It is no surprise that many Millennials struggle with saving for a down payment in today’s environment. As Millennials are more burdened with Student Debt as well as other debt such as Credit Card, the ability to save as become more challenging for this group. Many Millennials find themselves in large metropolitan areas because of stronger job markets but cost of living in these areas is elevated compared to non-metro areas. In some instances, wage growth has lagged behind rising home prices, creating an additional challenge.
However, a recent Bankrate Survey has revealed some surprising tactics that Millennials are taking in order to make a down payment on their home purchase. The results revealed that Millennials are more likely to dip into Retirement Savings or live with Family for extended time to save. According to the survey, 13% of Millennials dipped into retirement savings compared to 8% of GenX and 7% of Baby Boomers.
Millennials are highly important group the Housing Market, and they are getting creative with ways of saving a down payment at levels that are not seen in many other generations. Millennials understand the value of owning a home and how it contributes to wealth accumulation, so they are tackling savings issues head-on. We often see that Millennials are very excited about purchasing a home.
While we are not Financial Experts, there are certainly ways to creatively save towards a down payment by making simple adjustments to your everyday life. Below are some creative ways to save for a home down payment:
We are not Financial Advisors and would urge any prospective Home Buyer to consult their Financial Advisor to understand the implications of tapping into Retirement Savings for a down payment.
Ways to Save for a Down Payment
Reduce Your Rent: If you are currently renting, review what you are currently paying and see what options you may have. If you have been a good tenant, use this as leverage to negotiate with your landlord for a better rate or no increase in rate. If it is feasible, have you considered living with parents or friends while you are trying to save?
Track Your Spending: In a so-called "cashless economy" it is easy to lose sight of how much you are spending, when most transactions are done on credit cards and Apple Pay. Consider making a spreadsheet to track expenses or using a tool such as Mint to keep track of your spending. You might be surprised at how much you are spending on Taxis or Ubers in a month's time. It is a great way to find areas to cut down on spending.
Make It Automatic: Take advantage of automatic savings that may be offered by your bank. Look into options such an auto transfer of X amount of dollar each month to savings or programs that round up each purchase to the nearest dollar and transfer that to your savings. Additionally, utilize your employer's direct deposit option and add your savings account as one of the accounts to receive the pay. You can specify the dollar amount to be deposited to your savings from each paycheck. This aligns perfectly with the old saying, "Out of Sight Out of Mind"
Use Work Bonuses: If you receive an annual bonus at work, consider putting that into your down payment savings account each year. While it is important to have fun and celebrate your success, the wealth that owning a home generates will pay off more than that night out at the club.
Reduce Happy Hours: Everyone loves a good happy hour to help get through a tough week. If you are making it a habit 2 times a week it is costing you. Consider the average happy hour drink costing $7 with tax and tip. At twice a week, thats $728 a year on happy hour....assuming you only get one drink at each of those happy hours!
Check Monthly Bills: What monthly bills are you paying that might have areas to reduce the cost? Cable and cell phone bills are great places to dig deeper at the features you are paying for. Do you really need HBO at $12 a month PLUS Netflix for another $10 month in addition to the hundreds of cable channels you are getting?
Don't Forget Family & Friends: Discussing money with anyone is always a sour subject, especially with family and friends. However, they can be an excellent source for help with your down payment. Consider asking parents for help as an early inheritance or as your wedding gift now in exchange for not receiving a a gift at the time of marriage. Instead of dinners from friends for your birthday or gift cards, let them know you are working towards purchasing a home and cash would be the best thing you could receive right now! True friends will understand.
Gym Membership: Your gym membership is a great opportunity to cut down on monthly expenses. With so many fitness apps such as ClassPass, YouTube Videos, and equipment, exercising at home has never been easier. If you are an avid gym user, this option is probably not for you, but if you use your gym occasionally, it is something worth considering. Your $250/month Equinox membership is costing you $3,000 a year...that is a lot of money! If you cannot give up your memberships, look into options such as corporate discounts or special incentives that your gym or workout venue of choice offers.
Get Your Caffeine Dose at Home: Sometimes a morning cup of coffee (or 3) feels like it is the only thing that will get you moving...trust us we know! However, your daily trip to Starbucks during the week for a grande nonfat latte at $4.78 is costing you $1,243. Save that money and drink your coffee at home and imagine how good coffee will taste in your new home!