7 Steps to save for a Down Payment
As a first-time home buyer, coming up with tens of thousands of dollars for a down payment feels unattainable—at least in this lifetime.
Because saving is hard.
Know what else saving is? 100000% worth it.
By exercising a little restraint and building your tolerance for delayed gratification, you’ll put yourself in a position to build long-term wealth, step off the renting hamster wheel, and have a perfect place that’s just yours.
The cherry on top? Depending on your situation, a mortgage payment might be more affordable than what you’re paying in rent. Yes, way.
Here are seven steps to save for your down payment:
Set your financial goal. First, figure how much house you can afford, then plan to save 20% of that amount for your down payment. (You’re right: You might not have to put that much down. But be conservative with your estimates. It’s better to save more than you actually need!)
Establish your timeline. Now decide how long you’ll need to save that much. Make sure you’re being realistic; the less time you give yourself to save, the more you’ll need to put away each month. Give yourself some flexibility.
Adjust your current budget. Take a good look at your spending habits, and consider where you can trim the fat: daily coffee runs, cable TV, subscription services, and so on. Then (and this might hurt a little more), see where you can make major cash-saving decisions—like taking a staycation instead of that trip to Cabo or putting another 100,000 miles on your Corolla.
You can also look at your income stream. Do you have a crafty hobby you can turn into a side hustle? Is it time to ask for that well-deserved raise?
Crush your current debt. Bottom line: Debt prevents you from saving. So check in on your credit card balance and make a few extra payments if you can. Sometimes you have to spend money to save money!
Avoid spending those windfalls. It’s really tempting to spend your holiday and birthday checks on a new TV or other household luxuries. (I’m looking at you, pink Kitchen Aid stand mixer.) But saving those gifts and other windfalls—income-tax refunds, bonuses, commission checks—can help you build your down payment faster!
Think retirement. Retirement accounts, that is. Some people choose to borrow against their retirement savings, which can actually offer some great benefits to first-time home buyers. Just be super careful: Some retirement plans aren’t so borrow-friendly, which means they come with hefty taxes and early withdrawal penalties.
Depending on your plan, you might also consider pressing pause on your retirement contributions altogether (temporarily!) so you can put that money toward your down payment.
Make your plan foolproof (and spend-proof). Protect your down payment savings by using a regular ol’ savings account, rather than a high-risk investment. In fact, it’s smart to open a new savings account earmarked solely for your down payment.
Even better? Set up an automated savings plan with direct deposits from your paycheck. You’ll never even see that money, so there’s no temptation to spend it!
Listen, I know this feels impossible, but I believe in you! Let me know if you need a live pep talk. I’m happy to chat any time!
