Are you currently renting and wondering how to save up to buy your home? Learning how to save up using different strategies can help you achieve your goals. Making some simple, yet effective changes to your lifestyle will help you save money for a house.
How much can you afford?
First, decide how much you can afford to spend on a property. This will help you estimate how much you need to save up. This will also help you set up your budget.
The amount of deposit you’ll need will depend on the type of loan you want and the location you’re looking to buy in. You may be able to place a 3% down payment for some mortgages, which might take you less time.
If you’d like to avoid paying extra for private mortgage insurance, you’ll need to set aside 20% for a down payment.
Create a budget
When you have a budget, you will see exactly where your money goes and how you can save up. Instead of losing track of where your monthly salary has gone, you can see every expense and decide in what areas you can save. It will allow you to reach your goal of saving enough for your home.
Creating a budget doesn’t need to be complex. Here’s a simple way to make a budget:
- Note down your monthly income.
- List all your monthly expenses and your monthly savings goal.
- Deduct all your expenses from your income.
- Track your spending for a month.
- Create a new budget based on the previous month.
Pay off debt
On average, Americans spend nearly a third of their income on paying off debts, excluding mortgages. These debts include credit card bills, car loans, and education loans.
Instead of spending that money toward built-up debt, put it forward to save for your home. You could consider paying off all your debt quicker and make higher repayment sums. Once your debt is paid off, you can put more aside for your home down payment.
Ideally, you shouldn’t buy a house when you’re in debt. In addition to your existing debt, adding a mortgage loan plus any extra costs will make it tough. If you can wait until you pay off all your debt and have an emergency fund in place, you will be more financially stable.
Automate your savings
You should set up your account so that after each payday, a part of your earnings moves to your savings account automatically. You won’t have to remember to transfer funds every month and it’s a lot harder to spend money that you cannot see in your everyday account.
You have a few options for a savings account:
- Savings account: The simplest and easiest option is to store your money in a savings account where you do your checking already. As an existing customer, you can open a savings account quickly and transfer money either manually or set up a recurring transfer. However, regular savings accounts come with very low interest rates, and the return you’ll receive on your savings will be minor.
- High-yield savings account: A high-yield savings account offers higher- interest rates than a regular savings account and your money is protected by the FDIC or NCUA. Online-only banks offer the highest rates on these accounts. So, if you can deal with the absence of a traditional brick-and-mortar bank, then you can opt for an online bank.
You may have to wait a bit longer for transfers from your checking account.
- First-time homebuyers’ savings account: First-time homebuyers can benefit from special rates and conditions that will help them with their journey to buy their first home. The offers will vary depending on each U.S. state, so check before opening an account.
- Brokerage account: You can invest your money in stocks and mutual funds. But these accounts can be highly volatile and risky. You could earn higher returns or lose any money invested. Because the stock market is volatile, you may not see returns as quickly as you need. The stock market can recover over time, but you must hold your funds in the stocks for a long period to see healthy returns. This might not be the right option if you think you will need money within a short period.
Cut down on your costs
It’s a good idea to assess your expenses and consider cutting down unnecessary costs to save more and achieve your savings goal faster.
You can start with expenses that you don’t really need, such as streaming services, eating out, or even your gym membership.
Consider cutting costs on essential items such as your phone bill. You can check if there are cheaper alternatives.
Get a side gig
If you want to set aside more money toward your down payment savings, do extra work on the side. You don’t have to do anything fancy. Keep it simple. You can do some work after your day job and/or on the weekends.
Buy used items
You can save a lot if you buy second-hand clothes, shoes, furniture, appliances and other items. Be strategic with your purchases though, as you don’t want to buy something that will need fixing/replacing soon after.
Save bonuses and raises
If you receive any bonuses or raises, consider putting this toward your down payment savings. You could even speak to your manager to negotiate your salary and ask for a raise.
Move back home
Living with your parents for a while will allow you to save for your own home. Even if you’re contributing toward rent, utilities or groceries, you may still save more than if you were to rent out. Moving with your family might mean you can reach your savings goals much quicker.
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