I’m going to resist the temptation to write a big preamble here and just go for the “meat”. If you’re interest in buying a home but are struggling to save for the down payment here are some tips that might help you. Many of these tools have helped my clients.
1. Give Yourself a Raise
One of the quickest ways to start saving for a down payment is by going to work for your company’s competitor. This is because the competitor will often pay more (or have a better comp plan). This incentivizes the work force (in that particular field) to switch to them. With inflation on the rise, life is getting more expensive. Combat this by shopping around your job market. If it makes sense for your goals of homeownership, do what Nike says and Just Do It!
2. Move to Cheaper Rent
Rent is one of the largest expenses in daily life. If you are renting, you know what I’m talking about. It hits the budget big time! Rents are going up every year but if you are able to move to a different town where the cost of rent is cheaper, or even better if you are able to move in with a family member or friend (temporarily – where rent is cheap or free), this move could put you on track to home ownership way faster than before. Check your local rental lists daily. Search for deals. Sometimes other renters needs to get out quickly and might need someone to take over their cheaper lease, or individual landlords (not property managers) might have a special circumstance that works for your situation. Usually good deals are out there but you have to look nearly everyday.
3. Change Careers
If your job or career path is a dead end, and it just doesn’t make sense to go to work for the competitor (because maybe it will be the same income there), consider switching careers. Many great financial minds have said that one should consider looking for career paths where either the profit margins are high or where your performance dictates your pay (instead your pay dictating your performance – such as in a salary based position). Of course, many careers are not all black and white like this. Some will be partial salary and partial commission, but changing careers paths might be the way to go if the long term outlook means getting to your goal of homeownership faster.
4. Work Overtime
This may seem like a no-brainer but many people have not considered this option. Maybe you don’t want to give up your nights, weekends, or holidays (or maybe there are other things standing in the way). If you can rearrange your life such that working some OT becomes possible (temporarily) this can be a great way to save for a down payment. Sure, it may sound like a pain at first but the alternative could be worse. As the great Emperor of Rome once said, “The obstacle becomes the way”.
5. Use a Budget Tracker (and stick to it)
This is a simple one but not always so easy to stick to. If you are able to track your spending habits it can often open your eyes to areas where you can cut back and save. If a manual spreadsheet isn’t your flavor consider using an app such as Mint or Personal Capital. These apps help you easily track where you are spending your money each month. This let’s you see what’s really going on so that you can find opportunities for savings where perhaps you didn’t notice them before.
6. Pay off Credit Card Debt
This is a big one! If you are carrying a significant amount of credit card debt consider using “the snowball method” (or another method) and pay down that debt ASAP. High interest debt can kill your ability to save for a down payment on a house. Start by using any small amount of savings each month to pay off the smallest credit card (while paying minimum payments on the other ones). Once the smallest one is paid off, use that savings to pay off the next smallest one, and so on down the line until they are all paid off.
7. Trade in Expensive Car for Cheap Car
Excessive car payments (and “lifestyle creep”) can significantly hinder your ability to save. In terms of a car payment, let’s say for example that you are able to trade in your expensive vehicle and take your payment from $800/mo to about $400/mo (or even less). You would now be able stack away that savings. In just 10 months you will have saved $4,000! Depending on your real estate market, this could be very close to a down payment.
Example: Using an FHA first time buyer loan, with 3.5% down and some lender credits (on a home selling for $250,000) your down payment could potentially be around $8,750!
8. Cut Out Eating Out
Years ago I started using an app on my phone to track my spending habits. It linked directly to by bank account and categorized my spending. When I did this I immediately discovered a huge problem. I was spending about $500-$700/mo on eating out! If this is similar to you, consider reducing how much you eat out each month (while using a budget spreadsheet or app) and watch how much you can quickly save. Your bank account and your subconscious will thank you for it! Chances are it will be pretty big and eye opening.
9. Turn Off Autopay Entertainment Bills
Things like Netflix, Prime, Hulu (or other auto-bill subscriptions) can be fun in the moment but they can also eat into your cashflow very quickly (especially if you have many of these subscriptions going at once). Also, how much should we be using these services, anyways? Are they really enriching our lives that much, to where the monthly cost is worth setting back buying a house sooner than later? Instead, you might consider turning those off (or reducing the number of subscriptions, while using alternative cheap or free entertainment sources instead). Things like YouTube, or just getting outside each day, can be great alternatives when you get creative while keeping your goal in focus. So many of my clients have made small but significant changes like this and they later report that they really didn’t miss very much. More importantly, the upside was far better since they accomplished a huge milestone: owning their own home!
10. Save Tax Return Check
Many people can’t wait to get their tax return check because, in their mind, they already have that money spent. If you can avoid it, don’t do it! My mother used to say, “Pretend that it’s not there.” Doing this can set you down a path to owning a home much faster than you first thought. Again, let’s say your future down payment is around $8,000-$10,000, and let’s also say that your tax return check is going to be $4,000. Gosh, you’re nearly halfway there is one fall swoop just by guarding that money and not letting it slip away.
Undoubtedly, there are more options than this but these are some of main things I’m currently hearing, seeing more of, and thinking about. Feel free to shoot me an email or text if you have questions or comments.
