Let’s face it, down payments cost a lot so you need a lot of savings but there are too many ways to spend your cash – Fun ways like…Streaming, coffees, going out with friends. And, not so fun ways… rent, paying off student loans, car insurance, credit card debt. If you’re trying to save up to buy a home then read on… 11 Tips Help Build Your Down Payment
- Average US student loan debt is $39,351
- Average monthly student loan payment is almost $400
- The average American has about $6000 in credit card debt
- Down payments are generally 20% of the home purchase value
So, the question is, do you even know how much you spend each year, month, week? Are you aware of what all that money goes to? If not, it could truly shock you. The good news is it can also give you a great idea of where to cut to start accruing your down payments and/or save for your down payment more quickly.
The best part about these tips is that there’s no suffering or going without unless you count the Disney Channel or Netflix (your 3rd streaming account). This shouldn’t be a hard ship where you miss meals and cut out friendships. Definitely don’t do that!
Knowing you have a problem is half the battle. Owning up to it and taking responsibility might be a new concept but oh so rewarding not to mention empowering. So, let’s get you empowered!!
Start Tracking Expenses
See if your bank lets you label and tally your expenses online. If not, use a simple app where you can upload receipts and give them expense categories, or download your bank statements and load them into an excel spreadsheet. The important thing is to figure out where your money goes and then plan how to cut out some of those expenses.
Ditch the Debt To Start Saving
If you’re serious about buying property, it’s really important to know that it takes a lot more than just having a down payment to buy that home you love. You have to have a steady income, low debt-to-income ratio and a credit history that shows you’re a good credit risk.
If you’re not familiar with the term debt-to-income ratio it is your income versus your debt. So, if you make $3000 per month but have a car payment, a student loan and credit card debt chances are your ratio is not going to cut it. Lenders want to see a debt-to-income ratio no higher than 36%. To calculate your ratio, compare the total debt you owe each month to how much you make monthly.
So, while gathering that down payment is important for buying your home, if your ratio is over 36% you may need to concentrate on lowering your monthly debt commitment first.
Also, once you pay off certain debts like student loan you could keep ‘paying it’ by depositing that same montly amount into saving.
Tax Return as Savings for Down Payment
If you’re lucky enough get a tax refund add it to your down payment savings or if you have high-interest credit card debt or loans then pay those down.
Credit Card Rewards Can Help with Down Payment Savings
Leaving your credit cash-back and bounces sitting on your card is only saving the credit card company money, so USE THEM! Don’t let the credit card company make interest on your money. Investigate to see if you can use your rewards to pay down your credit cards.
A Different Cell Phone Contract Could Boost Your Savings
How much data do you use each month? Is it the full amount that you pay for? If you’re not using everything you get then downgrade your contract to the amount you do use or better yet, shop around. There will be plenty of companies who will give you a better deal to get you onboard. Keep that phone longer too so you are negotiating for a phone/data only contract which gives you a lot more options.
On the flip side, if your contract isn’t covering your usage and you’re paying for extra data at a premium each month get a bolt on to cover the overage at a set price that’s more economical.
How Many Streaming Services Do You Need?
Did you shun the big provider because of the super high coat? Did you then opt for Netflix, Prime, Apple+ and Disney etc. Well, it might be a good idea to see how much you’re now spending each month. Is it possible that amount has crept up to or even surpassed the other provider? Do you have a favorite streaming group such that you can leave the others for now and just use one?
Don’t tell your parents that I suggested this but if you need a break from paying rent, living with your ‘rents could make all the difference. Perhaps a 3, 6 or 12 month break could give you enough rental savings to finally have the down payment that you need. FYI: As this is not your home anymore, act like a guest. Pitch in, contribute cook meals whatever it takes to feel like you’re pulling your own weight. It will make the stay more comfortable and leave that option open if you need it again in the future.
Getting Paid What You’re Worth Boosts Your Ability to Save
These have been strange times but if your company has weathered them and you haven’t received a raise in a long time it may be worth asking for a more money. It never hurts to ask but do go in with evidence of your work and well-reasoned explanation for your request. If they can’t give it to you right now, set a date (say in 3 months) to discuss again.
Low Credit Scores Cost You Down Payment Savings
Did you know that if you have a bad credit score credit cards charge you higher interest and same with lenders. Higher interest payments are money out of your pockets or in this money not in your down payments savings. Check your credit score. Then read this: How Can I Improve My Credit Score?.
If your credit score is too low, lenders may offer a smaller loan, ask for a secured loan (where you put up an asset like your car for collateral), or turn you down altogether.
Have Months When You Don’t Spend Your Savings
Of course you don’t want to give up the fun stuff altogether but can you adjust how you spend by entertaining at home where everyone brings a dish instead of eating out? Stream instead of going to the movies – except for the new Top Gun movie. Make your own gin instead of going to bars! You get the idea.
Consolidate Your Debt
We already talked about reducing your debt a bit but this bears thinking about. If you currently have several debts like loans and credit cards bills it makes sense to consolidate it all into one loan at a lower interest rate. When you do this, the consolidator pays your debts for you and you pay one monthly payment to them at a more palatable rate. Look for a loan broker like Funding Zest who can do the legwork for you to find a loan that suits your needs.
Knowing where your money goes is the best place to start to figure out where you can make a difference in expenses. Look at what you truly need and shop around for the best rates and prices on the services you definitely need. You may also want to read How Can I Buy a Rental Investment Property?