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Saving Up For a Down Payment
Personal Finance

Saving Up For a Down Payment

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Increasing your savings comes down to a simple formula: earn more and spend less. There are ways that everyone can pursue both simultaneously, slowly but surely building the down payment for a future home purchase.

Plan Your Future

Becoming a homeowner can feel like a pipedream at times. For those living on a tight budget, figuring out ways to put money aside for a down payment often seems like a distant reality.

The financing terms for your future house vary on a number of considerations, but arguably the biggest factor is how much you can afford to devote towards a down payment.

Experimenting with TipRanks’ mortgage calculator can give you a good sense for how your prospective loan will be impacted by the size of your down payment, along with the implications on the overall size and scope of your mortgage.

Decide the amount you want to save, considering both your circumstances and the price range in your desired geography. Once you have arrived at this figure, you can make a plan for how to make your vision become a reality.

Place Your Money In a Savings Account

There are two ways to build your savings: make more or spend less. For most individuals, a marked increase in your monthly income is probably not an option. If a major raise in salary or starting a side hustle is not in the cards, one step everyone can take is to maximize earnings from existing monies.

The advantage of checking accounts is that your money is readily available to use for everyday needs. However, most checking accounts offer little to no interest payments, meaning that you are not earning any money on the funds you are holding in these accounts. Move the monies you do not need constant access to into a savings account, shopping around for the ones offering higher interest rates.

Another option to consider is investing your money in a Certificate of Deposit, also known as a CD. CDs tend to offer better interest rates than regular savings accounts, but they come with the stipulation that you will not be able to access your money for a predefined amount of time (unless you pay a penalty). If you can afford to part with your money for a number of months or even a few years, this is a great way to make sure that your money is truly working for you.

It is always a good idea to confirm that you are only placing your monies in banks or credit unions that are insured by the Federal government. Banks are insured by the Federal Deposit Insurance Corporation; credit unions are insured by a separate agency called the National Credit Union Administration. Both are U.S. government agencies that offer standard insurance on up to $250,000 in deposits.

Avoid Bad Spending Habits

There are a number of helpful tips that can help you spend less, such as avoiding impulse buys, constructing a budget, and being intentional about large purchases.

(1) Avoid impulse buys: The 30 day rule is a good organizing principle to employ to avoid impulse buys. The basic gist is to wait 30 days before making purchases on items that are not necessities. For instance, a great new deal on a 6-month membership at the snazzy gym down the street definitely sounds enticing. Before signing up, wait 30 days to see if it is something that you truly need, or if your current membership or at-home gym can fulfill your needs. If after 30 days have transpired the desire remains, you can proceed with the knowledge that it is something you actually want (and will hopefully use).

(2) Create a monthly budget: While the main reason we create lists prior to going grocery shopping is to avoid forgetting to buy something, it has the added benefit of preventing the purchase of those bags of cookies you did not mean to come home with. Planning out your monthly spending in advance will help you stay disciplined, sidestepping both larger impulse buys and even smaller purchases. For example, if you have set aside $100 for dining out, once you have reached this limit you will have a built-in excuse to avoid ordering pizza (again).

(3) Be intentional about big purchases: If you plan on making a larger purchase, spend some time researching your options. Outlays on furniture, vacations, or other large items can vary greatly, and by looking around you may find some bargains. On the flip side, if you are unable to find a great deal, taking the time to fully consider the purchase might help you realize whether it is something you can do without.

Conclusion: Earn More, Spend Less

Increasing your savings comes down to a simple formula: earn more and spend less. There are ways that everyone can pursue both simultaneously, slowly but surely building the down payment for a future home purchase.

Do not neglect opportunities to earn more interest by moving your money into a savings account, but also be both smart and intentional with your monthly purchases.

Keeping your eyes on this ultimate goal of home ownership can provide the necessary motivation and discipline required to stay committed to your stated plan. As your savings continue to grow, and a prospective down payment begins to materialize, the reality of home ownership will start to feel within reach.

Learn money management, and use data-driven stock insights with TipRanks.


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