When you get that itch to buy your first home, you may wonder if your savings account can handle it. Let’s take a look at how much you’ll need and explore how to increase your savings.
Depending on what type of mortgage you secure, you may need a down payment of 5% - 20%, which comes out to $9,125 - $36,500.
Stay with me! It’s not as overwhelming as it seems. Many of us let a lot of money slip through our fingers on a daily basis, so here are some tips to hang onto more of your hard-earned cash.
Open a New Savings Account
If you’re striving for a goal of buying a home, it’s smart to keep your down payment funds in a separate account so you can watch it grow—and avoid dipping into it for other purposes.
Create a Budget
Yep, I said the dreaded “B” word. As a future homeowner, building and following a budget are important to your ongoing financial peace. At a bare minimum, start tracking your expenditures in a spreadsheet so you can see where your money is going.
After tracking your spending for at least one week or one month, identify your fixed expenses and determine how much you’ll spend on variable costs. Include at least a little money for fun, otherwise you’ll end up resenting your budget and be tempted to give up. This works similarly to a cheat day for a diet.
Eliminate Frivolous Expenses
Of course “frivolous” is in the eye of the beholder, so this is where you’ll need to discern the difference between wants and needs in your current budget. As you dream about becoming a homeowner, think about what you’re willing to give up in order to reach your goal. This might include little purchases like lattes and eating out or it may be bigger items like expensive shoes or buying the latest tech.
Round Up for a Rainy Day
Some banks and apps now offer a feature that rounds up your purchases to the nearest dollar and sweeps those extra cents into a savings account. It’s a painless way to build up your cash reserves—and working with whole numbers is nice when balancing your checkbook or managing your finances. Before you choose one of these accounts or apps, be sure to check the fine print to see what fees (if any) apply.
Don’t Waste Your Windfalls
It’s a magical feeling when we get our tax refund or a bonus from our boss, but don’t let that giddiness lead to wasteful spending. Plow those chunks of money directly into the savings account you established for your down payment funds.
Save It Before You See It
Your employer may be willing and able to deposit your payroll into two separate accounts. If so, this is a great way to put money aside before it reaches in your everyday checking account. Automatic savings tend to add up faster than those funds we deposit or move manually. Also, as a result of the new Tax Act, you may
have extra money in your paycheck—this is another great source of unseen money to set aside.1
Consider taking on a second job, at least for the short-term, to fatten your bank account. Options include waiting tables, tending bar, tutoring students, offering consulting, working retail, petsitting or taking on extra hours at your current place of employment. Deposit all of those funds directly into your designated future-home savings account.
Keep Your Dream Alive
One of the best ways to stay motivated about a goal—whether it’s losing weight or saving money—is to keep a visual reminder prominently displayed. Choose an image that represents your future home and put it on your phone’s lock screen, the refrigerator or the bathroom mirror. This will keep you moving toward your savings goals.
As you make these financial changes, remember that the discomfort of a second job or saving your money will be worth it when you receive the keys to your new house. Here’s to you and your future home!
- By The HMA Team,
May 08, 2018