Saving for a house is a lengthy process. With the median home price of $221,000 a 10% down payment is $22,000. Coming up with that amount of money is no easy task. And that is only 10%. If you save up for a 20% down payment, you are looking at over $40,000! It’s no wonder that saving for a house is the hardest part of the home buying process. Here are a handful of ways to help make saving for a house easier and some things to keep in mind to stay on course.
5 Tips For Saving For A House
Use Windfalls To Boost Savings
Everyone gets windfalls – tax refunds or a work bonus – throughout the year. The question is what do you do with this money? If you are like most, you spend it and then wonder that happened to it after that fact. If you want to buy a house, saving these windfalls of money will make a huge difference in how long you have to save for.
Take for example the typical tax refund of $2,500. If you put that in a 2 year CD that earns 1.25%, you earned $63 in interest. While that doesn’t sound like much, if you just keep it in a savings account you are looking at just $30 in interest.
Now let’s add in an additional $5,000 bonus you get from work. If you put that money in the same CD, you earned just shy of $200 in interest in those 2 years.
Find Ways To Make Extra Income On The Side
Aside from windfalls, look for ways to make extra money on the side. In the past, this typically meant getting a part-time retail job that paid $7 per hour. You can do much better than this.
Today, there are all sorts of ways to cash in on your hobby. You can use sites like Etsy to sell things or Fiverr to provide services to others.
Of course, you could do other things too to make extra money: mow lawns, dog sit or walk, rent out rooms in your house; these are just a few ideas. You can read this post for many more.
Earn A Return On Your Savings
Keeping the money you are saving for a house in a basic savings account isn’t the best move you can make. Instead you should look into a high yield savings account and bank CDs.
Here is your plan: start out by putting money into the high yield savings account. Once you get a few thousand dollars saved up, you can start looking into CDs. Before you move any money, just make sure you review what the interest rates are. As of this writing, some of the shorter term CDs are paying less than the high yield savings account, so it won’t make sense to move money into a CD.
But, if interest rates change, this strategy can make great sense. You will want to build up a CD ladder. Open up a 6 month, 1 year, 18 month and 2 year CD. All of the interest rates will vary which is the plan. You are looking to take advantage of interest rates. When the 6 month or 1 year CD matures, you can roll the money over into another 6 month or 1 year CD.
Of course you will want to take into account how long you plan to save for before buying a house. You don’t want to open a CD that will extend beyond this period because you will pay a penalty for cashing in the CD early.
Let’s look at how this strategy could look like. Let’s assume you have $6,000 saved so far. You open up 3 CDs with $1,000 each and leave the rest of your money in the bank account. At the end of two years here is how things look:
By using CDs and the savings account, you were able to earn $4 more in interest. Not a lot, but if interest rates are working in your favor, this could be a great strategy to earn more interest.
Review Your Expenses
It goes without saying that you need to review all of your expenses and cut out those that you no longer need. You have to really work on cutting expenses here so that you can free up as much money as possible. Remember, the more you save, the more compound interest can work in your favor. This means the sooner you can buy your house.
I tend to start with the larger expenses: insurance, groceries, etc. and work my way down to the smaller expenses. I do this because I can save more with the larger expenses than with the smaller ones. For ideas to cut your smaller expenses, be sure to look into my eBook, Spare Change, which offers over 150 money saving tips.
Use Spending Tricks To Save More Money
You won’t be able to cut out all of your monthly expenses. With those that you can’t cut out completely, you can use spending tricks to help you save a little more money.
One trick that I love using is the grocery trick. When I go grocery shopping, the amount I saved by using coupons and by buying things on sale is listed on the bottom of my receipt. When I get home, I take that amount out of my checking account and move it over to my savings account. When I complete my budget, I enter in the total grocery amount I spent, including this savings amount.
It sounds small but on average I save about $20 per grocery trip. That’s $80 a month or close to $1,000 a year.
Another trick I use is to use a cash back credit card. All of the cash back I earn on the card goes directly into a savings account. To eliminate the chances of overspending, I only use the card for groceries and gas.
The money I earn from the cash back card averages around $300 a year. If you would average the same amount over 3 years, you would have an extra $4,000 for your savings for a house.
Staying On Course
As I mentioned at the beginning of this post, the time it takes when saving for a house can cause many to venture off track. To help you stay on track, I offer you three tips:
Visualize: The first is to visualize your goal. Close your eyes and picture life in your new house. The more you can visualize your goal, the more likely you are to follow through and reach it.
Celebrate: Find ways to celebrate mini-milestones along the way. If you are trying to save up $20,000 then have a mini-milestone celebration when you reach $10,000. Go out to a nice dinner. You can even set up other mini-milestones along the way. Maybe you celebrate at $5,000 as well. Do whatever it takes to help you stay on course.
Ignore It: Not the goal, but the money in your bank account. I have a special account where I save up random money I come into throughout the year. Usually it’s $10 here or $20 there. It doesn’t seem like much, but every year end, I have about $1,500 in this account and am blown away that I have this much money. So stop looking at your account balance every day. Just make it a point to save as much as you can and put the money into your house fund. When you do look at the account, you will be surprised at how much you have amassed.
If you follow these ideas for saving for a house, you will see your goal through to the end. The process is long and sometimes you will want to give up and quit. But if you push through these trying times, you can save up enough for a down payment. After all, many people have saved up enough for a down payment. You can too.