Saving for a Home while Paying Rent – A Tenant’s Guide to Ownership!
Does your landlord keep raising your rent? Do appliances frequently break and rarely get fixed? Are you sick of paying somebody else’s mortgage and are ready to pay your own? This is the guide for you!
As any first time home owner will tell you, and as you can probably imagine from your own experience, conjuring up enough savings to purchase your own property is certainly not an easy accomplishment. As if saving up for the down payment isn’t difficult enough, (generally around $20,000 is required, but certainly could be more OR less depending on the cost of the property), but there are those additional closing costs as well. (Closing costs differ depending on many circumstances such as lawyer fees, home inspection fees, property tax amounts owed, etc). In addition to the overwhelming amount of money required up front, there is also the ever loathing duty of getting your credit checked before you can be approved for a mortgage. For someone who doesn’t have their credit checked often, this can be a nerve racking experience, so make sure to pay off your credit cards because this step can ultimately make or break a deal.
I’m sure right now you’re thinking that this article is in no way helpful, and you are fearful that you may be stuck renting forever. But I promise you, with these tips, not only is owning your own home possible, but it could actually be accomplished in just a few years! Take a Look at these Tips:
1. Establish your comfortable budget: This is the most important step of all. Putting money away solely to use for the purchase of your home is a key ingredient to making this dream come true. If you are able, every pay cheque you receive, put away $15% of your income. (This percentage may and should differ depending on your annual income). Let’s just say for this instance you are an individual making $40,000.00 annually, that’s roughly $3,333.00 per month. 15% of your monthly cheque is approximately $500.00/month…. That’s $6000.00/year being put away strictly into your house fund. 5 years later you will have acquired $30,000.00 in cold hard cash. Not too bad for setting aside not even a quarter of your income. While this number is fantastic, perhaps you are one of the many people who don’t want to wait 5 whole years….
Putting aside a certain percentage of your monthly income when you KNOW what your living costs are on a month to month basis is one thing, but what happens when your living costs go up? Your landlord raises your rent, or insurance company raises your monthly payments? Many people immediately react to these occurrences by reducing the amount of money they put toward their house fund, or put the fund on “pause” all together… But you’re not most people, and you don’t have too.
2. Cut any Unnecessary Monthly Costs: Remember that gym membership you pay for monthly, but hardly ever use? You know those $5 Starbucks coffees that you buy every single morning before work? Or that phone bill that you pay extra money monthly just to have more data for Social Media? Cut it. Cut one, cut two, cut them all. Each item on this list may seem like only a little bit of money, which won’t noticeably affect your bank account, but I assure you – they do. Cut what you can, and I promise that you will be shocked with the amount of extra cash in your pockets each month.
3. Pay Less Rent: This one sounds silly, but it is also crucial. If you are living in a place where you feel the rent is too high to properly budget for your home, MOVE. Perhaps find a place that is a little bit smaller, and a little bit older. Rent tends to be slightly cheaper under these circumstances. Again, even if rent is just slightly less expensive, every dollar counts at this stage.
4. Get a Roommate: Many successful home owners, as well as entrepreneurs, gave up their home comfort and space in order to achieve where they are today. Give up a little bit of your personal space, in order to cut your rental costs in half. I assure you the amount of money you will save will be well worth it.
5. Lastly, the most Aggressive tactic of all, Move in with you or your spouse’s Family: If you can handle the roommate approach, you can most likely handle this one. The best way to reduce the cost of your rent, is to not pay rent at all. If this is a possibility for you, and you can live with it for just a few years, then this is your “Money Maker Plan”. Literally.
So, overall, assuming you follow all of the tips above, here is what you will be saving: Let’s say your rent was $600, and you’re no longer paying it – that’s $600 in your bank account, in addition to the $500 you are setting aside every month. Incorporate this $1100 in savings, with the savings from cutting out or reducing your Starbucks, or gym membership, and you’re bank account will be growing quicker than you can count. Just from cutting the rent, and setting aside that 15%, you will be putting $13,200.00 into your home savings account every year! (Again, these numbers are based on the annual income of $40,000.00). It sounds unbelievable but I assure you, it’s true.
By using all of the tips mentioned here today, you could be living in your very own home, completely rent free in just a few years! Now that is something worth saving for.