It may seem like a daunting task to save for your first down payment. Like most millennials, you might have only ever had a few thousand dollars in your account.
That might be an acceptable way to live, but it certainly won’t get you a new home. Considering that a down payment is a financial decision in your control that can reduce your mortgage, figuring out a way to save for a down payment is a really important lesson to learn.
The great thing about saving is that it can come in a variety of forms. A lot of people make the mistake of assuming that savings means some kind of self-imposed abstinence, like you have to practically stop eating for 9 months to try and save a few thousand dollars. Not only does that sound boring – it sounds impossible. Saving does not have to be about abstention from the finer things in life. Maybe you would rather take on more work instead of cutting something out, for example.
The first step on the path to savings is figuring out how much of a down payment you actually need. It makes sense to aim for the traditional 20% down payment, but if that’s out of the question there are programs to help you finance in other ways.
Here are a few ideas for how to save for a down payment:
Get A Savings Plan. You can make your own savings plan by setting a target and a timeline. Let’s say you want to save $15,000 for a down payment within three years. That works out to $5k/year, and $416/month. Sounds doable, right? Only if you know how to budget.
Downsize. In order to get reach that $416 threshold every month, you probably need to sell some stuff. We’re talking old cameras, sports equipment, speakers, bikes, cars, books, clothing… the things you no longer use that are still worth something.
Borrow Against Your 401(k). You can borrow half of your retirement savings (or up to $50,000) to finance a down payment. Repayment must be made within five years, and that includes interest, but it’s a great resource for those who have a steady income.
Eat in 6 Nights A Week. This might sound silly, but a close analysis of your expenses will probably reveal that you buy too many meals out of the house. Getting to the $416 threshold will be easy if you cut out frivolous meals.
Skip the Bar Scene. We all know that bars expensive. It can be a real treat to have drinks with friends every weekend, but if you really want to save, then why not host friends at your place instead?
Pick Up a Side Job. Perhaps you’re able to pick up some cash jobs on the side to supplement your consistent income. Or perhaps you’re a freelancer, in which case you can scale up your workload without much trouble. Those working in seasonal industries can look into alternative careers when the work runs dry rather than living of your savings.
This is only a selection of the many ways to save for a down payment. Not only will these lifestyle changes help you save for a reasonable down payment, they may actually improve your life experience in some surprising ways!