So, you’ve decided you’re ready to buy a home – congrats! But once all the excitement wears off, you’re faced with the overwhelming realization that you now need to save up for a down payment, and that’s not an easy thing to do. You’re going to have to really scrimp and save, and we can show you how you can manage that.
Before you can start saving, though, you need to take a few steps to prepare things and make sure you’re doing right. Taking the time to think about this will increase your chances of success.
Set a goal
First thing’s first – before you start saving, you need a savings goal. Otherwise, you’ll have a much harder time motivating yourself, because there is no target to hit, and you never get closer to your goal.
So, think about what you’re looking for in a house, and start shopping around. See what the average prices are for homes that fit your needs and work your budget around that. Congratulations – you now have a financial goal to work towards.
Set a timeline
Of course, you also need a timeline for your savings goal. Depending on how much time you’ve got, you may need to adjust your expectations regarding the home you may eventually purchase. And while theoretically, you can start saving until you hit your goal, it’s good to have a pre-determined timeline (1, 2, 5 years, whatever is right for you) for your savings goal.
Not only does that make it easier to break down the amounts you need to save each week or month, but it also gives you some extra motivation to save, save, save to reach your goal in due time.
Make a savings plan
Okay, now you’ve got a savings goal and a timeline to reach this goal. To make saving money easier, you’ll need a savings plan. Your savings plan should suit you, your needs, and your income. While some may be able to save effortlessly, some will need to put a little work into it. A savings plan should give you a rough idea of how much you’re looking to save in shorter increments of time and how.
How to Save Up for a Mortgage Down Payment
Follow a strict budget
It’s no fun being on a budget, especially if you’re used to spending indiscriminately, but it’s time to reign it in. Creating a budget for yourself and following it to the letter can really help maximize the amount of money you can really save in a short amount of time.
All you need to do is sit down and assess your must-haves and absolute essentials and what is the minimum you can spend on them. That would include rent, gas/transportation, bills, groceries, etc. Once you’ve arrived at an amount that seems reasonable, even if it’s tighter than what you’re used to, stick to that amount.
You can even set different budgets for each expense category and only keep enough cash around to cover these expenses. That way, when the money runs out, it runs out for good, and you’ll be forced to stick to your budget.
Downsize your living situation
This may be a difficult step to make and is perhaps even impossible, but it is, potentially, a huge money-saver, so you’ve got to at least take it into consideration. Downsizing to a smaller living space right now (or even moving in with a set of parents or sharing with friends) means that you’re saving on rent or mortgage payments, and you’re also saving on things like heating and electricity.
In addition, you will inevitably end up with items that just don’t fit in the smaller space you’re moving into, and if it’s stuff you don’t need anyway, you might as well just sell it and use the money. Of course, this will not be possible for everyone, and it is by no means a requirement. Especially if you have children or pets, it can be a real hassle.
Pay off debt
Financial experts have one very smart piece of advice they impart to everyone who’s preparing to save up for a big financial goal: pay off debt before you start saving. You may think that goes against everything you know about money and savings, but it actually makes a lot of sense, and we’ll tell you why.
If you allow debt to add up while also saving at the same time, you’ll be actively losing money. You see, the interest you pay on debt will always be higher than the interest you incur from your savings, so in reality, you’re not saving anything; just losing money.
Consider aggressively paying off your debt, first. And start with the highest interest debt you have. That way, you’ll start out with a clean slate and will be able to keep every penny you save, instead of paying it all to the bank.
Save on groceries
A lot of people mistakenly think that groceries are one of those categories where they can’t really save much, but there’s room for shaving some dollars off your monthly grocery bill.
The point, here, isn’t to deprive yourself of anything or go hungry, by any means. It’s to prioritize and shop smarter, in order to achieve some small savings. For example, switching brands or supermarkets can lead to some nice savings, especially since most store brands can easily replicate more expensive branded items.
Another good idea is to keep an eye out for sales and in-store promotions; most of these offers are cyclical and regular, so if you learn their schedule, you can effectively plan your purchases to only ever be on sale. Just buy in bulk when you find something on sale, and it will last you until the next one, leading to long-term savings.
Cut back on extras
Some sacrifices are more difficult than others, and this one is going to hurt – you’ll need to cut back on extras, indulgences, treats, and luxuries. What makes this easier is thinking about the bigger picture: you are saving up for a new and beautiful home for you and your loved ones, so a few temporary sacrifices are all made for the greater good. Give up a coffee now, enjoy a nice house later.
Okay, so what are these “extras” we’re talking about? Well, it’s basically everything that doesn’t fall under “necessities”, so anything you don’t strictly need. That can include snacks, your daily coffee to go, eating out, cable TV service and multiple streaming services, holidays, shopping trips, gadgets, etc.
The thought of giving up all the things that make life worth living may fill you with dread, but there’s a caveat – you can keep some of these if they don’t cost too much. Everyone needs a treat once in a while and taking all the fun expenses out makes for a miserable existence, so it’s up to your personal discretion to judge what is worth keeping and what can be delayed until after you’ve saved up your down payment.
Add other income streams
A lot of people seem to forget that when trying to hit a financial goal, there’s another way, in addition to scrimping and saving you can make more money. We’re not talking about asking your boss for a raise (although it’s not a bad idea, especially if you deserve it), but about taking on more work, if you can fit it into your schedule.
First, if it’s at all possible, you should be looking at taking on overtime at your current employment. Working weekends, holidays, or nights means you get paid at a higher rate than normal, all of which gets squirreled away into your down payment fund.
The other option is to create other income streams. Whether that means getting a side-gig or setting up some sort of passive income scheme, it can help tremendously. Looking for online work is a really easy way to fit some extra work where you can because you’re usually not tied to a fixed schedule. Setting up blogs or making some investments can also pay off because you’re not actively working, but just enjoying income made passively.
Sell items you no longer need
If you’ve exhausted every other avenue, it’s time to look around: exactly how much junk do you have lying around your house that you no longer use or need? That means clothes that don’t fit anymore, that brand-new-in-box gadget you bought and forgot to return, the furniture you don’t use, books you’ve already read, toys your toddler has grown bored of – virtually anything.
You can take all this junk and sell it for profit. You know, one man’s trash is another man’s treasure. You can take the more traditional route of hosting a yard sale, or you can take the easy (and more profitable, honestly) route and put them up online. eBay, Depop, Poshmark, LetGo, Craigslist and other such sites are dedicated to people buying and selling their old stuff, and there will always be someone willing to pay for things you no longer want.
Buying a home is a wonderful, exciting goal that most of us save for at one point or another. While dreams of buying and furnishing your house are great, there’s one hurdle you need to pass, first: the down payment. Saving up for it is a long-term commitment, and not an easy one, especially on a lower income, or when you’re a spendy person.
That’s why we can all use some smart tips on how to manage our money better and in a way that can maximize our savings. Whether that’s reworking your budget, scrimping a bit on groceries, selling some old stuff, or taking up some extra shifts to earn more money, you can always find ways to fund your dream home.