How To Save for a Down Payment
Saving for a down payment can be pretty daunting. Combine paying for your rent, living expenses, and any other debt repayments, there’s probably not that much left over to contribute towards a down payment.
On top of that, the long timeline required to get there means you’ll be tempted to buy some big-ticket items in the meantime. Large purchases like a vacation or a car can be a huge setback to your down payment fund.
Here’s how you can protect yourself from yourself and save for a down payment faster than you thought possible.
Keep Your Down Payment Savings Separate
It’s crucial that you never dip into your down payment fund. Once you do, it’ll be almost impossible to stop, and every ‘emergency’ will require another dip. The best way to do this is to open a savings account that’s a bit hard to access (you don’t need debit-card access to money you’ll only use once).
Use a High-Interest Savings Account
Interest rates aren’t going to be a big factor in growing your savings, but every little bit helps. There are several online banks currently offering a 2.00% savings rate, and several more that are just under that.
Make The Payments Automatic
This isn’t like saving for a new iPad. Saving for your down payment is going to take a LONG time, and you need a consistent habit to reach your goal.
The best way to do this is make your contributions automatic. Most online account portals allow scheduled transfer, and you should set up one of these to take a set amount out of every paycheque and put it in your savings account. Don’t wait until the end of the month and hope you have enough – transfer as soon as you get paid and put that money out of your mind.
Extra Cash is Down Payment Cash
Any amount of extra money should go towards your down payment. Annual bonuses, commission payments, part-time work, overtime hours, birthday money from your grandmother – ANY found money should be used to help you reach your goal.
You Don’t Deserve Anything
You work so hard all the time. It wouldn’t be crazy to take your annual bonus and go on a little vacation would it? After all, you deserve it.
Stop thinking like that. The only things you ‘deserve’ are the things you get as a result of your choices. You ‘deserve’ a vacation when you plan one out and save up to pay for it, not because of some vague feeling that one should be coming your way.
You also deserve to have a fully funded down payment fund, but only when you’ve put in every dollar that gets you there.
So stop thinking about what you deserve, and start thinking about what you want. This isn’t to say you shouldn’t go away for a weekend for the first time in four years. It just means that doing so should be a conscious choice and a solid part of your financial planning – not on a whim because the world owes you something.
If You’re a First-Time Home Buyer, Take Advantage of The Home Buyer’s Plan (HBP)
By putting part of your down payment fund into your RRSP, you can take out up to $25,000 and use it towards you first mortgage. You’ll benefit from receiving a larger tax return from the deposited money (which you can use for your down payment fund), and you’ll have 15 years to pay back the $25,000 into your RRSP account.
Most Importantly, Be Disciplined
Your biggest enemy in reaching your goal will be your own behavior. Constantly be vigilant. Every dollar wasted is more time you’ll have to wait before having your down payment.
Make extra money, cut expenses, and make some drastic choices. The more you do this, the faster you’ll get there and the faster your dream of owning a home will become a reality.