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How to Save for a House?

Jan 2021

It's the biggest purchase most people ever make, and with good planning and some preparation, it can be a solid financial move.

If you don't already own a home, the idea of affording one can seem daunting. And with the national median house price expected to top $270,000 in 2020, just saving for the down payment can be a challenge(1). But it's one you can meet with a good plan and some discipline.

While there are various ways to buy a home with less than 20% down payment, many experts don't recommend doing so. You may be required by your lender to take out Private Mortgage Insurance (PMI) to ensure that they get paid back if you default on your loan(2). On an average home loan, that 20% down payment equals $54,000. Since the average household has about $8,800 in savings, that's a big gap to bridge(3).

1. https://www.washingtonpost.com/business/2020/01/06/experts-predict-what-housing-market-will-bring/

2. https://www.consumerfinance.gov/ask-cfpb/what-is-mortgage-insurance-and-how-does-it-work-en-1953/

Begin planning before you buy - several years before, if possible. Start by researching neighborhoods to find ones you like that are in your price range. Check statistics that can indicate greater stability: Crime rates, turnover, school performance and activity of religious and charitable organizations. Educate yourself about the home buying process. Real estate agents are generally anxious to sell you a house immediately, but find one who's willing to share what they know about neighborhoods, values and trends. Don't let them talk you into buying a "bargain" fixer-upper either unless you have some serious DIY expertise. Getting trapped in a broken house with problems you didn't anticipate - after spending your savings on a down payment - can be a nightmare.

This is also the time to start saving. You're probably not going to scrounge up $54,000 in a year, but look at your budget and see how much you can save each month. Some financial experts recommend the 50/30/20 rule:(4) Spend half your take-home pay on essentials such as housing, transportation and food. Allocate 30% on things you "want" but don't need - an occasional night out or vacation. Then save 20%. If your take-home pay is $3,000 a month, that would put $600 a month into savings. Not considering any interest earned, you'd have your down payment in seven and a half years. Reverse the rule - save 30% and spend 20% - and you'd cut that to five years.

Here are some ways to reach that 30%, or more:

Earmark yearly income tax refunds for the down payment fund. The average refund is about $3,000.(5) Do that four years in a row in conjunction with your $900 monthly savings, and you'll be close to your goal.
Cut expenses. Do you really need that supermax cable TV package? Can you delay buying new cars? Do you have to have a Hazelnut Mocha Coconut Milk Macchiato each and every morning? That alone could save $100 a month.(6)
Re-evaluate all of the recurring online purchases in your household. You may be surprised by the number of "vampire" charges - such as $3 for cloud storage or $10 for a streaming service - lurking on your credit cards.

3. https://www.cnbc.com/2019/03/11/how-much-money-americans-have-in-their-savings-accounts-at-every-age.html

4. https://www.investopedia.com/ask/answers/022916/what-502030-budget-rule.asp

5. https://www.cnbc.com/2020/02/14/how-to-use-2020-income-tax-refund-check-from-irs-to-spend-and-save.html+tax+refund+2020&ie=UTF-8&oe=UTF-8

6. https://www.cnbc.com/2020/02/14/how-to-use-2020-income-tax-refund-check-from-irs-to-spend-and-save.html+tax+refund+2020&ie=UTF-8&oe=UTF-8

Make a point to talk about your plans with your financial advisor. They can help you with tips, savings advice and maybe some ideas you haven't already thought of to reach your goal - and you just might be having that housewarming party sooner than you think!

#save #largepurchase #home #house #buying #wellcents

ACR# 342327 02/20
NFPR-2020-50

Tags:

#save, #largepurchase, #home, #house, #buying, #wellcents

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Family Finances: Saving to Have Children

Family Finances: Saving to Have Children

Jan 2021

What do you do when your heart demands something, but your bank account says no? That's the dilemma that many, especially Millennials, find themselves in when they think about having a family.
Even if your idea of a happy family isn't necessarily 2.5 kids, a dog and a house with a picket fence, financial realities are making it hard for many Americans to envision having any kind of family at all. When a New York Times/Morning Consult survey asked men and women aged 20-to-45 about their plans for having children, 64% said they were not planning to have children soon because childcare is too expensive, 43% said financial instability was holding them back, and 44% said children were just too expensive.(1)
According to the U.S. Department of Agriculture, the average cost of raising a child to age 17 has ballooned to over $230,000.(2) For a generation saddled with student debt,
job insecurity and slow growth of real wages, waiting to start a family is a pragmatic - if unsatisfying - response. But like other financial goals, having a family is achievable if you have a plan and stick to it.
If having a happy - and financially secure - family is in your future, here are some ways you can start planning and saving now:
Start a savings account earmarked for family expenses and, if possible, have money from each paycheck diverted into that account automatically. If you receive your income by direct deposit, your bank should be able to do this.
When picking a house, a smaller-than-ideal house in a better school district may be a better choice than a sprawling ranch in an area where public schools are weaker. If you're in an underperforming district, you may feel the need to send your kids to private school, which can be an additional major expense.
Start accumulating baby gear now. Tell your family and friends what you're doing and start a baby registry at Target or an online source like Amazon or babylist.com. This can significantly cut into the first-year budget hit.
Plan for the unexpected. Think through how you'd handle it financially if one of your children is born with a disability. Even a relatively mild disability can impact the parents' earning ability. And does either parent have a family history of twins? While having two doesn't double all of the costs (a two-seat stroller isn't much more than a single-seater), it definitely increases the workload for both parents. And until there's a two-for-one college plan, that cost will be significantly higher.
Maybe pick up a side hustle to help boost savings before you have additional parenting responsibilities. As you're thinking that through, look for one that could produce more than supplemental income if one parent needs - or wants - to stay home with a child for an extended period of time.
Start a 529 college savings plan early. Under current law, the regulations are far less restrictive than what they used to be. Perhaps ask if the children's future grandparents would consider starting a 529 for their benefit(3).
Talk with your financial advisor about your family plans and how they may impact your short- and long-term goals.
It's tough to think dispassionately about such a deep-rooted emotional issue. But if you do - and take steps to prepare - you'll be in a better position to have the financial resources necessary to raise the happy family of your dreams.
Sources:
1. https://www.bizjournals.com/bizwomen/news/latest-news/2018/07/why-the-birth-rate-is-declining.html?page=all

2. https://www.usda.gov/media/blog/2017/01/13/cost-raising-child
3. https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-11

ACR# 342328 02/20
NFPR-2020-47

Tags:

#save, #largepurchase, #home, #house, #buying, #wellcents

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