Solid Strategies to Successfully Save for the Down Payment on a Home
There are certainly perks to being a renter. You don’t have mortgage payments, you don’t have to pay property taxes or mortgage and homeowners insurance, and, because it should be your landlord’s problem, your weekends are not taken up with pesky maintenance work or repairs. In theory it’s a pretty good deal.
And, for a while, especially when you are young and single, renting is cool. But it’s not stable and the fact is that all of that money you part with on the first of every month is getting you nothing more than a roof over your head for another 30 days or so.
You are gaining no equity in a home and your landlord is free to sell up whenever they like. However, in many cases renters are not renting because they love the idea. It’s the lack of cash for a down payment that is holding them back.
The good news is though, there are some less painful than you might imagine simple ways to start saving money for a home of your own. Here are just a few practical ideas.
Set Some Solid Savings Goals
Although your home shopping days may still be a ways away it’s important to figure out exactly how much house you can afford, based on your current income(s). Once you do that you’ll have a pretty good idea of just how much you need to save for a down payment, and research shows those who set specific savings goals do a better job at putting money away than those who don’t.
Take a Long Look at Your Current Habits
Spend an evening going through your bank and credit card statements from the last six months. Where is your money really going? Many people find that once they do this – and do it honestly – they have been ‘wasting’ more money than they imagined.
Pay Off Credit Cards
One of the first things you should do before saving a down payment is pay off credit card debt. The interest rates on credit cards often approach 21 percent. This is only slightly better than borrowing money from a loan shark (safer, though). The faster you can pay off credit card debt, the better you’ll be able to save for a home. Your credit score will improve as well, a big plus when it comes time to apply for a mortgage.
If you have one credit card with a $2000 balance on it and an 18% interest rate and you pay a minimum payment of $50 per month, you’ll wind up taking 182 months to pay off that card and pay $2,423.19 in interest. What if you could pay that card off quickly and have the money you would have paid in interest to save toward a down payment? Since most people have much more than $2000 in unsecured debt, paying off credit cards is a smart first step before homeownership.
Open a High Yield Savings Account
Saving money in a standard savings account is a good first step, but to get really serious about saving for a down payment you need to make your money work harder. Open a higher yield savings account and stash the cash there instead.
Brainstorm Some Less Painful Ways to Save
Saving for a down-payment does not have to mean giving up everything you love. Here are a few expenses you may be able to cut without feeling too much pain:
Only Buy Things You Need
As obvious as this may sound, many people do not follow this simple rule.
Whether it’s fast food, eating out, brand name products, or something else, there are a lot of things we don’t actually need that we spend money on every month! Yes, it might be painful at first, and you don’t have to stop ever buying something fun, but when the reward will be a home of your own – a home that builds equity – keeping that goal in mind should help you stick to a more frugal lifestyle.
Shrink your TV Package
The average cable TV bill in Canada is going up, not down. Cutting the cord – that is ditching the cable company and streaming shows instead — can help you save money. And you don’t have to be glued to a computer. Set top boxes allow you to stream to a TV with ease and are relatively cheap and if you have a gaming console many of those can too.
Not willing to give up channels? Call you cable provider anyway, and try to negotiate a lower rate. If there’s another cable provider in your area, you’ve got leverage.
Drop the Gym Membership
It’s nearly summer — get your exercise outdoors. Jogging, hiking, and climbing outside is free. And so is following one of the hundreds of at home exercise videos on YouTube once the colder weather returns.
Declutter for Cash
Most of us have too much stuff and a lot of it isn’t junk at all, it has just stopped being of use to us. If yours is a relatively busy neighborhood a yard sale may be an easy way to unload some of your your clutter for cash. Get the word out by promoting it on Craigslist – yard sale fans stalk those listings believe me – and posting signs in the neighborhood several days in advance.
If a local sale isn’t an option, or you have items to sell that are a little too good for a yard sale (especially tech gear and higher end clothing) then eBay, Etsy and Craigslist are all still great marketplaces to sell your stuff through.
Saving for a down payment takes focus and perseverance. The best time to start is now. Figure out what your budget is and how much you can save. Once you have those basic facts laid out, it’s much easier to come up with creative ways to bring in additional money and reach your goals faster.