Adulting 101: Saving For A Down Payment
/Saving for a down payment on a home can be a daunting task, but it is not impossible. Don't let any talk about the challenges of purchasing a home discourage you from starting to save because those challenges are unrelated to your ability to begin saving. Here are some tips to help you achieve your goal.
First and foremost, be realistic. When it comes to your first home, think of it as a replacement for where you are currently living. Be open-minded about the location, the type of home, and how updated it is. You will have more options than when you were looking for apartments, but don't get carried away. Explore different areas in and around your city, as well as other cities or states, to get an idea of what is out there. A good price range to start looking at is between 2 and 4 times your annual salary. Staying within this range will help you avoid having too high of a mortgage payment. A reasonable down payment for a first home can be between 3 and 10% of the purchase price, which should help you determine your savings goal.
Next, be patient. Saving for a down payment takes time and requires small steps. You may need to save for 2-3 or even 5 years to reach your goal, but if you break it down into small steps it will not seem as painful. Start by opening a new savings account and setting up a small automatic transfer from your checking account to your savings account. You may even want to look for a high-yield savings account at a different bank to ensure that there is a small barrier to you spending the money in savings. Get tough on your spending habits to find room to increase your savings amount each month.
Be courageous and take the first steps right away. Identify areas where you can limit or eliminate your spending, such as making coffee at home, preparing meals at home, and skipping purchases of new clothes and electronics unless they are necessary. Look for ways to pick up extra income through working overtime, part-time on the weekends, or finding a better-paying job. It is important to remember that these sacrifices are only temporary and will feel less painful when you reach your goal.
Finally, find someone close to you that will hold you accountable and help you brainstorm. Share your goal with others, and you might be surprised by how many people are willing to support you. Consider finding an "accountabilibuddy" with the same goal as you to help keep you on track. Keep in mind that by saving $500 per month, you will accumulate $20,000 in a little over three years, while saving $800 per month will get you there in just over two years. Either way, you will be surprised how quickly you can reach your goal.
Saving for a down payment requires patience, discipline, and sacrifice, but it is an achievable goal. By being realistic, patient, courageous, and finding accountability, you will successfully save for your first home.
- Kyle McCune, CFP®, Worley Erhart-Graves Financial Advisors
