8 Creative Tips on Saving for a Down Payment
You're finally ready to think about buying a home, but you doubt your ability to save up the necessary down payment. Twenty percent of even a modest home can seem out of reach for first-time homebuyers. Here are some creative tips for eking out some extra to boost your savings:
Nearly all discretionary funds (the money left in your budget to spend on entertainment, eating out, and other frills) can be redirected. For example:
When using this method to save for your down payment, it is important to isolate the savings, so continue to pay the full amount for everything, just pay it into your savings account instead.
This is a tricky idea because sometimes hobbies cost you money instead. However, sometimes you can make gifts instead of buy them, or sell what you make for more than it cost you to make it. When this is the case, consider setting up an online store such as Etsy and earmarking the income for your savings account.
Make a game of it
A way to create the discipline of saving is to make a game of it.
- Ditch the cable or satellite: If you pay $50 for cable, you can switch to Amazon Prime or Netflix and have an extra $30 to put into your down payment savings account.
- Revise gym membership: If you pay for monthly gym membership, you can find an extra $35 to $55 per month by switching to a lower-priced gym or working out in a local park or recreation center instead.
- Check out the local library: Most libraries offer more than books. They have DVDs, audio books and magazines. You can access Wi-Fi, free classes and even tutoring, book clubs or game nights.
- Socialize at home instead of going out: host a game or movie night and convince your friends to do the same. You'll all save money and have fun.
Consider adding a side job, or doing chores for elderly neighbors and family members. Let them in on your purpose so they can tell their friends that you're available to rake leaves, wash windows or help with the deep cleaning. If you don't know anyone that needs help, sign up with TaskRabbit to get connected with people that do.
This is a simple way to add $500 or more a year to your savings. First, you have to choose to use cash for casual spending (coffee, fast food, beer runs, parking). Then, take the change and put it in a jar, only spending the paper money. To keep yourself from dipping into the jar, consider putting a slit in the lid and then gluing the lid onto the jar. You'll have to break the jar to get the money.
Increase savings by investing
As the money in your savings account grows, transfer it to a secure short-term savings account like a CD or money market account. Even an online savings account will earn more than your big-bank savings account.
Let family members know that you're saving up to buy a home. That way, they'll know to gift you with either money or something to increase your savings (restaurant certificates so you can save on eating out, gas cards, etc.).
eBay or Craigslist
Most of us have stuff lying around that we don't use, don't need and could sell to someone that wants it. While you may wince at selling that original flat screen TV you bought new for pennies on the dollar, letting it collect dust while you watch Netflix on your larger on is just a waste of money. Take those pennies and add them to your savings.
Stay in touch
When you know you're nearing your savings goals, stay in touch with your real estate professional. We know when a listing drops in price or the seller is offering incentives that can stretch your savings into the amount you need.
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- Indulgence Matching: One idea is to set up a matching game where whatever you spend on non-essentials (that latte at your favorite coffee shop or wine, beer or cigarettes) requires you to put an equal amount into savings. So if you can't afford to pay eight dollars for your non-fat half soy espresso drink ($4 for the drink and $4 for savings), you'll have to find a less costly alternative to enjoy.
- Savings Challenge: Compete against a spouse, partner or friend to see who can save the most money in a specific timeframe (one month, six months, etc.). Create a savings metric (actual dollar amount, percentage of income, etc.) you can each achieve with disciplined effort. Make the prize be another savings for the winner such as the loser hand-washes the winner's car.