Apr 15, 2021
How I Saved $45,000 for a Down Payment
In less than two years on a 5 figure income
Saving for a downpayment is by far the largest barrier to purchasing a home. Whether the market is up or down, having at least 20% down in cash with closing costs will put you in the best position to be able to get into a property.
It can take a long time to save a significant amount of money to put towards a property, especially on one income. The best time to start saving is right now if you think you may want to buy a property in the next 10 years.
Two years ago I cleared out most of my savings to buy a car in cash. I knew in the long term I would save money by not paying interest on a car loan, but I also knew we would be looking to buy a house in a couple of years and I had to be aggressive about building my savings back.
Here are the steps I followed to save more than $45K in two years:
Decide how much to save each month
You can save money without a budget or a plan, but you will save more with a plan and working towards a goal with an end date. Whether your goal is to save $10K in 10 years, or $100K in 1 year, it will help you to have an exact amount that you know you can set aside for your goal every month.
For example, my goal was to save $1600 a month for the last two years, based on a realistic budget where I had some discretionary spending but still prioritized saving for the future. Overall, I kept my living expenses super under what I could really afford, enjoyed a little discretionary spending, and saved the rest of my income.
My favorite tool for tracking spending with a budget is Mint.com. You input your income and all of your expenses, plan for goals (like saving for a downpayment), then it tells you how much you have leftover each month and how that can help you meet your goal faster. And you can watch your savings account(s) grow towards your goal over time.
Set automatic deposits into a savings account
When it comes to saving for long-term, big purchases like a house, it’s best to save money like it doesn’t even exist. My downpayment savings goes straight into my savings account every month from my paycheck. I don’t even give myself the opportunity to spend the money.
Your savings does not belong to you — it belongs to future you.
If you can only connect one account for direct deposit, set up your checking account to automatically transfer to your savings when you get paid. If your paychecks vary in amounts, set a low target on how much is automatically moved to savings automatically and make additional transfers when larger paychecks come in.
Find extra income
You can only save so much money by cutting back on living expenses and saving the difference. Eventually, the key to saving money faster becomes making more money. Can you start an online side hustle or get a part-time job?
It’s best to keep the money you are saving in a high-interest savings account, as opposed to investing in the stock market which could be risky in the short term. But there are other ways to use this money in the short term to make a little extra cash beyond the interest that comes from a savings account. Over the past two years, I have taken advantage of bonuses for opening and funding new accounts. Usually, you can make an extra $50-$100 or more just with 5 minutes of work to open and fund an account. Be sure to read the fine print to see if there are any requirements for direct deposit and how long the account needs to be funded before the bonus is paid out.
In just under two years, I have made more than $700 from interest and account bonuses in my savings account. I know that is not a ton of money, but it also is better than nothing (especially considering how low interest rates are and have been for the last year).
Why should you start saving now if you plan on buying a home anytime in the next 10 years?
Housing prices are going to continue to trend upward over time and beginning to save some now can put you in a better position to aggressively save for a downpayment further down the line. Depending on your home budget and income, it may take less or more time to reach your downpayment goal. Before I was “saving for a house” I was saving because I knew homeownership would be in my future in the next 5 years. Saving was already second nature, and I did not have to “cut back” on my lifestyle to save for a house.
This article is for informational and entertainment purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.
