(4-min read)
A down payment on a house is one of the most substantial sums of money many will save at one time in their life. Needing to save up such a large chunk of change can be anxiety-inducing. To make the process less stressful, here are a few tips to help you to save for your down payment.
1. Set Up a Separate “Down Payment” Savings Account
Even if you’re setting aside a certain amount of money into your primary savings account each month for your down payment, it’s best if you have a separate savings account dedicated to your down payment. There are a few different reasons why this is a good idea.
A. Clarity. By making a separate savings account, you won’t have to do the mental math necessary to see just how much you have saved for your down payment. It will be as clear as day how far you’ve come.
B. No dipping. Having a separate savings account for your down payment goal will decrease your likelihood of dipping into it for purposes other than a down payment. In fact, make a rule that you’ll never touch that account for any reason other than finally providing your down payment.
2. Set Goals & Timelines
One of the most challenging aspects of saving large sums of money is visualizing the process. Though you’re making a dent, simply throwing amounts of money into a savings account over time may feel like you’re throwing it down a bottomless hole. To help you stay motivated, a little bit of math may be in order. Calculate not only how much you need to save, but also how long it will take to do so. When you can put a number on your finish line, you will be able to see how far you’ve come at any step in the process. Seeing your success may be the motivation you need to keep chipping away at that final amount.
3. Automate Your Savings Transfers
Even though moving money from your checking account to your savings account is relatively easy to do, it can be fraught with emotional difficulties. It’s easy to justify why, maybe this pay period, you need to hold onto a little more of your paycheck rather than move it to savings. When you set up automatic transfers from checking to savings following paycheck deposits, you reduce a great deal of friction in the saving process. In fact, you may not even notice that it’s happening until you look at your savings account balance several months later.
“Where did all this money come from? Oh, yeah — from me!”
4. Reassess Your Luxuries vs. Your Needs
One of your most significant hurdles to saving for a down payment on a home may be your current lifestyle. A step to overcoming that hurdle is assessing needs versus niceties. Look at your spending habits for areas where you can cut back. It may be the unnecessary restaurant and take-out spending, monthly entertainment subscription services, or truly needing the latest phone when your current phone works fine. Take what you normally would have spent on frivolous purchases and throw them into your down payment savings account.
Make a game out of determining how little you truly need to be happy. Spoiler alert: It’s usually much less than you thought.
Bonus Tip: The “Below Your Means” Game
Many of us think we’re living within our means we’re actually not. One reason this is so is due to spending money from other paychecks outside of our most current one or unsustainable credit card transactions. Just because you’re not overdrawing your checking account doesn’t mean you’re not spending more than you make. If you’re not living below your means, saving toward a down payment will be virtually impossible.
The “Below Your Means” Game: The next time you receive a paycheck, transfer any remaining sum out of your checking account into savings or to investments. For example, if you have $400 in your checking account the night before payday and then were paid $1,500 through automatic deposit, move that $400 to savings. Not only will this help you quickly start to build your savings, but it will force you to live below your means.
Why buy when you can build?
Building a home customized to your needs has never been easier than it is with the help of Perry Hood Properties. Learn more about how to get started building your dream home in the Tulsa, Oklahoma area today.