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3 Smart Money Habits to Help You Save for a Home

Darla Thomas,  Production Manager

October 31, 2022 — 6 min read

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With smart money habits, it's easy to save for a down payment on the house of your dreams. In fact, you may be close to having the amount you need without realizing it! If not, we have strategies to help, including learning how to create an emergency fund, manage your budget, and understand your credit score. Use this guide to develop lifelong habits and basic strategies to save for a home.

Smart Money Habit #1: Create an Emergency Fund

Before you start to save for a home, it's important to have extra money set aside in case of emergency. For most people, it's sufficient to have enough income set aside to cover three to six months of expenses. While this may add up to a discouraging number for some, it's achievable if you're willing to put in the time and effort. If you're ready to begin, here are a few tips to make it easier to create an emergency fund.

Set small saving goals. Start small and work from there--instead of shooting for six months of savings right away, aim for two weeks, a month, or whatever it takes to propel you towards your larger goal.

Start with small contributions. The last thing you want to do is over-leverage your cash flow, so it's okay if the contributions to create your emergency fund are small at first. Find something you can live without (or live with less of) and take steps to reduce your consumption of that thing. This may include that morning coffee run or a big night out with friends.

Make money saving automatic. The simplest way to save money is to not touch it in the first place. If your employer offers it, take advantage of direct deposit. Set up a separate account just for emergencies and have at least a portion of your income direct deposit into that account.

Smart Money Habit #2: Manage Your Budget

Learning how to manage your budget will help you stay on top of your bills and other expenses, which could help you save thousands of dollars each year. To get started on this smart money habit, you'll need to figure out how much you spend each month on:

  • Your monthly mortgage payment or rent
  • Household bills, like utilities and internet connection
  • Financial products, including insurance and bank charges
  • Family and friends, including gifts and travel
  • Transportation costs, such as bus fare, fuel, or vehicle maintenance
  • Leisure, including holidays, eating out, or entertainment

From there, prepare a budget using a spreadsheet, or paper, or download a free budgeting app, like Mint. Check with your bank or credit union for alternative resources to manage your budget. If you do most of your spending with a credit or debit card, examine your previous month's bank statement. Once you have a feel for how much money is going out each month, identify areas where you can cut back to help save for a home. This may be as simple as bringing a lunch from home or canceling a subscription service you don't use.

If you own a home and want to use a refinance to lower your monthly payments, reach out to your neighborhood Mortgage Advisor, or review options here.

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Smart Money Habit #3: Reduce Your Debt

Remember, debt is not always bad--in fact, a mortgage may help you achieve the goal of home ownership and help you build wealth if your home appreciates in value. However, too much debt, or the wrong kind, may deter your ability to pursue your long-term financial goals, like saving for a home. Out of all the smart money habits, consider these steps to manage your debt more effectively.

Pay bills in full and on time, every time. This will help you avoid late fees and paying higher rates.

Pay off high-interest debt first. If you have multiple bills but limited cash, which debt should you pay off first? If you prioritize paying off your high-interest debt first, it will reduce the amount of money you own in the long run, as you will be able to begin paying off that principal more quickly.

Watch for opportunities to consolidate debt. If you have more than one high-interest loan, is it possible to consolidate them into one loan with a reduced interest rate? With debt consolidation, you roll all your balances into a single loan, which streamlines payments and total interest costs.

Check bills carefully. Take steps to ensure all of your statements and bills are accurate and that the rates remain the same. If you see errors or a higher rate, reach out to the creditor or lender as soon as possible to fix it.

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Understand Your Credit Score and Check It Regularly

Whether you want to start a business or own a home, it's important to understand and take steps to improve or maintain your credit score if you want to develop smart money habits to save for a home. This three-digit number impacts nearly every facet of your financial life, and if it's in good shape, it will be cheaper to borrow money when you need it.

Your score will fall within a range of 300 to 850, with 300 considered a poor number, and 850 excellent. Your score may be slightly different depending on the scoring model used and the credit bureau that pulls it. Once you understand how your credit is evaluated, make sure to check it regularly--if it's lower than you'd like, there are steps you can take steps to improve it.

Don't miss payments. This is one of the most important factors used to determine your credit score. If you have a history of on-time payments, it may help you achieve an excellent credit score rating. To do this, don't miss loan or credit card payments by more than 29 days; if a payment is at least 30 days late, it can be reported and may damage your score.

Keep your credit utilization rate below 30 percent. Credit utilization refers to the percentage of total available credit that you're currently using. If you're paying only the minimum amount due each month or maxing out cards, it will keep your credit utilization high and may negatively affect your credit score. The Consumer Financial Protection Bureau (CFPB) recommends keeping credit card balances below 30 percent.

Think before taking on new credit. Opening a new account could hurt your credit score, so be strategic about it. Research shows that people who open several credit accounts in a short period of time may be at higher credit risks than those who don't, according to FICO, one of the leading credit score providers.

Ready for Next Steps?

These are just some of the smart money habits that you can use to help you save for a home. When you're ready to discuss mortgage financing for your new home, or if you want more tips to help manage your budget or understand your credit score, contact your neighborhood Mortgage Advisor. Check out our blog for homeownership tips and advice.