After completing a Ph.D. from an Ivy League university and landing a job with a government agency, a scientist of 31 never imagined he’d be spending his free evening and weekend hours cleaning houses and landscaping for extra cash. But a zeal for homeownership has led him to do just that.
“I grew up poor, my dad is gone, and my mom is living on disability, so she can’t possibly help me buy a house. What’s good is that my parents taught me a strong work ethic, so I’m not afraid to roll up my sleeves and work hard to get what I want. Right now, a house tops my list,” the scientist says.
In the aftermath of the financial crisis of 2008, housing analysts predicted many millennials would reject homeownership as a goal. But that hasn’t happened, says Ashley Richardson, a seasoned real estate agent affiliated with the Council of Residential Specialists (crs.com).
“The only difference in home-buying patterns between the millennials and their parents is that, nowadays, kids wait longer to buy,” Richardson says.
But for a generation saddled with student debt and facing high housing costs, there are often steep financial barriers to homeownership. That’s why they must be resourceful and, like the scientist, build a savings account by whatever means possible.
Are you cash-tight yet you hanker to take advantage of the low mortgage rates still available to buyers? If so, amassing a war chest of cash could make your home-buying offer even more competitive.
“As always, cash talks. People with more cash can get better deals, especially in areas where multiple bidding is the norm,” Richardson says.
Seeking to increase your income is just one element in the equation. The other is to cut spending. Here are a few pointers for those embarking on a crash savings program to buy a home.
-- Reflect on your attitudes about spending.
What stops people from reducing their spending? Financial planners say emotional impediments are often to blame.
“People come to financial advisers hoping for a miracle. But we’re not miracle workers,” says Shawn Koch, a planner affiliated with the Garrett Planning Network.
Koch says many people attempting a crash savings program first need to deal with the reasons behing their bad money habits, such as impulse spending or a sense of material entitlement. To help conquer these impediments, she recommends a book called “Money Harmony: Resolving Money Conflicts in Your Life and Relationships” by Olivia Mellan, a psychotherapist.
-- Begin with an inventory of your current spending.
A major obstacle to saving for a home is uncontrolled day-to-day spending. But before you can decide how to reallocate your funds, Koch says you need to review where your money has gone for a period of several months. This can be done either with pen and paper or a personal finance tool such as Quicken.
Such a review can bring surprises. For example, Koch says many of her clients are shocked to learn how much they’re spending on restaurant meals, carry-out food and coffee breaks.
Doing a spending inventory can be time-consuming because you must sift through credit card and checking account statements. Indeed, for those who don’t routinely track their spending, this process could take the better part of a weekend. But Koch says it’s essential to determine where cuts are possible.
-- Develop a budget that allows room for your savings goal.
Given the ever-rising cost of living, Koch says it’s hard to trim expenses enough to allow for a serious savings program. Still, she urges savers to examine their largest outlays, including regular supermarket spending.
“Grocery store food can ... add up fast,” says Koch, who recommends that clients buy fewer processed foods, do more home cooking, monitor food waste closely and consider taking bag lunches to work.
Transportation costs can also put a big dent in most household budgets. Koch advises savers to challenge their long-held assumptions about car ownership. Would public transportation or carpooling be a realistic alternative for commuting that could lead to hefty savings for gas, insurance and car repairs?
Koch also recommends you examine your cellphone outlays.
“Do you really need the latest iPhone, or will the phone you’ve owned for a couple of years still meet your needs? You can always upgrade to a better phone after you’ve met your other money goals,” Koch says.
For those who need guidance, Koch recommends “The Budget Kit: The Common Cents Money Management Workbook” by Judy Lawrence.
-- Sign up for an automatic savings plan.
Many people who live paycheck to paycheck find it hard to summon the discipline to extract a chunk for savings. And they fear automatic withdrawals from their pay.
But financial planners say automatic withdrawals can be the answer for people who aren’t methodical savers. And they say those who have direct debits taken from their pay rarely miss the money. Meanwhile, their savings accounts add up quickly.
“With an automatic debit plan, you just set it and forget it. That’s a big plus for anyone trying to save money for a house,” Koch says.
(To contact Ellen James Martin, email her at email@example.com.)