The Young Bankers’ Blog: Five Tips to Save for Your First Home


The "Young Bankers' Blog" series features fresh insights on various topics from our associates.

Take Control of Your Finances. Make Your Dreams a Reality.

Are you dreaming of owning your first home? Then you may be wondering – How could I ever save enough money? How do I take control of my finances? How can I create a budget? Will I ever be able to save enough funds for a down payment?

Since beginning in the banking industry, I started putting the pieces together about money management by learning to help others with their finances daily. Based on my experience, I have learned it’s never too early to start. I assembled five easy steps to help get in tip-top financial shape and begin saving for your first home:

1. Calculate Your Income

Understanding how much money you have coming in is the most natural first step to creating a monthly budget. What is your gross income? (The amount you make before deductions withheld.) We all have federal, state, and local taxes. You may also have dental, medical, or other insurances withheld on payday. These deductions are “pre-tax,” meaning this part of your income is not taxed. Other items that could also be deducted include your 401k contributions and other miscellaneous items. At the bottom of the list should be your net pay; this is how much is direct deposited into your account or issued to you as a physical check. If you get paid weekly or bi-weekly, you can add your net pay(s) together to get your monthly income (which is what I recommend working with to start). Do you have any other taxable income? Many people will have a “side-hustle” to help boost their savings while they have the freedom to do so. It’s important to note that only taxable, documented income is considered on a mortgage application.

2. Determine Your Monthly Spending

I understand that taking an in-depth look at your finances is not everyone’s cup of tea! However, it is the best way to take a broad overview of your spending and determine ways to increase your savings capabilities. The first step to reviewing your spending is making sure you have access to your online banking profile through your financial institution. Many times, you can download spreadsheets of your account dashboard, and this is a great way to start your budget. You can color-code your purchases and determine which are necessary and what you can eliminate.

I know this can seem overwhelming, but you can start simple. Spend as you normally would for a month and keep track of what you buy. Trust me, I wanted to overlook those $10 salads I was having for lunch three times a week. Or the many small $5-$20 purchases, but DO NOT ignore them. These little things add up. Write them down. Type them up. Whatever you have to do to keep track, just do it. At the end of the month, go through your purchases and pick out the unnecessary ones.

Another option to manage your spending is through online applications like Mint or EveryDollar. They connect to your bank account and categorically track how you spend your money. Here’s a list of the top budgeting apps of 2020.

3. Cut Out Unnecessary Purchases

The ultimate goal here is to have money leftover between paychecks so you can increase the balance in your savings account rather than overdraw it or have it creep back down to $0. (Side note: if this happens at first, it is ok. Use it as a learning tool.) Maybe you stop for coffee every morning before work, and it costs $4. $4 x 5 days a week is $20 a week you could be saving. Make your coffee at home, buy a bottle of your favorite creamer, and watch your savings account grow. It’s hard to strip down to the bare minimum of “necessary expenses only” at first, so start slow. When you want to make a purchase, ask yourself, “Is this a want or a need?” Some things will be apparent, while others may cause you to realize you need to have a hard conversation with yourself. Remember your goals and prioritize them. When your next paycheck arrives, and you have an extra $100 in that account, keep it, save it, and do it again!

4. Start to Pay Off Debts

While you watch your account balance grow, it’s tempting to spend on big items like a beach trip, new shoes, or a new phone. I think it’s important to stop and enjoy life. That’s the balance. Prioritize paying down debt, and you’ll experience less stress. When you understand your money and are budgeting, it may be possible to plan for that beach trip while you’re saving for a home or paying down debt. The first step is to cut out unnecessary purchases, prioritize your spending, then go to the beach and relax!

5. Figure out what you can afford

As your savings increase and you plan to make a down payment for your first mortgage, start to calculate and prepare for your monthly payments. The total of your monthly mortgage payment, real estate taxes, and homeowner’s insurance shouldn’t be more than 30-35% of your pre-tax monthly income. Your total debts (including credit card, student loans, etc.) should not equal more than 43% of your pre-tax income. Debt-to-income ratio (DTI) divides the total of all monthly debt payments by gross monthly income, giving you a percentage. Check out this debt-to-income calculator. Keep an eye on your spending and saving until it becomes a habit and part of your daily, weekly, or monthly routine. These basic principles remain essential regardless of your age, income, and whether you’re buying your first or fifth home. It is possible to build a savings no matter where you are when you start.

What’s My Next Step?

As you pay down some debt and build up your savings, it’s time to contact one of our Mortgage Partners. They can help determine whether you are ready to start the home buying process and what your next steps will be. Traditions Mortgage is proud to be your partner and advocate in making your dreams of homeownership a reality.

**Bonus Banker Tips**
  • Do you often find yourself paying account fees for not meeting your minimum balance? Make an appointment with a member of our Personal Banking Team to discuss the best options to avoid those fees and increase your savings.
  • As your balance starts to grow, consider opening a specific account for savings so you can more clearly separate money you’d like to spend and money you’d like to save. This will help kick-start your savings goals, especially if you have funds directly deposited into that account from your paycheck.
  • If you have a debit card, make sure you use it safely. Choosing “credit” instead of “debit” at the checkout will add a layer of protection if your card were ever to be compromised since you won’t have to enter your pin.

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