Starting the new year off with plans to get into the housing market? You’ve come to the right place. Buying a home is one of the biggest investments you’ll make. Saving the initial down payment for a home can seem overwhelming at first, but it is achievable. Getting over this initial hurdle just takes a few tweaks to your spending and consistency. Stop stressing and start saving with our tips to save for a down payment below.
Examine your expenses
It’s difficult to know how much you can save if you’re not sure where your money is going in the first place. Take a deep dive into your monthly expenses. Start with your bank account and credit card statements and go line by line. This will give you an idea of how much money you have coming in and where it is being spent.
Once that’s complete, check for any patterns in spending that may prevent you from reaching your savings goals.
- Are there recurring payments for services you no longer use? Cancel them.
- Spent more than you thought on dining out or shopping? Consider cutting back.
- Do you have high interest debt? Pay it down.
Determine how much to save
Research home prices in your area to get a ballpark estimate of what you’ll be spending. While conventional advice suggests saving 20 percent of the home’s total price for a down payment, that is not a rule set in stone. Plenty of people buy a home with far less than 20 percent. Some programs like an FHA loan, will let you put as little as 3.5 percent down. Estimate how much you will need for the initial down payment and closing costs.
Create a budget & automate savings
After examining your finances, it’s time to create an action plan. Using your monthly expenses as a guide, create a budget. Start with your essential costs: housing, utilities, groceries, internet/phone, and transportation. This is your baseline number to cover living expenses.
Then look into your discretionary spending like television and music subscriptions, dining out, or shopping. Embrace your inner Marie Kondo and only keep the things that “spark joy”–cut out the rest. Instead of five entertainment subscription services, cut it down to two. Love dining out? Allocate a set dollar amount for it every month (ie $100) and stick to it. It’s important not to completely cut spending money on things that you actually enjoy as this will help you stick to your budget long term.
If this exercise sounds intimidating, there are plenty of budget apps that will do the heavy lifting for you. Services like Mint and You Need A Budget can quickly organize your expenses and help track your progress.
With the rest of your income, determine how much you’d like to allocate towards savings and set up a monthly automatic transfer to a savings account. Ideally this account would be separate from where you keep your primary spending accounts as that will make it less tempting to dip into those funds.
Take advantage of cash windfalls
Take advantage of any bumps in cash flow and direct them to your down payment savings. Raises, annual bonuses or cash gifts can help you reach your savings goals quicker.
Look for additional avenues to save more money. You could start a side hustle or rent out an extra room.
The hardest part about saving for a down payment on a home is getting started. Create a plan and harness the power of automation to help you reach your savings goal.