With the recession putting a damper on the housing market, a lot of people are wondering how to save money for a house so they can get in the game while prices and rates are still good.
You might think to yourself–saving for a house is just like saving for anything else, right? Yes, technically, there’s no difference. But homes do present a unique savings challenge for several reasons:
- The amount of money involved is usually larger than any other goal you’ve tackled to date.
- As a result of the large sum and the other things you need to buy a house, the timeframe is usually longer than any other goal.
- The amount you’ll need is notoriously difficult to calculate (more on how much money you need to buy a house in the next post).
7 Strategies for Saving Up
If you know roughly how much you’ll need when looking for a new home, the next step is getting your systems in order to make the discipline of saving happen. Here are a few good strategies to try:
- Tackle one component at a time: This is a strategy that works well if you like saving toward small, discrete goals. Save only “for the closing fees” until you make it, then save only “for the insurance escrow,” and so on. For the down payment, you can break it down to 3%, 5%, 10%, and 20% levels, or something similar.
- Break things down into year & month chunks: Instead of saying you want to “save $30,000 to buy a house,” say you’d like to save “$6,000 a year” or better yet’—“$500 a month.” Seeing smaller, more readily achievable milestones is a good motivator.
- Enlist the help of others. Sites like SmartyPig make it easy to get other people involved in your savings goals. One friend I know used his wedding as an opportunity to make progress toward his future home fund.
- Do a reality check on your budget. If you don’t have one, be sure to create a budget first. If you already do, see how it’s set up and whether you’re actually following it monthly. Do you plan to save $100 a month or $1,000? That will make a big difference in how fast you get to your goal, or if you can reasonably get there at all.
- Balance your future home with other savings goals. Because it’s so time and resource-consuming, focusing 100% of your budgeting and savings efforts on buying a house can come at the expense of other goals, many of which could be important and worthwhile. It’s important to have both a long and short-term view of your money to decide on your priorities.
- Pay yourself first. Deposit your paychecks in a savings account and only transfer the amount you’ll need for expenses until the next check arrives. This creates an artificial money floor in your mind and can help build up your savings quicker.
- Create graphic tools for your savings. One of my favorites is a money “thermometer” that counts up to a goal. My wife’s favorite strategy is a “vision board” that depicts homes we like in picture form and helps keep our “eye on the prize,” quite literally.
A Final Word
Above all else, understand the reasons you want a home. It might be because you want stability for your family, or because you like the freedom of customizing your living space. If you can’t put your finger on it, chances are you won’t have the discipline and drive to make it to your goal in the first place.
Photo by woodleywonderworks