Watching the housing market can feel like a roller coaster ride, with ups and downs, twists and turns. But let’s simplify it. The first step in your home-buying journey is saving for a down payment. Before diving into other factors like credit scores, loan sizes, interest rates, and home types, focus on building your savings.
Here are some practical steps to start your savings process:
Start Saving TODAY
As you embark on this journey, remember that you hold the power to shape your financial future. Starting today, make a conscious decision to prioritize your savings. Even saving only $5 today is a step forward in your journey. You can do this.
How much should I save?
It’s easy to get caught up in the “wants” when shopping for a home, but it’s more important to consider what you can afford. To do this, the general rule of affordability suggests your housing costs should be less than 28% of your gross monthly income.
The math problem is specific to each person and their unique circumstances. Research free online calculators using the keywords “Mortgage Calculator,” “Down payment Calculator,” and “Affordability Calculator.”
How to start to save
• Automate your savings – Have your money automatically moved into a savings account each pay period or each month. Most banks can set this up easily online.
• Earn interest – The magic of compounding interest is real and can add up quickly. Put your savings in an FDIC-insured bank account with high interest. Check BankRate.com for competitive high-yield savings and CD options.
• Habits – Consider changing a current spending habit. For example, if you buy a $5 coffee daily, consider dropping the habit two days a week. That adds up to $520 in your down payment savings account in a year.
• Roll Forward – If you have an expense you are used to paying and it stops (you cancel it, pay it off), roll it into your savings. For example, you are used to paying $50 every two weeks for diapers, but your baby is ready to potty train. Rather than putting that money back into your general expense budget, increase your savings by $100 for the month.
• Cash Savings Challenge – Turn saving money into a game with a challenge. New challenges are always trending online, but here are a few common ones.
• $5 Stash – save every $5 bill you receive.
• Envelope Challenge – Set up 30 envelopes with varying amounts in them. Choose an envelope each day and save the amount on the cover.
• 52-Week Challenge – slowly increase the money saved every week. Checking off the box each week.
The most important part of learning to save money is to give yourself time and grace. Change is hard. You may have setbacks or times of frustration, but be sure to celebrate milestones along the way.
