I spent six grueling hours cutting down brush in my backyard with my dad, clearing an area that would soon become a place for Mom to send us when my siblings and I were being too loud in the house. When we finished clearing the brush, he handed me a crisp five-dollar bill. It was so much money I tried giving it back to my dad, assuming that my family wouldn't be able to eat for a few days because of his immense generosity toward me.Of course, he made me keep the money and used it to teach me about the power of saving money. So I put that money in a bank and continued to save -- until I had $20.Then I blew it candy, comics, or some other pleasure that I'm sure felt worth it at the time.
I realized then - I was terrible at saving money!
Like my five-year-old self, most Americans have a hard time saving money. An increase in income usually results in an increase in spending. In fact, according to the U.S. Federal Reserve, 47% of Americans do not have enough savings to cover a $400 emergency.
Savings, however, are incredibly important, especially if you are looking to someday buy a house or get an investment property loan. RealtyTrac recently reported that the average American down payment was around 15% in 2015. With the median sales price for a house hovering around $250,000, house buyers may need to save $40,000 or more to buy a house. Even low down mortgages like an FHA loan can cost you 3.5% plus closing costs, requiring $10,000 or more.
So, how can people save up the massive down payments needed to purchase a property? Rather than getting just my ideas and opinions, I asked this question to a variety of financial writers and bloggers to share their top tips, which you'll find below.
1. Prioritize It
"I think people need to get laser focused and remember their value system with every purchase. Every time they make a purchase (at Target), they need to realize that the foolish purchase is making their goals get pushed further and further away. They need to make their spending a reflection of their value system and put that down payment at the very top of their value list."
Lauren Greutman | Author of the book The Recovering Spender, Financial Counselor, and Founder of LaurenGreutman.com
2. Automate It
"Create a separate savings account and name it 'down payment.' Automate savings deposits from your paycheck or checking account into the account each month. Start with a small amount and increase the amount over time once you get comfortable with the process. Banks require a down payment for a reason; they want to know that you are financially responsible enough to live within your means. Prove it!"
Phillip Taylor, CPA | PTMoney.com, Founder of FinCon
3. Gamify It
"We had monthly challenges to raise money for our down payment. Keeping things friendly, relatively short, and competitive motivated us to build up our savings faster.One month was about recurring bills. We dug around and managed to slash our car insurance in half, get faster service with our internet (and shave some money!), and cut the cord while still catching our favorite shows."
4. Set Aside Unexpected Money
"Put any extra unexpected money into the down payment fund! I.e. Christmas money, birthday money, bonuses, tax returns. It will snowball before you know it."
Tiffany Alexy | TiffanyAlexy.com, Real Estate Broker & Investor
5. Build a Side Business
"The best way to save money is to supplement your income with a small business or side hustle. Most of us work 40-50 hour weeks, which means that there's plenty of time to make some extra money on the side. For example, you could sell on eBay or freelance. With the law of compounding interest, every little bit counts."
6. Budget for It
"The best way to save for your down payment is to build it into your budget. Start by determining what your monthly house payment will be, then subtract your current mortgage or rent from that number (tip: don't forget to add homeowner's insurance and taxes to your expected mortgage payment!). For example, if you expect to spend $2,000 per month on your mortgage and your rent is $1,200, you will save $800 per month. Not only will this help you save for your down payment, but it will solidify your future mortgage payment in your budget. This will help you make sure you can afford your mortgage once you buy your home."
View Source to Continue Reading: How To Save For A Real Estate Down Payment: 20 Financial Experts Share Their Tips
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