Many people need 20% to put down on a home. On a $150,000 home, this means $30,000. That’s a whole lot of money. How will you ever come up with that amount? Before you give up, take it one step at a time.
Don’t look at the big number. Instead, set a goal. Let’s say you start with $5,000. That seems a lot easier to save than $30,000. Once you have your first $5,000, you can build up from there. You can choose the number you are comfortable with, though. It doesn’t have to be $5,000.
No matter the amount, use the tips below to help you boost your savings. Before you know it, you’ll be a homeowner!
Create a Budget – Determine What you Can Cut
First, you must figure out your budget. What can you afford? It doesn’t do you any good to set a goal of saving $30,000 if it’s unattainable. We recommend looking over your expenditures for the last few months. This gives you a good idea of what you spend. Compare that amount to what you make. Is there any leeway? Do you spend every dollar? If so, you have some work ahead of you. Saving isn’t possible until you spend less.
You can decrease your spending by looking at the different categories. Look at fixed expenses, such as installment loans and rent. Then look at variable expenses, such as entertainment, dining out, shopping, and any other variable expenses. Can you cut anything out of either category? You may have a harder time cutting fixed expenses, unless you can pay off your car or credit card, for example. Variable expenses, though, may be easier to cut. For example, are you a frequent visitor to the nail salon? What would happen if you cut that out? Maybe you dine out a lot. Cutting it down to once a week or even less can save a significant amount of money.
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You won’t be able to save the full amount you need for a down payment, but it’s a start. Next, we’ll look at your other options to boost your savings.
Automatic Savings
Many people sidestep savings because they use the cash they have. What if you didn’t have it? Then you couldn’t spend it. Rather than making it another chore you must handle, make savings automatic. Talk to your employer about taking the amount right out of your paycheck. It works the same way as Direct Deposit into your checking account. The difference is you dictate the amount.
Let’s say at first you can only spare 3% of your paycheck. If you make $1,000, that would equal $30. Each period your employer would deposit $30 into your designated savings account. While you won’t make a large amount of interest in a savings account, it’s a start.
Eliminate Debt
Getting rid of debt doesn’t sound like a savings plan, does it? After all, you pay money out. However, getting rid of debt gives you more room for savings. You should put this at the top of your priority list. It’s especially important if you have credit card debt. You spend useless money on interest every month. Instead, you could use that money for savings.
A good rule of thumb is to use the 80/20 rule. 80% of your paycheck can cover your expenses. The remaining 20% should cover savings and investments. We consider paying off debt a part of your investment. You can figure out your own comfort level with that 20%. For example, let’s say you make $1,000. 20% of that amount is $200. You can split that amount down the middle, spending $100 on credit card debt and put the other $100 into the savings account. You could also change that percentage whichever way you see fit. Once you pay off the credit cards, put the full 20% in the savings and watch your accounts soar.
Save Tax Refunds
Tax refunds are a gift. It’s money you already spent and it’s not money you expected. Don’t use it. Instead, put it right in your savings account. If you don’t trust yourself to do that, have it deposited directly into the account straight from the IRS. This way you don’t ever see it. This can boost your savings account quicker than many other methods.
Bank Bonuses
Just like tax refund, bonuses work the same way. If you get a yearly bonus, don’t spend it before you have it. Instead, act like it doesn’t exist and throw it right in the savings account. If you feel tempted to use it, put it in a money market. This way you have to leave it for the specified time, such as 6-montsh or 1 year. This way you can let the money grow and you won’t be able to spend it.
Ignore Raises
Raises are another great way to boost your savings. If you lived comfortably on your current income, pretend you didn’t get the raise. Instead, direct that amount right to your savings or investment account. This way you fund your down payment without affecting your monthly income. You don’t have to sacrifice, yet you get the money you need for a home faster.
Make Side Income
You may not have time for a 2nd job, but there’s plenty you can do from home. Look online to see what options you have. Even a small side income can help you boost your savings. If you aren’t good with the computer, but have another passion, pursue it. For example, electricians often offer their services to friends and neighbors. They get to pocket 100% of the profits. This can help you get closer to your goal faster. Explore each option available to you as each profession often has ways to make a little side cash.
Boosting your savings takes a little creativity and sacrifice. Don’t do anything too drastic right off the bat, though. This is a good way to burn yourself out and make you give up on your goal. If you make small changes a little at a time, they eventually make a big difference in your ability to make a large down payment.