Money

Saving for a Down Payment on a House

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 impossible psychologically to save for something when you don’t know how much you need to save. The first thing that 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 be in conflict with each other but it is vital that you have a general answer to the question. You don’t have to set your sights on the exact house that you want, after all, by the time you reach your goal it most likely won’t be available. However, knowing that you can swing a monthly payment of an average $250,000 makes it easier to know where you’re heading.

The next step in saving for a down payment on a house is looking 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 monthly budget. Most people know what they spend on their bills. Most people have no idea how much goes out the window on other things including entertainment, gas, cigarettes, vet bills, the latest flip flop craze, or whatever takes your money from your hand. Looking at those receipts you can also determine what is completely unnecessary and what you believe stands in your way from owning your own 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, and for many people it may mean weekly or even daily evaluation of spending. Your ultimate goal is to set aside nearly 20% of your income to save for your down payment. Budgets are not just for people who have just enough to make it through the next month. Budgets are for anyone who needs structure in their spending and saving habits. And considering that you are seeking a large sum of money in the end, structure is almost always required.

Once you have set your budget, you will want your money to grow while you’re saving for a down payment on a house. This means finding a reasonable rate of return with as little risk as possible, but something you can access when you’re ready. CDs are pretty good for this. You can place money in CD to last as long as you wish, anywhere from six months to five years, and you can determine that they will roll over until you’re ready to start collecting them. Stocks are usually a little more vulnerable than CDs, and of course there are other methods of saving available, including a moderate interest savings account. Just like any form of investing, you have to wager 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 is very easy to be side tracked and to spend a little here and a little there so that your life now is comfortable and pleasant. Self denial is a very difficult process and one that most of us fail at repeatedly. Instead of self denial, try replacement denial.

Replacement denial is determining what free or nearly free replacement 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 can be had for less instead of the expensive hobby or past time drawing your attention. Explore nature. Don’t laugh. Exploring nature is one of the most fulfilling new past times that can really bring people together when hikes and beach campouts are done with someone you love. Down grade the cable or the satellite. These little replacement denials are easier to take than complete denial and can offer a while 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 to remind themselves what they are seeking and are trying to accomplish. Visit homes that interest you, day dream, and scrutinize your budget along the way and you will get there faster.

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