Many of us ask in many times- how to save money for a house. But, saving money is not easy task especially for low earners. Like many others, you also want to belong to a house. Before entering main discussion, I need to identify your earning level.
But, I don’t know your current saving. Before applying below tips and tricks, you should get out of debt fast. Average annual American salary is $51168. Average Annual US living expenses for a family is $36000. Finally, Average house price in the United States is $374,900. Information Source.
I have shown you US statistic for example purpose. This average information definitely varies from country to country. For your easy understanding, I will guess some information.
Why should you need a house?
A house can be used for your living. Moreover, you can earn money by renting unused space. In both cases, you can save your rent expenses and earn from renting extra rooms. Moreover, investing in land is a smart choice for low earners.
For rest of the discussion, I imagine you are a jobholder and your annual salary is $60000. You want to buy a house by spending $300000. Now the question is:
How to save money $300000 for a house?
Suppose, you want to buy a house by 20% down payment. Initial saving amount needs $70000 ($300000*20%) plus approximately $10000 for other expenses. If your living expense is $36000 ($3000*12), you need Approx. 3 years (($70000/ ($60000-$24000)) for 70000 dollars down payment. That means you can get a house after 3 years if you can manage 24000 dollars saving in each year.
Does down payment is enough?
You need another 10 years ($270000/$24000) to repay the mortgage of remaining 230000 dollars if you repay $24000 each year. Duration may change based on loan payment amount and interest rate. Literally, you can get a house for own within 13 years. You may cut short duration by many ways. Read the whole post to find out the best solution to reduce duration.
How to save extra money
Suppose your house has an apartment. Average monthly apartment rent in USA is $1000. You can earn $12000 annually by renting out your apartment. Moreover, you can save $12000 annually by living in your apartment. So, your yearly saving is $36000 ($24000+$12000). Number of years need to pay $270000 is 7.5 years (270000/36000).
You can own your house nearly 10 years. Hurrah! So far you can lessen duration 3 years. How to reduce more years? Just continue your reading.
You can lessen duration by earning outside your day job. For example, you can earn surplus money by part time job- freelancing or blogging. If you can earn extra 10000 dollars annually by part time job, you can own a house in 6.74 years ((310000/ (70000-24000)). Not interesting? Thus, you can belong to a house within 6 to 7 years!
Come to the point
Yet, you haven’t got the answer of the original question ” how to save money for a house.” The above discussion is for your realization. Before further procced, you are going to learn the tips and tricks for how to save money.
How to save money for a house
1. Fixed your targeted saving
At the beginning, I mentioned a minimum 310000 dollars needs for a house. And initial down payment is 70000 dollars. For easy understanding, we will follow this saving target.
2. Second source of income
Now time to think about second source of income. For another source of income, you can do a part time job: freelancing or some other work to earn some extra money. Extra earning will boost up your saving.
3. Try to switch better job
You may switch your current job if you receive less that your qualification. Switching current job has both risk and potentiality. So, think before switching your current job. New job means new surroundings which may not suit to you.
4. Create monthly family budget
You can easily control family expenses by making a monthly family budget. When you follow the budget, you will know in which sources you have spent more. Thus, you can control expenses.
5. Reduce daily expenses
Every day we need to spend money for our daily need. Daily expenses start from grocery to apartment rent. You can’t get out of daily expenses. But you can reduce your daily expenses.
As you want to own a house for comfortable living, you should compromise your daily expenses. At the outset, I have imagined that your monthly expenses are 3000 dollars. Let’s cut short of below daily expenses.
Grocery Expenses
Reduce your current grocery expenses up-to 5% to 10%.
Rental Expense
You can save at least 10% rent expenses in case you want to live outside core city.
Children’s Educational Expenses
You can reduce educational expenses at least 5% in case your children admit government school and college.
Shopping Expenses
Don’t shop unnecessary. Excessive shopping is a bad habit.
Transport Expenses
Use public transport to save money for a house.
Get together Expenses
Frequently visiting luxury hotel and resort kill your saving. So, avoid such type of expenses.
Car Expenses
Do you have a car? Drive yourself. Driver cost and others cost will reduce.
Medical Expenses
Maintain a healthy life to avoid monthly medical expenses.
In Conclusion
In total, you can reduce your daily expenses at least 30%. So, your annual saving will increase $10800 (36000*30%). As a result, you can reduce years to 6.62 years (310000/46800). Your annual salary is 60000 dollars. Part time income is 12000 dollars.
And daily expenses reduction are 10800 dollars. Saving is 46800 dollars (60000+12000-25200). By following this calculation, you can buy a house after 6 years without any down payment.
Frequently asked Questions
Does it possible to save money for a house in 6 months?
Yes. It is possible to save money for a house in 6 months. But the answer is big ” NO” for almost 98% jobholders. You may argue that you can get a house by 5% to 10% down payment. Remember that unless you pay the whole amount, this house doesn’t belong to you.
Moreover, you may fire from your job. So, a jobholder should by a house at least 50% down payment. As a jobholder, you should attempt to buy a house at least 20% to 50% down payment. Think about my previous discussion.
You need 70000 dollars for 20% down payment of 310000 dollars house. Your yearly saving from job is 24000 dollars. So, how can you save money for a house in 6 months?
Does it possible to save money for a house in a year?
Yet the answer is “NO” for a jobholder. For a business man? No need to say. You can guess. In many writings, you can learn that one-year saving is enough for a house. But I don’t suggest you to follow their footstep.
In many cases, house goes to loan provider as the owner failed to repay the loan amount. If you can, you should save the whole amount before buying a house. So, emphasis on your saving to reduce headache.
Learn More
10 Effective Tips How to Save Money Fast on a Low Income
Founder of The Financial Ask
