If you are hoping to buy a home at some point in the future then you are going to need to save up some money. Firstly, for a down payment which is usually around 20% of the value of the home you intend to purchase, and secondly, for the related closing costs and moving expenses. Unless you’re sure Aunt Gretchen is going to leave you a chunk of cash in her will one day or you have family who is willing to gift you the money, you’re going to need to get started with a plan and a whole lot of willpower to save up enough money.
Saving for a home can be daunting. In this article, I include actionable and realistic tips that you can use on your journey. Unfortunately, there aren’t any magic solutions but I do want to give you hope! Nelson Mandela, the legendary statesman who spent his life fighting political injustice, said it best: “It always seems impossible until it’s done”. So, let’s get started!
Tip #1: The Right Mind-Set
If a budget is a reflection of how we think we ought to spend our money, our expenditure is a reflection of what is truly important to us. The ideal situation is that our budget incorporates both the items that we need to live and also things that are aspirational, fun, or fulfilling. To set a realistic goal of saving for a home, and to have any hope of sticking to your goal, homeownership must be in the “truly important to us” category. If it isn’t, this goal will be that much harder to achieve. Be honest with yourself and ensure that your goals align with your hopes and desires.
Tip #2: Start…
The best time to start is yesterday, the next best time to start is today. Set aside an amount of money from each paycheck and have it automatically transferred to a savings account as soon as it hits your account. Don’t wait until the end of the month to transfer the money because there is a high likelihood there won’t be anything left to transfer. For now, pick an amount that you can easily achieve simply so that you can overcome the hurdle of getting started. As you progress, increase your monthly savings amount by reviewing Tips #3 and #4.
Tip #3: Reduce Your Expenses
Look at the various expenses on your bank statement and see if there is any way you can reduce these. Are there subscriptions you are paying for but not actively using? Those small monthly amounts do start to add up. Can you find a better price for your mobile phone provider, landline (and do you still need a landline…), cable or satellite television, your utilities, or your various insurance policies? For all these expenses ask yourself if you absolutely need the service. If you do, then identify alternative service providers and do a comparison of the service offerings and the costs to see if you can reduce your bills. For every saving you find, increase your regular contribution to your house fund by that amount.
Tip #4: Increase Your Income
Increasing your income is the next way you can increase your savings for a home. When last did you ask for or receive a salary increase from your employer? If you are going to ask for a raise at work, definitely provide your boss with a well-reasoned and substantiated request. Did you take on new responsibilities? Have you acquired new skills? Have you increased your output? Another option is to look for additional income outside your primary job. Taking on a second job is tough and I would not recommend it as a long-term option but could you do it for a while or could you fit it in with your existing lifestyle? Research in your local area and about your industry or area of specialization? Do you have a hobby that you could turn into some cash? Are there opportunities to earn money online doing freelance work? Of course, any extra money you earn should be reflected in your contributions to your house fund!
Tip #5: Decide In Advance What To Do With Cash Windfalls
If you are in a very fortunate position where your employer pays performance or other bonuses then decide in advance what you will do with any bonuses received. I also include here any other cash windfalls, no matter how unlikely they might be, such as an inheritance, an insurance pay-out, a cash gift, or winning the lottery. Perhaps in the past, you would have hit the mall and gone on a shopping spree or bought some new toys like the latest gaming system or TV but, if you have a laser-like focus to be able to buy a new home, I would rather recommend setting aside a small portion of that windfall for something fun (perhaps 10%) and put the rest into your house fund.
Tip #6: Savings Challenges
Now that you have done all the boring, responsible, adult stuff. Try to add some fun to the long, hard slog of saving for a home. Meatless Monday? $5 in the down payment savings fund. Dry January? $25 in the down payment savings fund. Cinema night at home with popcorn instead of going to the local theater? $10 in the down payment savings fund. Take lunch to work? $1 in the down payment savings fund. You get the picture, get creative, and have some fun!
Tip #7: The Coin Jar
This is very much linked to Tip #6. For challenges involving smaller amounts, keep a jar in the kitchen and put actual cash in it. While you’re at it, empty your pockets and wallet every evening and put all the coins in the jar. Also while you’re at it, use it as a “sin jar” — if one of you uses a swear word when tramping on a piece of Lego in the middle of the night on your way to the kitchen for a drink of water, if someone forgets to buy milk on the way home or if someone doesn’t do their assigned chores… put some money in the jar! The more ridiculous and innocuous the sins for which household members have to stump up, the better!
Tip #8: Track Your Progress
I propose a visual tracker that you stick on the fridge or other prominent place. The purpose of tracking your progress is to not lose sight of the fact that you are making progress. There may be a long way still to go but every month that you stash away that cash is a month closer to your goal. Don’t forget to celebrate every time you meet a milestone. A milestone can be in $1000 increments, or whatever you choose, as long as you don’t spend too much money on the celebration of course…
Tip #9: Turning On Turbo-Charge
As you get closer to your goal, I recommend you to read my article where I give you my hack for figuring out how much house you can afford and at the same time turbo-charging your savings.
In Conclusion…
Saving for a home is a daunting task but take consistent steps towards your goal, while also trying to make the process fun and rewarding. Let me know what fun challenges you’re going to try in the comments below.
