How you save for a house. Scrimp.
by Tim Broadway
How nice it is to come home to your own house and property, with your own manicured garden of your own design. To gaze at the beautiful paint job that was done, with colors of your choosing-mustard and forest green. To walk through your own portico, to step on the new mosaic tiling, to pass through the wall that used to be there when you brought the property, and was the first thing that you changed. As you walk through the new kitchen, with the craftmade drawers and wolf stove…….going to the first floor washroom, kicking off your shoes, stepping onto heated, marble flooring……….dreams dreams dreams. With some financial management and serious discipline, these kinds of dreams can become reality. Maybe not the marble flooring (what is it, like, $75/sq ft??), but at least the home ownership. It may not be the castle that you dreamed of, but it is a lot better than paying rent. I’d live in a tent over renting, as long as I owned the land beneath it (maybe not, but I’d quickly build a shack then).
Where do you start?. You start by financial management and analysis of your income and expenses. This simply means, count what comes in, and count what goes out. There are different ways for everyone to do this. I do it on paper. I have multiple columns where I write down amounts for what I spent. The objective is to identify necessary and unnecessary expenses, and eliminate the unnecessary ones. My categories are: fixed expenses (rent, gas, phone, etc.), food you buy from a supermarket (I call it F1), Gasoline, all of which are necessary expenses. Unnecessary expense categories include: alcohol (you should see how much some people spend here), food you buy from restaurants (I call it F2), parking tickets (an excellent way to reduce expenses. If you drive in the city a lot, it can be hard to get this under $100/month [$1200/year by the way!]. You do it by paying for parking……), taxis (this category should be elimated completely. Absolutely unnecessary in a big city like Toronto), and finally, the least necessary category: miscellaneous! In this category goes anything you don’t need that can’t be put in another category: new clothes, new electronics, new furniture. When trying to save for a house, all this stuff can be brought cheap and/or used. By new after you make the priority purchase: a home!. Now, if anyone reading this is serious about saving money for a home, I WANT YOU TO STOP NOW. Go make a budget and use it for a few days, then come back.
Now that you are back with your new budget with some data inputted into it, I want you to find where you can save. I’ve already told you the unnecessary categories, but there is more. Once you are comfortable with counting every penny farthing, you will start to see where you throw your money away. First, eating out. Eliminate it. You’ll see, even if you don’t go out that often, hundreds per month going down your gullet. Use it for special occasions only.
If you can eliminate a car, do. $500/month there. Some peoples occupations, like mine, demand that you have a car. If you can do without do. There is no greater waste of money. If you must have one, don’t lease. Buy a $2000 1999 Honda Civic. It will get you there just as good.
Stop using bank machines. People think this helps you save money, but it does not. You’ll spend $60/month on banking fees, even if you try to avoid the ones that charge! If you don’t have money on you you’re going to use whatevers there.
Obviously, pay off your credit cards, then stop using them. It has been proven that when using credit cards you spend more, because you are not seeing the money leave your hands, and not counting. It all seems make-believe, and really, it is. Pay only with cash (how do you do that? You go to the bank once a month, take out $1000, and keep it in your drawer as you need it. Simple. I’d say debit cards, but again, like credit cards, you spend less when you see the cash leave your hands. Its easier to count, and you need to count it to know how much you are spending……).
Also, for drinkers, counting how much you spend on alcohol will not only amaze you, but it will help you learn to drink less. Some people think this is a necessary category, though…….which it is not.
Other ways to save? Drop multiple phone lines, eliminate outrageously priced cable-there’s nothing worth watching on TV that you can’t get with bunny ears anyway-and if you don’t need it for your work, get rid of internet too. For internet that works and isn’t slow as molasses it’s like over $40/month??.
Summary of some of the ways we have saved here-
-parking tickets $100
Elimating a car alone generates $640 in extra income.
-eating out $250
-bank machines $60
-credit card interest $100
-land line, cable, internet $140
Any other suggestions on where to spend less please let me know!
In total savings based on this model, it adds up to $1190/month, or $14,280/year, or not including the car, $550/month, or $6600/year. As you can see, a car can be the principal reason for not being able to afford a home. There is so much ego involved with car purchases: you’ve heard of the guy who owns a new Corvette but still lives in his parents basement?? That is absurd. If you can get past the concept that you need a car to match your ego, and can drive around in a junker, then maybe later your house might match your ego. Or, at least you can make it: install a Jacuzzi on the roof, mirrors on the ceiling, disco ball in the dining room…….Can’t do any of that in your car.
Another rule I live by, once you’ve gotten past all of the previous hurdles that I have outlined, once you have paid your credit cards off, stopped eating out and using bank machines, sold your new car, and so on, and have ACTUALLY started SAVING money, and you now have built up some disposable income, RESIST THE INSATIABLE URGE TO SPEND IT!!! NEVER FORGET, YOU ARE TRYING TO SAVE UP $40,000 FOR A SMALL HOUSE AT DUFFERIN AND DAVENPORT (which there is! Right now, for $279,000. It’s a dump, but its YOUR dump. You can always turn it into a palace and add some mirrors…..). You have now saved $10,000, its taken over a year, and you only have another $30,000 to go! (4 more grueling years. Ugh). You want to reward yourself for your scrimping and saving with some treat……We’ll, no. If you must spend, then don’t spend more than 15% of what you save-you save $10,000, you can spend $1,500. Save another $10,000, spend $1,500. And more importantly, spend it wisely. Don’t waste it on Prada and Gucci when you are trying to save for a house on $40,000/year. Buy something practical. A trip, new furniture, appliances. Don’t waste it on frivolous purchases. Make a list of purchases that you want to make (you won’t be able to make them all), prioritize them, and then pick what you can afford. Its called discipline. Try to remember what it was like when you were a kid and you were flat broke and couldn’t afford to buy food.
Finally, if you are unwilling to make all of these sacrifices and resign yourself to poverty in order to save, then you don’t want to buy a house. Come back when you’ve got your priorities straight. Once you’ve got a house, it only goes up from there….