The Best Way to Save for a Down Payment

Making a large down payment can save you money in the long run.

If you are thinking about buying a large expensive item such as a house, car, boat or some land, you will probably need a down payment in order to make that purchase. A down payment refers to the upfront portion of the total amount due for the item you are trying to purchase. If you are planning to make a purchase in the near future, then it is important that you begin saving your money now for the down payment. With a little discipline and planning, you can save your money for a down payment.

Instructions

1. Create a personal budget to follow. Make a detailed list of your monthly income and expenses. Be sure to include all of your personal and household expenses, including rent, car note, utilities, groceries, daycare expenses and transportation costs.

2. Set a realistic goal. Once you have created and reviewed your budget, you should decide how much money you can actually set aside each month towards your down payment. The amount of money you need to save depends upon your current financial situation and the type of purchase you plan to make. For example, if you are planning to purchase a new home, you may need to save enough money equal to 20 percent of the cost of your home.

3. Open a separate savings account for your down payment. Make sure the money you deposit in your savings account is specifically for your down payment. You may even choose to have a portion of your paycheck directly deposited into your savings account.

4. Eliminate extra expenses from your life. Since you are trying to save money for a down payment, you should only spend money on necessities such as shelter, food and medication. Eliminate expenses that you can live without, possibly including cable television, Internet and your cell phone. You can also make appropriate substitutions in your life, such as cooking dinner at home instead of going out to eat, or carpooling to work with co-workers.

5. Increase your monthly income. You may be able to earn additional income by working more hours at your current job or getting a part-time job. Keep in mind that the more money you make, the more you can save towards your down payment.

Tips & Warnings

• Contact various lenders to inquire about their loan requirements and financing programs. Be sure to let the lender know your financial goals and plans.

References

• MoneyUnder30.com: Down Payment Saving-Five Steps to Save For Your First Home
• Bank of America: Saving for a down payment-How to determine what you need - and build it.

Resources

• Credit.com: A Step-By-Step Guide to Buying a Home in Any Market
• MSN Money Central: A simpler way to save-The 60% Solution