Are you finding the best ways to save for a downpayment? If yes, you are at the right place. We know saving a downpayment for your new home is quite difficult owing to the global headwinds and current employment trends. However, buying a home is the dream of many, and therefore, we bring you the best three ways to help you save money for downpayment without hassles. Let’s find out and learn more about them.
Budgeting rule of 50-30-20
Wondering what is 50-30-20 rule? Well, the 50-30-20 rule is a breakup of your monthly salary to make an effective budget. According to this budgeting rule, you should divide your monthly salary into three i.e., 50%, 30%, and 20%. The first 50% of your salary should be your monthly expenses on the basic utilities, including rent, grocery, EMIs, electricity bill, water bill, insurance expenses, etc., and your 30% of monthly income should be spent on wants such as dining out, entertainment, shopping, hobby, vacation, gym, or in buying any luxury product. Further, the remaining 20% of income should be used for savings, investment, loan prepayment, abroad education, personal crisis, or any medical emergency.
This rule is a testament to effective planning where you can finance every aspect of your life on your own. With this rule, you can not only achieve short-term goals but following it religiously helps you achieve your long-term goals as well.
Significant lifestyle changes
If you need to buy a home, making significant lifestyle adjustments is necessary. Without lifestyle alterations, you cannot buy your dream home. Therefore, in order to do so, you can consider moving into a smaller apartment and save at least a 20 percent portion of money from your rent. You can also consider cutting down on your 30 percent of wants including dining out, movie day, vacation, or a party. You should transfer the amount directly to the savings account. Moreover, you can take up another part-time job as a side hustle for additional financial support. However, you need to continue with this lifestyle for a minimum of two-three years and in some cases beyond that.
Monetizing your assets
If you are in a better financial condition, you can plan to buy your dream home by managing your finances for three to five years. However, this is a time-consuming process hence, you may consider monetizing your investments. Liquidating a fixed deposit or borrowing a loan against a fixed deposit or life insurance policy, can assist you in paying your booking amount. You may be able to borrow up to 85–90% of the surrender value, depending on the conditions set forth by your insurance provider. Even the interest rate in the same range between 9-10% comes with a choice either to pay half yearly or on maturity. Additionally, you might also ask for a partial withdrawal from your employee retirement account (EPF).
However, you should always avoid borrowing personal or credit card loans due to the exorbitant rate of interest they would attract. Over time, this would increase your debt load. Ultimately, you should be aware that saving for a down payment is a challenging undertaking and that there is no substitute for financial discipline when it comes to doing so.
