7 easy ways to save for a new home while renting
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It’s an all-too-familiar sentiment lamented by many an apartment dweller looking to save up to buy a house. When a good majority of one’s take-home pay goes to the landlord once a month, it becomes a challenge (bordering on impossibility) to muster up the cash for a mortgage and down payment.
The general recommendation is to spend no more than 30 percent of one’s income on rent, a challenge unto itself, since one-quarter of renters put at least half of their earnings towards housing. Take into account your other revolving expenses, like a car payment, auto insurance, groceries, cable/cell phone bill and utilities, and it’s hard to save any money at all, much less the 20 percent suggested down payment for a house. And if you live in a high-rent location, like a big city, an inflated cost of living can stymie your savings efforts.
So how does a renter turn home ownership from a mere pipe dream to the American dream? Follow some of these helpful pointers to get started:
High-interest credit card debt can keep you stuck in a cycle of perpetual payments and no leverage to save money for a down payment. One way to tackle it and free up some cash is to get more organized, find a way to lower your payments, and use the extra proceeds towards a down payment.
"Individuals can create cash flow by just analyzing their debt," says Colin Exelby, founder of Celestial Wealth Management. "Make a spreadsheet with each credit card, the current balance, the current limit and the interest rate charged. Then, look for any balance transfer offers that would reduce the monthly minimum payment. If you are able to find interest savings there, the easiest way to increase cash flow is to reduce the amount you owe. Attempt to pay more than the minimum; if you can, up to twice the minimum."
Reducing your debt in one of these ways can also serve to raise your credit score and balance out your credit-to-debt ratio, improving your chances of being approved for a mortgage once you’ve saved up for your down payment. In tandem with examining your debt, it’s helpful to build a budget to determine, on average, how much money you’re earning, and how much you’re spending. We recommend a handy budgeting app like You Need a Budget to get started.
Unless you’ve got a cat or dog who can find a way to pay a portion of the rent, having a roommate or two (or three or four) is a proactive way to save money; split two or three ways, you could easily save thousands of dollars a year by rooming with other people. If friends, a significant other or spouse aren’t available or viable, try looking on Craigslist or Roommates.com.
You might save a lot of money on your utilities by going without heating during the winter, until you realize that saving for a mortgage down payment in New England isn’t worth freezing to death over. (Or, for that matter, boiling to death without A/C in a blistering Manhattan summer.)Instead, try some of these more realistic options:
Cut back on cable. The average monthly cable bill costs more than $103! For one-tenth of the cost, you could subscribe to Netflix, Hulu or Amazon Prime and pay in one year what you’d shell out for one month of cable. Use the savings exclusively towards a home down payment, and make no exceptions.
Modify your cell phone package. Do you really need all that data capacity on your mobile device? Average smartphone users expend 2.9GB of cellular data per month, yet one-third use only 500MB. Check how much data you’re paying for and actually using; you could be wasting potential revenue on something you don’t need. You might consider switching plans or downgrading to a cheaper plan in your frugal pursuit of saving for a down payment.
Eat out less, cook in more. That daily Starbucks run and dining out with friends can really add up after a while. For the cost of eating out every night for a week, you could buy a month’s worth of groceries -- give or take a few. That doesn’t mean giving up dinner, drinks or a night on the town forever, just limit it to once a week. Drinking at home before hitting happy hour, or ordering an appetizer instead of a full meal, are other ways to save money. When shopping at the supermarket, carefully consider if going generic versus name brand is worth the savings.
Work out for free. The average gym/health club membership is $58 per month, but about $39 of that goes to waste due to underutilization. Even if you’re a bona fide gym rat, it’s still a big expense when you’re trying to free up money for a mortgage. Opt for low-cost or no-cost ways to exercise, like jogging with friends, taking up free yoga sessions in the park, or buying some affordable free weights and resistance bands for your apartment. (Also check to see if your apartment has its own fitness equipment or on-site gym of its own.)
Reboot your insurance. Before you say it -- no, we’re not going to advocate going without insurance coverage. You should never get behind the wheel of a car without auto insurance. You shouldn’t even step out the front door without health insurance. But you might want to revisit the coverage you do have and shop around for a new plan with a lower premium and higher deductible to save on overall costs and preserve your bottom line. Negotiation works, too. For auto insurance, I once managed to obtain a lower rate from my insurer; by providing oil change receipts, I was able to prove that I’d been driving less and was also less of a liability out on the road.
But back to your utilities: it’s too extreme to sit and the dark and freeze/simmer. Simply reduce your energy usage. Shut lights and appliances off when not in use, opt for energy efficient light bulbs, and take shorter showers. For a more unorthodox way to save money, residents of 24 qualifying states (where electricity has been deregulated) might even consider switching providers to an energy supply company, or ESCO.
Ask your landlord for a rent reduction and don’t assume it’s a long shot. Emphasize that you’ve been a good tenant, you’ve always paid your rent on time, without fail, and that you’re working towards the goal of eventual home ownership. Even $5 or $10 a month can add up to $60 to $120 saved over one year. Your willingness to sign a longer lease for the time being could be one way to sway them into giving you a break on the rent. You might also ask to have your utilities or parking fees included in your rent -- but just make sure that it doesn’t cancel out the savings you’d earn from a rent discount.
If they’re not willing to budge, you might try moving to another, more affordable apartment with rent control rules in place. "There are some (apartments) that are in very nice areas, have been there for years, and despite the current rents, their landlords cannot just suddenly one day spring this huge new amount on them," says personal finance coach Chantay Bridges. "You will be able to save more if your rent is not increasing annually."
A side gig isn’t just for college students -- though, if you’re a college student renting and looking to save for a home someday, then a side hustle is an easy way to generate some income for a down payment fund. Become a tutor; participate in surveys and clinical tests; pet sit or babysit; rent out your car or apartment (when you’re not using either); sell some swag online; or work a seasonal gig as a caterer or tour guide. You can even earn within the $25-to-$50 range by selling your blood, plasma, hair, sperm, breast milk, etc. Use every cent you earn on the side towards your mortgage fund.
It’s awfully tempting to start buying some good furniture now; that way, once you have your own house, you can start populating it with pieces you already own. But the furniture you buy today might not fit the style of your future home, or be out of style in a few years, necessitating you to sell them and buy from scratch anyway. Plus, expensive furniture shouldn’t be in your budget now. In the meantime, stick to cheaper wares (or used from Craigslist, eBay or Freecycle) and hold off on furnishing a future home in advance until it’s yours to call home.
One way to take your savings far is to deposit it into a high-interest savings account -- preferably one that can’t be accessed, like a certificate of deposit. Once your account accrues its interest and reaches maturity, it becomes liquid; reinvest your dividends into another account at the current annual percentage yield to keep earning more passive income. Generally, a 12-to-24-month CD offers the most value, but really, any savings account will do as long as it offers a competitive APY.
While renting can have its benefits, that monthly rent payment can really hamper your efforts to save for a down payment. The smartest way to save up for such a major expense is to diversify all the ways you can get to that dollar figure the fastest. Take this list as a jumping off point and look for ways to garner extra revenue and maximize your earnings for the best outcome. The more quickly you’re able to build your mortgage fund, the sooner you can reach your goal -- and you’ve got your time as a renter to thank for it.
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