I get this question all the time from first time buyers. With so many people living paycheque to paycheque, the lack of saving has become a harsh reality for a large portion of the population. In fact, according to this recent article in the Financial Post, 56% of Ontarians say that they would be in financial difficulty if their paycheque was delayed by a week.
So, how do you go about saving if just paying your bills can be difficult?! Here are 10 ways to get that 5% downpayment:
- Set up an automatic savings account with your bank. Every two weeks when you get paid, choose a set amount to go into a savings account that you can't access (easily, like on your debit card). Even the smallest amount over time will make a big difference, and it will also make you look good to lenders when it comes time to apply for that mortgage!
- Set aside any "extra" money. Now, I know this sounds crazy. Who has EXTRA money?! I'm talking about that Christmas bonus, cash from a birthday gift, the difference if you get a raise at work, or any incentives from work like commissions or tips. Again, this seems like a drop in the bucket at the time, but you would be shocked at how quickly it adds up.
- Quit smoking! On average, this will save you over $3,000 a year. That is truly a significant amount of money that will help your financial health and, well, you know... ;) Check out this cool quitting calculator to see how much YOU would save if you quit!
- If you get a tax refund, add it to that savings account! It's not time for a vacation or a new car. It's time to be smart!
- The most obvious answer is to spend less. That includes eating out, going to movies, going to the bar, your TV package, clothes shopping, that new car. Seriously. Just stop spending! If you pay cash for everything, you will really notice a difference. Do you actually know where your money goes? Not sure how to budget? Check out this fabulous how-to on building a budget that you can actually stick to.
- Ask for cash at your wedding to go towards a down payment instead of a wedding registry. Most of us already have loads of stuff to fill up a house anyway. It might not be the most beautiful sofa, but who cares?! You'll be in your home instead of a rental. And your guests will want to help you achieve that goal as newleyweds, and if they know their money is going towards a home instead of paying for the open bar, they'll be inclined to give more.
- Get another job. I know, I know... how are you going to have a life? Well, don't have a life. For a little while, anyway. Think of the long-term gains by owning your own home. You're already making mortgage payments by renting, they're just not yours. Work at WalMart, Tim Horton's, walk the neighbourhood dogs, do yard work. There are truly endless ways of making extra money. Find it. Don't worry, your friends won't judge you, they'll be impressed. Most people are in your position, but it takes a really motivated person to go that extra mile to reach their goals!
- Ask family members for a gift. Without making your parents or grandparents suffer financially, you might want to consider asking them to contribute towards your down payment. Many parents/grandparents will help with buying a car or paying for part (or all!) of your wedding, so why not a home?! Even a few thousand dollars can go a long way in helping you buy that home. If they give it to you as a a gift (ie not a loan), this doesn't affect your credit because it's not considered a debt. Most parents/grandparents would love to help you INVEST that money instead of spend it on that car or wedding.
- Move back home. It might not be your ideal situation, but for a year or even six months, you would save THOUSANDS! Think about it. If you're paying $1,000 a month in rent (which is on the low end for most people), that's $12,000 of savings in a year. If you buy a $200,000 home, that will cover the entire 5% down payment AND most of your closing costs!
- Downsize your current rental. If moving home isn't a option because you live in different cities or there isn't room for you because your parents have already downsized, consider living smaller. I know it's easier to live in that 2-bedroom apartment so you have a guest bedroom or a designated office space, but if you're just one person or a couple, that room is a luxury. For a just a year, downsize. If you're paying $1,200 a month in rent for that 2-bedroom (again, on the low end), you could save $200 a month by living smaller.
It might seem impossible to save, but follow even one of these tips and you'll be well on your way to owning your first home! I can't wait to help you achieve your real estate goals :)