After establishing yourself, it is not out of place for you to have thought about saving for a house even if you are not close to settling down, still exploring where you would like to live or building your credit. This article is based on the steps you can take in order to begin saving for one of the biggest purchases you will make in your lifetime.
Get clear about how much you need to save
When setting a goal for saving, it is hard if you don’t have a clear idea of how much you need to set aside monthly. You will have an idea for your future house payment if you evaluate how much of your budget should be allocated to housing which is usually about 25%.
Write down 25% of your monthly income and take it out. You can then use a mortgage loan calculator to estimate the amount of home you can afford. Assuming the mortgage calculator tells you that you can afford a home that is $160.000 according to your present income and the average rate of 4.5%.
Saving for a 20% down payment to finance a mortgage in that price range should be your next step. This is about $40,000. There is also the option and opportunity for you to make smaller down payment but you may have a higher interest rate in doing so. If you are currently building your credit, there could be issues when it comes to getting a mortgage without a substantial down payment.
Set a date
Just as we eat an elephant one bite at a time, we break down our savings goals based on basic mathematics. Let’s say you’d like to purchase a home in 5 years, leaving you to raise $8,000/year to reach your down payment goal. That equates to a monthly savings of about $667/month.
Create a solid method for saving
Avoid any risky investment vehicles for savings, like stocks, since you are going to need to access your funds sooner, rather than later. Anything that involves the risk of losing money in the process will only pose a risk to your ability to purchase a home in the timeframe you’ve set for yourself.
This part is where you set aside a part of your budget to your savings. This means you should make sure your budget is one which can be managed and realistic. This might mean you need to earn more to achieve this or if you will need to cut back on some expenses. It would be easier to achieve your goals when you do this while harnessing the kind of budgeting skills that homeownership commands of you.
Automate your savings
Automating your methods of saving is a good way to help you fight against the desire to spend money that you can easily save. You can do so effectively by setting up an automatic transfer of money as you get each paycheck. This way, there would be no need to see the money come in to your account just remove the decision-making aspect of saving and act as if you never received that money in the first place.
Incorporating the windfalls
You can throw unexpected money such as few cards in the mail with gifted cash in to your savings. If you get a bonus check from work or a tax refund, consider the dent you’ll make in your down payment journey by contributing it to your savings account.
Buying a home takes intentional planning on your part, and primarily relies upon your financial health. Use this saving opportunity to develop the kind of financial discipline you’ll need for this new chapter in your life.