How You Can Save $ 20,000 In Two Years To Buy Your First Home
Thinking about buying your first home and ready to start saving for that down payment?
It is understandable that you want to own a home. There is some pride in saying “this is my home”. There are other reasons as well, such as bad homeowners who don’t fix anything, knowing that you could be paying your mortgage instead of putting money in the owner’s pockets every month, building equity, and / or thinking about starting a family and raising them in one. house that is yours.
Whatever the reason, I think ‘owning’ rather than ‘renting’ is a much better idea, and I’ll explain why.
My favorite reason is that every time you pay off your mortgage, you get richer. Every month that you pay off your mortgage balance, after interest and after all other fees, you own a greater percentage of the house you live in, which makes you richer. For example, if you buy a house for $ 100,000 and pay for it for 10 years: Let’s say you pay $ 600 per month for 10 years, you have roughly paid about $ 72,000 during that time. And during that time, he has increased his net worth by approximately $ 72,000. The $ 72,000 is part of your total net worth because you own that part. If you sold your house, that’s what you would earn. If you rented all that time, you would still be worth the same, and not richer.
There are many other reasons why owning is better than renting, but that’s not what this article is about. But hopefully now you have convinced yourself that you are making the right decision to move out of your rental.
Let us begin!
How are you going to save for that first home, even if you feel like you don’t have any money left each month?
As a former financial planner, I quickly discovered that your income does not determine how rich you are. It is how much money you save from what you have earned that determines how rich you are. Someone who earns $ 1,000 per week and spends $ 1,000 per week is poorer than someone who earns $ 500 per week and saves $ 100 per week.
I have met countless people with lower incomes and bank accounts much larger than those who earn double or triple. The truth is, the more you earn, the more you spend.
Therefore, the fact that you feel like you have no money to spare is a result of your spending habits, not just your income. So before you say you have no money, I’m going to stop you by saying ‘Yes’ you have money.
The trick is to invest small increments of your current income to achieve “BIG SAVINGS.” By allowing the bank to automatically withdraw small amounts of your income each week without your realizing it, you will slowly increase your wealth each time you get paid. Professionals call this strategy the “pay yourself first” strategy. Before you spend something, you pay yourself first, when you spend a portion of your paycheck each week.
Even if you spend every last penny you have left, you will continue to get richer every week.
So how does this work? … It’s called “investing”.
Investing is so simple. The trick is to let your advisor do most of the work and not pay attention to the markets and all the other distractions that come with it. Go to your bank and make an appointment with a financial advisor and tell him that you would like to start saving $ 100 per week to start saving for a house. It is important that you inform your advisor that you will need to withdraw the money in the near future so that you do not put your money in a “locked” account that you cannot touch until after a certain period of time. In Canada, we have TFSA accounts (Tax Free Savings Accounts) where you can deposit your investments and take them out at any time “tax free”. If you don’t live in Canada, ask your advisor which account they recommend you put your money into for a good return and withdraw it within the next 2-3 years with the lowest possible fees and taxes.
This is what happens when you invest only small amounts of your money each week.
If you invest $ 100 per week with an average annual return of 5%, you will have a return of approximately $ 5,460.
Year 1 Savings: $ 5,460
If you save $ 100 per week for two years at a 5% return, you will have approximately $ 11,193 at the end of Year 2.
Year 2 Savings: $ 11,193
Banks these days only require a 5% down payment. If you buy a home that costs $ 200,000, you will only need $ 10,000 for a down payment. In 2 years you will definitely have your home.
Now what if you have a spouse? That’s a second income and if he / she also saves $ 100 per week, then things start to get interesting.
If you and your spouse invest $ 100 per week with an average return on investment (ROI) of 5%, then you can save up to $ 22,386 in just two years! Amazing!
Year 1 Savings: $ 10,920
Year 2 Savings: $ 22,386
The great thing about putting a large down payment on your home versus the minimum (5%) is that you get better mortgage rates, lower your monthly mortgage payment, and pay off your home sooner.
Hopefully this helped and motivated you and your spouse to start saving. Believe me, it will feel so … good when you have those keys in your hand to your first home.
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Other tips and tricks to save extra money.
Saving Notches and Dimes: One of my tips outside of investing is to save your pocket money. Every time you buy something and receive a change, instead of spending that change, you put it away. Do it for a whole year and see what you have left.
I found a good video where this couple who kept all their change for a whole year and saved $ 1,902.50.