Ever since the phrase “The American Dream” first became popular in the 1930s, it has carried with it the concept of home ownership. If that’s part of your Dream but you’re currently renting, I want to share with you that it’s still possible for you to save for a new home.
I found a recent Time magazine article titled “20 Ways to Save for a New Home While Renting.” Here is a brief recap of the article’s tips, along with some of my own thoughts, based on my 13+ years of experience as a Realtor in the Denver metro area real estate market.
Top 5 Ways to Save for a New Home While Renting
These strategies have the greatest impact on increasing your saving, reducing your expenses, or both.
- Pay off credit card debt: It’s hard to save for a down payment or other home buying expenses with credit card debt hanging over your head, so you’ll want to attack this first. This ties in to advice you can find in my blog post “10 Mistakes to Avoid When Buying a Home”.
- “Ignore” any raise you get: This means that when you get a raise (yay you!), keep your spending habits the same and plow the extra money into reducing debt, increasing savings, or both.
- Commit to save your tax refund: The average tax refund is more than $2,500. That’s a nice chunk of change to put into saving.
- Keep more of next year’s paycheck: That tax refund? Yeah…you’ve essentially been lending it to the government tax free for the preceding year. Double-check your withholding allowances on your W-4 and adjust your tax withholding. That will add to your paycheck each pay period during the coming year, rather than making you wait on a refund.
- Double your fun (and max your savings) with a roommate: I know. Taking a roommate after you’ve finally gotten to a point where you can afford a place all to yourself can feel like a step backward. But the reality is, your savings will grow a lot faster if you can cut your expenses in this way.
Other Ways to Save
- Pick up a side hustle: If you can’t decrease your expenses, perhaps you can increase your income. The Time.com article links to 30 ways to make money online. Alternatively, you may be able to pick up a second job or a seasonal job, or a part-time gig such as driving for a ride-sharing service such as Lyft.
- Shop for lower insurance rates: If your driving record is good and you’ve been with your current insurer for more than year, you could save some money by shopping around for a lower rate. You can do the same with your renter’s insurance. Most insurers have sites online where you can fill in your information and request a quote.
- Shop for better deals on TV service: Do you have cable or satellite TV service? Have you looked at the bill lately? The charges can be jaw-dropping…especially if combined with your Internet service. If your account is in good standing, call your provider and ask them to give you the same low-price deal they’re offering to new customers; most times, the provider will agree if it means keeping you as a customer. Another idea is to ditch TV service in lieu of Amazon Prime, Netflix, Hulu or other low-cost providers.
- Scale back your vices: Cigarettes, alcohol, and eating out more than a few meals a week are top of the list for cutting expenses. So are expensive shoes, handbags, cosmetics, and services like manicures, facials, and massages. If you approach it with the right attitude and keep your long-range goal of home ownership firmly in your sights, it can even be fun to come up with creative and inexpensive ways to have fun.
- Automate your savings: If you don’t see it, you won’t be tempted to spend it. Mobile apps such as Digit can link to your bank account to analyze your income and spending and tell you how much to allocate to savings. Your bank may also offer automatic transfers from your checking account to your savings account.
- Eliminate checking account fees: If your bank charges a monthly fee just for you to have an account, shop around for one that doesn’t. You won’t save a ton this way, but it just makes sense to plug this drain on your money.
- Cut the cost of commuting: Look at what you’re spending to own, drive, maintain, and park a car. Depending on where you live and work, and on your schedule, there may be opportunity to cut costs. Consider walking, cycling, taking public transportation, or carpooling.
- Stop spending on home décor: See #9 – scale back on your vices. Rein in the impulse to buy and start putting that money aside for décor in your new home. This was #6 in my blog post “10 Mistakes to Avoid When Buying a New Home”.
Be Careful with These Strategies
- Rent out your apartment on a home-sharing platform such as Airbnb: This can be a good strategy if you travel frequently for work. Remember to take into account your costs, such as for cleaning or increased renter’s insurance premiums. And of course, you’ll need to check the terms of your lease to see if it’s allowed. Even if your lease allows it, your city may not; be sure to check the rules of your municipality.
- Reap credit card rewards: Cash back is an attractive incentive, particularly if you maximize it by paying most or all of your bills and expenses with a cash-back credit card. The risk, of course, is that you’ll need to pay the balance in full each month to avoid savings-draining interest charges.
- Drop your gym membership: This one hurts. Going to the gym is not a vice, so it’s hard to want to cut this one out. The reality is that gym memberships can be pricey, so dropping it could save you significant money. If you’re paying for a gym membership but not using it, I’d say dropping it should be one of the first savings strategies you turn to. If you do use the membership, I’d recommend weighing the cost against the benefit. If the gym serves as your primary means of social connection and entertainment after dropping your vices, it might be worth hanging on to your membership. Here in Colorado, though, we have lots of outdoor alternatives that can provide you with great workouts for free.
- Lower your cellphone costs: The Time.com article suggests switching from a major carrier such as Verizon to a second-tier one such as StraightTalk Wireless. Another option would be to reduce the amount of data you’re paying for. If you depend on your phone for work – or for that side hustle we talked about earlier – you’ll want to be sure that making cuts like these won’t leave you without needed service.
- Live on half of your paycheck: Am I the only one who just had a whole-body shudder with this one? Just kidding. Sort of. It’s an extreme strategy, but it’s certainly effective for building up your savings. If you can do it without venturing into “Extreme Cheapskates” territory, you might want to consider it. The concern here is that the habits you would have to adopt to make this work – things like eating only $0.29 ramen noodles all the time, hitting the laundromat only once a month, etc. – will cause problems of their own when your health suffers or your coworkers complain about your hygiene.
- Sublease your apartment (and find someplace cheaper to live): Just as with #14 above, your lease probably specifically prohibits subletting your apartment. You really don’t want to take on the legal risks of this kind of strategy. Plus, at least in the Denver metro area, you’re not likely to find another apartment significantly cheaper without becoming someone’s roommate. And in that case, you might as well take on a roommate yourself and avoid the hassle of moving.
- Move back home: Come on. We were all thinking it. It’s an increasingly common move, and for one very good reason – it works. The only danger here is that you’ll revert to less-than-adult behavior when back with Mom and Dad. So if you choose to move back home, do the grown-up thing and pay some rent, share in housework, and generally handle your own business, just as you would in an apartment…or your new home.
As always, we are grateful for your trust in us and for your referrals. If you — or people you know — are looking to buy or sell a home, I would love to help! Contact me here.