Top Ten Ways to Save for Your Down Payment
Saving money is hard. Spending the money you earn—plus some—is actually easier. Think about that for a minute. Spending money you DON'T EVEN HAVE is easier than earning money you don't spend. Have we lost our minds?
Consider these averages, for perspective:
Average Student Loan Payment: $351
"Average monthly student loan payment (for borrower aged 20 to 30 years): $351" (StudentLoanHero.com)
Average Mortgage Payment: $1,061
"The national average for a home loan is $222,261 with a $1,061 average monthly payment for a 30-year mortgage at 4 percent, according to LendingTree." (From Realtor.com)
Average PMI (Private Mortgage Insurance) Payment: $100~
Actually, this is kind of hard to find. But with numbers ranging between $68 and $300, let's guess the median PMI at roughly $100 a month.
Average Down Payment: ? 10%? $22,226.10?
"An average down payment for a home comes in at about 10 percent. But there are no official statistics on average down payments." (From SFGate.com)
Average Credit Card Debt: $16,748
Holy smokes! That's an awful lot of CC debt! (NerdWallet.com)
So let's just assume that you have some debt, some savings, and some income.
"Ah, good to know," you think to yourself. Well, sure, that is good to know. But how does all this new knowledge help you save for that down payment? Easy! First, let's see where you fit in the mix.
Do you owe more or less than $16k in credit card debt? Less? That's a good start! Do you pay more or less that $351 in student loans? Great! Now we're getting somewhere! Do you currently have $22,261.10 in savings, primed and ready to make that down payment? No? Oh, that's why you're here?!? Right. Got it. Moving right along...
So let's just assume that you have some debt, some savings, and some income. You pay something like the US average rent of about $1,000 and make the average car payment of $500. And you earn the US median household income of, say, $50,000 a year. Or, adjusted for taxes and whatnots, let's say you take home about $3096.77 a month. Minus rent... $2096.77. Minus car... $1596.77. And that's not to mention the arial photography! So, at the end of the month, let's just assume you've found unique and creative ways to spend that remaining $1,596.77. Good for you! But what about saving for that down payment?!?
Well you're in luck! That's what this article is all about!
But before we hit the list, let's have a quick goal-setting sesh. How much house do you want to buy? How much can you afford, once you've laid the down payment down? Figure that out, and set a clear money goal for your down payment. Here's a handy mortgage calculator that will help you. Aim for 20% to avoid PMI, and be realistic with the figures. What's your down payment goal? Write it down somewhere visible in your home, and stare it in the face every day. Maybe on your bathroom mirror!?
So, without further ado, here are ten sure-fire ways to make cash pile up and turn magically into a respectable down payment!
1. Automate it!
I know what you're thinking - you already knew this one. Did you though, really?!? If you did, are you already doing it?!? No? Thought not. Ok, let's do a group exercise. Literally, right now, before you read the remaining 9 down payment hoarding tips, go automate some savings. Maybe your bank has options for this? Mayhaps your company let's you tweak direct deposit options; do that now! Go ahead and send 5% to a savings account. Too clunky? Ok, fine - how about a clever app? Download one right now, or use the one you already have. However you do it, magically make 5% of your income go zipping away, out of sight, and into a tidy bucket from which you'll eventually draw that down payment! (But seriously - do it!)
2. Lower your rent.
Move back to Mom's place. No? Secure a shifty roommate. Or downsize a bit. (There are a Zillow ways to do it!) Do you want to own your own home in the near future? Cool! Maybe lower your requirements today so you can raise your own roof tomorrow!
3. Consult with your parents.
No, seriously - parents know a few things, and often have tricks up their sleeves. Maybe they have some home equity they wouldn't mind sliding your way. Maybe they have been sitting on a nest egg for just this occasion. Maybe they have very little in the way of liquid assets, but they have the invaluable assets of experience and wisdom. It might sound weird, but just try it. Tell them what you're thinking, and what you're doing so far. (Because you've already completed step 1, right? OK... we talked about this. Stop reading, go back to step 1 and actually do it, OK? No cheating!)
4. Break up with your grocery store.
Been buying your organic hemp milk at Whole Foods? Consider shopping at Trader Joe's to save about 15%, or even their cousin Aldi for savings closer to 35% on same or similar organic foodstuffs. If you could shave $30 a week off your grocery expenditures, you could drop that into a savings account to the tune of $120 a month, or $1,500 a year! Think about it.
5. Make your coffee at home.
For less than the cost of a cup of coffee a day, you could literally BUY A HOUSE! While you're at Aldi, why not grab a 12-ouncer of their organic, fair-trade, shade-grown arabica for less than a fiver and make yourself a dang cup of coffee of a morning (or 27 8 oz cups, if you're into the math). For what you'll save, you could invest in a nice pour-over set and a burr grinder (under $100) and set up a primo little barista station on your very own kitchen counter, and become your own best customer!
6. Stop Drinking Retail.
There are plenty of arguments against drinking to excess, but today we're only arguing on behalf of your down payment. And we're not suggesting you cut down on the sauce, just suggesting you stop procuring your craft cocktails at that chic little speakeasy - and do a bit more of your drinking at home. Buy wine in boxes. Buy bourbon one handle at a time. Stock your own liquor cabinet - if you think about it, for the cost of three nights-out, you could literally stock a very respectible home bar.
7. Stop Eating OUT!!!
OK, don't go full-stop on the dining out, just chill with it. Cook your own food at your own house, and then eat it. It's not rocket surgery. It's the simple application of the time-tested, mother-approved idea that eating at home always costs less than eating out. AND, cooking a few meals-worth at one go can dramatically improve efficiency and heathfulness of the meals! You'll eat more healthy stuff, fewer carbs, more fresh veggies, fewer fried-things, and overall be more fit - financially and physically. Try it. (Source)
8. Be the Host.
If you're not dining out on the reg, and not frequenting that fave-bar, what's to become of your social life? Well, now that you've got your grocery situation stabilized, and you're buying more boxed wine and bigger bottles of bourbon, it's time to extend the invitation. It actually costs less to cook dinner for four than it does to dine out with two. Like, a lot less. Dining in costs around $2-$4 per meal, while dining out costs anywhere from $12-$36. Hosting friends will save you money and improve relationships. Also, it's really fun!
9. Sandbag your windfalls.
Expecting a tax refund this year? Sweet, sock it away! Did you just win the office pool for whichever sports game you're into? Perfect! Chalk it up to good luck, and chuck it in the bucket! Year-end bonus? Sandbag it. Whatever the source, when you get a little extra cash out of the blue, file it away immediately! Maybe not every penny, maybe split it up with some going for fun stuff and some going into the serious down payment account. If you don't need that extra dollar, your down payment does.
10. Make a game out of it.
What did we miss? What clever tricks can you think of that might help you sandbag those bills into a down payment? If you look at your total saved down payment as a game, and set a target in mind, you can probaby come up with dozens of ways to sock money away that we haven't even considered. Stop buying Christmas presents on Amazon, and hit the local flea markets for nifty gifts. Not your style? OK, what is your style? Make this down payment your own personal goal, and get aggressive about reaching it.
The key to saving up enough money for a respectible down payment is that you have to want it.
Those are all great ideas. Trust me - I've done the research, and all of these work reasonably well. And if you do them all, you will certainly see your down payment savings piling up more quickly than if you do nothing at all. The key to saving up enough money to buy a home with a respectible down payment is that you have to want it. You have to envision yourself in your own home, cooking in your own kitchen and curating your own landscape architecture. You have to long for the autonomy of home ownership. You have to resent every rent payment and ache for the equity that comes from paying down a mortgage.
You have to want it. And you do. Which makes you awesome. And powerful. With a little self-discipline, a bit of sacrifice and a whole lot of will power, you too will soon be among the down payment elite who buy the home and not the PMI. You've got this - you can do it!