Top 8 Tips on Saving for a New Home
If you are looking for a long-term investment, stability and a place to call it home, you might be thinking of buying a house. Whether you want to live alone, or with a partner, the first thing you may be worried is the money.
According to Forbes, the median down payment in some states has skyrocketed to $100,000, locking out potential homebuyers. While it may seem an impossible task to raise such colossal sums, the article acknowledges that millions of Americans have bought their homes from savings. You too can purchase your dream home by following these 8 tips on saving for a new home.
If you’re not an heir to a fortune, this could be your first move. The best way to lose your way financially is not knowing how much you spend.
Budgeting does not mean managing your household expenditure only. If you want to pull yourself out of a financial rabbit hole, scrutinize all transactions on your bank and credit card statements.
Note down all payments, including utilities, rent payments, entertainment, and dining out. After that, figure out where you can cut back and then stick to that budget. Divert the remainder to saving for the new home.
Downsizing is a close ally to the first point. After identifying your expenditures, you’ll realize that there are some expenses you can hardly cut back on, especially the necessities. In such cases, downsizing is the way to go.
This involves evaluating your essential needs and identifying ways to downsize. For instance, if you have more than one vehicle, you can decide to sell one, or take the bus or subway to work everyday.
Similarly, you could move to a smaller or cheaper apartment and make some savings on the rent, then redirect those funds to the home savings jar.
Alternatively, downsize lousy purchasing habits, such as impulse buying and getting takeout food.
3. Choose the right savings account
Although saving cash is a wise move, inflation might eat into its value. Saving your money in an ordinary account will not earn it any interest, decreasing its purchasing power over time.
As Warren Buffet advises, if you intend to save money for the long haul, park it in a high-yield savings account, ensuring it grows over time by accumulating interest.
A savings account comes to mind, as it can be considered one of the best avenues for reserving vast sums of money for a long time. The money market account is similar to a savings account, only that it’s easier to access your savings.
An alternative is a certificate of deposit (CD) account where savers can store their money for a definite time, at a locked interest rate that runs the full term, unlike the savings account that fluctuates over time.
4. Consider investing
While parking your money in a savings account can be a good option, bank interest rates may not be sufficient to ward off inflation. One way people have beaten this is through stock investments.
You’ve probably heard of stock investment horrors stories, but it can turbo-charge your investment if done right. Besides, there are plenty of approaches to shares trading that can cocoon you from its adverse effects.
A word of caution – trading stocks is rife with pitfalls. Only invest what you can afford to lose. Experts advise comprehensively learning the market before making the leap. Use a demo trading account to increase your knowledge of its fundamentals and technicalities.
In addition, keep seeking financial advice from knowledgeable sources, such as The Motley Fool Rule Breakers, the best investment newsletter to subscribe to gain advice on long-term investing for growth stocks.
5. Skip a vacation
As unpopular as this sounds, you are aware of how quickly vacations can blow through your cash, which is counterintuitive to what you’re trying to achieve.
Considering the average spend on vacation for a single person could be as high as $1,500, that cash could go a long way to filling that nest egg.
That doesn’t mean cutting out on fun pastimes entirely, just spending less on vacations and trying out other less expensive pursuits, such as visiting historical sites in your State or engaging in fun activities in your vicinity. While this won’t win you any Parent-of-the-Year awards, you will at least not be in your loved ones’ bad books.
6. Side hustle
Saving for a new home takes dedication and sacrifice, but you can lessen the impact by picking up a side hustle. The gig economy has exploded, giving people a chance to chase lucrative side hustles.
Examples of viable side hustle ideas that could supplement your income include:
- Pet sitting or walking.
- Testing websites and apps.
- Ridesharing companies such as Lyft and Uber that allow you to set your working hours.
- Freelance work that utilizes your skills and knowledge. Try freelancing sites such as Upwork and Fiverr.
7. Pay that future mortgage
Although it’s easier said than done, put yourself in the mentality that you are paying for a mortgage.
That way, you get in the rhythm of denying yourself that money and gain the required financial discipline before starting the actual exercise.
As a bonus, you’ll be setting aside extra cash towards saving for the home.
Some people find it difficult to set aside money, especially if they are prone to impulse shopping. They can beat this by automating the savings process.
All they have to do is establish how much they intend to save, then contact their bank and authorize them to withdraw a certain amount of cash and send it to their savings account.
It will cost them a bit of money, but it’s the perfect antidote for people who struggle with managing their finances.
They should ensure they set a suitable auto-withdrawal date, preferably on payday or when they are sure to have money in their accounts to avoid punitive overdraft charges.
For most people, purchasing a new home is the most significant investment they will ever make. It takes great sacrifice and perseverance to save the cash required to achieve that goal. So be sure to follow the tips on this article, to make your savings journey shorter and less painful.