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Getting the keys to your first home is exciting, but it comes with significant costs that are often overlooked. From finding the right property to securing financing and closing on the sale, there are many expenses associated with purchasing a home.
Whether you’re renting or buying, the best way to save for your next home is by creating and sticking to a budget. Here are some ways that you can do this:
Living with your parents can be a wonderful time to spend together, but it can also be very challenging. If you are planning on moving back home, or already have, it is important to set clear boundaries with your parents. Make sure that they understand that you are now a fully-fledged adult who is expected to contribute in a monetary and non-monetary way to the household.
For example, you may decide to pay a percentage of the rent on your own or help with utilities and groceries. This will show that you are serious about your plans to move out on your own and will also help you prepare for a mortgage. Setting savings goals and meeting them is another way that you can be encouraged to move out on your own.
Creating a budget is a valuable skill that many young adults may need to learn. It can help them track their earning and spending, set savings goals and stick to them.
The famous saying goes, “a budget is really just Income minus Expenses.” It’s important to remember to include recurring income, such as birthday and holiday money, in your total income.
Having a budget can also help you save for emergencies, like an emergency dental appointment or a leak in the roof, that can happen at any time. The most important thing is to make sure you’re able to afford a mortgage payment and other financial
obligations, while still having enough left over for necessities and fun spending. If you’re unsure, you can use an online home affordability calculator to get an estimate of what you can afford.
One of the first financial tasks for young adults is to set a savings goal. The goal should be to save enough money for a few months’ worth of expenses in case something unexpected happens.
A full emergency fund can protect against an unexpected job loss, a costly home repair or even a recession that may slow the housing market and your income.
The next step is to start saving for a down payment. This is typically the biggest expense associated with buying a new home.
To make the process easier, you can set a savings target that is achievable and track your progress in a calendar or on a spreadsheet. You can also invest in a certificate of deposit (CD) that has a term and earns interest but cannot be withdrawn early without incurring a penalty fee.
Many young adults slack off in their savings efforts not because they egregiously overspend, but because they simply forget to transfer money from their checking account into a savings or retirement account. Automating these transfers allows them to keep their financial goals top of mind and makes it less likely that they will fall prey to frivolous purchases.
Using an app that tracks your spending can help you get a clear picture of your monthly cash flow and reveal areas where there may be room for cuts. For example, canceling that subscription that you rarely use might save hundreds of dollars per year.
Additionally, it's a good idea to revisit your automated savings amounts periodically. As your cash flow changes, you may discover that you have more money available for your new home.
The whirlwind of paperwork and financial hurdles that come with buying a home can easily make unforeseen expenses slip through the cracks. From a leaky roof to a toilet that won’t flush, there are always unexpected home repairs and maintenance costs that can be hard to prepare for. In addition to saving for a down payment, new homeowners should also consider setting up a home repair fund. You will be ahead of your savings for cutting down on repair costs if you take a moment and look at this site or that site that talks about funding repairs or paying a premium for coverage to have those repairs taken care of.
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