Know how much you’ll need
The first step to building a budget around your savings goals is being realistic about how much you’ll need to save. Research the average cost of homes in your area, and calculate how much you’ll need to save in order to put down a payment for that home. Many people strive to save at least 20% of the home price, but there are loan options that allow for a lower down payment.
Talk to a mortgage professional to find out which type of mortgage is right for your situation.
It’s also important to remember that your down payment is not the only cost associated with your home purchase. When you set your goal and construct a budget to build toward it, you’ll want to consider home insurance, closing costs, and other costs that may surprise you in the home buying process.
Take a look at your current income and spending habits
Once you have a good idea about how much you’ll need to save to buy a home, the next step is to calculate how much of your income it will take to get there. One of the most simple budget rules is the 50-30-20 rule.
Allocate 50% of your income to necessities, like rent, groceries, transportation or utilities. Use at least 20% for savings toward financial goals like saving or paying off debt. The final 30% can be allocated toward splurges, or things that you want but don’t necessarily need. This is one of the most simple approaches to setting a budget and can help you think about which purchases are truly considered necessities.
Budgeting apps like Mint can help you visualize how much of your budget is spent in different categories each month. At his point, determine if the 20% that you have allocated toward savings will be enough to save for a down payment by the end of the year, or calculate how long it will take for that 20% to get you to your goal.
Decide where you may be able to cut spending
After seeing your current saving rate, and determining whether or not it will get you to your goal in a timely manner, you may want to evaluate other places that you could cut spending. For example, you could consider bringing a packed lunch at least 4 days a week instead of eating out. Another way you could save is by choosing a road trip or camping trip over a long distance vacation this year. Small changes can add up to fairly significant savings over the course of the year!
As you save for your down payment, remember that paying down debt is also an important step as you prepare to purchase a home—so don’t put your savings goals above paying down other debts on time.