By: Angela Burkhart, Quizzle.com
Saving up for your dream home takes patience and focus. Believe me, I know. My fiance and I have been scrimping and saving for several months now so we can buy a home next summer.
Our goal? Save 10 percent of the value of the house we'd like to buy, or approximately $10,000, for a down payment. In our quest to buy our dream home, we've learned a few things that work and a few that don't.
Here are our seven best tips for saving money for a down payment:
1. Check your credit report.
The first step in buying a home is understanding what expenses you'll incur besides the down payment, for example, closing costs.
Check your credit report (you can get a free credit report at Quizzle.com) when you first decide that you're ready for a house and periodically throughout the process.
Get an understanding of what's on your credit report and make a list of the items, if any, that must be taken care of to ensure you'll be approved for a home loan. Knowing what items are on your credit report ahead of time can help you manage your money, know what debt you need to pay off and ultimately, save for that down payment.
2. Know your income schedule.
Check which weeks of the month have more bills than others so you know when you're able to put money aside for the down payment. Some weeks of the month may not have any bills allowing you to set aside an entire week's pay. If you get paid on a weekly basis, keep in mind that some months will have five paychecks compared to the regular four paychecks. In these months you can set aside that entire paycheck as most budgets are based on four paychecks a month.
3. Create a budget and set goals.
Creating a budget will show you how much money you have coming in on a monthly basis compared to how much money you are spending on debt and living expenses. You can create a simple budget using free personal budget software online.
Once your budget is created, look for areas in which you can cut down expenses. For example, my credit cards add an extra $500 to my expenses each month simply because I'm carrying balances on them. If I spend a few months paying off those balances, I can save $500 a month. Imagine what kind of house you can afford if you have an extra $500 each month for a monthly payment!
Set new goals each month to eliminate certain expenses so you have room in your budget to save for your down payment and later on, for your home loan payment. I've found that it helps to make a game out of it to see how many expenses I can eliminate each month.
4. Only carry cash.
I know it's sometimes tough to make time to stop at the ATM to get cash, but include it on your way to other errands such as getting gas. If you happen to use your bank card, use it as a debit card and get cash back when you're making other purchases.
By only carrying cash you're less inclined to use your credit cards, allowing you to pay down your debt even faster because you're not constantly adding to your balances. Set a weekly budget amount - I like to call it my "Miscellaneous Fund" - and take out only that much from the ATM. If you budget yourself, say, $40 each week and only carry the $40 and no credit or debit cards, you'll be more likely to stick within those limits. Any money that I have left over, I add it into the next week's miscellaneous fund. Some weeks you might have enough money for extras, like going out for dinner.
5. Avoid going out for lunch and dinner.
Even though it's really tempting to go out for lunch, it can become costly. Consider this: If you eat out each day at work, five days a week, you may be spending an average of $50 a week just on lunch! By simply bringing your lunch, you might only spend $10 each week.
Buy items in bulk such as snacks and water that will last you the entire month. If you always have that urge to eat out, then make it a once a week thing. Treat yourself to a Monday "get the week going" lunch or a Friday "we made it through the week" lunch. This lunch should come out of your miscellaneous fund that I talked about above.
I know that some restaurants are just too good to give up. I love eating out myself and some days I just don't feel like cooking. But by eating out for dinner, you are more than likely to spend more than you've budgeted. What you think might be a $25 dinner, will turn into a $40 dinner after an appetizer and dessert.
By eating dinner at home, the average household can save about $400 per month. If you must eat out then nix an appetizer, order water because it's FREE, and eat dessert at home.
6. Cut out late night shopping trips.
I'll admit: When I'm bored, I love to go shopping. It's probably one of my worst habits. By not going to the store unless you need too and skipping the mall all together, you're less inclined to spend your hard earned dollars. If there is something that you must have, take a look at the budget and see what can be eliminated to help you make that purchase. See shopping as a reward if you eliminate something from your budget; reward yourself for meeting your ultimate goal.
7. Use one bank account.
If you're living with your significant other, you may want to consider using only one bank account. I have always said that I would never combine my money with my partner, however it sometimes makes sense to do so. My fiancé and I only use one bank account; he has his paychecks directly deposited into my account and we pay all of the bills from there. Because he's limited to spending what money I give him and I'm less inclined to spend money that isn't really mine, we've seen our money grow much faster together than it would have separately. By using one account, it's easier to pay your bills and keep track of your budget.
Budgeting for a down payment isn't easy. I know there are times when you must spend that $30 to get your oil changed or $25 on a birthday present; those are occasional purchases. Even if you occasionally spend money you can still watch your bank account grow with the tips above. I personally don't see a reason to budget everything I buy, just as long as I keep those occasional purchases to… "occasional."
Keep in mind these are just 6 tips of many that I have for budgeting and saving. There are a lot of other ways to save money, whether it be for a down payment on a home or some other goal. The key is to always keep your end goal in mind and use it as motivation. If you constantly remind yourself of what you're trying to accomplish, you'll save money faster and reach that goal.
For more tips about your home, money and credit, visit the Quizzle Blog:
- How to Improve Your Credit Score in 7 Steps
- 8 Ways to Stretch Your Money as a Poor, Broke College Student
- Dispelling 10 Common Myths about Credit Reports & Scores
Build Credit from Scratch in 5 Easy Steps
- Will Closing Credit Card Accounts Help Your Credit Score?
And for free tools and information about your home, money and credit, including a totally free credit report and score, no strings attached, check out Quizzle.com.
Image credit: https://www.flickr.com/photos/lumaxart/