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Necessities vs Desires
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This is the most fundamental switch someone has to make before even thinking about setting a long-term goal such as buying a home. There are things we need. There are also things that we wish to have.
The easiest example is food.
Now, you need food to survive and live as a human.
The real question is: do you need to eat out for lunch every day at work?
No. You can brown bag and make a sandwich in 15 minutes before you leave for work in the morning.
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Choosing between the things you need and the things you want is your first step in the home buying experience.
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Become Comfortable With Saying “No”
I am in no way saying you will have to say “no” to all social events.
I am emploring you to say “no” to the frivolous social events. Going out with friends is fun. Have fun! Do this in a strategic manner though. Instead of going out twice a week go out twice a month.
In saying no to your friends they will not understand. I promise you.
Saying “no” to the now means you are saying “yes” to your long-term goal. Keep the end goal in mind and you will find much more success in delaying the immediate gratification.
The real test is when you make a decision to buy a home and the next day your friends want to go out to eat and go clubbing in the same night. It is going to be a $ 30-night minimum.
Will you choose to splurge and go out? Or will you stand strong on the goals you’ve set for yourself?
The choice is yours. I hope you choose wisely.
Remember that weird decisions will create weird and, at times, extraordinary results.
Stay strong. Stay home and make dinner at home.
Eliminate All “American Luxuries”
Simply put, eliminate the things that are not necessary to living life.
The easiest applications are as follows:
Make every meal at home. This is simple. Even if you eat peanut butter and jelly for a couple months. The money you save from going out to eat will be FAR more worthwhile on your down payment for your home than going out your rear end in eight hours.
Bring coffee from home. It’s insane to spend $3 for a cup of coffee. You know you can make the same cup of coffee at home for $0.50? Buy a pound of coffee, grind it, and make it at home. Your wallet will thank you later.
Buying alcohol. Eliminate alcohol from your finances and physical body for six months and you will have better wellness in those two areas.
I was out to dinner recently and saw that one glass of wine cost $12.95.
Here’s the real application:
If you were to buy that glass of wine once per week for a month that is approximately $50 in the given month.
$50 per month times 12 months equals $600.
If you stop buying that one drink or glass of wine once a week you will save $600 per year.
Yes, that is $600 per year making one small adjustment.
You’re on your way, friend.
Live Below Your Means: Use 50-60% Of Your Income
This will allow you to save more money to put toward the house.
Let’s use my typical $40,000 yearly salary for this example.
$40,000 / 12 months = $3333 approximate monthly gross income
Assume a 25% tax that leaves you with $2500 net income each month
60% of $2500 is $1500.
Application: Live off the $1500. That’s it. Adjust and recalculate.
Your surplus is $1000.
Save the $1000 each month for two years.
$1000 times 24 months equals $24,000.
You are now able to put that $24,000 down each month for a $120,000 home.
Automation Is Life
Automate your savings each month. Use an online savings account like American Express or Marcus by Goldman Sachs. I use both of these for a variety of savings goals. They are both easy to use and I encourage you to use either or both.
They both can schedule recurring savings transfers from your checking into their savings accounts. Simple to use and worth its weight in platinum.
I use Mint for all my accounts and have everything linked on there. I intentionally do NOT link my savings accounts so I do not see the balance.
Truly, if you do not know you have the money you WILL save it. The most difficult thing about saving money is not the savings part. The difficulty is not using the money for (fill in the blank) purchase.
Out of sight, out of mind.
Note: I do reconcile once monthly to make sure all my funds made it to the correct account and such but DO NOT have them linked to Mint.
What other questions are helpful in buying your first home?
What else is beneficial for consistently saving money and NOT touching it??
Always Moving Forward,
As a certified credit counselor and syndicated writer at MaxMyMoney, Max has coached over 250 Millennials to help take the stress out of money. When Max is not coaching, you'll find him reading financial books, indoor cycling, or visiting local pawn shops looking for swiss-made watches.