Tips to help you achieve your goal
When Jennifer Merritt and her husband married six years ago, the couple knew their dream of buying a home wouldn't come quickly. "It took us a really long time to save up enough to get to our goal of a 20 percent down payment," Merritt recalls. She says having a child helped the couple buckle down and put their savings plan into overdrive.
After her son was born, Merritt says, "we weren't going out to dinner or the movies as much anymore. I wasn't shopping as often—little things like that." In fact, the busy (and tired) working new parents were able to save an extra $800 each month just by spending more time at home in their Queens, New York apartment. Merritt also set about 25 percent of her paycheck to automatically transfer into their house fund each pay period. This past summer—after six years—they finally had enough to purchase their first home.
No matter your income level, saving for a home is within reach—especially if you're considering home mortgage options that allow you to put down less than the traditional 20 percent down payment.
How long it takes will vary depending on your finances, of course. But these home savings strategies may help:
1. Know your goal
"Get some sort of pre-qualification letter, even if it's informal conversation with your bank," says Sean Stein Smith, a certified public accountant. That process will give you a better idea of how much home you can afford—and in turn, how much of a down payment you should aim for. Gathering that higher level data beforehand can help you create a savings timeline based on how much you can put away each month.
When we can see ourselves in our new house, that vision is so powerful that it can take a person who is lackluster about saving and help them find the discipline.
2. Slash your bills
Take a close look at your recurring expenses, and aim to redirect 30-40 percent of the money going out the door into your savings, says Kyle Winkfield, a wealth management expert in the Washington, D.C. area. "Consumers have a tendency to be wasteful and not know it," he says. Assess what you're willing to give up or what you can cut back on—like gym memberships you might not be using, or cable channels you hardly watch. Saving $10 here, $50 there adds up, Winkfield says.
3. Become a more mindful spender
Do you often throw out expired or spoiled food? Do you routinely give away clothing with the tags still on? Would it surprise you to learn that you spend $50 a week on coffee and bottled water? "Keeping track of your spending is very revealing," says Winkfield, who recommends finding an app that does the number-crunching for you. That data will give you insight into which areas of your budget can be squeezed tighter.
4. Focus on the big three
Food, entertainment, and transportation are usually the biggest income drains, says Smith. "Cooking your own food, for instance, really does help you cut down some of that budget fat," he says. Winkfield notes that if you're spending $100 a week or more eating out, that could become an extra $400 a month in savings. Finding free local activities, and carpooling, can also help you save money.
Making cuts is just the start. It's important to ensure that those unspent dollars actually end up in your house account. Putting the process on auto-pilot like Merritt did will prevent you from forgetting to make the transfer, or squander the savings on something else. "Open a separate account just for your home savings. Then, set a dollar amount or percentage of your paycheck to redirect into that account," says Smith. Whenever you come into windfalls of money from side jobs, bonuses, gifts, or tax returns, manually add those to the reserve.
6. Keep your eye on the prize
It's only human to veer off track, but finding ways to keep yourself accountable can help. A thermometer-shaped chart is what kept Taylor Kidd motivated as she and her fiancé put away money for two years toward buying a house together in Michigan. "Every month, I was so proud to color in the next section and watch us get closer to our goal," she says. "We put it on the fridge and it was a reminder of why we were working so hard to save."
Buying a home is not only a milestone to strive for, it's also an opportunity to prove to yourself you can save more money than you ever thought possible, says Winkfield. "Don't let that new habit of being fiscally in shape and focused go by the wayside once you buy," he says. "It's not just about a down payment. Home ownership is an ongoing investment."