Buying a home is often seen as an important rite of passage to ‘adulthood’ and a major part of the American dream. Depending on your situation and where you live, it can also be cheaper than renting. But, unless you have a large chunk of money just sitting around, the down payment it requires is a big obstacle. As higher costs of living continue to shrink our net income, it can be a real struggle to save that recommended 20%, especially if you’re a first-time homebuyer with few assets. Thankfully, there are plenty of assistance and low-down-payment options out there if you really need them, but there’s also a unique sense of accomplishment if you can do it on your own! Here are some simple strategies for saving up for your first down payment.
1. Open a Dedicated Savings or Investment Account and Automate It
Separating your down payment fund from your other savings accounts will make it easier to calculate its progress. You can simply create a new savings account with your current bank for ease of transfer, but it’s also a good opportunity to open up a high-yield savings account online that may offer better interest rates than your bank. Money market accounts and funds are also low-risk ways to earn more for your dollar. If you have a year or more to save, CDs offer even higher interest rates.
Next, set up your direct deposit or bank account to automatically transfer a certain amount from each paycheck (ideally based on your projected savings goal and timeframe – like a sinking fund). Even if you can’t afford to set aside much, consistency leads to accumulation.
2. Get Ruthless with Your Net Income
After savings and retirement contributions are deducted, your bills are paid, and your consumables are purchased, what’s left? What are you spending it on? Can you live without any of those things for a while? Being ruthless as you slash your discretionary spending is hard, but it’s also one of the easiest ways to ‘find’ money to apply to your down payment.
If you’re a two-income household, see if you can tighten up your finances enough to live off of one income for a while and bank the second. I know it’s not easy, but it’s also much more possible than many people think, especially since we tend to inflate our lifestyles to match our income.
3. Throw Every Windfall and Spare Dime at It
Tax refunds, monetary gifts, bonuses, cash-back rewards cards, even that annual raise – every time you find yourself with “extra” money, put it toward your down payment. I’m using this strategy right now for a different savings goal, and it’s encouraging how much it tends to focus your anticipation and help you stay disciplined. Pretty soon, you’ll be looking for extra money, which leads to the next strategy.
If it’s too hard to save larger chunks of money, save your “change.” Although there’s no shame in raiding the couch cushions or the console of your car, you can still apply the concept of “spare change” to your automated finances. Enroll bank programs and apps that automatically round up debit transactions to the nearest whole dollar, transferring the difference into your designated savings account. You could also adopt the popular $5 rule – every time you get this (or another chosen amount) in change, it goes toward your down payment fund.
4. Liquidate, But Don’t Rob Yourself
Carefully consider liquidating stocks, bonds, CDs or other non-cash assets if you own them. Notice I didn’t mention retirement accounts. As tempting (and allowable) as it is, borrowing from your future security could turn into robbing from yourself. It’s just not worth the risk.
There’s no way around it: saving money for a down payment takes planning, sacrifice, and time, but the reward will be worth the effort.
For those of you who’ve already been there, what are some other creative ways you’ve found to save up for that mountainous down payment?