Although the rent versus buy debate rages on, many people who rent have a goal of owning a home at some point in the future as opposed to renting long-term. While there’s not a lot of difference between making a rent payment and a mortgage payment, the most notable distinction between the two is a down payment (the deposit you make to get your mortgage).
When considering that the median sale price for a home in the US is sitting at $218,875 according to Zillow, saving for the recommended 20% down payment can seem like a steep hill to climb, especially if you are already paying to rent a space.
However, where there’s a will, there’s a way, so don’t lose hope just yet. There are a number of different ways that you can start saving money today to go towards a home purchase down the road. Read through this post to find options that suit both your lifestyle and your goals.
Small Savings
While a couple dollars here and there doesn’t seem like it would amount to much, if you trim small amounts from your current expenses, it will add up over time. Start by re-evaluating your recurring monthly costs, such as:
- TV, phone, and internet bills. Is there a cheaper plan you could downgrade to? Are you using all of what you are paying for now?
- Subscriptions. Are there any that you got a while ago but still haven’t cancelled? What about those magazines that keep piling up on your shelf?
- Vehicle expenses. Is there any way that you can cut down on gas, insurance, or monthly payments? Are you paying for parking at work or on top of rent?
- Groceries. Can you cook more meals at home, or switch to a generic brand for certain items?
- Rent. Can you negotiate a lower monthly rent cost in exchange for doing some maintenance or offering assistance in other ways?
Aside from cutting these costs, you can also look into saving money by taking the DIY route. This includes everything from dyeing your own hair to changing your own oil.
Not only will this help you to identify where you can cut costs, but it can also help you to be more aware of exactly how much you have coming in and going out every month, which will ease you into creating a budget.
Big Budget
One of the best ways to save is to set limits for yourself when it comes to spending. Not only for recurring costs, but for some of the more obligatory ones like holidays, birthdays, and events.
Budgeting is one of the best ways to get an in-depth look at your finances, and that’s exactly what you need to do when saving for a home. But figuring out what you are spending won’t help you to save, it only shows you where you stand.
Once you know how much you have coming in and going out, you need to set limits for what you can spend while you are trying to save. It can be hard to plan for unexpected costs like entertainment and events for family and friends, so instead of saying, “I’ll only spend x amount per month on birthdays”, say “I’ll only spend x amount per gift”.
Since holidays, birthdays, and outings are going to vary month to month, setting a limit might be the best way to go. For example, only spending $50 per event can help you to keep your spending under control without limiting you to a monthly budget of a certain amount.
Bonus Bankroll
Extra money is always a nice surprise, but while you are focusing in on saving, there’s only one place you should be putting it. That means that as tempting as it might be to spend that $50 check your grandmother sent you for your birthday, it’s best to put it straight towards your down payment.
The same goes if you get a raise at work. Instead of spending more than you were before, continue to maintain your monthly spending and put the extra away.
Other unexpected windfalls include:
- Tax returns.
- Bonuses.
- Dividends.
- Inheritances.
- Life insurance premiums.
Saving these instead of spending them will give your down payment fund a nice boost, while also making sure that your extra money has a purpose.
Extra Earnings
Saving money isn’t just about making a budget and cutting costs. You can also start making extra money outside of your regular income to add to your down payment fund. How? Start thinking of what your hobbies are and how you could turn them into casual income.
For example, if you like to dabble in web development, you could make basic websites on the side, or if you make crafts, consider setting up an online shop on Etsy or selling on a local buy, sell, and trade website.
If you really don’t have the time or desire to work more than you already do, you can save by downsizing some of your possessions. Just about everyone has something that they don’t need, from furniture to electronics to clothing. If you are really invested in saving a certain amount by a certain date, getting rid of some of your items that are just gathering dust can be a good way to get in some one-time deposits.
Banking Your Bucks
Just saving your money isn’t always enough. You also need to be smart about where you put it while it accumulates. The best way to decide where it should go in the meantime is to talk to your bank about what kind of savings account will best suit your plans.
While a high-interest savings account may grow your money faster, it may also come with a monthly fee if your balance is below a certain amount, so what you gain in interest may be equal to or less than what you get charged just for having a savings account at all. If you feel like you are going to need to make withdrawals or transfers, those may come with additional fees as well, so keep that in mind before you move your cash to another account.
It’s also a good idea to bear in mind that in order to get a mortgage, you will need to have good credit, so don’t forget to make all of your regular payments while you save, and check out what your debt to income ratio looks like. If you happen to have significant debts, it might be best for you to pay off some of them before you start saving.
Talk to a financial advisor about your personal financial situation so that you can create a plan that is centered around your goals and timelines.
Delivering a Down Payment
It can be daunting to think of saving such a large amount of money, but if you take it a dollar at a time, eventually your savings will grow and you’ll have enough to meet your goal. Getting into the habit of spending carefully now will help you to budget accordingly when you have a mortgage to pay each month.
What tips do you have for saving a down payment?
