How to Start saving for a house deposit?
In this economy?
It’s possible, and we will walk you through the steps to get you there faster than you may have thought possible!
That’s right, this guide is all about how to start saving for a house.
The Best Investment on Earth, is Earth
With everything going on in the world – sudden economic crashes, global pandemics, civil unrest – the thought of buying your own may seem more out of reach than ever. Even when the market was riding high, there were plenty of reasons that individuals, particularly those beginning their careers, avoided big purchases such as homes.
- Student loan debt;
- High-cost credit cards;
- Having more fun than you can afford;
The fear of making a substantial financial decision top the list of many reasons why millennials fear preparing to become first -time buyers. With so many bills to pay and constant economic uncertainty, how can you even begin to think of saving up for a house down payment?
Like the wise old adage goes: “How do you eat an elephant? One bite at a time.”
Here are four steps that you can take today on how to start saving to buy a house – and quick!
If none of these work, you can always get rich the start your own cult way.
1. Set Your (Realistic) Budget
Ok, we know you are excited. However, before you jump on the popular home sales websites and start planning how you will utilize your fifth bedroom as a man cave or craft room, you need to spend some time planning your budget. If your current financial situation has been a reason for avoiding saving for a home, you can give yourself some extra peace of mind by putting pen to paper and setting a realistic budget.
When it comes to buying a home, there are two main costs you will want to consider: your down payment and your monthly mortgage costs. A general rule of thumb is to save up 20% of your mortgage cost for a downpayment, as this will help you avoid paying extra each month in private mortgage insurance (PMI).
However, saving up 20% of a mortgage may seem impossible for many home buyers. If that number scares you, consider aiming for a particular monthly payment when looking at mortgages. Kevin Mercadante of MoneyUnder30.com offers a helpful formula to consider: your housing expense should not exceed 28 percent of your stable monthly income.
For example, if your take-home income each month is $5,000, you could plan to use $1,400 of that money ($5,000 x .28) for your mortgage budget. However, while setting maximum goals for your budget is great, you also need to keep your current debt-to-income ratio in mind.
While you’re here, we thought we would list our top 4 easy to read books on saving for your first home. These are all available on Amazon below:
2. Reduce Spending & Pay Debts Down
The best way to increase the space in your ability to save up for a down payment and future mortgage costs is by taking step two: radically reduce your spending and pay down your debts.
Two main areas keep many people from saving money for buying a home: their current cost of living and the constant drag of debt. It may seem impossible to forgo that iced latte each morning, but an extra $50 a week saved from your extraneous purchases can add to big payoffs in your current debt load. The more you can pay down student loan debt, car payments, credit cards, and other income-eaters, the more you will have to put toward saving for your future down payment comfortably!
3. Start Living As If You Live In Your Future Home
Another great step in how to start saving for a house is by playing a mind game with yourself.
Once you have landed on a goal for the amount of home you can comfortably afford, take some time to start living as if you are currently paying that mortgage! If your current rent is less than your “mortgage”, consider putting the remainder in savings.
Not only will this help you build your savings quickly, but you will also begin to get a feel for what a homeowner’s budget will be before you actually sign the papers.
Here’s a great resource for working out mortgage payments. A mortgage calculator you can play around with:
4. Make Savings Payments
This final step seems simple, but it is the most challenging part of the list. Great intentions mean nothing until they are put into practice! If you are ready to get serious about buying a home, you need to start saving for your down payment and future payments. This means actually putting money aside that you can’t touch for any reason other than a home.
In learning how to start saving for a house deposit, take the advice of money guru Ramit Sethi:
Save the highest amount you can comfortably set aside while still paying your bills, taking care of any debt payments and putting money toward your retirement goals.
When it comes to saving, most consumers wait until the end of the month, check their account, and pop any leftover money into their savings. However, this method only ensures that you will put the least painful amount away each month.
Instead, consider treating your savings account like a payment. When your paycheck hits, set an amount that you will automatically “pay” to your savings account. While you may not face a penalty for a late payment to your savings, the mental practice will set a healthy habit for building your house fund!
It’s these tips that really help you in how to start saving for a house deposit. But we will leave you with this parting shot.
Small Changes Equal Big Savings
The magic of the above steps is that they work with just a little bit of lifestyle change! Whether you are getting serious about buying a home soon, or are merely thinking about looking into real estate costs, these tiny behaviour changes can exponentially grow over time.
Before you know it, you will be ready to put down a sizeable sum on the home of your dreams and enjoy the benefits of homeownership!
There you have it, how to start saving for a house, practical tips whether it’s in the UK, US or the world over. Now you know what you need to do, how about you go it alone and start your own online business?
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