Buying a home is the most expensive purchase most people will ever make. In preparation for home ownership, depending on the type of loan, you will most likely need to provide your bank a one-time cash down payment. This may seem daunting at first, but saving up money for a down payment on your home can be easier than you think (with the right mindset of course). Follow these four recommendations and you will be one step closer to home ownership.
Make a Budget and Stick to It
Go through your bank account from the past few months and calculate how much you spend and place into categories, such as food, utilities, entertainment, necessities, etc. This will give you a sometimes startling idea as to where your money is going each month. You might be surprised to see how much that daily trip to Starbucks really adds up!
Next, try following the 50/30/20 rule when creating your new monthly budget: 50% of your take home pay goes toward essentials (e.g. rent, utilities, insurance and groceries), 30% toward lifestyle choices (e.g. entertainment, personal hygiene and restaurants) and 20% toward savings.
Need more help? Download this free Monthly Budget Spreadsheet to help you figure out how much you should be spending and saving based on your monthly income.
Pay Yourself First
When you get paid, it’s tempting to spend what you make if you aren’t incredibly diligent. If your employer offers direct deposit, ask if you can automatically split your deposit between your checking and savings account. Putting 20% of each check directly into your savings automatically will make it harder for you to spend it. If your check is only deposited into one account, another option is to set up an automatic transfer from your checking into your savings account on a specific date, such as the day after payday. Out of sight, out of mind!
Perhaps one of the most popular suggestions for quickly cutting your expenses is to stop eating out as often or altogether. Preparing meals at home is not only cheaper, it can often be better for you.
The first trick? Create a shopping list before you leave the house. Not only will it help you remember the things that you need, but it will also help you avoid impulse purchases once you get there. Is the item not on the list? It’s not going in the cart!
Check out our meal planning blog post for more helpful tips!
Revisit Your Budget
At the end of each month, revisit your budget spreadsheet. Compare how much you expected to spend against how much you really spent. Adjust as needed.
Looking for more tools to help you save? Click here to learn more about helpful finance apps.