Save some money for a new house—sounds easy enough, right? Well, it turns out that saving enough money to purchase a house takes some tough decisions and temporary life changes. But if you can get through it, you will be rewarded on the other side with the home of your dreams.
But how do you even go about saving for something as important as your new home? Here are 8 ways by the experts at the Northrop Team to get you started.
1.) Create a budget
Any serious plan to save money starts with creating a budget--and you can’t create a budget without first understanding how much money you currently bring in and how much you give out. The first thing you’ll want to do is take inventory of your bank transactions over a month’s time. Separate your spending into categories – utilities, food, entertainment, student and car loans, or any categories you need to help you understand where your money is going. Also, look for obvious ways to cut back on monthly bills. Is there a cheaper phone plan out there? With all the online programming options, do you really need cable or would Wi-Fi alone suffice? Now decide how large of down payment you want to put down on a home and how quickly you’d like to have it collected. Make sure you are saving the amount per month necessary to achieve that goal. Take your total monthly income and subtract your necessary expenses. Then, subtract the amount you are going to save for the home and the rest is your monthly budget.
2.) Eliminate luxury expenses
You love your Starbucks mocha Frappuccino you buy each morning, but how much is it costing you per month? After you analyze your bank transactions to create your budget, you may be quite surprised to learn the amount you spend on luxury items or activities each month. Eliminating the expenses that are non-essential can dramatically increase the amount you are able to put aside per month for your new home. Skipping that new movie in the theater for one on TV may seem inconsequential, but combined with skipping other luxury expenses too, it can really add up.
3.) Create a special savings account
So you have a budget and you are putting aside your down payment money, but where are you keeping it? That jar on top of the bookcase full of money might be too much to resist. “I’ll only take a little bit.” “I’ll make sure to put it back in next month.” Thoughts like those are the beginning of the end of your house savings. Sometimes it’s better to simply eliminate the temptation by opening a special savings account at your bank. Put it in there and forget it! You can even talk to your employer about having the designated amount from your paycheck deposited directly into that account. Then it’s easy to save and forget about the money until you are ready to buy.
4.) Don’t splurge – even if you come into some money
Whether it’s the yearly bonus or the winning scratch-off, don’t let a financial windfall cause you to take your eyes off the prize. If you come into money, use it to get ahead on your down payment fund. A lavish spending spree can also cause you to slip back into bad spending habits. Sustained discipline with your spending is the key to success when saving for your next home.
5.) Take opportunities to make extra money
There are many ways to earn extra cash like doing overtime, taking freelance jobs, or throwing a yard sale. Find any way to make a little extra. Any additional cash made while you are saving can be put towards your new home fund and get you ready to buy sooner. Or it can be your “play” money if you find your budget is not just restricting your spending but your social life as well.
6.) If you rent, consider downsizing
Do you love your two-bedroom downtown apartment? Or your bungalow in the area’s trendiest neighborhood? Well, if you’d like a new home even more, you may need to downsize to eventually upsize. Moving away from the most desired neighborhoods into a domicile with fewer rooms can save you big on your rent. If you can’t part from your beloved two-bedroom place, consider taking on a roommate. A little loss of privacy in the short-term will help get you into your new home with all the privacy you want.
7.) Get moral support
Get your friends and family on your side. Sometimes we feel obligated to accept an invitation and don’t want to feel any guilt associated with turning it down. So, let your friends and family know you are in saving mode and ask them to politely exclude you from activities where you will unnecessarily spend money. Tell them if they help you make good financial decisions now, they might enjoy your pool later.
8.) See if you’ve been saving already
You may have already been saving and you didn’t even know it. First-time homebuyers can receive an exemption on the 10% early withdrawal fee if they want to cash out some of their IRA – up to $10,000. If you are buying the home with a spouse and you both have IRAs, you can each withdraw $10,000. That’s a sizable down payment. Be mindful of this transaction, however, because there will still be income taxes applied to it.
With a little organization and some small sacrifices, you will be ready for big changes like moving into your new home in no time. And, with the help of the Northrop Team’s experienced realtors, we’re ready to help get you in your new home. Find out how today!