Although wages in Singapore has been increasing steadily over the past few years and housing prices have been falling somewhat, saving for a house still seems like a monumental task for everyone except the uber-rich. So how should you save to be able to buy a home by your mid-30s? And are there ‘hidden’ factors you should consider in your planning?
First and foremost is the classic advice of setting a monthly budget and actually sticking to it. Too often, we craft a plan that looks really good on paper only to abandon it a couple of weeks afterwards. The key is to make a realistic budget; start with fixed expenses like utility bills, transportation costs, and existing loan servicing, then top them up with additional expenses and some emergency funds.
In this step, be tough on yourself but also realistic. Forgoing all your hangout sessions may save you a lot, but it may also stress you out. It is better to allocate some money for small luxuries and enjoy it rather than going spartan for a short period of time and splurging after.
The next equally important thing to remember is to stay disciplined with your Central Provident Fund (CPF) monthly contributions. You must pay at least 10% of your HDB’s down payment in either cash or CPF savings, and parting with your CPF is much less painful than letting go of your cold, hard cash.
Moreover, in the long term you can also pay off your legal fees, insurance, and monthly loan instalments through CPF. Ensuring that both your employer’s and your own contributions are channelled into your account regularly may seem painful for now, but you’ll thank yourself for it later.
Stay with your old phone for a year longer, skip this year’s trip to Europe, ask your friends to take turns meeting in each other’s homes rather than booking a hotel room, and take the train/bus instead of Uber or taxi. All these will feel like a big sacrifice, but it’ll save you equally big bucks.
Up next is to watch out for non-house debts. In Singapore you must take into account your Debt Servicing Ratio (DSR), defined as your monthly debt/loan obligations against your gross income. In most cases, HDB and banks will not grant you any loan if it will hike your DSR to more than 60%.
If this happen, the only step you can take is to either finish off your existing debts first or settle for a smaller loan (and smaller home). For this reason, it is not advisable to purchase a car before you buy a flat due to the expensive loan needed for the former. Combining the monthly payments for both a car and a house loan will almost always blow the 60% mark. Another source of DSR is your credit card; make sure you always pay your bills promptly to avoid accumulating high-interest debts.
Protecting future house
Finally, you should also carefully consider the types of insurance policies that you’d like to purchase to protect your future house. After all, what’s the point of saving so much for so long if everything can be taken away from you by an unfortunate disaster or by an inability to pay off a future mortgage?
To protect yourself and your beloved home, you should definitely consider taking fire insurance, mortgage interest policy, home content insurance, mortgage reducing term insurance, and CPF’s home protection scheme. Each of these would represent additional expense, but they would be invaluable should something unfortunate struck.
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