4 Ways to Save for a Down Payment That Actually Work
It’s Easier Than It Seems, Once You Get Started
Saving money can be a serious challenge for anyone paying rent, working a job, and trying to maintain a decent quality of life. Saving the 20% recommended as a down payment for any home with a purchase price of over $100,000 may seem completely impossible, depending on your perspective. But, saving that chunk of money may not be nearly as hard as it seems at first.
Once you get started, provided that you are strategic and you remain true to your purpose, you may be surprised at how easy it actually is. Here are four strategies to help you get going, so you can reach your desired down payment goal as quickly as possible.
1 – Direct Deposit a Portion of Your Earnings
Set yourself up to succeed by taking yourself out of the transaction. If you can divert a portion of your earnings every payday into a special savings account (bonus points if you can’t access it), you’ll be saving money without necessarily experiencing the pain of actually having to deposit that money into savings instead of spending it.
2 – Invest in a Diversified Portfolio of Stocks, Bonds, and CDs
Raising a down payment through investing may sound like trying to gamble your way to financial security, but if you are selective in what you choose to invest in and you’re planning to buy several years in the future, investing your savings as you go in a diversified portfolio can be a great way to grow your savings even faster.
There is inherent risk with this strategy, but if you work with a professional money manager and stress your low tolerance for risk, you should be able to put together a portfolio that grows two or more percent faster than a traditional savings account.
3 – Start Small and Get Into the Savings Habit
Yes, what your grandparents may have been telling you all along is true. If you just put that four dollars you spend everyday on a latte into savings instead, you’d already have enough to buy a house. While that may be aggravating to hear, the underlying premise is sound.
A great way to get yourself into the savings habit is to start off small. Twenty dollars a week, diverted to savings instead of being spent on convenience items, will become over a thousand dollars by the end of the year. And, once you’re in the habit, it gets easier and easier to divert larger sums of money to savings.
4 – Reduce Your Contributions to Your 401K
Granted, saving for retirement is arguably as important (and more important in some cases) as getting into a first home. That said, if a couple of years vacation from saving for retirement can put you in a good position to buy a home, it is probably worth the minuscule hit your retirement will take. Just make sure that you get back into investing in your retirement as soon as you have what you need for a down payment.
A Single Step
Saving enough for a down payment is considerably easier than it may at first seem. There is something to the old saying that a journey of a thousand miles begins with a single step. Start small, start today, and if it makes sense to invest some or all of your savings along the way, do so. You’ll have what you need in no time.
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