When it comes to purchasing a home, although you may be able to afford the monthly mortgage right now, it’s the chunky down payment that can take some time to save up. Rest assured, it’s doable. The secret to saving up to buy a home? Be committed to your vision, have a strategic plan in place to help get you there, and be consistent with saving.
To support you with the strategic planning part, below, we outline some of our top budgeting tips for renters to help you rent now, budget smart, and maximize your savings, so you’ll be ready to buy a home in no time.
1. Find a less expensive place to rent
One way to decrease your monthly living expenses and increase the amount of money you can stash away in your dream home fund is by finding another place to rent that is less expensive. The general rule of thumb is to spend no more than 30% of your gross income on rent, but if you can bring that percentage down even lower, you’ll have more cash on hand to save. Another option: Getting a roommate. If you have the space for it, having an extra person to help pay for things can cut your expenses way down. Be sure to check with your landlord first about bringing in a roommate.
2. Reduce your expenses
In addition to reducing your rent, take a close look at all your other recurring bills and expenses, and see where you can cut back. Maybe there’s a streaming service that you’re subscribed to that you rarely use or a gym membership that you no longer need. Or, instead of canceling them, see if a friend or family member would like to share and split the bill with you.
Calling your service providers is also a great idea as they can help see where you can downgrade and save additional money, such as your cell phone’s data plan or cable channels. Meal prepping and eating at home instead of eating out is another way to save major dollars in the long run. Finding where you can cut expenses may take some work, but it’ll be well worth the effort if it helps get you closer to buying a home.
3. Create a budget
Getting your finances in order and maximizing your savings requires getting intimate with your money. To do this, you’ll need to create a budget to get a full picture of where all your money is going and where you can adjust your spending. Start by listing all your fixed expenses (rent, utilities, car payments, groceries, etc.). Pro tip: Use a spreadsheet to keep the information nice and organized. You can even get fancy and color code it.
Then decide how much money you’d like to allocate to spend within each category that will allow you to reach your goals. Experts recommend applying the 50/20/30 rule for budgeting, which means 50% of your net income goes towards living expenses, 20% goes to savings, and 30% goes towards things you want. Be sure to leave some wiggle room in your budget for unexpected, non-recurring expenses like birthday presents, emergency car repairs, or yearly renewal fees.
4. Create a dream home savings goal
It can be challenging to stay motivated to save when you’re just saving for the sake of saving with no clear end goal in sight. That’s why we recommend setting a specific savings goal to buy your dream home. First, you’ll need to understand how much home you can afford. This can be determined by chatting with one of our amazing mortgage brokers. Ensure you factor in other expenses that come up during the home buying process, such as closing costs, into your savings goal. Having an exact number of what you need to save will help keep you motivated and focused along the way.
5. Track every dollar
You’ve created your budget and set a savings goal. Yay for you! Getting cozy with your money doesn’t end there. To stay on track with saving for your home, you must consistently know where your money is going. To do this, track every dollar that comes in and goes out via a spreadsheet or a money tracking app. Tracking will help you not go over the allocated budget you allow yourself for each category. Schedule weekly or biweekly “money dates” on your calendar to check in on your finances. Pour yourself a glass of wine, play some music, and make it fun.
6. Change your perspective on budgeting
Speaking of making budgeting fun, it’s also important that you change the way you approach budgeting. The term budgeting tends to get a bad rap because it has a connotation that makes you feel like you have to pinch pennies, restrict yourself, and cut out everything you enjoy, but that’s not the case. Having a solid budget in place is simply a structure and a game plan that will make it easy for you to achieve your financial goals (i.e., save up for a down payment on a house). Doesn’t that sound better? Once you have your budget in place, all you have to do is stick to it to reach your goal.
7. Allocate a fun budget
Cutting all the fun out of your life to save as much as you can for a home is not realistic or sustainable. Restricting yourself too much may make you want to stop saving altogether. That’s why we suggest allocating a small, reasonable amount of money in your budget for things that bring you joy, whether it’s buying new clothes or going on a fun trip. Knowing that you already have fun and joy baked into your monthly budget will make it easier for you to stay on track with your savings goal.
8. Automate everything
When it comes to budgeting and saving, automation is your best friend. Setting up all your bills on autopay will save you time, energy, and money on any potential late fees. Also, and most importantly, automate your savings. If you see money in your checking account, you may be tempted to spend it or forget that it’s meant to be saved for your dream home. Create a separate savings account and set up an automatic transfer whether it’s weekly, bi-weekly, or monthly. This way you know your savings are always taken care of without having to think about it.
9. Stay focused on your vision
Lastly, saving up for a home may take some time, and there may be unexpected obstacles and challenges. It’s vital that you stay focused on your goal. When you’re tempted to splurge on things outside your budget, come back to that vision of you living your best life in your new home to give you the motivation to not deter from the plan. And, give yourself grace as well. Don’t beat yourself up for overspending one month. Life will often throw us curveballs, and that’s okay. Things happen. Just do your best to stay on track and adjust your budget as needed. Your dream home awaits.