Last updated on March 25th, 2021
The American dream of home ownership can feel daunting to those who are currently renting. With today’s high rental rates and the ever-increasing cost of living, the light at the end of the tunnel can look dim. But, with some strategic planning, your dream home can become a reality sooner than you thought. Below are a few helpful tips to ensure you’re still able to save money for a house while renting.
Determine your need
The first plan of action is to determine your borrowing capacity and calculate how much you need for a down payment. There are a number of different types of home mortgages and down payment requirements. In many cases, a 20% deposit is not required. Toll Brothers’ subsidiary, TBI Mortgage Company, can help figure out exactly how much you need to save for your dream home.
Plan your budget
Now is the time to take a hard look at where your money is going. Review your last six months of spending and categorize your expenditures. JP Morgan Chase and Co.recommends following the 50/30/20 rule, which sets up the optimal income allocation based on percentages: 50% of your income should go to mandatory bills (rent, cell phone, car insurance, student loans), 30% would be fun money (movies, shopping sprees, eating out, vacations), and 20% would be savings.
Cut back where you can
During your spending audit, you may have noticed a lot of recurring bills and forgotten expenses, like monthly subscription fees. Chances are, you are spending money on services and features that you don’t really need. Perhaps you never canceled your gym membership even though your apartment complex offers a free workout area, or you and your significant other both still have Netflix subscriptions. The money spent on things you think are small, like daily coffee runs and drinks with friends, can really add up. Consider bringing your lunch to work, cook in more, or inviting friends to your place for drinks.
If you have a number of different credit cards and more debt that you should, you’re not alone. Eliminating your debt is one of the best ways to free up cash to save for your home. Not all credit cards are created equal, so research the interest rate you are paying and take steps to pay off each card, starting with the one that has the highest rate. If possible, do not put anything else on your credit cards. Use your debit card instead.
Make saving automatic
The easiest way to prevent yourself from dipping into your savings is to set up a dedicated bank account for your housing fund and make it off limits to spending. Once your account is established, ask your payroll department at work to direct deposit a portion of your salary into savings and the balance into checking. If that isn’t possible, set up an automatic transfer through your online banking account.
Consider renting your apartment on Airbnb
If you travel a lot for work, companies like Airbnb make it easy to rent out your space when you aren’t home. The amount you earn will depend on where you live and how often you can rent your space.
Save for a home in a year or less
If you are looking to save for a house in a year or less, you will need to take some more drastic saving measures, like downsizing to a one-bedroom apartment or cutting back on many of your fun extras. The best way to determine what you need to do is to divide the amount you have to save into a weekly amount. If reasonable, automatically transfer that amount into savings and live off the remainder.
Saving for a home can be challenging, but the financial benefits and the pride you get from owning your own place make it more than worth it. By choosing a Toll Brothers home, you can experience the advantage of award-winning designs, hundreds of personalized options, exceptional service, and all the best locations across the country.