Owning a home is an exciting time in one’s life but also comes with financial responsibilities. Taking a look at bank and credit card statements can help identify the money coming in and going out each month.
A few easy changes such as canceling subscriptions, buying generic products or packing a lunch for work can increase the amount of money put into savings each month.
1. It’s an investment
Whether you plan to save for a down payment on your first home or a future home, it’s smart to consider saving money a priority. This means eliminating small purchases that add up to hundreds or even thousands of dollars a year. Cutting down on things like ordering a delivery of premium coffee or giving into impulse shopping can make a huge difference in your bottom line.
The best way to increase your savings is to cut out vices that cost you in both money and health. Giving up that daily $6 cup of coffee, reducing how often you go out to eat and even cutting back on how many cigarettes you have per day can save you a lot over the course of a year.
If you’re planning to buy a house in the near future, it might be wise to keep your savings liquid and close at hand in an FDIC-insured savings account that offers above-average interest rates. However, for those who are planning to buy in the long term it might be a better idea to invest your money rather than merely stash it away as savings that will earn minimal returns.
2. It’s a long-term commitment
Many people dream of buying a house but aren’t sure how to make that happen. With skyrocketing real estate prices and stagnant wages, coming up with a down payment for a home can feel like an impossible task.
Start by creating a budget. Experts recommend looking at your family’s monthly spending and eliminating unnecessary expenses. The low-hanging fruit is often subscriptions and other services that aren’t essential to your lifestyle. It may also be beneficial to look for ways to increase your income through side hustles, such as writing, making deliveries or trading in old electronics.
Then, save diligently. Rather than blowing a windfall on a vacation or shopping spree, transfer tax refunds, bonuses and raises directly to your savings account. This will give your savings a serious boost and put homeownership within reach sooner than you might think. Buying a home will include having more responsibility. Cinch Home Services article: Improving kenmore refrigerator not making ice for example, details some of the challenges a homeowner may face when there is an appliance issue. When you rent or live with someone else, you are not responsible for those kinds of issues.
3. It’s a tax break
As a homebuyer, you may be saving for a down payment or accumulating top performing super funds to
cover unforeseen costs like maintenance or repairs. That’s why it can be helpful to set up automated savings transfers that move money from your checking account into a savings goal. This can help you avoid the temptation of pulling that cash back out when an emergency arises, and it can make your homeownership dreams more realistic.
You can also reroute any tax refunds or windfalls you receive into your savings account. It’s a smart idea to use a tool or app that allows you to easily track all your spending and savings goals.
Finally, knocking out high-interest debt items before embarking on your homeowner journey can make a big difference. Paying down debt before putting in a down payment will reduce your overall debt load and help you get the best possible mortgage rates.
4. It’s a great way to save for retirement
Buying a house will require sacrifice. That’s especially true if you want to save enough for a down payment and cover other costs like mortgage insurance, moving expenses, furnishings, etc.
Fortunately, there are many ways to cut back and increase your savings. One of the biggest and easiest is to cut out small purchases that add up quickly. Whether it’s premium coffee, eating out or shopping for items you don’t actually need, those cuts can add up to thousands of dollars saved each year.
For those without employer-sponsored retirement plans, there are still plenty of options like Individual 401(k), SEP and SIMPLE IRAs for self-employed individuals. These options allow for higher contribution limits and offer more flexibility than traditional savings accounts or checking accounts.
Another way to increase your savings is to automate them. If you get a raise or bonus, set up automatic contributions into your 401(k) or IRA to ensure that the extra cash doesn’t go to waste.