In our last blog, we looked at a story of a couple looking to save up for a home purchase and needed to know how it could be done. There’s no one way to save that works for every person’s situation, here are seven ways to help get you started!
1. Debt Elimination
It’s easy to forget that debt costs you money every month. The first step you should try to take in order to save money is eliminating debt. The interest payed on high rate credit cards alone could be saved every month and help towards your home purchasing goal. Remember, from a mortgage qualification perspective, high balances carry a higher payment which works against your home purchase ability. Even a low interest line of credit, that may cost you little or nothing in interest but will still have a qualifying payment of 3% on the balance.
2. Expense Sheet
When was the last time you sat down and looked at everything you might pay for in a month? If it’s been a while, you may want to create an expense tracking sheet (you can find lots of free templates) so you can see exactly where your money is going. This system works in two ways:
- It allows you to easily identify and cut out unnecessary expenses
- It can improve your life by revealing habits you might want to consider changing (e.g. smoking, drinking, eating out too much)
By cutting out the unnecessary spending and possibly improving on certain habits, you’ll likely become healthier, more productive, and save money — it’s a win-win situation!
3. Savings Automation
If your monthly financial cadence is fairly routine, automate your savings. Basically put the money some place where you can’t see it or is difficult to access. You can set up a system like this with your bank, various apps, or even through your work in some cases. Some companies can split your pay into proportions or different accounts, even with different banks. This puts less onus on you to save and just makes it the default case. Just ensure you can have access to your savings when you need it for your purchase!
4. The 50-20-30 Rule
The 50-20-30 rule is a money management technique that divides your paycheque into three categories:
- 50% for essentials: rent and other housing costs, utilities, groceries, gas, etc.
- 20% for savings or debt repayment: savings accounts, retirement contributions, loans, credit card payments, etc.
- 30% for everything else: nonessential expenses like clothing, restaurants, streaming subscriptions, gym, etc.
5. The 80-20 Rule
There is also a simplified version of the popular 50-20-30 rule. Instead of worrying about what constitutes a need versus a want, simply make sure to save (at least) 20% of all the money you have coming in.
6. Old School
Maybe you’re the type that needs to go old school. Doing so refers to things like splitting your money into envelopes for your expenses and then hiding the other one under the mattress for your savings. Just make sure to take that cash every month and deposit it!
7. 52 Week Challenge
This is a fun twist on the old school method above. In this case, you’ll have 52 envelopes marked with different amounts. The challenge makes it so that you randomly choose which envelope or amount you choose to place your cash into. By the end of the year, you’ll have a bunch of extra money. You’ll just want to make sure to set up automated e-transfers to move the money.
Everyone’s situation (and budget!) is different. Contact the Kyle Miller Mortgage Agent team if you’re interested in saving up for a home and need a plan. We’ll help you understand everything that’s involved in the home purchasing process while finding accommodating ways to save!
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