Honolulu Real Estate News

How to save for a down Payment

The objection to purchasing a home or investment property that I most often hear is, “I don’t have the down payment”. Allow me to suggest that the reason you don’t have the down payment is: you haven’t focused your life on creating a down payment. We are constantly bombarded with ways to spend money. You know these ads: TV, radio, newspaper, Internet, etc. Everything we think we want is right at our fingertips. It’s extremely easy to become distracted by the things advertised and into thinking that we need these things. Reflect for a moment on that. Aren’t most of them “wants” rather than “needs”? Being distracted by short-term “wants” may be what is keeping you from seeing that you can create long-term wealth, a life where you can wake up each morning knowing money is coming your way without you having to go to work.

Here are some ways you can re-think your finances to set aside money for a down payment:

1. Take a serious look at your expenses. For a month, track every expense. Using a debit card may provide you a handy list to start with. Divide expenses into columns: rent/mortgage, groceries, household expenses, travel, fuel, dining out, entertainment, clothing, child care, and other individual expenses.
2. Next, look at your monthly income. How do your expenses and your income compare?
3. Looking at your expenses, how many of those are “wants” rather than “needs”? Where can you cut back on expenses?
1. For example, do you eat out for lunch? Conservatively at $10 a lunch, and you both eat out, twice per week that’s $40 a week, $2,080 a year.
2. What about dinner? Conservatively at $30 a couple (not family), that’s another $1,560 a year. Twice a week? That’s $3,120 a year.
3. A cup of coffee – I’m not talking about the expensive lattes or others – costs about $2 a cup. To make your own coffee at home costs about 30 cents. If you are a couple and each of you takes coffee in a thermos rather than buying one cup each a day, you would save over $700 per year.

By eliminating two dinners out a week, two lunches a week, and a daily coffee, a couple can save almost $6,000 per year.

4. Consider Netflix instead of going to the movies. A monthly subscription to Netflix costs less than one ticket to the movies. And think of the extra money you’ll save by not buying any of the high priced concession foods!
5. Resist the urge to buy a new car. According to Car and Driver, cars lose value with each passing month and mile, but the steepest decline happens right away; some models can lose 40 percent or more of their value in the first year.
6. Learn to do what our parents and grandparents took to heart during the depression and WWII years – make do, use up, do without. As Benjamin Franklin said, “A penny saved is a penny earned”.
7. Don’t carry credit card balances. If you currently have them, add up the interest you are paying on all of them each month, then multiply by 12. If that number were, for example, $70 per month total, that’s $840 per year. Don’t purchase “wants” on credit. Purchase “needs” on credit you can’t fully pay off next month SOLELY if the situation is truly dire.
8. Get in the habit of looking for ways to save money – coupons, family plans, vacations, etc. What you focus on expands. Think about it. The last time you purchased a car, didn’t you immediately start seeing that same car everywhere you went? They were there before but you weren’t focused on them before. If you stay focused on ways to save money, you’ll start seeing more and more ways to do it.
9. Self-Directed IRA – More and more people are taking control of their own investments by using their retirement money and investing in real estate through a Self-Directed IRA. If you already have a Traditional or Roth IRA, you can transfer or rollover the funds to a self-directed plan with no penalties. If you already have an IRA or funds in a dormant 401K account, you can transfer the funds to a self-directed account and begin expanding your investment options.
10. Create a savings account solely for the purpose of building a down payment. When you pay bills, always put a set amount into that account. You’ll find you forget it’s available. Better yet, if possible, have that money automatically moved into the account. When you receive a bonus or gift, immediately put that money into the account. Don’t let yourself think of it as play money.

Other people have made the decision to find a way to finance rental homes. They are no different than you. They did not have the resources you do not have. They made the decision then remained focused on their long-term goal.

You can too.