The housing market is on the upswing, the unemployment rate is ticking downward (5.2% in March, 2015) and the economy is improving. What this means is that many renters are once again eyeing the possibility of home ownership. There is one major hurdle to jump over however . . .
The median home price in Portland right now is $281,000 and the days of creative lending are, for the moment, a thing of the past. Most lenders want some kind of down payment and often the minimum required amount is 5%. If you just put 5% down on a $281,000 home that comes to $14,000 for your down payment.
Time to build up your savings account? Let’s get started.
1. Create a monthly budget. Savings are built one paycheck at a time. Some families budget by withdrawing the cash they have to spend on groceries, dry-cleaning, entertainment, etc. for the week and when the cash is gone – they stop spending. If you do choose to use credit cards, save those receipts and all family members agree to write down expenditures on a white board at home, subtracting each expenditure from the weekly or monthly budgeted amount.
2. Keep your Starbucks stock but stop helping the stock price rise. Move your coffee habit from coffee shops to a home brewing system. (Estimated savings: $1000/year)
3. Create a dedicated “House” account. As you save money each month, move the savings into a checking account labeled “House.” Money that goes into this account is off-limits.
4. Bag your lunch rather than eat out. (Estimated savings: $2600/year)
5. Save that Tax Refund. There are many advertisers that wisely (and I mean it’s wise for them – not for you) encourage you to spend your tax refund on frivolous pursuits. You have a budget. You don’t need that money. Put it in your dedicated “House” checking account and forget you ever received it.
6. Forget about those pesky Joneses. Yes, your neighbors in the renting world will spend, spend, spend and you will see those toys and long for them. A newer car, new fishing pole, new golf clubs, expensive toys for your children – all such items will pull at you. But you will have the last laugh as you sit in your new home while the Joneses wonder why they are wasting all that money on rent.
7. Re-allocate retirement savings. If your company matches up to 6% of your retirement contributions, contribute up to what they match, definitely. But during this savings bonanza on which you are embarking – stop your contributions above the 6% and put that money in the “House” account. Once you have your new home you can go back to contributing as much as possible but there are many retirement tools and a home is a good one and helps to diversify your portfolio while typically still providing a fantastic return on investment.
8. Turn your interests into a paycheck. Coaching youth soccer, ski patrol on the weekends, providing bartender or waiter/waitress services during high tip hours on the weekend – the ideas for how you can make money part-time doing something refreshing and different that you might even enjoy are endless.
Now visualize yourself sitting in that dream home enjoying the fact that your money is now building your equity rather than someone else’s equity. Saving money is fun when the end-goal is as compelling and satisfying as accomplishing your dream of home ownership.