Thinking about buying a home in the New River Valley this year, but having trouble saving specifically for a house purchase?
I’m a terrible money manager, honestly, so I deal with this issue every time I want to save for something. Recently, the Roanoke Times ran an article about what’s called the Envelope System, and while the article deals more with expenditures such as groceries, entertainment and personal expenditures, it just as easily could apply to buying a home this year.
Here’s how it can help you buy a home in 2010:
Each month, take a predetermined amount of money and stick it in an envelope marked “House Fund”. In this case, it would be good to have a bank account rather than an envelope, but you get the idea. Remember – you can’t touch this money, it’s earmarked solely for buying a home.
Imagine that you’re bringing home $3000 a month, and 15% ($450) of that is going into your House Fund “envelope”. After ten months you’ll have $4500, plus any interest you might have earned. $4500 is a big chunk of money, and could be used to help with your downpayment, pay closing costs, or make repairs once you move in.
And since you’re automatically putting this money away every month, you don’t see it and, therefore, you don’t spend it.
As I said, I’m no money manager, but I’m eternally grateful that my wife is. She’s gifted when it comes to money and finances, and she’s worked hard over the years to keep us positive – despite, sometimes, my best efforts at screwing that up. We’ve been using the envelope method for a couple of years and it’s really helped keep us on track. If it can help with a family budget it can certainly help save for a new home … think it might work for you?
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This is a good idea, and one that we are actually trying to do. I am not trying to say that 4,500 is not a lot of money, but I'll loosely give an example of how long we'll be waiting to buy a new house by saving about 4,500 a year.
We currently own a town home in Christiansburg. Due to the market (and the fact we purchased a house in 2007) we would be happy to break even once we sell our current house…so we aren't expecting any money to move forward to a new down payment. Yes I know it will improve, but again this is just a loose example.
Our goal is to move from C'burg to B'burg. So let's just say we are looking at a house for 280k. To make a 20% down payment so we can get a reasonable mortgage, and not pay PMI you are looking at a 56k down payment. At 4,500 a year savings you are looking at it taking almost 13 years to come up with that amount of money. That also includes no emergencies coming up where you have to take money back out (such as a 5,000 dollar appendectomy we had to pay for this year).
We have been pretty proud of ourselves putting extra money away and not touching it unless an emergency comes up, but looking at the reality of how much you need to save for a home, it's a scary outlook. to say the least, and a little disappointing.
You're right, Bill, it's baby steps of course, and should be one part of a greater picture. What I find exciting about the idea is that it puts into place basic financial principles that anyone can excel at – sounds like you're there. I know it's a kick in the gut (poor appendectomy reference, glad that went well) if you look at it given your current housing situation, but I'd be willing to bet you guys aren't just focused on setting aside a few dollars every month.