The No BS Guide to Saving for your Downpayment
So you want to buy a new place do you? Awesome! When saving for a big purchase, it’s important to have a plan and a strategy that will help you achieve your goals – ultimately it’s up to you how aggressively or laid back you want to save, as long as you’ve dedicated yourself to that in order to achieve your goal in the timeline you’ve set. It’s important to be realistic with your goals, and set yourself up for success.
As soon as you decide to take the first step on the journey of homeownership, it’s a good idea to talk to a Realtor and Mortgage Specialist to ask for advice on what you’ll be able to afford, and how much you’ll need to save up – that way you won’t have an unexpected surprise when it’s time to buy!
Pssst – this guide can be modified to save up for almost anything. Try using the same logic (minus the real estate parts) towards buying a car or a big trip.
1.) Getting started
Make a plan and write it down – include:
-The amount you need at the top
-The date by which you will have the money
– A summary of where the money will be coming from ($x amount from every paycheck, investments, money you’ve already saved, borrowing from friends and family if that’s an option)
Constantly update your plan with the amount from each source that you’ve saved – this will give you a week by week live update and give you a better idea of how far you are in your goal.
DON’T tell people you have a goal, and stick with it
Contrary to popular belief, telling people about your goal will actually make yourself less likely to achieve it. Make yourself and only yourself accountable for your goals. Make sure that you put that money aside every month regardless of who’s birthday it is or the time of year. Depending on the amount that you’re saving, it may restrict some night outs – try to keep your mind on your goal, and remind yourself that you’ll be throwing them a party when you get your new place!
“When you tell someone your goal and they acknowledge it, psychologists have found that it’s called a ‘social reality.’ The mind is kind of tricked into feeling that it’s already done. And then because you’ve felt that satisfaction, you’re less motivated to do the actual hard work necessary.” -Derek Siver
2.) Budget and start really saving
Here’s the tough part for most people – it’s key to cut the fat off your expenses if you want to save as much as you can in your time frame. All of us will have expenses that we won’t be able to remove such as business fees, school costs and transportation. Try to limit the amount of extra money spent per month (Monthly subscriptions for boxes of goods, buying music vs. streaming it legally). It may seem like not very much, but it adds up faster than you realize!
With that in mind, this guide isn’t about punishing yourself by never having fun – it’s about knowing how much extra money you have left in a month, and budgeting to make it last. How much you decide to budget and how aggressively you save depends on your specific goals.
3.) Use your bank as a tool
Open a Tax Free Savings Account with your bank
Once you start saving all that money, it’s time to put it away somewhere safe (and no, under your bed shouldn’t be your first option) – most banks will offer a Tax Free Saving Account (TFSA) that will offer a safe place for your money to sit, while limiting the temptation to use it. Heads up – when it’s time to take your money out, there is usually a 1 Business day turnaround.
Withdraw from your RRSP’s
You can withdraw up to $25,000 from your RRSP’s to purchase your first home, if you already have them. If not, contributing to your RRSP’s is a great way to save up while also earning a tax credit to help lower your taxes – double score!
It’s crucial to speak with an advisor at your banking institution for more information – RRSP’s are to be paid back within a certain amount of time and it’s important to know if this is the right option for you.
4.) See if there is a first time homebuyer’s program in your area
This is a great bonus. Toronto, Ontario offers a Land Transfer Tax Rebate of up to $4,475 – enough to cover the land transfer tax of a purchase price up to $400,000.
It may not seem like a lot, especially against your down payment, but look at it this way – it can help cover the cost of furnishing your new property, or pay your mortgage for a couple months. There are a few criteria to meet in order to qualify for this rebate – message us for more details!
5.) Get Excited!
Don’t forget – you’ve already taken the first step towards home ownership. As long as the road may seem, I’ve always found it easiest to keep your eye on the prize and keep moving forward – it will absolutely be worth it in the end. Be excited for yourself and the rest will follow!