Saving money is downright hard. No matter how much or how little you make, there’s always something needed, wanted, can’t be lived without, shouldn’t be lived without, or just plain gluttonous—but you deserve it anyway. Saving for a down payment on a house is certainly not any easier than saving for anything else, no matter how badly you want it. So, let’s just start with the basics.
It is psychologically impossible to save for something when you don’t know how much you need. The first thing you’ll want to do is a little research. What type of house do you want, and what can you afford? Sometimes these two questions can conflict, but it’s vital to have a general answer. You don’t have to set your sights on the exact house you want—by the time you reach your goal, it most likely won’t be available. However, knowing that you can afford a monthly payment for an average $250,000 home makes it easier to know where you’re heading.
Creating a Realistic Budget for Saving
The next step in saving for a down payment on a house is to look at your monthly budget beyond the bills. Saving your receipts for all the little odds and ends you purchase can give you a more realistic picture of your monthly expenses. Most people know what they spend on their bills, but many have no idea how much they spend on entertainment, gas, cigarettes, vet bills, the latest flip-flop craze, or whatever else takes money from their hands. By reviewing these receipts, you can also determine what’s completely unnecessary and what stands in your way of owning a home.
From there, the process is simple—but not always easy. Setting a monthly budget and sticking to it means really sticking to it. Going over budget in one area means coming in under budget in another. For many, it may require weekly or even daily evaluation of spending. Your ultimate goal is to set aside nearly 20% of your income for your down payment. Budgets aren’t just for people who can barely make ends meet—they’re for anyone who needs structure in their spending and saving habits. And considering you’re seeking a large sum of money, structure is almost always required.
Once you’ve set your budget, you’ll want your money to grow while saving for a down payment on a house. This means finding a reasonable rate of return with as little risk as possible—something you can access when you’re ready. Certificates of Deposit (CDs) are a good option for this. You can place money in a CD for a term ranging from six months to five years, and you can choose for the CD to roll over until you’re ready to start collecting. Stocks are usually more vulnerable than CDs, and there are other savings methods available, including a moderate-interest savings account. Just like any form of investing, you must balance risk against return and determine what you are comfortable with and what, if anything, you can afford to lose.
The absolute most difficult part of saving for anything is remaining committed. It’s very easy to be sidetracked and spend a little here and a little there to make your current life more comfortable and pleasant. Self-denial is tough, and most of us fail at it repeatedly. Instead of self-denial, try replacement denial.
Replacement denial is determining what free or nearly free alternatives can take the place of the money-sapping desire of the moment. Plan day trips instead of weekends away and pack lunches. Find a hobby that costs less instead of the expensive one that’s drawing your attention. Explore nature. Don’t laugh—exploring nature is one of the most fulfilling pastimes that can really bring people together when you go hiking or camping on the beach with someone you love. Downgrade your cable or satellite subscription. These little replacement denials are easier to take than complete denial and can open up a whole new world while saving you a bundle.
Naturally, saving for a down payment on a house requires discipline and desire. The only way people reach their long-term goals is by constantly reminding themselves of what they are seeking and trying to accomplish. Visit homes that interest you, daydream, and scrutinize your budget along the way. If you stay focused, you’ll get there faster.
