The Down Payment Savings Challenge That Could Get You Into a Home Faster
Saving for a down payment on a house can feel almost impossible when rent may already be eating 30% to 40% of your income.
“I hear this from renters in my community all the time,” said Andrew Lokenauth, founder of the blog Fluent in Finance. “But the people who close on a home have one thing in common: They treat saving like a fixed bill, not something they do with leftovers.”
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Lokenauth is a big supporter of a down payment savings challenge that may help you get into a home faster.
“The 30/60/90 framework is the one I keep pushing because it works,” he added.
Version No. 1 of the Challenge
Lokenauth shared some simple ways to follow this 30-day/60-day/90-day savings challenge.
“In the first 30 days, open a dedicated high-yield savings account and automate even a small transfer,” he said. “By Day 60, cut one recurring expense you're not using, such as a streaming service, a gym membership or a subscription box, and redirect that $15 to $50 a month into savings.”
By Day 90, review your spending and find one more cut.
“The compounding here isn't just financial,” he added. “Small wins build momentum, and momentum is what keeps most people going until they actually get there.”
Version No. 2 of the Challenge
Melanie Musson, a finance expert with Quote.com, has a different version of the challenge:
30-day challenge: Cancel all your subscriptions you’re not using and even some you are but could live without, pick up an overtime shift or a few hours of overtime a week, eat at home and save every cent you can. Switch your down payment savings to a high-yield savings account. “You can earn interest similar to a [certificate of deposit] while keeping your funds liquid with a high-yield savings account,” she said. “If you keep your funds in a regular savings account, they will lose value every day thanks to inflation.”
60-day challenge: Work overtime or pick up a weekend job, sell some things you don’t need and put a hold on online spending.
90-day challenge: Earn more money by working more hours or getting a side job, spend a weekend in the sunshine reading a book or taking a hike to recoup and continue to put a hold on online spending.
A Different Approach to Savings
If you’re not quite ready to commit to the challenge, Marguerita Cheng, certified financial planner and CEO of Blue Ocean Global Wealth, said an easy alternative is to select an amount you can commit to saving each pay period.
“I have helped clients build significant wealth with this strategy,” she said. “For example, I asked my clients when they were ages 30 and 32 with student loans and credit card debt, after we worked on their income and expenses, if they felt comfortable setting aside $50 every time someone was paid.”
She noted that once they paid off their credit card debt, they increased their savings to $200 per pay period. They also earmarked half of their tax refund for their down payment.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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