*Note: I am not a certified financial advisor or planner. I am sharing my personal experience. Please consult a financial expert to determine the best path for you.
50 Million households spend 50% of their income on housing needs. Affording a home takes more than collecting your spare change at the end of each day. It involves a change in lifestyle and an alteration in your relationship with money. Now is the time to change.
By forgoing homes and remaining renters, our generation is sending a clear signal to landlords: continued financial opportunity. When there is more demand to rent and less ability to buy, rents rise. Although rental rates are predicted to not see a large increase in 2017, apartments saw a 4.7% rent growth in 2015 – the highest growth since 2005. As tenants know, rental rates increasing has been the common trend over the past decade. Landlords are in the business to make money … not to graciously allow you to use their home.
If our generation doesn’t take initiative with our finances, the perpetual renting cycle will continue and our generation will continue to be stuck without the one vital asset previous generations could count on: a home of their own. What I am sharing are methods that allowed my husband and I to buy our homes. It does take effort and sacrifice. You will need to change the way you relate with your paycheck to be able to become a homeowner.
1. Create a Home Down Payment Fund.
If you don’t have a savings accounts, now would be the time to open one. Money Markets are my preferred choice since they usually yield higher returns. A savings account makes it harder for you to spend your paycheck and allows you to earn a small percentage of money back.
My husband and I budget each month to meet our savings goal. With the first paycheck each month, I transfer money to our “Home Downpayment Fund”. Saving first is one of the best ways to guarantee you actually save. The money leaves checking before you can spend it.
2. Be Realistic.
You need to buy a home you can actually afford. Don’t go for what the housing magazines, Pinterest, banks, and friends tell you. Your dream home does not need to be your first home. You can always upgrade later.
Money makes a capitalistic society go round but it also can make its citizens go bankrupt. Be careful. Look at your current income and decide how large of a home payment you can handle each month. Here is a helpful calculator you can use to get started: Mortgage Calculator.
If your paycheck can only handle a $100,000 home, then go for a home under $100,000. The lower your purchase price, the less you will need to save for a downpayment. The less you need to save, the quicker you will be in a home.
3. Rent a Cheaper Place.
This one is possible. Cheap rentals are always the first to go. You need to be the first to know.
You can contact a real estate agent for help. She will set up an email subscription for your area’s Multiple Listing Service (MLS.) You will receive an email every time a rental that meets your budget comes on the market. Zillow and other rental sites have similar email options although their sites may not have the listing the first day it is available. They usually have a 24-48 hour upload delay. You can also find a roommate to lower your share of the rent.
Once you move to a cheaper rental, do not pocket the extra money. Budget your previous rent like you used to but put the difference in your Home Down Payment Fund. If you spent $1000 on rent before and now pay $700, put the extra $300 in your savings account. Your disposable income doesn’t change in this option. This change shouldn’t affect your other spending.
4. Analyze Your Expenses.
Cutting back expenses now allows you to enjoy more luxuries later when you control your household expenses (fixed mortgage payment rather than increasing rent). Go through your monthly bank and credit card statements. Start looking where you can cut corners. Mint.com is a great option to track your expenses.
Do you have a salon obsession? Do you spend $100s a month eating out? Are your vacations in the $1000s? Figure out your financial stumbling blocks. You do not necessarily have to remove them but lower their impact on your budget. Scheduling a manicure only on special occasions. Travel within the US instead of abroad or use Airbnb (Sign up here to get $40 off your first trip). Only eat out once a week. Whatever method you choose to follow, put the difference in savings.
5. Learn to Live on One Income (for the couples out there).
This one doesn’t work for the single ladies (and gentlemen) but it has enabled my husband and I to pay our house off quickly. If you know how to live on one income, then you will have an extra cushion during financial and personal storms. When you get married and decide to combine finances, it is easiest to start the change then before adjusting to living on two incomes.
You can select the individual with the steady income, then you can plan your expenses around that paycheck. Anything that the other person makes is extra like a bi-weekly bonus check. Again, that paycheck should not stay in your checking account; it should immediately hits savings in order to prevent you all from spending it.
There are so many tricks to saving creatively. I would love to hear your advice and fears below.
*Picture above: Savings by TaxCredits.net is licensed under CC by 2.0