Have you ever heard that the down payment on a house should be 20% of the listing price? That means you’d need to have $60,000 in savings to put down on a $300,000 house. This doesn’t include closing costs, insurance, and taxes. That’s a big number! 50 years ago, a home buyer needed about half that amount (adjusted for inflation).
In today’s world, where first time home buyers are generally carrying student loan debt and paying living expenses on an apartment, it’s difficult to save that much money. Many people can still do it, but most are actually planning for a 6% – 12% down payment. For our $300,000 house, that’s between $18,000 and $36,000. While this number is more manageable, it will still take a serious effort. So how can you save up for your down payment?
We’ve got 3 ways for you to cut costs so that you can save for your dream home.
1. Cut the Cord on Cable
Take a good long look at your cable bill, and scroll through all the channels you’re getting. How many channels are you actually watching, and how often? While many folks have already cut the cord, a lot of people haven’t because they’re on a bundled deal from their provider. Call your provider and see if you can work your way into a Wi-Fi only contract.
When you cut the cord, be careful that you don’t make up the cost in streaming services. Be very selective about which services you add to make sure that your savings grow. There are many free streaming services that might meet your needs. Once you cut this expense, make sure to move that amount into your savings account each month.
2. Cut Back on Lunches and Lattes
It’s occasional, right? Just picking up a salad when you forget your lunch, or swinging through the drive-thru for coffee because you’ve never seen the line so short. Try this: keep a notebook handy and write down the date and cost of every prepared meal or beverage you buy. If you’re on par with the average, you’ll find that you’re spending around $250 a month on eating and drinking out!
That’s an easy $3,000 in your savings account each year if you make the tough decision to be your own barista and short order cook. We know that life is meant to be lived and enjoyed, so this isn’t about completely depriving yourself. The idea is to make lunch and coffee an occasional treat rather than a thoughtless convenience. This savings measure usually comes with added health benefits, too. By preparing more of your own food at home, you’ll eat better. Since you don’t have to go get lunch, you can use that extra time to take a walk and get some mid-day decompression!
3. Cut the Financial Clutter
How closely do you watch your credit card and bank statements? With paperless statements, autopay, and everything available with the swipe of a card, it’s easy to lose track of your actual spending. If you’ve been inattentive to your bills, it’s time to take control. Log in to your accounts at least once a month and review all of your charges. What subscriptions are you paying for that you don’t use? Cancel those. What minimal expenses are adding up each month? Pause and think about purchases before pulling out your card.
There are some bigger savings you can access in this category, as well. Shop around for better insurance rates. Look at refinancing your car. Can you transfer your credit card balances to a lower interest rate? Remember, it’s important not just to cut these costs, but to document the savings and segregate that amount into your down payment fund.
Keep Your Eye on the Goal
Cutting costs is never fun, but remember that you’re saving for a life-changing investment. By learning to live below your means now while you’re saving, you’ll set good habits for maintaining financial stability in home ownership. Don’t let saving money keep you from having fun, either. Learning how to live well while on a budget boosts your creativity and often makes for better memories.
Dinner out becomes a picnic. Hotel bookings turn into campsite reservations. Time at the gym becomes going for a run with an old friend. Bragging about name brands becomes bragging about the deal you got. In truth, many people find improved lifestyle happiness when they change their financial perspective. Whatever you do to create your own savings goldmine, enjoy it!
Are you steadily building your down payment, but have questions about the market, how much you’ll need, or what you’ll be able to afford? Contact us to start planning your map to being a first time home buyer. At 1SlickHome.com and The Geoff Slick Team at Keller Williams, we work closely with buyers to help them achieve their real estate goals. We work with several multiple listing services to help you identify the right home in the right location, including Lansdale, North Wales, Souderton, Harleysville, Collegeville, Chalfont, Doylestown, Quakertown, Perkasie, and more!