If you have ever tried to budget, you know that it feels akin to dieting. A lot of motivation and wishful thinking, but shortly afterward, you find yourself back where you started. After working with thousands of homeowners on their down payment saving plans, we have learned the right way to budget. Whether you are looking to save for a down payment, build your emergency fund or pay for your kid's college tuition, here is the right budgeting process to make this happen.
The first step in the process is to analyze your situation. Most, if not all, banks can pull a pdf report of your transaction history. Use this report to get an idea of what a month's worth of expenses truly looks like. While it can be painful to look through, try not to feel guilty. You are just trying to get a sense of your starting point. Knowing these numbers will allow you to set realistic goals.
Start with all of your bills that will not change and minus them from your monthly income. With the remainder of your income, determine how much you will spend on the luxury items. These include:
The goal is not to limit these items entirely but to prioritize them based on what you want to save. Your initial goal should be left with money at the end of the month. The amount is going to depend on your personal situation.
After building some momentum, it's important to set your end goal. Are you looking to save a down payment? Figure out the total down payment amount and then work backward. If you need help figuring out your desired down payment amount, click here. Once you have that amount, you can start to set more difficult monthly goals.
Goals with deadlines are much more likely to happen. Set a realistic time frame to achieve your goals and hold yourself accountable. A great strategy to achieving your target goal is to make an agreement with someone who isn't afraid to hold you accountable. When you know that you're going to have to explain your mistakes to someone, you are much less likely to make them.
Budgeting is very similar to eating healthy… it only works if you actually do it. Make sure that you are tracking your monthly expenses and if you are hitting your goals. You can use spreadsheets, handwritten budgets, or even online tools that do it for you. When you track these items consistently, you can adjust when/if you stray off the path. Don't forget, you are human, and it's okay to make mistakes.
Looking for someone to help you calculate the down payment you would need to buy your dream home? Click here and speak with one of our home loan experts.
