How You Can Save $20,000 Within Two Years To Purchase Your First Home

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Thinking of buying your first home, and are ready to start saving for that initial down payment?

It’s understandable that you’d want to own a home. There’s just something prideful about saying, “this is my home.” There are also other reasons such as bad landlords who don’t fix anything, knowing that you could be paying your mortgage off instead of putting money in your landlord’s pockets each month, building equity, or/and you are thinking about starting a family and raising them in a home that is yours.

Whatever the reason might be, I think ‘owning’ over ‘renting’ is a much better idea–and I’ll explain why.

My favorite reason is that each time you pay your mortgage, you become richer. Every month that you pay your mortgage balance down, after interest and after all other fees, you own a larger percentage of the home you live in, which makes you richer. For example, if you buy a home for $100,000 and pay into it for 10 years: let’s say you pay $600 per month for 10 years, you’ve approximately paid off about $72,000 over that time. And over that time you’ve increased your net worth by approximately $72,000. The $72,000 is part of your overall net worth because you own that portion. If you sold your home, that’s how much you’d profit. If you rented that whole time, then you’d still be worth the same, and not any richer.

There are many other reasons as to why owning is better than renting, but that’s not what this article is about. But hopefully, now, you’ve become convinced that you are making the right choice to move out of your rental.

Let’s get started!

How are you going to save for that first home, even though you might feel like there’s no money left over each month?

As a previous financial planner, I quickly found out that your income doesn’t determine how rich you are. It’s about how much money you save from what you have earned that determines how rich you are. Someone who makes $1,000 per week and spends $1,000 per week is poorer than someone who makes $500 per week and saves $100 per week.

I’ve met countless people with smaller incomes with much larger bank accounts than those who make twice or three times as much. The truth is, the more you make the more you spend.

So the fact that you feel like you don’t have any money left over is a result of your spending habits, and not entirely because of your income. So before you say that you have no money, I am going to stop you by telling you that you ‘Do’ have money.

The trick is to invest small increments of your current income to achieve ‘BIG SAVINGS’. By allowing the bank to automatically withdraw small amounts of your income each week without you noticing, you’ll be slowly growing your wealth each time you get paid. The pros call this strategy the ‘pay yourself first’ strategy. Before you spend anything, you pay yourself first, when you invest a portion of your paycheck each week.

Even if you spend every last dime you have left after, you will still be growing richer each week.

So how does this work?… It’s called ‘investing.’

Investing is so simple. The trick is to let your advisor do most of the work, and not pay attention to the markets or all other distractions that come with it. Go to your bank and set up an appointment with a financial advisor and tell him/her that you’d like to start putting away $100 per week to start saving for a house. It’s important that you let your advisor know that you will need to take the money out in the near future so that he doesn’t put your money in a “locked” account that you can’t touch until after a certain period of time. In Canada, we have TFSA’s (Tax-free savings accounts) accounts where you can put your investments in and take them out any time “tax-free.” If you do not live in Canada ask your advisor which account he recommends you put your money in to get a good return and take out within the next 2-3 years with as minimal fees and taxes as possible.

This is what happens when you invest just small amounts of your money each week.

If you invest $100 per week with an average yearly return of 5%, you will have a return of approximately $5,460.

Year 1 Savings: $5,460

If you save $100 per week for two years with a 5% return you’d have approximately $11,193 by the end of year 2.

Year 2 Savings: $11,193

These days’ banks only require a 5% down payment. If you buy a house that costs $200,000 you’ll only need $10,000 for the down payment. In 2 years you’ll definitely have your home.

Now, what if you have a spouse? That’s a second income and if he/she also saves $100 per week, then things start getting interesting.

If you and your spouse both invest $100 per week with a 5 % average return on investment (ROI) then you can save up to $22,386 in just two years! Amazing!

Year 1 Savings: $10,920
Years 2 Savings: $22,386

The good thing about putting a big down payment on your home versus the minimum (5%) is that you get better mortgage rates, you’ll lower the monthly mortgage payment & you’ll pay your house off sooner.

Hopefully, this helped you and motivates you and your spouse to start savings. Trust me, it’s going to feel so… good when you get those keys in your hand to your first home.
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Other Tricks and Tips to Save Extra Money.

Saving the nicks and dimes- One of my suggestions outside of investments is to save your pocket change. Every time you purchase something and receive change, instead of spending that change, you put it away. Do it for a whole year and see what you are left with.

I found a good video where this couple who put away all of their change for an entire year and saved $1,902.50.

Written by: Jeff Castaneda
From: Income Tree https://incometree.net/

Article Source: https://EzineArticles.com/expert/Jeff_X_Castaneda/2500708

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