People often ask me if, given the real estate melt down, I stand by my advice to "Buy a House ASAP." I do. Buying a house is still the only investment you can make with money you have to spend anyway –your monthly housing payment. You can't buy stocks with your rent money, but you can buy a home! YES, I still think buying a house is a great way to save money, (by not throwing money away on rent) BUT with certain conditions:
1. You should plan to live in the house at least five years. Ten is better.
2. You should buy within your means, NOT stretch for a fancier house. I suggest buying a house for which the monthly mortgage payment will be the same as your monthly rent payment. That way you KNOW you can afford it.
3. You should save up an old-fashioned 20% down payment. More, if you can. That chunky down payment is what makes a low, rent-like monthly mortgage payment possible.
So this week I thought I'd give you some creative ideas for ways you can jump start your savings for a down payment. You will need techniques that save you big money because a 20% down payment is a sizable sum. Skipping lattes and brown bagging lunches isn't going to do it! That's small stuff. You need to SAVE BIG, and as you know, that is the title of my recent book AND it is my passion. First, let's lay the ground work. To get serious about saving for a down payment, I highly recommend setting up a separate house savings account that is for that and nothing else. A home is a unique investment and deserves its own pot of money. Now, here are some ways to pile up savings:
• Negotiate your rent. Assuming you are renting now while you save up for your first home, approach your landlord and threaten to leave unless you get a reduced rate. If you're a good tenant, they'll likely comply.
• Never buy a new car. Cars depreciate an average of 45% in the first 3 years. So buy a 3-year-old vehicle and you will save 45%. Buy a lesser known "dark horse" car like a Nissan Altima instead of a Honda Accord and you'll save another 15% or so.
• Shop around for car insurance. The same coverage at another company could be hundreds or thousands less. While you're at it, consider raising your deductible and canceling collision and comprehensive coverage if you have an older car that is not worth repairing if you wreck it.
• Become a creative couponer. Fiendishly match up store sales with manufacturer coupons and you can save as much as 80% on groceries. Just copy a coupon queen who already does it to learn all the tricks. Many blog about their great buys. Still too much work? Try the "not shopping" grocery savings method. If you currently shop once a week, cut out 1 out of every 4 trips to save 25%. (For this to work, you can't overspend when you return to the store the following week.
• Set a spousal spending limit. Resolve that you and your spouse will not spend more than X dollars without each other's permission. This does wonders to prevent pricey impulse buys.
• Cancel cable. The average American household pays more than $700 a year for it! Check out the website www.cancelcable.com for ideas to see all your favorite shows without cable.
• Right-size your cell phone plan. Use the tremendous tools at www.myvalidas.com to see if you are paying too much for cellular service. You upload your bill and the website tells you if you should switch plans or even carriers.
• Switch to a high deductible health plan. This is great advice if you are healthy. I shopped around for a friend and found she could save $1,428 a year by switching from a $500 deductible to a $1,500 one. That's nearly enough to cover the deductible itself if something does go wrong!
• Finally, check out first-time homebuyer assistance programs. They are offered in most every state and maybe you won't have to save up such a big down payment after all. Some of these programs help with your down payment, others snag you a lower interest rate. Here's a website to find your state plan: www.ncsha.org.