Top 5 awesome tips to save for a down payment
Want to own your own house? Well, who doesn’t? You may not be looking to buy a house now but eventually you will. Owning a house is a dream of most people but only a lucky few manage to get a home that they really want. You are not alone if you are worried about saving enough money for a down payment. Hopefully, our tips for saving money will help you gather the amount required for the down payment on the flat that you have been eyeing.
Your bank will finance almost 80% cost of the house/flat (in some cases 90%). The balance is down payment that you will have to self finance. This is a substantial amount for a middle class family. For example, if your 2 bedroom kitchen costs Rs. 30 Lakhs, then your bank would finance up to 24 lakhs and the rest 6 lakhs has to be self financing.
Home buying is a complex decision especially if you are a first time home buyer. You will need professional help that will help you get the best homes at the best price. Enough money in the bank before going out shopping for a house will give you confidence and peace of mind while choosing a home. We are going to share some tips for saving money here that will help you take control of your finances and save for that daunting looking down payment.
1. Track your spending and expenses
OK, we admit this is one of the most boring and clichéd tips for saving money BUT tracking your spending really works. There are a plethora of apps and websites that help you track your spending and keep a running total of the amounts you spend on specific items or categories.
This process is an eye opener for many. Sometimes we don’t see the obvious until an app tells us!! You will need to cut down on luxuries and divert money towards savings. Finding out where your money goes is the first step in figuring out how to keep more of it in the bank.
2. Invest in Mutual Funds- Don’t be afraid, Research
Do a simple research on the power of compounding or power of compound interest and you will understand why mutual funds are one of the most popular methods of investing these days. India has seen, in recent times, a sudden spurt in the number of people investing in mutual funds. While there are many things that you need to consider before investing in mutual funds, we recommend that you start a monthly SIP in an equity fund that matches your risk appetite.
Generally, equity funds are the best since they offer you high rates of returns. These funds are also risky because the market fluctuations in these equity funds can be regular affair but over a period of time Mutual Funds usually offer better returns than the Bank FD rates.
Go to a website named valueresearchonline.com and read about Mutual Funds. The end decision is yours but we speak from personal experience-mutual funds offer good returns on investments. There are multiple number of SIP calculators that will help you plan the exact amount of savings, you require each month to reach your down payment in a particular period of time. For example if you are planning to buy a house in 2020, A mutual fund SIP calculator will tell you how much money you need to start saving for your 20% down payment.
This method of investing is not one of the usual tips for saving money but is a method that helps grow your money.
3. Make a monthly budget and stick to it
Sticking to a monthly budget will be tough especially if you are used to a life of indulgence and luxury. Sticking to a strict budget often isn’t a lot of fun and is challenging. Remember, A penny saved is a penny earned. Having said that allow yourself an occasional treat or two but treat it as an exception and ALWAYS Make up for the cost of this exception in other activities. Some belt-tightening now is a minor sacrifice that will quickly be forgotten when you are getting the keys to your new home.
4. Start Saving Early
Have you heard of the saying well begun is half done? One of the major deficiencies of our education system is that we are not taught financial literacy at a young age. We are not taught how to save and why to save. We don’t know about long term and short term financial goals.
Although our moms always insist on saving, majority of us lack proper financial literacy. Start saving early, dedicate at least 15 to 20% of your salary savings each month. Start with your first job when responsibilities are less. Some people save as much as 50% of their savings while they can. Among numerous Tips for saving money this one is the most powerful.
Benefits of starting to save early is that by the time you reach 30 you will have enough money for a down payment on your house.
5. Look for ways to boost your income
For most of us middle class salaried people, there is only one source of money coming in (ie monthly salary). At the most, both husband and wife are working so in such cases there are two sources of money coming in. The number of avenues through which the money goes out is always more than the number of ways through which money comes in. Consider your income and expenses as an upside down funnel. Every successful person understands that additional sources of income need to be created in order to save money.
There are many ways through which you can create an alternate source of money. You can consider starting a blog, YouTube channel or simply affiliate marketing. You can start an online store and make good money if you have done proper research. There are multiple number of videos online through which you can learn about online businesses.
You don’t need a considerable investment to start any of these activities. All you need is a laptop and some time. There is TedX video on YouTube which says that You only need 20 hours to learn a skill to a satisfactory level.
Your budget consists of two parts: money coming in, and money going out. You’ll get the best results if you make improvements on both sides.
Open a savings bank account for the purpose of down payment and consider it untouchable. Barring a major emergency, don’t even toy with the idea of spending any of that money until you are ready to purchase a home. It’s easier to keep an off-limits down payment fund if you set up a separate account dedicated solely to this purpose.
Treat this bank account as a black hole in which light goes in but nothing comes out.
Here is a video with some more tips for saving money
We hope these tips for saving money for a down payment on your home have helped you. Saving for a down payment on your home is tough but not impossible. There are other things that you can do to get financial benefits. For example, Pradhan Mantri Awas Yojana is a great scheme that has benefited millions.
Also Listen to the Podcast