If you’re itching to get on the bandwagon of home ownership, and your income is substantial enough to carry a mortgage and the related expenses like real estate taxes, insurance and maintenance, you may be thinking of going shopping. One stumbling block may be a paucity of cash on hand.
With the median home in the U.S. over $200,000, and banks wanting most homebuyers to put down 20 percent in cash, this means you’ll need at least $40,000 in cash for a down payment. This sum may be daunting to millennials and others with decent incomes but a lack of savings.
How then to amass the amount of money needed to get into the game? Financial experts and money managers have outlined some strategies to get you started and keep you going on beginning to amass the funds needed.
First things first. You’ve got to take a long hard look at your current spending. There’s no way to sugarcoat the fact that you’ll have to reduce your expenses to start stashing money away on a regular basis. Something has to go so have a good heart to heart with the expendables – little luxuries you can cut and other purchases you can do without. All for the greater good – a home of your own.
Figure out your goal amount and the number of years you’ll be giving yourself to reach it. $40,000 over four years is $10,000 a year or $833 a month. Not impossible. Then create a new bank account for your house fund; not commingling your funds helps with the temptation to borrow your house money, which should be sacred. If you’re up for it, you can even have that amount direct deposited into your new account so it is automatic.
Dedicate yourself to your goal. If unexpected money finds its way to you, a gift or bonus, consider depositing all or most of it to your new fund. If you need to, you can take 10 percent of your windfall for play money, but remember that your home account is also a gift you are giving yourself.
If you’d like to speed the savings process along, you might consider making a few sacrifices. A smaller apartment with lower rent while you amass your funds will allow you to save significant amounts, and perhaps move that buy day ahead. Foregoing an annual vacation and socking that money away will also put you ahead of your plan.
If you’re currently saving for retirement, you may decide that the new home is more of a priority and decide to divert some of the retirement contributions to your home fund. Your home will be an asset that will eventually add to your retirement monies, so you are still protecting your future. You may also be able to withdraw some existing funds from your retirement account without penalty.
Then there’s actually adding to your income by taking a part time job, or working overtime at your current position if this is possible. Think about projects you can undertake that may be profitable.
Lastly, think of saving not as a chore, but as a proactive activity to make a future dream a reality. Just like dieting, don’t be a martyr and cut your expenses to the bone and be unhappy. Making saving too difficult may just encourage you to quit. Figure out what you can live with happily, give yourself periodic rewards and take satisfaction in that you are working toward a goal. As you see the money pile up, and the day approach when you can actually start looking for a home, you can pat yourself on the back for your diligence, determination and discipline.
