How To Save For A House While Renting

Editor’s Note: The following is a guest post from Cora Gold, the editor-in-chief at Revivalist Magazine.

The cost of buying a house has increased significantly over the past few years.

Higher prices and mortgage interest rates bordering on 8% have made the housing market challenging for prospective homebuyers. Despite these issues, changing your status from renter to homeowner is possible. You just need to make wise financial decisions.

Here’s how to save for a house while renting, from big moves like revamping your current budget to small changes like installing a low-flow showerhead. Do what you can to reach your goals and become a proud homeowner before you know it!

1. Assess Your Financial Situation

You may have already found a house or maybe you are still searching for one that fulfills all your wishes.

Before you start making plans, assessing your current financial situation and implementing a few changes is essential. This will pave the way for success, but it requires taking a hard look in the mirror and making sacrifices.

Start With Research

Track the market for a few months to see how much you will need for a downpayment. You’ll see what’s selling and how long it’s taking.

Maybe your dream home is in another town. The prices you see in one location could be quite different in another location. Some neighborhoods will have higher competition than others, and in some cases, the asking prices can be quite different from the actual value.

Break Down Your Goals

To figure out how to save for a house while renting, begin by creating approachable goals.

Say two years from now, you would like to buy a house in Atlanta at the median price of $395,000. You will put down 7% for a total of $27,650. Divide by 24 months and you will find that you must save $1,152 per month to reach your goal.

After that, you will pay ~$2,791 per month (at the current average interest rate of 7.79%) for a 30-year mortgage.

Ask Yourself Some Questions

You must consider several factors when looking at your financial situation, including the following:

• How much do you want to save for your down payment? Experts recommend having at least 20% of the purchase price. 

• With all your income and investments, how long will it take to get there?

• Do you need extra income, investments, or savings to reach your goal in your desired timeframe?

• Do you have a good credit score?

2. Create a Sustainable Savings Strategy

Once you have calculated how much you will need, it’s time to develop a savings strategy. This requires time and flexibility on your part. You must sit down, examine your finances, and determine where you can cut back or reallocate in order to reach your goal.

Conduct an Expenses Audit

Create a spreadsheet with sections for a transaction tracker, expenses, bills, investments, and savings. Fill in your budget for two to four months with every dollar spent. This gives you an overview of how much you’re paying monthly. You will see that you have consistent expenses, like rent and utilities, and variable expenses, like eating out or buying clothes.

At the end of the month, review your budget. Is every purchase, subscription, or expense necessary? Where can you cut down on costs?

Choose a Savings-Friendly Budget Plan

Create a spending plan based on your timeline and income.

50/30/20 Rule

The 50/30/20 rule is a simple framework for managing your finances and promoting long-term financial security beyond your savings goal.

• 50% of your after-tax income is for needs, like rent, car payments, insurance, health care, and utilities.

• 30% is for wants, like tickets for a concert, upgrades to phones or laptops, or the limited-edition sneakers your son wants for his birthday.

• 20% will go toward investments and your savings goal.

The 30-30-30-10 Budget

This budget is ideal for people who want to tighten their belts or increase their savings quickly.

• 30% of your after-tax income goes to housing, including rent, maintenance, and utilities.

• 30% goes to your needs, such as groceries, Wi-Fi, gas, and other items you need to survive.

• 30% goes to your financial goals, such as saving for your down payment. You can also use this amount to reduce debt or pay off credit card bills, and then focus on saving after.

• 10% goes to entertainment and wants. Your financial goal is important, but it’s also essential to have some funds allocated for leisure, new clothes, takeout, and family time.

The 80/20 Rule

Maybe you’re generally disciplined when it comes to your finances or you already have money saved up to contribute to your down payment. The 80/20 rule lets you mix wants and needs without differentiating between the two.

You don’t have to track your expenses as closely as long as you save enough money left over each month to reach your goal. Therefore, 80% goes to expenses and 20% to savings.

Automate Your Savings

It’s easier to let go of money if you never see it in the first place. Automating your savings lessens the administrative burden and ensures your net worth increases consistently. Several apps can help with this process while also educating you on the best investments to make.

Open a Savings Account

It can help to open a separate savings account if you want to automate this process. High-yield savings accounts also provide compound interest, which can help you reach your goal quicker.

Choose a savings account with a high APY and low maintenance fees to get the most bang for your buck.

Rotate Nonessential Expenses

A great way to reduce the strain of making cuts is by only dropping one nonessential item each month. It could be online shopping in February or takeout weekends in March.

Any money you would have spent on those things goes directly into your savings account. You only have to sacrifice for a month at a time and you might even save more sometimes, depending on the expense.

Resist Lifestyle Inflation

Find ways to increase your income in order to reach your goal more quickly. When that money starts coming in, allocate it to your savings plan.

It might be tempting to treat yourself and increase your spending habits, but if you stay disciplined, you will thank yourself when holding the keys to your dream home.

3. Minimize Monthly Expenses

Minimizing your monthly expenses is the key to quickly reaching your savings goal. Cutting down on costs is a foolproof way to have extra money at the end of the month. These funds can be allocated to your primary objective — figuring out how to save for a house while renting.

Annualize some of your spending to see where you need to cut down. Say you spend $10 to $20 weekly at Starbucks for the whole family. That’s $540 to $1,080 yearly that could go into your savings. You can offset this by buying your own coffee or looking for alternatives that give you the same tasty drink at a lower price.

Small changes make a big impact when you put them together.

Make Meal Plans

With meal planning, you can reduce food waste and save money by only buying what you need. Meal planning also ensures you eat healthier.

The basic steps of a good meal plan are:

• Take stock of your pantry and fridge. It helps to know what you have so you can plan around it.

• Create a list of recipes or meals for the month. Include snacks.

• Write a thorough shopping list and buy the ingredients.

• Dedicate a day for meal prep — all the chopping, boiling, grating, and packing.

Here are some tips for a money-saving meal plan:

• Buy fresh produce in season at farmers’ markets. It’s more affordable and healthier for you. Plus, eating healthy reduces your chances of getting sick, which will go a long way in reducing potential medical bills.

• Buy legumes and beans to bulk up meals and use less meat.

• Look for coupons and sales.

• Prioritize workdays when planning meals. You can always be more spontaneous on weekends and find creative recipes for the food items you buy.

• Shop online if you tend to overspend. When you can see the total amount of your cart in real-time, you’re less likely to add extra unnecessary items.

Reduce Your Utility Bills

The average American household spends 10% of their yearly income on utilities. This is why it’s so impactful to find ways to reduce water and energy consumption.

Here are small, easy ways to reduce your utility bills:

• Install a water-saver in your toilet cistern.

• Use low-flow showerheads.

• Buy energy-saving LED lights. Compared to incandescent bulbs, LEDs last 20 times longer and use less energy.

• Unplug appliances when not in use. Buy smart strips that cut off electricity flow when they are off.

• Wash your clothes in cold water.

• Hang your clothing out to dry as much as possible.

Join a Bulk Buying Club

Many organizations and brands deliver home items in bulk to groups at wholesale prices. Find out if there are any buying clubs in your community or start your own.

Most only need five to 10 people to get going. You can buy essentials like whole foods, cleaning supplies, and other groceries or personal items this way.

4. Look Into Alternative Ways to Fund Your Down Payment

While you save, you can also look into ways to reduce your down payment or pay for other costs like closing fees. Making moves like this will reduce your stress when finally signing on the dotted line.

Buy Stocks or Bonds

You may want to consider investing your savings in short-term investments depending on the timeline you set. Bonds are generally safer since you are promised your money back.

One of the best bets is a short-term Treasury bond or T-Bill. You purchase these 1-year or less bonds at a discount and receive the full face value once they have matured.

You can also seek the advice of a financial professional to make the most of low-risk stocks and ETFs to reach your savings goal.

Look for Down Payment Assistance

Check if you are eligible for a down payment matching program or housing grant. Some mortgage lenders offer a match on the amount you have in your savings. This doubled amount can increase your down payment or be used as a credit toward closing costs.

Several down payment assistance programs are available for first-time homebuyers based on income and location:

• Grant: A grant is a one-time cash amount for your down payment or closing costs. It’s different from a loan in that you won’t have to pay it back.

• Forgivable Loan: A forgivable loan means your debt will be erased after a certain period, as long as you still own the home and are faithful with your mortgage payments.

• Deferred-Payement Loan: This loan typically comes in the form of a second mortgage with 0% interest. The loan is not forgiven, but because it accrues no interest, it does not have to be repaid until you move, sell, or pay down your first mortgage.

Enter a Rental Sweepstakes

Some rental companies host monthly or yearly sweepstakes for free rent. There are no purchases or payments necessary on your part. You simply fill out the form or post on social media and wait for the results. Although it’s a long shot, it may still be worth entering.

Earn Extra Income

Rapidly developing technology continues to open up opportunities for extra income without extreme effort. You can stream video games, work on graphic design projects, or post stock photos.

What digital product would make your life easier right now? Maybe it’s a yearly calendar with your savings goals. Maybe it’s a detailed meal planner. Whatever the answer — take the time to make your own and then use it as a template to sell.

Remember the spreadsheet you created for your budget? Add a splash of color, change the font size, and upload it to an e-commerce platform. You may be surprised at how many people relate to your style and will purchase a ready-made product to make their budgeting easier.

Alternatively, if you are short on free time, lease your car for delivery services or offer storage space in your current home. Just make sure these side hustle ideas don’t violate your lease agreements.

From Renting to Homeownership

Want to learn how to save for a house while renting? As long as inflation and mortgage interest rates remain elevated, you will need to put your best foot forward.

Once you develop a savings strategy, stick to it. Consistency will get you far in this pursuit. Before long, you will be closing on a deal and finally crossing the threshold from hopeful renter to proud homeowner.

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