Few things can beat the excitement of buying a house. You get the thrill of choosing a space you could call your own, a sense of accomplishment, plus the knowledge that you’ll have an asset you could potentially draw income in the future.
But the process is as daunting as it is fun because purchasing real estate is primarily a financial obligation, and a huge one at that! The first thing you have to prepare is the down payment – an initial, interest-free payment that is usually 10% to 20% of the total contract price of the property.
Property developers and sellers sometimes allow buyers to complete the down payment in instalments, but that’s not always the case. To avoid hiccups early on in your home-buying journey, it’s best to set aside a certain amount for the down payment ahead of time. And unless you already have that cash on hand, regularly saving a part of your income is the way to go.
Without further ado, here are six tips to help accelerate your savings for that dream home!
Create a savings plan – and follow it.
As they say, failing to plan is planning to fail, so the best way to get started is to create a savings plan.
Planning is going to look different for everybody, but generally, you need to find out how much you need (10% to 20% of the property price) and how much time you have to put that together. In my case, I divided my total savings goal by my timeframe to determine how much I need to save each month.
Two other major factors are your income and expenses. It’s best to take stock of these things and assess which expenses you can cut down to help you meet your goal. You might find, as I did, that there’s a limit to what you can save without completely sacrificing your personal and household necessities. There’s bound to be some adjustment, especially if you’re the breadwinner in your family.
Once you have all the numbers down, write down an honest, realistic plan – one that you can own and not something that would own you – and stick to it. It helps to make some kind of savings tracker to keep yourself accountable. I use a spreadsheet, but good old pen-and-paper works, too!
Separate your savings from the rest of your funds
Stashing your savings in the same place you keep your funds for daily expenses can be counterproductive to your financial goals.
There’s always the risk of accidentally dipping into your savings, not to mention the temptation to buy something you don’t absolutely and urgently need just because your account balance looks pretty good.
Instead of keeping all your eggs in one basket, you can open a savings account with another bank or with a digital bank (some of them promise higher interest rates than traditional banks, which can be enticing if you want to make a few extra pesos off of your savings). There are also some banks that allow you to open a separate, online-only account within your existing account.
For convenience, you can also set up your bank accounts such that a certain amount goes automatically to your savings fund on every payday.
Reduce unnecessary expenses
As I said earlier, making big savings goals means making adjustments to your budget. This is also the time to make some adjustments to your lifestyle. Take a hard look at your discretionary spending – things like shopping, dining out, and fun weekend getaways – and determine which of them you can do without while saving for a down payment.
You can challenge yourself not to buy new clothes for a while, cook healthier, cheaper food at home, or steer clear of expensive outings, dates, and vacations. You can also opt to cancel or downgrade your subscription to apps and services you don’t use often.
I’m not a huge fan of completely depriving myself of life’s simple joys, but I’ve found that avoiding unnecessary expenses has brought me closer to my savings goals a little faster. And that, in turn, has made me happier than any random purchase can.
Consider finding another source of income
You can only save so much from your existing monthly income. To avoid overstretching your budget, you might want to consider finding a part-time job. Platforms like Upwork, Fiverr, and onlinejobs.ph offer thousands of jobs for people looking to cash in on their skills in their free time and from the comfort of their own homes.
Countless employers are on the hunt for writers, voiceover artists, virtual assistants, website designers, data entry staff, translators, and so many more. There’s definitely something for everyone, so it won’t hurt to explore this (just be smart and careful about dealing with potential employers).
And if you have a lot of stuff just lying around that you don’t need, you can try selling them on platforms like Facebook Marketplace. More valuable items will fetch a higher price, of course, but even small sales add up. You also get to declutter your space in the process. Talk about a win-win situation!
Save any unexpected income
If you get performance bonuses at your job at different times of the year, or if somebody returns money they borrowed from you a long time ago, or if you receive any cash you weren’t expecting, try to save most, if not all, of it. It won’t hurt your budget because you had not anticipated it, but you’ll get a welcome boost in savings.
I added this tip because it worked for me: when I quit my job to move to another, I received back pay from my old employer. The amount, by itself, was not enough for a down payment, but I got a good start on my savings because of it, giving me a bit more confidence going into the whole saving process.
Pay off high-interest debt first
Financial planners often say that anyone looking to gain financial independence should get rid of high-interest debt first. This includes credit card debt.
Before saving for a down payment for a house, it’s best to get on top of your debt situation. Not only can high-interest debt slow down your savings or even consume some of it – when not properly handled, but debt can also prevent you from getting approved for bigger loans in the future, like car or house loans.
Additionally, by making regular payments on, say, your credit card debt, you get to save on interest fees, which you then have the option of adding to your savings.
If you wish to determine which debt of yours is considered high interest, or perhaps how you can deal with debt while simultaneously saving or investing, consider consulting a financial adviser.
Eyes on the prize
It is generally considered best practice to save an amount that’s 20% of the selling price of the property you’re buying. A bigger deposit means borrowing a smaller amount from the bank or Pag-IBIG, saving you a significant amount in interest fees, which you could spend or invest in something else.
Additionally, banks may give you more favorable loan terms if you’ve put down a bigger deposit. For example, with a 20% deposit, a bank may give you a 20-year loan term (as opposed to a 10-year loan repayment period when you made just a 10% deposit). Although a longer loan tenure means paying more interest in the long run, your monthly payments will be smaller than if you were repaying a shorter-term loan.
There are tons of tips out there on how to save up for a down payment on a house, but after going through dozens of resources discussing tips and tricks and do’s and don’ts, I learned that the core principle is this: To save money, you either reduce your expenses or increase your income. Or you can do both.
Some of the tips I shared come from my own experience as a first-time homebuyer as well. There is no such thing as one-size-fits-all advice, but I’m hoping this personal touch helps you realize that saving money at this scale while challenging, is doable and rewarding – provided that you’re willing to put in the work.
Maria Papa is a senior property and finance expert specialising in home loans, investment loans, and self-employed loans. If you have questions, you can email Maria at mpapa@maverickfinance.com.au.
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