What It REALLY Takes to Save Up for a Home

NOTE: This article assumes you’re saving up for a 10-20% down payment, which you should absolutely do if you want a lower monthly mortgage and more financial freedom.

I’ve got a bone to pick with lenders, mortgage brokers and other people that preach, “If millennials could just give up their $5 coffees, pack their lunches every day, and drop cable, then they’d have a down payment – it’s that easy!”

WOW. Maybe if it was 1975.

Reporter Alan Heavens from the Philadelphia Inquirer humorously points out the irony in this advice, noting that in LA, you would have to stop drinking 15.2 grande caramel macchiatos daily (for five years) to save up for the average down payment on a median-priced LA home. The same scenario would require 23.5 cups in San Francisco, 8.8 in New York and 4.3 in Chicago.

Obviously no one is buying that much coffee daily, and frankly, I don’t know anyone who buys even one coffee daily.

And while it’s true that giving up expensive daily coffees and packing your lunches are important, those things alone won’t cut it. (Unless you have the ability and patience to save for 10+ years. Or family money).

For the rest of us, hard times call for tough measures. It’s no secret that rents and home prices are rising faster than wages. On top of that, many millennials have massive student loans.

For those of us who want to save more and save faster, here’s what it really takes to save:

1. Get a higher-paying job: This advice won’t be popular (I cringe even as I write it), but unfortunately, it’s today’s reality. Even if you love your job, if your plan is to buy a good home in a good neighborhood with good schools, you can’t afford to live paycheck to paycheck. I loved my first job out of college (and most importantly everyone I worked with), but I wasn’t making any money and I couldn’t save. Looking back, I’m glad I left and even wish I had done it sooner. There’s a reason millennials are known for job-hopping and it’s because it’s the best way to grow your salary. Also, bonus points if you can find a job that offers bonuses (no pun intended). Many experts believe bonuses are the new raises, and nothing helps you save faster than a big chunk of change once a year

2. Get a side job: Journalist Bob Sullivan calls it 21st century moonlighting, while others call it the “gig economy,” “sharing economy” or – my personal favorite – “hustlin’.” With home and rent prices rising faster than wages, and student loans that never seem to shrink, it helps to get ahead by bringing in extra income. Think Uber, Lyft, Airbnb and TaskRabbit.

3. If you’re getting married, save your wedding gifts: (Yes – all of it). It might not sound fun at first, but what better purpose for these funds than your future, dream home? Of course, this assumes that you don’t have to use this money to pay off your wedding. A lot of people do. But if you have the ability, save it. It’s a great way to make home buying more attainable.

4. If there are two of you, live off one salary: Again, this assumes that one person makes enough to support two, which can be challenging in a big city like Chicago. Maurie Backman from CNN says that since Americans are bad savers, “your best bet is to create a budget based on one salary only” so that “you get the flexibility of saving the other salary” and investing it. Great if you have the means; most millennials don’t.

5. Move back in with your parents: Sadly, I’m not kidding. A new analysis from the Pew Research Center shows that for the first time in 130 years, living with parents has become the most common living arrangement for Americans age 18 to 34. And who can blame them? It makes perfect sense at a time when starter homes are practically extinct, and 20% down payments are costing people $60,000 or more. And that’s before closing costs, homeowners insurance, an emergency fund and furniture/appliances.

6. Relocate: For those of us in big cities like New York, San Francisco, and Chicago, buying a single-family home seems impossible. But if you can justify leaving your family and friends – ouch – Bob Sullivan notes that there are still places in the U.S. with affordable homes. In this list, he cites 25 places where young adults can find homes for under $200,000. Personally, I have my eye on some homes in Columbia, South Carolina. But since I have an adorable new nephew here in Chicago, it’s mainly just wishful thinking.

Moral of the Story?

Don’t stress out about buying or not buying, and don’t let other people’s judgements get in the way of doing what’s right for you. It takes enormous (almost insurmountable) self-discipline to save up for a home today, and if you’re not willing to switch jobs or move back in with your parents (totally understandable feelings btw), it requires a lot of time, patience and sacrifice.

As one reporter put it in “Millennials aren’t buying homes. Good for them:”

“We as a society tend to overvalue homeownership, at least from a financial perspective. Were it not for the psychic and sentimental benefits of homeownership, it’s otherwise hard to imagine financial advisers counseling their clients to dump all their savings into a single, giant, highly illiquid asset.”

I completely agree. Although my husband and I have done #1 – 3, the thought of taking on a mortgage and settling somewhere this early on in our careers freaks us both out. And it should – buying a home is a huge undertaking.

So until you’re ready, relish being mortgage-free. Enjoy having the freedom to move if you want to move. Go at your own pace, and don’t ever let anybody – a broker, real estate agent, relative or friend – convince you otherwise. Sometimes, it pays just to wait.

 

–P.S. Cheap Wine and Coffee now has a Facebook, Twitter and Pinterest page. For anyone wanting more conversation than the blog allows, I post on Facebook and Twitter daily and hope you’ll join me! 🙂

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3 thoughts on “What It REALLY Takes to Save Up for a Home

  1. Chance Baggins

    Ha, move back in with your parents? Is that really an answer! ? Why should they have to support you now? You are the epitome of the millennial generation. A spoiled brat who needs to find her safe space. Boo hoo you can’t afford those things that other people can in more lucrative jobs. Maybe colleges should stop offering liberal arts as a degree. Or amend the phrase “You can be whatever you want to be*”

    *not all dreams paid equal.

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    1. First – in the event that you’re not being sarcastic – I think you missed the whole point of the article, which is that giving up daily “lattes” doesn’t even scratch the surface of what first-time homeowners actually need to do today to save for a home. Yes, I think it’s ridiculous that so many young couples today need to live with their parents in order to save for a home. I think it’s ridiculous that anyone should need to have a second or third job to save for a home. All of the things I mentioned in the article are ridiculous – yet that’s what it takes. The housing market needs to come down in price, and unfortunately, you and I both know that’s not going to happen.

      Second, I do have a liberal arts degree, and also a lucrative career. That’s not the issue. The issue is that property values are rising 17 times faster than American wages. That college tuition has far surpassed inflation and also financial aid, leaving many millennials with massive student loans. And that millennials need to save 25% of their salary for 40 years JUST to to get the same result that was available to baby boomers saving HALF that much. Add all of this up, and you’ve got a lot of young adults who are unable to save for a home without taking extreme measures.

      Maybe before calling us “spoiled brats,” hold off on listening to conservative radio and do your homework first.

      Property values: https://www.thestreet.com/story/13184452/1/home-prices-are-rising-about-17-times-as-fast-as-our-wages.html / http://www.reuters.com/article/us-usa-property-poll-idUSKCN0YO20Q

      College: https://www.washingtonpost.com/news/grade-point/wp/2016/10/26/college-costs-rising-faster-than-financial-aid-report-says/?utm_term=.851d7b7d6c79 / http://www.politifact.com/wisconsin/statements/2016/jun/09/scott-walker/scott-walker-says-college-tuition-has-risen-four-t/

      Retirement: http://time.com/money/4607398/why-millennials-need-to-save-twice-as-much-as-boomers-did/.

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  2. Pingback: Should We Be Talking About Money More? – Cheap Wine and Coffee

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