Saving money is easier said than done, so where do you start?
Home is where the heart is.” Home ownership is a dream for many Canadians, and to achieve this dream, it’s often necessary to re-prioritize your personal and financial goals to be able to start saving for a down payment. Saving money is easier said than done, so where do you start? Here are five of the fastest ways to save for a down payment to make your home dreams a reality.
Review Your Spending
When it comes to our daily spending habits, most people don’t know exactly where their hard-earned dollars are being spent. First things first, start to track your spending by using a journal, an app or a spreadsheet. You may be surprised by where your money is going, but this will force you to re-examine your priorities and create a budget/spending plan. “A budget provides an overall financial picture and it helps you prioritize what is important. Having a spending plan in place is important, as it will show you places where you can start to save for your down payment,” says Reema Alevras, an independent financial broker.
Pay Off Your Debt
In March, Statistics Canada revealed that the average Canadian household owes $1.70 in debt for every $1 of disposable income it earns. So if you are anywhere close to the average, before you can start saving for your down payment, you’ll need to put money aside in your budget to tackle your debts, such as credit cards, line of credits or loans. Start by paying off your highest interest rate debt, such as a credit card, and then once that debt is repaid, move on to paying off the next debt.
Look For Alternatives
There are a number of lifestyle changes you can make to reduce your expenses to free up extra money for your down payment. “If you have more than one vehicle in your household, sell one car, take transit or carpool instead. You’ll also save money on gas, insurance and maintenance. This will free up funds in your budget, which can now be allocated towards your down payment,” says Alevras.
Furthermore, find ways to still have fun but not break the bank. Alevras shares some helpful financial tips: If you eat out frequently, start to cook at home and make your social outings special; cancel your expensive gym membership, go hiking with friends or take your workout (running, walking) outdoors; and when it comes to shopping, evaluate your needs versus wants to determine if it’s a necessary purchase – do you actually need this item? Or do you really just want it?
Borrow From RRSP
The Government of Canada offers a Home Buyers’ Plan that allows you “to withdraw up to $25,000 in a calendar year from your registered retirement savings plans (RRSPs) to buy or build your first home.” If you already have RRSPs, this is a viable option to come up with a down payment and even if you don’t, you can start to save money for your RRSP. “The only catch to this program is that you have to pay the money back to your RRSP within 15 years. If you don’t repay the money, it is treated as income and you will have to pay tax on the money you withdrew as though it were income,” according to My Money Coach, a personal finance website.
Increase Saving, Increase Work
Create a separate savings account and any raises, bonuses or extra commission you get at work, put it into this account. You can also set up automatic bi-weekly or monthly transfers to this savings account, even if it’s 5 to 10 per cent of your income, the savings will start to add up. “Keep this savings account as a deposit-only account to deter you from using it for anything else,” says Alevras. Besides your regular job, look at ways to supplement your income – “take on a second job; pick up extra shifts at work; offer your services from home repairs and tutoring to something else you’re good at; or take in a boarder or roommate,” according to My Money Coach.
As in life, it’s important to set realistic and attainable goals for making your home ownership dream a reality. Alevras compares saving for a down payment to making a New Year’s resolution, it is important to ease into a change of habits in order to sustain the change for the long-term. “Be realistic about the location, size and age of the home you want to purchase and then see if you are being realistic compared to your current income and debt levels.” Wishing you all the best in your journey to save money for the down payment of your future home!
Photos: Noelle Nikas Photography (headshot), istockphoto