How To Save for a First Home

In a world of exploding real estate prices all too many people feel they are completely priced out of the market and will never achieve the dream of home ownership. Indeed, if you think in terms of the home of your dreams, the amount of capital needed may seem insurmountable. Think a little smaller and a lot smarter and you may realise it is possible to save for your first home; even today.

The ideas we’ll share are grounded in two powerful concepts about human activity of all sorts:

- Goal Setting
- Achievement Energy.

Read a biography of any successful person and you’ll find a common characteristic: they are driven to achieve something. Goals unleash abundant energy and are possibly the most powerful driver of human activity.

The second concept is a corollary of goal setting – measurable progress towards achieving a goal releases additional energy. Goals set far into the future with no shorter term ways of telling us we’re moving towards the goal quickly lose their energy. So here are five tips for saving for your first home:

Identify a Target House
Set a Savings Goal
Create a Budget
Establish a Separate Goal Account
Set and Track a Monthly Cost Saving Goal

Identify a Target house

The clearer picture you have of the goal you are trying to achieve, the easier it is to achieve it. “Saving for a house” is a flat and uninspiring phrase. But “Saving for that house on Elm Street” is an entirely different matter. Of course, by the time you have the money saved for the down payment the house will be gone but there are always others like it.

What you are doing here is translating the dream of home ownership from fantasy to reality. Spend the time searching the net and talking to real estate agents and you’ll find there are attractive homes out there even in the lower price brackets. Find one, and then burn the images of that home in your mind and keep them there as you start saving.

Set a Savings Goal

Although you might be able to get a better deal when you are ready to buy, a 10% down payment is a good savings goal to set as a benchmark. So if you found a target house at $400,000, your savings goal is $40,000. Assuming you have little or no current savings and have both time and patience, you could achieve that goal in four years by saving $10,000 per year; or $833 a month; or about $208 a week; and finally $29.75 a day.

Think about that daily number for a moment. If you and your partner both work outside the home and go out to eat for lunch every day, you could conceivably reach half the daily goal or more, simply by bringing a lunch with you!

Create a Budget

To reach that goal you’re going to have to look for ways to cut spending and possibly generate additional income and you can’t do that without first establishing exactly how much income you bring in each month and how much goes out. There are many ways to cut monthly costs. If both of you have cell phones, get rid of your land line. If you have premium cable services, get rid of them entirely or cut back on the number of channels you receive.

Establish a Separate Goal Account

Open an interest paying checking account or a separate savings account where you’ll begin making deposits for your home fund. Some companies allow direct deposits of payroll checks to multiple accounts and automatic withdrawals are a good idea to maintain the discipline of monthly savings. A separate account is your way of keeping track of progress towards your goal number.

Set and Track a Monthly Cost Saving Goal

To be maximally effective, cost cutting needs to go beyond the initial budgeting process. Spending patterns have a certain seasonality to them so the idea of setting a monthly cost savings goal, either as a percentage or a dollar amount, will help you save even more!