For many young people, shopping for a home and a home warranty feels like a nightmare. According to a study by the Federal Reserve Bank of St. Louis Center for Household Financial Stability, millennials have nearly 35% less wealth than predicted based on the experience of older generations at the same ages. Additionally, 70% of millennials state that they can’t afford a home due to rising costs.
It also doesn’t help that much of the advice related to buying a home is unhelpful at best and insulting at worst. Recently, TV presenter Kristie Allop caused a stir by saying young people could afford homes if they were willing to make “simple” sacrifices, such as eating packed lunches, skipping nights out, and working multiple jobs.
While this type of advice may help young people reduce their outgoings, for most, these dollars and cents savings won’t make a dent in the massive amount required for a down payment. However, there are some simple changes you can make that will help you save money to buy a home. And don’t worry, none of them have to do with eating less avocado toast. Read on to learn the ten simple money-saving tips that will help you buy a home.
1. Build a Budget
While we don’t think you need to give up your social life or Netflix subscription to save for a home, it is important to have a budget in place. If you don’t know where your money is going each month, it won’t be possible to divert money into a savings account for a home.
Sit down with all of your credit card payments and bank statements and look at where you spend most of your money. Make a note of how much money you spend on necessities, such as rent, utilities, student debt, and groceries. Then, take a look at how much you spend on nonessential items, such as travel, entertainment, and dining out.
After you’ve categorized your expenses, figure out areas where it makes sense to cut back. Then, set a definite but realistic budget for each category and stick to it. For example, if you love eating out, cutting it from your budget entirely won’t be realistic. But, shaving off a couple of hundred dollars from your monthly dining out budget can add up over time.
Additionally, choose a set dollar amount that you’ll put toward your down payment each month, and categorize this as an essential expense.
2. Consider a Job Switch
If you’ve been contemplating getting a new job, saving money for a home may be just the motivation you need. When you switch jobs, you can generally negotiate a 10-20% increase in pay. And, in most cases, you’ll land that increase.
But if you stay at the same employer, you’ll likely continue getting a measly 2-5% annual raise, if that. That extra 10-20% you can make by switching jobs can really help in saving for a home. For example, if you currently make $60,000, a 20% increase at a new job will have you at $72,000. Put aside the extra $12,000, and you have enough money for a down payment in many places.
3. Ask for a Raise
If switching jobs isn’t currently feasible, consider asking for a raise. Typically, the best time to request a raise is during your annual performance review. However, if that’s not around the corner, consider timing it in the weeks following the completion of a big project.
Make sure to walk into the discussion prepared with data and results from projects you’ve worked on. Show your manager that they can’t afford to lose you to help you get that bump.
4. Pick Up a Side Hustle
You don’t need a second full-time job to save for a home. A lucrative side hustle can just as easily help you achieve your goals. Some side hustles to consider include:
- Driving for Uber or Lyft
- Pet sitting or dog walking
- Freelancing (writing, graphic design, photography, etc.)
- Teaching English online
- Teaching an online course
- Delivering food or groceries
While side hustles may not bring in enough for a down payment, they can help you save for extra costs like home warranty payments from Select.
5. Tackle Debt Wisely
According to a home affordability study by Unison, 83% of non-homeowners state that student debt is the main reason they can’t afford to buy a home. Whether you’re saddled with student loan debt or another type of debt, having a plan in place to tackle it is essential if you want to save for a home. One of the first things lenders look at when assessing you as a mortgage candidate is your debt to income ratio.
The more debt you have, the less promising you are as a candidate. This can lead to higher interest rates and a bigger down payment requirement. Take a look at all of the debt you owe, including student loans, auto loans, and personal loans, and create a plan to tackle it.
For example, if you have student loans with high interest, refinance them to lower your payments. Or if you’re saddled with credit card debt, pay off as much as you can and transfer the rest of the balance to a low-interest credit card.
6. Downsize Your Current Living Situation
Downsizing your current living situation can be tough if you have a big family. But if it’s just you or you and a partner, downsizing is one of the most lucrative ways to save money for a home.
Switching from a 1-bedroom apartment to a 2-bedroom apartment with a roommate can save you hundreds of dollars each month. For example, the average rent for a 1-bedroom apartment in Brooklyn is $3,216, while the average rent for a 2-bedroom apartment is $3,500. Switching from a 1-bedroom to a 2-bedroom with a roommate can result in nearly $1,500 in savings each month!
7. Automate Your Savings
Setting up an automatic transfer from your checking to your savings account will ensure the money you want to put toward a home is out of immediate reach. This is an especially helpful tactic for those who are prone to impulse shopping.
First, decide how much you want to set aside each month, then set up an automatic transfer through your bank. Most banks will allow you to do this straight through their mobile app, and you can even choose the frequency of the transfer.
Just make sure to schedule the transfer on your payday or on a day when you know you’ll have enough money in your account, as you don’t want to get stuck with overdraft fees. Additionally, make sure you’re automating so you not only have enough set aside for a down payment, but also enough for a home warranty from a company like Choice.
8. Skip a Vacation
Most Americans only get about 2 weeks of paid vacation each year, so it’s understandable that sacrificing one is a non-negotiable for many.
However, according to a recent study, a 2-week vacation costs an average of $3,119 per person. That’s a big chunk of cash that you could be storing for a down payment, which is why we recommend swapping your annual vacation for a staycation instead.
While it may sound boring, there are likely many parts of your city that you’ve never gotten around to exploring. If you really feel like you need to get out for your vacation, consider venturing somewhere within driving distance to cut back on costs.
9. Capitalize on Windfalls
While you may not be familiar with the term, you’ve likely had a windfall experience. A windfall is a term coined by the financial industry that refers to extra money given or earned that isn’t a part of your regular monthly income.
Examples include holiday bonuses at work, birthday checks from grandparents, and larger-than-expected tax refunds. Instead of thinking of a windfall as “free fun money” that you can use on a shopping splurge, think of it as a fast-track toward saving for your down payment.
10. Temporarily Reduce Your Retirement Savings
Most financial experts suggest putting 10 to 15% of your pre-tax income toward retirement to stay on track. If you’re already doing that, pat yourself on the back.
Now, consider undoing that, but just temporarily. While you should never compromise your retirement savings in the long-term, pressing pause or cutting down on your savings can give you the opportunity to gather enough money for a down payment. Then, once you have the money set aside, you can increase your retirement savings again. Either way, you’re saving money for your future.
As you can see, saving for a home doesn’t have to mean giving up your favorite Starbucks order or upheaving your entire life. Put these simple changes into practice, and you could have thousands of extra dollars to put toward buying a home.
Then, once you have the money set aside for a home, you can start looking into home warranties.