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- I wasn't looking forward to saving five figures to make a 20% down payment on my first home, but I knew it was a smart financial move.
- I came across a general rule of thumb suggesting you shouldn't spend more than 30% of your income on housing costs.
- I decided to lower my housing costs as much as possible and save the difference between my actual costs and the 30% guideline in a targeted savings account to help make my dream a reality.
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As a fresh college graduate, I knew setting aside money for a house down payment would be a huge undertaking. My goal was to save enough cash to put 20% down on a home when I was ready to buy. Unfortunately, building a five-figure bank account balance is a daunting task that seems almost impossible when you're first starting out.
Thankfully, I came up with a hack that made saving for my future home much more manageable.
Spending less to save more
Before I graduated from college, I started reading several personal finance blogs. One common theme was making sure you don't overspend on housing. I found that a general rule of thumb was to spend no more than 30% of your income on housing-related costs.
To save for my future, I consciously made an effort to find ways to keep my housing costs to a minimum. I had two roommates in my first post-college apartment and found an affordable house a bit outside of town for my next home.
I didn't live in the best areas or nicest rentals when I was setting aside money for a down payment. Even so, it was a sacrifice I was willing to make to become a homeowner.
Saving the money I wasn't spending on housing
Both of these rentals allowed me to spend significantly less than 30% of my income on housing. The apartment with roommates only cost me roughly 15% of my income, and the next house was only about 22% of my income. Rather than spend the remaining portion of my housing budget on other expenses as many of my friends did, I decided to save it.
To make sure I didn't spend my house down payment funds, I created a new targeted savings account with my online bank to squirrel away the cash. Today, you may be able to do this in a single savings account with certain online banks. You may even be able to label the money with your goal's name in some cases.
At the end of my first two years of renting, I had managed to save over $10,000 using this method. I also put away money from other parts of my budget. Combined, this allowed me to buy my first home, a $79,000 townhouse, while putting 20% down two years after graduating from college in 2011.
I was prepared to spend more on my home
This hack helped me adjust to what life would be like with housing costs taking up the full 30% of my income. Because I was saving a big portion of my monthly income, it didn't come as a shock when my housing expenses suddenly increased. I simple stopped putting aside money for a down payment and started spending that cash on my home instead.
If I had previously been spending my leftover housing money elsewhere — instead of saving it for my down payment — I would have had to cut back in other areas to become a homeowner. This would have been a tough pill to swallow if I was already spending 90% or 100% of my income. Fortunately, I was prepared.
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