It’s nearing the time of year when Americans are more likely to take stock of where they are and where they’d like to be. We take a magnifying glass to our lives and focus on bad habits we’d like to break and goals we haven’t yet achieved. Saving a down payment might be high on your list. A lot of people are also going to say this year they wish they’d eaten healthier, exercised more and spent more time with the people they loved.
Yet they feel this sense of guilt and discomfort, because they know they said the same thing last year, and the year before. They know what they should do, and they have a strong desire for success, but somehow it never happens.
Home ownership is a huge part of the American dream. If you’ve been meaning to save for a down payment for a while now, but you just haven’t been able to make it happen, it might be because of your mindset. Let’s take a good hard look at the big fat money lies that might be keeping you from saving for a down payment.
My Lifestyle Spending Isn’t So Bad
Think of your overall income as a pie graph. Your vehicle loans and housing expenses are probably the biggest pieces of the pie. Student loans, credit card debt, groceries, gas and utilities might each take up their own big chunk. In comparison, what you spend on the little things doesn’t seem like a significant amount.
Maybe you like designer purses or jeans, but you only buy them a few times a year. You eat out a lot, but it’s not always at expensive restaurants. You only go to the movies once a month as a splurge, so when you do you treat yourself and your family members to popcorn, candy and soda. Plus, You love your dog, so somehow treats and toys for him always end up in your shopping cart.
Each purchase by itself is a tiny sliver of the pie. But when you put them together, they make up a much larger part of the whole. It becomes an even bigger issue when you charge that spending, pay the minimum balance and start having to pay interest.
If you want to save for the down payment on a home loan, you need a more realistic view of what you’re spending and where you can make cuts. Pull out your receipts for the past quarter and see what your lifestyle spending is really costing you and find ways you can spend less.
My Daily Coffee is Ruining My Chances of Saving a Down Payment
At some point, that person in your life who achieved financial success a long time ago looked at the expensive coffee in your hand, rolled his or her eyes and said something to insinuate that’s what’s wrong with your generation. The small things matter, and they add up, but your coffee habit isn’t what’s blowing your budget.
Let’s say you roll through the drive through every day on your way to work and order a coffee that costs you $5. Sure, that money could go in your savings account. But really, it’s just costing you a total of $1,300 a year. It would take years of coffee deprivation to save up a three percent down payment. Cutting out the coffee probably won’t be enough. It’s going to take bigger steps.
Biggest Household Expenses
The Bureau of Labor and Satistics tracks spending, and they published a report that reveals spending trends for U.S. households. In 2018, here’s a breakdown of spending averages:
- Housing – 32%
- Transportation – 15%
- Food – 12.9%
- Insurance and pensions – 11.9%
- Healthcare – 8.1%
- Apparel – 3%
Numbers varied a little for married couples with children, singles or one parent households, but not by much. Interestingly enough, couples with children spent more on transportation, spending 17.1% of their income on their ride.
Look at your own expenses and see how big of a chunk goes to housing and transportation. You have to have somewhere to live and a way to get back and forth, but if your goal is to save for a down payment, you might be able to make some cuts. Downsizing to a smaller apartment for a year might help you save thousands, and there’s no sense throwing money away on rent. If your car is close to being paid off, keep driving it rather than taking on another loan.
I Just Need to Try Harder at Saving a Down Payment
When you don’t do something you know you should, you feel guilt. You beat yourself up. You go to bed at night thinking, “tomorrow I’ve got to do better,” but tomorrow it’s still as big a challenge as it was today.
That guilt comes from the underlying belief that if you could just try harder or be stronger, you could solve your problem and reach your goals. While it’s true you (and your spouse if you have one) are responsible for your financial future, saving a down payment usually isn’t just a matter of developing a stiff upper lip.
The problem is, “try harder” isn’t a plan. You need specific steps, set time frames for measuring success and often help from an outside source. The really good news is, at WestWind Homes we can help you set that up so you can stop making yourself empty promises at bedtime and start reaching your home ownership goals.
All Debt is Bad
High interest credit card debt is bad. Taking on debt for things you don’t need when you’re supposed to be saving a down payment is counterproductive. But if you think all debt is bad, you’re believing a common misconception.
We run across home buyers who haven’t established credit because they know people with huge amounts of debt, so they avoided applying for any type of loan. You’ll need some type of credit history to qualify for a home loan.
Sometimes it makes good financial sense to use other people’s money as a tool. If a student loan would help you get an education and a better paying job, that’s good debt. And one of the simplest, safest wealth-building strategies is buying a home, living in it a while, and selling it at a profit.
I Have to Pay Off All My Debt Before I Can Start Saving
Again, that statement just isn’t true. Often, we hear individuals say they haven’t been saving a down payment because they think before they can start, they have to pay off all their debt. They recognize becoming completely debt-free could take years, so they feel defeated. They’re less motivated to pay down debt because the potential benefits seem so far off.
Saving can actually help you not go further into debt. If you have an emergency fund, when things go wrong you don’t have to put unexpected expenses on your credit card.
You Need At Least 20 Percent Down to Buy a Home
When people realize a 20 percent down payment on a $200,000 home is $40,000, they sometimes feel they’ll never be successful at saving a down payment that large. But the truth is, many home loans are available for a much smaller percentage down. For example, FHA loans are often available with only three percent down.
WestWind Homes has long-term relationships with nationwide lenders. In most situations if you don’t have 20 percent down, that doesn’t have to keep you from reaching your home ownership goals.
If I Just Had Money I’d be Happy
A Harvard Business School study cites research that says data suggests once basic needs are met, more money doesn’t result in more happiness. According to the study what does make people happier is spending money to improve the well-being of people you care about and buying experiences.
Home ownership allows you to do both. Saving a down payment and buying a home provides a safe place where your family can make memories. You spend on the ones you love, and the experiences you have in your new home are priceless.
If you choose a WestWind Home you’ll live in a thriving community with amenities that enrich daily life. And you can’t get more memorable experiences than what comes from tucking your child into bed at night, decorating your home for the holidays, entertaining friends at your backyard barbecue and watching your kids flourish at good schools.
Help Saving a Down Payment
If buying a home is on your list of goals, get help with saving a down payment when you work with WestWind Homes. Our Home Buyer’s club can help you navigate the path to home ownership, even if lenders have turned you down. When you join, we’ll even give you up to $1,000 towards your down payment on a brand new WestWind home. Schedule your free confidential credit consultation today.