The Biggest Mistake You Can Make While Saving to Buy a Home

money mistakes

When you are in the market to buy a home, the more savings you have, the better. Between closing costs, your down payment, and other home buying expenses, the out of pocket cost of buying a house can add up. It can be tempting to use your hard earned savings, a retirement fund, or even your emergency funds in order to have sufficient funds for a down payment. But cleaning out your savings to buy a home is a very bad idea—and here are three reasons why.

1. Unexpected Expenses

After you buy a home, you will need a strong emergency fund more than ever before. Your emergency fund should include at least three months of expenses saved in the event you lose employment. For a homeowner, that’s at least three months of mortgage payments, homeowner’s insurance, home maintenance, utilities, and all the little expenses that add up when you own a house. If you use your emergency savings to buy the house, you may not be able to absorb the costs of any unexpected repairs that pop up down the road. Tapping into your emergency fund to pay for your down payment or closing costs could leave you high and dry.

2. Continuing to Save, Even After Becoming a Homeowner

If you have to clean out your savings accounts in order to purchase a home, chances are you can’t actually afford the home in the first place. As soon as you sign your name on the closing paperwork, you’ll be responsible for a whole heft of new expenses, including your monthly mortgage payment, homeowners insurance, property taxes, indoor home maintenance expenses, exterior maintenance (ranging from lawn care to snow removal and SO MUCH in between), and utilities. Will you still be able to contribute to your savings account on top of these new expenses? While you may be able to afford the out of pocket expenses to buy a home on paper, if buying the home means you cannot afford to keep saving in the future, it isn’t a good financial choice. You are better off waiting to buy a home until you are in a position to purchase a home without touching your emergency savings AND keep saving.

3. Becoming “House Poor”

If you’re like most Americans, your savings fund isn’t just for emergencies—it’s also where you build up enough money for vacations, to travel to visit family, or to refresh your spring wardrobe. A house might seem worth the sacrifice now, but know that the excitement of a new home will wear off just like everything else. You don’t want to be scraping by to survive and lose the ability to enjoy other aspects of your life. Roughing it out in an affordable rental for a few more years while you save more money can allow you to continue living your preferred lifestyle while still working towards the eventual goal of homeownership.

Buying a home is exciting and it can be tempting to go for broke to finally have your own place. We recommend that you keep building your savings until you are truly ready to purchase a home. Not sure if you’re ready? Reach out to Veitengruber Law and we can tell you straight up if you should go for it now, or if you’re truly better off waiting.

4 Ways to Start Building Your Savings

how to build your savings

For a lot of people, the idea of having any money to save can be laughable. When you’re working paycheck to paycheck and struggling to make ends meet, it might seem impossible to put any amount of income away for the future. After all, what is the point of saving $5? But saving any amount of money is worth it. Studies have shown that having even $500 in savings can help immensely in the event of an emergency. So while the standard advice for a savings goal is six months of living expenses, every little bit helps. If you are new to saving money, or recently had your savings drained, here are a few ways to build your savings account or emergency fund.

1. Pay Yourself First

Whether you are building your savings account for a big purchase, to fulfill a life goal, or for retirement, the best way to achieve your savings goals is to pay yourself first. A lot of people make the mistake of trying to save the money they have left over at the end of the month—and often find they don’t have any money to put towards their savings accounts. Before you have the chance to spend the money on anything else, put it into a designated savings account.

In order to make sure you pay yourself first, you must get a good handle on your budget. If you can determine what your income and expenses are, you will have a better idea of how much money you can safely put towards savings every month. A budget will allow you to be realistic about your savings goals, while also curbing your excess spending. For example, if you notice you are spending a lot of money eating out, make an effort to cook at home more often and then put the extra money into savings. Every little bit does matter! When creating your budget, make savings the ultimate goal and allow your spending choices to reflect that goal.

2. Make Building Your Savings a Habit

Another good way to build your savings is to make it a habit. It matters less how much you are saving each month; it’s more important that you are consistently depositing money into your savings account. A great way to do this is to set up an automatic deposit. Most banks will let you automatically deposit a set amount of money from your checking account into your savings account on a specific day of your choice. The first few days after pay day is a good automatic deposit day. With automatic deposits, you may not even notice the money is missing from your checking account in the first place. As this “habit” will largely go unnoticed, making it a very easy way to save!

3. Look for Sneaky Ways to Save Even More Money

After you have been saving for a while, you will have a good idea of your income, expenses, and budget. At that point, you should critically examine your spending to see where you could eliminate expenses in order to allocate even more of your income to savings. It is always a good idea to put “extra money,” like bonuses or tax refunds, into your savings. Make sure you are taking full advantage of your employee benefits. If your employer offers transportation reimbursement, matching retirement savings plans, or insurance, you can save money by taking advantage of these benefits. If you are job searching, look for employers who can help you achieve your financial goals.

4. Create a Separate Emergency Account

Once you have an established savings account, it might be a good idea to consider a separate savings account labeled as an emergency fund. Having an emergency fund that is separate from your savings account can ensure that even when facing an unfortunate financial event, you won’t lose all of your savings in the process. With a savings account and an emergency fund, you can plan for unforeseen medical expenses or an unexpected car repair while still putting money away for your future.

Saving money can give you peace of mind and a sense of financial security. Knowing you have the financial resources to get through some of life’s many hurdles is a powerful feeling. Every dollar you put into savings is an investment in your financial future. Everyone has to start somewhere, so start saving today!