3 Tips for Saving for a Down Payment

Coming up with a down payment on a house can be challenging because it you may feel like you can never save any money. Down payments can be large and although it may seem overwhelming, there are ways to feasibly save large amounts of money.

1. Take the First Step

Many people think that they cannot afford to save anything. Instead of focusing on the small steps, like $20 or $50, they think about the thousands of dollars it takes to buy. Feeling overwhelmed can lead to inaction, therefore, most of us put off saving for another time, or a future date. Taking the first step and deciding on a small amount to start saving is the hardest part. Once you make a commitment to saving, the process will seem much easier. Before you know it, you will be well on your way to a down payment.

2. Savings Account

In order to save, you need a place to keep the money. While a jar under the bed might be the easiest, it is not always the best. When you have access to cash lying around, odds are that you will spend it. Establishing a savings account makes it at least a little difficult to spend the money quickly. Savings accounts are easy to establish and only require a few minutes of your time to get going. Once you have a place to put the money, it will be much easier to keep the money that you save. When your money is in the bank, it is also safe from any outside influences because it is insured.

Be sure to check that the bank you use for your savings account is FDIC insured. Currently, the FDIC insures up to $250,000 for each account. Also, research rates, you want to find a bank that offers high returns so that your money can grow. For example, if you save $600, or $50 dollars a month, and have a 2% return-your money will grow to $612 dollars at the end of a 12 month cycle.

3. Make it Automatic

If you are like the majority of people out there, you have some idea of how much money you are going to make each month. A savings budget is an important tool that you can use. Once you decide on an amount that you want to save every month, make it automatic. There are a number of ways that you can set up an automatic transfer. If you decide that you want to save $50 per month, then you set up an automatic transfer of $50 every month to your savings account. If you want, you can split it up into two payments of $25. Regardless of how you do it, making it automatic is essential. This way, you are not making a conscious decision to save every month. It just happens on its own.

When you establish automatic payments, the money that is saved no longer becomes part of your spending budget. Since it is taken from the income, you eventually don’t even feel the difference and learn to budget your spending habits differently.