February 18th, 2017 11:07 AM by Jackie A. Graves
Thinking about buying
a home in the near
future? Whether it’s a home for sale in Houston, TX, or Las Vegas, NV, you’ll need a solid savings fund to
accomplish this goal. In addition to covering such expenses as closing costs,
escrow, and initial payments on taxes and insurance, cash is necessary for a down
payment on your mortgage.
Planning to have 20% of a home’s purchase price to use as your
down payment is a smart move. It not only makes you a more attractive borrower
to a lender, but it also makes you a more reliable buyer. The more money you
put down, the less likely your financing (and your home purchase!) will fall
A 20% down payment is a great savings goal, but it’s also a lot of
cash. Let’s say you want to buy a home that costs $250,000. You’ll need $50,000
in cash to put down. That’s no small number. But you can make it happen in the
near future. Here’s how you can work to build a down payment in one year, three
years, or five years.
Raise a down payment in one year
If you target this goal, know upfront that you’ve given yourself a
serious challenge. Building
a savings fund of
$50,000 in 12 months will require you to set aside $4,167 per month and take
some extreme measures to make it happen. First, look at every single dollar you
can cut from your current spending. Here are a few ways to aggressively trim
in with a friend or family member to slash your rent. In
addition, you could offer to do work around the house or help out in other ways
to cut your rent further (or even live rent-free!).
useful but not strictly necessary assets, like your car. You can
also comb through all your possessions to determine what you could sell, from
old collections to used textbooks to clothes and more. Consider consignment
stores, online yard sales, and other ways to sell your stuff.
rid of every nonessential expense, no matter how inexpensive it
may feel. That can include everything from services like Spotify and Netflix to
discretionary spending like shopping or new tech.
essential services for cheaper options. Perhaps you can reduce
your insurance coverage and drop the cost of your monthly premiums. Other
places to consider: your cellphone plan and your groceries. Your new rule
should be “If I don’t need to buy it, I won’t.” Remember, you need to bank
$4,167 every month. Many
people’s total monthly budgets don’t add up to the amount you’re trying to
for a down payment in three years
While it’s still an ambitious savings goal (you’ll need to save
$1,389 per month), your approach won’t need to be quite as extreme. However,
the basic steps remain the same: Cut unnecessary costs and look to increase
your income so you have more cash to save. Here are a few ideas to help you
eliminate expenses and immediately save hundreds per month.
to a streaming service. The average cable bill costs about $100 per
month. Most streaming services are less than $10 per month. This will give you
a monthly savings of $90!
the number of meals out you buy each week. If a
daily lunch costs you $10 but packing your own costs only $4, that adds up to a
monthly savings of $180.
expensive entertainment. Even one date night to the
movies per month can put a dent in your efforts! Two tickets, sodas, and a
large popcorn typically cost about $35. In comparison, a rental from a video
kiosk (or your streaming service) that you can enjoy at home with microwave
popcorn? Maybe $5.
back on your vices. Beer, wine, and cigarettes don’t come
cheap. If you’re used to buying a bottle of wine and a six-pack at the store
each week, you may be spending close to $65 per month on alcohol alone. Cut
back to just once a month (try
the no-spend weekend!), and you could be looking at a monthly
savings of $45.
out at home. There are countless alternatives to a pricey gym membership,
from fitness communities to printable workouts to YouTube videos and more. You
can slim down both your body and your budget for a monthly savings of $60 per
your bills. Call your service providers, insurance companies, and cellphone
carriers and ask about lower-cost options. You can switch to a more basic
service, request discounts, or consider cutting the service altogether. This
can add up to a monthly savings of $50 or more!
Making the changes in this list could save you $455 per month,
which means you’re down to finding about $1,000 in your cash flow to allocate
to your down payment goal. Additional sacrifices could include cutting dinners
out to only twice a month. It might mean walking or taking public
transportation instead of grabbing an Uber. And it may mean simply not buying
things you don’t actually need.
Giving yourself three years also lets you make sustainable and
lasting strides with earning more. You can develop
a side hustle and turn
that into a strong income stream. Or you could work your way up at your current
position to take on more responsibilities that come with higher pay.
Every time you earn a raise, get a bonus, or make extra income,
contribute it straight to your savings fund for your $50,000 down payment. That
will either allow you to reach your goal sooner or require you to cut back less
your down payment in five years
This timeline gives you the most flexibility in saving your
$50,000 down payment. You’ll need to save about $834 per month to meet this
goal. It’s still a lot of money but completely doable if you’re willing to cut
back in places you currently spend. Use the tips above to help you cut costs
and free up more cash for your down payment.
You might also consider investing your down payment savings in a
taxable brokerage account. With five years until you need the money, placing it
in the market enables your money to work harder for you. But remember, all
investments carry risk. Don’t take this approach if you’re uncomfortable with
the fact that you may end up earning 5% or more — but you could also only break
even or even lose money.
The biggest challenge in saving $834 per month for this length of
time is staying focused. To help, create an automatic transfer from your
checking to your savings each month so you know that money consistently moves
to your down payment fund even if your attention sometimes wanders to other,
And of course, working on earning more during this time will help
too. Just as you would if you shot for the three-year goal, you can work to
make lasting, big-impact changes to your earnings. If you’re entrepreneurial,
that might mean starting something on the side and slowly growing that to a
full-time business that generates more revenue than your current gig. The
possibilities are endless, and with five years, you have much more time to test
different paths and figure out what works best for you.
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