The Actual Math on How to Save For a Down Payment In 12 Months

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bLB Note: This week's post is a syndication of a piece I wrote for LendingHome.  This article has been lovingly republished with permission. Also – if you're looking for an AH-mazing workbook format of this post, also written by yours truly (it's completely free!) click here. 

 

Google “millennial homeownership” and you’ll find many articles about the decline in homeownership (even among other generations), how rising home prices and increased student loan burdens make it difficult to even break into the market, and how few can actually afford their slice of the American dream. Sounds terrifying, right? It doesn’t have to be.

While certain factors do depend on individual circumstances – the price of housing in your area, and your personal debts, for example, there is a way to save up for a home in the next twelve months, it just takes a little creativity.

Below is a breakdown of how to save for your home, step-by-step, in the next twelve months.

 

First…Some Math..and a Little Homework.

For the purposes of this exercise we’re going to demonstrate how an average person would save in a hypothetical scenario. We are going to assume that this person:

  • Makes $50,000 per year – the average salary of a 2016 college graduate1)
  • Has no large debt or other recurring monthly payments
  • Is looking to buy a $180,000 home, around the median home price for first time buyers in the United States2)

So, with a goal down payment of 20%, an individual would need to have $36,000.00 saved.

Also, you'll want to keep this money separate from your checking account (a.k.a. the spending money.)

The Plan

Though this plan specifically shows you how to start saving big come January, you shouldn’t feel restricted by it. While there is something to be said for starting fresh in the New Year, these savings hacks are flexible enough to carry you through any month and should be customized to your personal goals.

JANUARY | Automate your savings.

This is a basic first step that can go a long way. At the beginning of the month, sit down and evaluate your budget. Figure out how much you can reasonably save after expenses such as rent, utilities, groceries, and a bit of “fun money” (we all deserve a little something for ourselves once in awhile!) If you don’t know where to start, Elizabeth Warren’s 50-30-20 method is a great way to start.

The 50-30-20 method is meant to evenly separate out take-home income: 50% to fixed expenses (like rent and bills), 30% to discretionary money (like groceries and fun), and 20% to savings (or debt repayment.)

An individual with a $50,000 annual salary, with no special deductions and the standard tax rate applied, would take home around $2,600.00 per month. Using the 50-30-20 method, this person should set aside 20% of their take home pay, which would yield $520 each month.

Savings: $6,240.00 in savings for the year

FEBRUARY | Start a savings challenge.

Take saving one step further and institute a 52 week savings challenge, where $1 goes in a jar on week one, $2 on week 2, etc.

Savings: $1,378.00 at the end of the year

MARCH | Ask for a raise.

Is it time for your annual review at work? While nerve wracking, asking (and receiving) an increase in pay is essential for financial well-being, and especially helpful when saving for a home. Just be sure to automate any increase into your savings account so it doesn’t get spent each pay period.

Savings: Even a small 3% cost of living adjustment would net $1,500.00

APRIL | Save your tax refund.

It’s tax season, and the average $50k earner receives a $3,000 tax refund. If you’re lucky enough to get a refund, you should immediately bank this cash in your home down payment fund (no matter how tempting it may be!)

Savings: ~$3,000.00

MAY | Find unique ways to earn more.

Focus on ways to earn more instead of saving.  From Uber, to Postmates, to Etsy, to online surveys, and selling old items on Ebay, there is no limit to ways you can earn money in your free time.

Savings: $500 a month X 7 months left in the year = $3,500

JUNE | Staycation.

American households spend roughly 5% of their income each year on vacations and travel. Skip yours this year (it’s just one year!) and have fun playing tourist in your hometown. Check out your cities local events calendar, or hit up the museum you’ve always wanted to visit (but never had the time). There may be more in your own backyard than you think!

Savings: For someone making around $50k this is a savings of $2,550.

JULY | Skip the lattes.

We dislike the tired old “start brown bagging your lunch to save money” advice everyone gives as much as you do, but for the purposes of saving up enough money in a year to buy a home, cuts will have to be made and lattes and lunches out are the easiest places to do it.

Savings: $600 for a half of year of making coffee at home, and another $600 for half a year of cutting lunches out.

AUGUST | Cut out unnecessary bills.

When the temperatures and electric bill begin to run high in August, conduct an audit of all your bills to identify areas of savings. Review every expense: every insurance payment, cell phone bill, automatic subscription, and see where the areas of costs savings are. New services (such as BillCutterz) even do the heavy lifting for you and can reportedly save consumers $250.00 a month.

Savings: $250 per month X 5 remaining months left in the year = $1250

SEPTEMBER | Stash your birthday cash.

Is it time for your birthday? Save all of the cash you get from your parents and grandparents and put it toward straight into your down payment fund.

Savings: $200.00+  

OCTOBER | Setup a “smart” savings plan.

Get a little bit more creative by using an app (such as Digit or Qapital) to “save the change” from your bank account. The app will analyze your spending to sneak away pennies or an extra dollar that you won’t miss (believe us, it adds up). And, depending on how many goals and milestones you enable, you could be on your way to saving up to $1,000 like this guy did.

Savings: ~$1,000 in 3 months3)

NOVEMBER | Focus on Friends-giving.

Thanksgiving is the busiest travel holiday of the year. While we know it’s hard to pass on time with family, offer to host next year – hopefully in your brand new home!

Savings: $350.00 (the average cost of a flight home for Thanksgiving.)

DECEMBER | Ditch the gifts.

Nobody likes a grinch, but consider instilling a “no gift” policy amongst your friends and family members, just this one year. With the average person spending over $900 on the holidays (not including travel) the case for opting out is compelling, for you and your loved ones!

Savings: $929.00+

All of these little creative changes and small sacrifices could save a total of $23,127.00 in just a 12 month period.

Though this isn’t quite what you need for that 20% down payment, you’re well on your way to a home of your own. Simply save for a few extra months, repeating the strategies above, or find a slightly less expensive home and live comfortably within your means, now.

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  • giulia
    March 22, 2018 at 5:03 am

    great post this is a really helpful post for anyone is trying to dsave for important financial goal to achieve!

  • Laura Myers
    March 21, 2018 at 3:38 pm

    Great list, and thanks for the mention of our company. Can you possibly link to our page where BillCutterz is referenced? I’d happily share this post on our social media if you do.

    • Melissa Germain
      March 23, 2018 at 9:13 pm

      I was actually wondering that as well. Is BillCutterz available for Google Play and Apple?

    • Lauren Bowling
      March 30, 2018 at 3:12 pm

      Done! Please let me know when this is shared on social Laura!

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