when you set patterns for life. Now I think I will go out a buy that Ivory back scratcher I always wanted

      Paid off a house in 6 years? You either *do* make fantastic money or it was a bargain of a house.

        well, considering skinhead's age, he got into the property market around 1999, well and truly before the property boom hit us... so, not to take anything away from shinhead, but it was pretty easy to make money in the property market if you got in 1999... According to reports from RPDATA.COM

        "In some areas across the capital city residential property market, values doubled value over the last 10 years."

        You still have to save and be smart about it, so well done SkinHead!.

          Its all about expecations as well. First house was a crappy unit cost $ 145k But to put things in perspective I was earning $25k and my girlfriend $27k
          We had one car to share. We saved 100% of my salary and even some of my wifes to the mortgage.

          Second house cost $ 360 I had $200k of debt but I was earning $32k and my wife $ 28

          Third house cost $900 I had Debt $ 300 I was earning about $ 120-130 and wife on $0 with 3 kids

          So not "Fantastic money" but alright.

          People just want to have everything straight up. Thats the difference. Tradeup, Save and get the multiplier from an early age.

          The same opportunities are there right now. Its crap to say that housing is any more unaffordable than when I was 23. If you feel it is then you are wasting your money on "stuff you just dont need " The diff is that my spending entertainment money was $ 50 a week Still isnt far off that and I dont want for things . As I dont have to pay interest and my basic asset grows faster than anything as my core assets are taken care off

          Advice to the 23-30 year olds - Save a core asset then bite off more than you can chew and chew like mad on savings. If you are not saving min 30% of your earnings then you are suffing up you early core asset

            "Third house cost $900 I had Debt $ 300"
            ... and that's where you won the property lottery that we won't win today - I'm assuming this was as a result of your $360k house going up by $200k or so, something unlikely to be repeated in the same time frame.

            Not that I disagree with your other points, but luck did play a part.

              I'm with SkinHead - although I wish I'd started saving as early as he did. In all though, I can't complain and in comparison to most of our peers, diligence and frugal living have paid off.

              That doesn't mean to say we go without but we treat everything we own carefully and get the most out of it - no need to keep up with the Joneses. I'm also a big fan of the entertainment allowance.

              My missus and I started on $70 a week each in 2004... it's now down to $40 and I don't think I miss out on anything (some of my mates might disagree). I'm trying to save mine for an Omega watch but I'll probably be dead at the rate I'm going. It'll be fun trying though...

            This advice is a little reckless. No one in today's market should bite off more than they can chew. If you're biting off more than you can chew with interest rates at the historically low values they presently are, you could end up unable to meet your repayment commitments quite easily if they rise by 3-4% or so.

            Similarly your figures show you bought 2 houses in the last 10 years which more than doubled in value. A house bought today will not go up by a factor of 4 in the same period. With median house prices at a tad under 9x median earnings in our state capitals they would have to go up to 36x earnings (less wage appreciation - let's be generous and change the 36x to 20x once wage inflation is included but this is far too ambitious) to be in the same situation as yourself. This will simply not happen, no lenders will lend recklessly enough to allow this level of growth from the current position.

              Karan, capital growth does play a part but not as much as most people think. It's mostly psychological and people get satisfaction out of seeing their assets grow. If SkinHead was in the same market it wouldn't matter as much if house prices went up, down or sideways. It's all relative in my opinion. As an example, if property prices fell 30% he'd be talking about his 1.4 million dollar house... but it'd still be the same house.

                I tend to disagree. If you bought a house and it fell 30% in value then unless you have had the luxury of prior appreciation you're well in negative equity. Going back to the gist of this article, then in this case it clearly would have made more sense to go travelling and then come back to buy a now cheaper house than it would to have never traveled and bought a house for more than it's now worth. Given the choice most people would take travel over negative equity I'm sure.

                The whole live frugally and buy a home as soon as is feasible is not true in all market conditions although it has been wise for a long time and is generally a good idea. I'm a big fan of getting debt under control and getting some assets when you're as young as possible but it is not necessarily perfect advice in all economic conditions.

            Skinhead, my girlfriend is of the same persuasion of you (i.e. save now without travelling and do what you want later), an argument we keep having.. the only problem with what you guys did (for me that is, what you did clearly worked well for you) is that you're only able to start travelling at age 35, at which point I expect to have children, school fees to pay, university fees to save for and a job that would not allow me to take leave as freely as I am able to now..

            Essentially the way I see it, I can either travel now when I'm young (26) and pay for a house when I'm older, or buy the house now and not travel as much as I want until my kids leave the house (again, which may not be possible because of work)..

            Also, I'm not sure I'd enjoy the travelling as much when I was older, and I cant put enough emphasis on how much travelling has taught me about the world, poverty and humanity.. I rarely get worried about my problems any more after seeing what 'real' problems some people have.. those lessons alone make it invaluable for me.

            Very interested in your thoughts, given that you've clearly done quite well with the other avenue. Luck and the property boom obviously helped, but you had to be frugal and used your resources well.

              Johann, if you apply the same diligent principles it goes along way to negate the concerns (I never said it eliminates them). You don't need prior appreciation if you've got strong equity built on savings. It's not easy but it can be done.

        He lived with his mummy and daddy and didn't pay any rent..

      Whilst this has been successful for you it's not really a good example of wealth management, more good timing with hitting the Aussie property market boom-time of the last 10 years or so. People will not be able to do this kind of things with house prices where they are presently as it's impossible to get to a point where house prices will move from the current 9x median income to 18x, say, as banks would never allow this level of leverage. The days being able accumulate wealth via property transactions alone are done, I'm afraid - there won't be major capital appreciation over inflation for short to medium term.

      If I were you I wold also look into downsizing and moving some of your equity into other classes. You shouldn't really have any more than 30% of your equity in your principal residence so if you've done well enough to have $2m equity, I'd look into getting it to work for you. I'm a fan of using the current strength in the Aussie dollar to invest overseas.

        Thats actually a possibly missleading statment to say you shouldnt have more than 30% of your equity in your house.

        I have 100% equity in my house and I have "other investments" just when I had a private debt possition I used to raid the equity in "other investments" so I could reduce my private debt. Ie other assets with equal debt against them equals 0% equity in other assets whilst my private assets / debt is getting lower constantly

        Consider this - If your private mortage is currently 7.5% and your tax rate is say 31.5% ie earning less than $80k your would need to find another investment paying 10.8% return to equal that of your own private mortgage. If you can do that your doing better than me. Invest in your own home loan!! That doesnt mean No other assets but be carefull how you structure your debt.

          Haha, that's not what I meant but re-reading it I can see how someone could think I meant that!! To rephrase, a decent investment strategy once you have the means to live without debt generally should have no more than 30% of YOUR total equity held as your principal residence. This is not the same as saying you shouldn't own any more than 30% of your house which is, of course, madness.

          The theory comes from the fact that you don't want too much equity tied up in the house in which you live as it earns you comparatively little unless you're undergoing a period of house-price appreciation. It is also a hard asset to withdraw equity from without incurring debt via mortgaging. Hope that clarifies.

          E.g. take a man in a similar position to you but let's say he had only $2m in assets and it's all in his house. If house-prices don't appreciate over the enxt few years then he's earned nothing from ANY of his assets. Had he got his assets split such that only 30% was in his house then he's got $1.3m to invest elsewhere that could be earning money. Even if he doens't know anytihng baout investing he can just stick it in other property that would change value at the same rate as his principal residence at least he has the rental income if nothing else. It would normally however be split across other asset classes, some of which are more liquid, allowing you to move into different types of investments as are best at that time. It's hard to raise money to stick in a stock you feel undervalued if your cash is all in your house - you can't just sell off one bedroom, say.

          Hope that makes more sense.

    I'm 23, paying off a house but at the same time put about $300 away into savings each pay (i get paid fortnightly) so i usually have enough for 1 decent sized trip a year.

    And i just got out of uni. Its not that hard to have both worlds you just have to watch your money and not go out every weekend and waist any extra you have just cause you have it (which i see alot of my mates do, but i still manage to go to concerts, comdey shows, ect). If you have extra, save it.

      oh and when i was 18 i worked at a cotton gin for a season and bought a car from that too (12 hours a deay 6 days a week for about 3 months, long hours but it was worth it when i went to uni and needed a car)

      Who are you living with rent-free to afford that?

    It's difficult when you want to travel, and buy a house, AND there's only one of you.
    I've always hated the idea of renting, but had to out of necessity. After saving furiously for years, dealing with a dodgy real estate who didn't go by the RTA rules (what?! we don't need to let you know in advance about an inspection! - btw, you should clean up a bit!), realising that a mortgage is about the same as my rent, and my lease coming up to renewal, at $30 more a week, I decided it was now or never to buy.
    Being only one salary servicing the mortgage, I had to pour every last cent into the deposit, so I could get a loan big enough to cover the cost of the house (despite showing the banks that I'd been paying just over the repayment amount in rent, and saving for the deposit at the same time, so servicing wouldn't be an issue.)
    The downside was that it'll be a few years before I have enough to go travelling.

    Granted, I'm only 26, so still have time to travel. I have a few places I want to visit, mainly europe, so not exactly cheap (if I wanted to duck over to bali for a week or two, I'd probably be able to do that next year, but doesn't interest me).

    My plan is to spend 3 or 4 weeks in 2 countries, so not just the usual touristy sites and move on. I am happy that while I'm away, I'm stilling paying down my mortgage, I'd rather that than having to pay 4 weeks rent and not even be using the place!

    While I'm waiting to build up a bit of savings again, I'm trying to learn 1 of the languages, so when I go over there, I'll hopefully be able to strike up some conversations with locals in their own language... or butcher their language and have them laugh at me.. either way :P

    It does sometimes get annoying though, when you see couples who both earn more than you, are able to take holidays at will, buy frivolous things without a second thought etc. Everything seems so much easier on two incomes!

    Couple of tips:

    1. Pick holiday destinations that are not expensive. The airfare might sting a little to some places but if you pick a cheap country, such as China or Taiwan for example, you can do a whole month for less than $2000 INCLUDING return airfare.

    2. Know that with a home loan, the objective from the bank's perspective is that you pay your interest repayments. They don't care whether you never pay off the loan, as long as you continue to pay the repayments.. that's where they are making their money from. So having that much debt isn't such a big deal because you are really just paying rent for your own place. Whether you go on holidays or not, you still need to pay the rent.. it's the same with teh home loan. That was the number one thing holding me back, "OMG! How would I ever pay off that much!!" but once you realise that you don't NEED to pay it off, it becomes a much simpler equation.

      That's a little irresponsible, especially if house prices are sinking, as it looks like Australian house prices will over the next couple of years. Banks will still lend with "interest only" repayments, but you're relying on capital growth at best to cover the costs of buying & selling, and repaying the loan.

        *shrugs* It all comes down to the perception of that huge debt. You can see it as a massive weight on your shoulders, or you can get over the "initial" shock by realising that you have a LONG time to pay it off and that IF it does take you a lifetime, then so be it.. you are better to have the asset than to pay someone else's asset off. Certainly you should be looking to pay it off in 25 to 30 years (sooner if you are capable) but that SEEMS like a lifetime to many young people who aren't even that old to begin with :) hehe

    The major banks have excellent money tracker services. I use ANZ Money Manager and having a tool that tabulates your bank statements/ credit cards (from ANY supported bank) is GREAT for seeing where that money is going.

    I'm not sure how long you intend to be saving before buying, but if it's 4 or more years, get a First Home Saver account -

    ANZ and Commonwealth offer an account, as well as a few unions. Government contributions and low tax on interest. The reason I got one is because you cannot withdraw from it no matter how hard you try. I wouldn't recommend anyone puts all their money into one of these, but it is the best cure for opportunistic spending of any disposable income you are otherwise trying to save.

      Unfortunately, both ANZ and CBA have now withdrawn the FHSA from their offers. They still honour existing accounts though, luckily I joined CBA before June 30th.

      Your only options for FHSA account now are ME Bank and some credit unions.

    It's not easy buying a house these days. My husband have a substantial deposit, thanks to a generous relative, and both earn good salaries. We have been approved for a 600k loan, which would easily allow us to buy the house we want. However, and this is the major turning point, we are both on one year contacts. Both of our workplaces have stopped giving people permanent positions, with two year contracts being the norm after having worked for them for five years. We are living from year to year, saving and saving, but we will never get the income security we would want to feel like we can buy a house. This, in my opinion, is what most young people are struggling with today.

    Don't be afriad to move. Right now I spend uni holidays helping my old man do flyscreens and there are some bargains in new estates going up everywhere. Look at broadford. 40 minute drive from the city, yet only $220,000 for house and land. Fix up the garden, commute for 5 years then sell it for triple that. and don't be frivolous. get a $3,000 tax return? don't waste it on a trip or something you wouldn't normally buy, take the missus out for dinner then drop an extra $2,600 on you mortgage. Even if you repayment are $X per month, doesn't mean you can't pay off $2X a month, as the faster you pay it off, the less you end up paying. giving them an extra $400 now means $800 less in ten years from now.

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