Savings & Budgeting*
How To Think About Saving For Home
One commonly used budgeting method is known as 50/30/20 rule. It says you should put half your monthly income towards necessities such as housing, health insurance, a car, and food. Another 30 percent should go towards wants, like entertainment, dining, and fashion. The final 20 percent goes toward savings, which would include setting money aside for buying your first home. Be sure to make your budget based on your after-tax income.
Quick Start for Savings
Decide on a Savings Goal
Pick a savings target $ amount overall; how much to save each month; and the resulting time it will take to achieve your goal. As you work through the other steps below, you might want to adjust your savings goal to increase monthly savings or adjust down if unrealistic.
Dedicate a Specific Account for Your First Home Savings
Open a new high-yield savings account and schedule automatic transfers from your checking account to your savings account every time you are paid. If you want to consider a financial institution to keep this account isolated, search bankrate.com or similar sites for the best rates.
Select a Tool to Track Your Monthly Expenditures
It is critical to select a tool and use this every month. Some people like the flexibility of a basic spreadsheet which allows for your own customization but does require manual input. Others prefer free or paid apps with some options even connecting with your credit card and bank accounts to document transactions. A spreadsheet is an easy way to kick start and then consider more automated approaches.
Track Your First Month Expenses
Keep track of all of all spending for a month and break down the expenses into categories. The federal Consumer Financial Protection Bureau offers a Monthly Tracking Sheet to segment your expenditures to see how much you’re spending across categories like cell phone, eating out, entertainment, healthcare, pets, etc. Be diligent to track all your expenses for the first month.
Create Your “Going Forward” Monthly Budget
Now that you’ve got a feel for the every month expenses, consider savings approaches such as the “50|30|20 approach”. Half your income goes toward Necessities such as housing, health insurance, a car and food. Another 30 percent goes toward Wants, like entertainment. The rest goes to Saving & Investing. If you are over 50% on Necessities or 30% on Wants, you might consider other subject matter sources or a financial planner to help you get those expenditures where you can save at least 20%.
At End of Month 2, Modify Your Monthly Budget
Look over all of your necessary and discretionary spending by category and sub-category. What do you notice? Do impulse purchases add up? Are there services you can cut back on for a while? Look for ways to save, and be sure to funnel those dollars into your home-ownership fund. Modify as needed at the end of each month to save more.
Pay Down Your Debt
Using your spreadsheet (or alternate tool), capture your minimum payments, and percentage interest each creditor charges you for any outstanding debts you have. If you want help, consider using a service such as The National Foundation for Credit Counseling, the largest nonprofit financial counseling organization in the U.S. Create a plan for paying down the debt. Tackle debts by the rate of interest, paying off the highest-interest balances first. You'll be surprised by how much progress you can make in a short amount of time.
Increase Your Income
Do you have the time or skills for a part-time side gig? Or maybe your position offers overtime. Make a few extra bucks from selling items locally or online that are just taking up space. Challenge yourself on ways to bring in even a small percent of additional income and put it all into your first home fund.
Long & Foster Tips
If you don't have current savings and budgeting plan, start by tackling a little bit in consecutive days following the order that we outline in the Playbook. What has worked for some is scheduling time each day on their personal calendar. In a few short days you'll have achieved the first section of your plan!