It’s one of the American dreams: To own your own home. For many of us it feels like a dream that won’t come true, yet this doesn’t have to be the case!
True, it’s likely the biggest purchase you’ll ever make and saving for it will not be easy, but it is possible. The key is spending less, dedicating yourself to saving, and learning to live without those extras. It will take self control and sacrifice, but when you have a home to call your own, it will all be worth it.
Are you saving for a new home or another big purchase? Find out how you can save more than $700 each month!
As someone who’s been around the house buying block, here are my tips for how to save money for a house.
Tip #1: Have a dedicated housing fund
Create a separate account just for your housing fund. Make it a habit to only put money in and never take money out, no matter how tempting that new pair of Tory Burch flats or that Michael Kors purse is.
You’ll also want to make sure the money is safe. By this I mean you probably don’t want to risk putting your housing money into an investment account, especially if you plan to purchase within the next few years or so.
Tip #2: Automate money to savings
Send a portion of each paycheck into your designated home fund. This eliminates the middleman (a.k.a. you!) so you don’t accidentally spend your savings before you transfer it over.
The best approach to funneling money from your paycheck directly into your savings is to find out what percentage of each paycheck you can afford to transfer over. If you’re saving for a house as a couple, it could also make sense to live off one paycheck and save the other.
Tip #3: Don’t stop at automated savings
If you’ve already started to move money into your housing account at the beginning of each month, kudos to you. However, that doesn’t mean you shouldn’t try to save more!
Try to keep your expenses under budget every month and send leftover cash to your housing fund. I like to make this into a game where I try to see just how little I can live on. It makes saving more fun, and if you’re saving as a team you can try challenging each other each month.
Saving money with the appliances you have right now is a good place to start. Check out my tips for getting the most bang for your buck when it comes to your energy bill.
Tip #4: Consider getting rid of your car
Every penny saved counts, of course, but trimming huge expenses like an insurance bill, gas expenses, and car payments will give your house fund the momentum it needs.
If you currently own two or more cars, consider this: AAA estimated that it costs $8,698 a year to own and operate a vehicle. That’s no small amount of change!
Tip #5: Cut small expenses
Sure, letting go of one vehicle can save you loads, but don’t underestimate the power of small savings. Yes, yes, I know you’ve heard it before, but it’s true! Those $5 lattes and $10 lunches have got to go if you’re serious about saving for a house.
Here’s a good way to put those small expenses in perspective: Print out last month’s bank statement and highlight all the expenses you could have lived without. You’ll probably be surprised at how much of your spending is for wants and not actual needs!
Tip #6: Treat extra money like you never had it
Put all “extra’ money into your housing fund, whether it’s a $3,000 tax refund or a $50 birthday check from grandma. If you get a raise, act like you never got it.
Instead, increase the amount that goes into your savings every month (and celebrate with a small, homemade treat instead). Now is not the time for splurges and shopping sprees, even if you did get a gift or an unexpected windfall.
If you’re expecting a pretty hefty tax refund this year, put it in your housing fund or make a few of these smart tax refund investments, too.
Tip #7: Stick to staycations
It’s hard to give up vacation, but it’s possible to enjoy yourself without spending thousands on flights, hotels, meals, and activities. You heard me right, relaxation is just around the corner!
Make a list of day trips you can take and search for free and low cost activities in those towns. Pack picnics and look for a scenic spot to eat lunch. Having a list of future itineraries will give you something to look forward to in the coming years when Hawaii or Europe isn’t an option.
Your picnic can be as simple or luxurious as you want it to be with these perfect picnic tips and recipes.
Tip #8: Downsize to upsize
It’s hard to save for a down payment when you have to pay rent every month. Try to get your rent down by moving into a smaller apartment, a different neighborhood, or even moving in with a (very) generous family member. Make sure all the money you’re now saving in rent goes towards your home fund.
Tip #9: Retirement savings versus home savings
If you’re eligible for a 401(k) employer match program, then you probably want to continue to make enough contributions to maximize the match. Any extra, though, may be better off going towards you home fund.
Remember, a home is an investment towards your future, so it may be okay to adjust the balance between your 401(k) or IRA and home fund in the coming years.
Jeanette is a household savings expert whose work has been featured in everything from The Today Show to CBS 5 News. Jeanette was even listed as one of the best personal finance experts in 2014, according to GOBankingRates.