Saving for your downpayment will not only be incredibly rewarding, but it can help you to create some healthy financial habits along the way. It’s not always simple though, so we have a few unique ways to approach it.
Homeownership is a dream for so many, however saving and obtaining a downpayment can be a challenging task. It’s no secret that rental rates and cost of living costs have risen substantially over the last couple of years.
If buying a home is important to you, one of the first steps is sometimes the most daunting! Saving for your downpayment will not only be incredibly rewarding, but it can help you to create some healthy financial habits along the way.
It’s not always simple though, so we have a few unique ways to approach it.
Out of Sight, Out of Mind
One way to prevent overspending and build good saving habits is to make your money less accessible.
Consider setting up automatic deposits into an account that you don’t regularly use, as having an account that is out-of-sight and out-of-mind can prevent you from spending the money in that account.
Prepare for Mortgage Payments
Set aside money that you would be using for your future mortgage payments.
For example, if you live at home and expect your future mortgage payment to be $1,000/month, put that into a savings account.
If you are currently renting, consider saving the excess amounts that you would need for a mortgage or home ownership costs. This not only builds good saving habits but also prevents any payment shock once you purchase a home.
To ensure you’re not wasting money on unused subscriptions, carefully examine your bank statements and identify any recurring charges.
Ask yourself if you truly need all the services you’re subscribed to, such as multiple streaming services, magazines or if you’re paying for a gym membership you haven’t used.
By doing so, you can save money by cancelling subscriptions you don’t need or aren’t using.
Curb Impulsive Spending
To reduce impulsive spending, remove your saved credit cards from online payment methods such as Google Pay, Apple Pay, Amazon, and so on.
This not only improves the security of your cards by preventing online fraud, but also forces you to pause and think before making a purchase, as it removes the convenience of hitting the “checkout” button.
By doing so, you may realize that the item you were about to purchase is not worth the extra effort of getting up from the couch to retrieve your credit card.
Preparation is Key
Being prepared is crucial to avoid overspending when grocery shopping.
Instead of buying everything in sight when you’re hungry, make a list of what you need before heading to the store and stick to it.
This will help you stay focused on what you actually need and avoid impulse purchases.
Side Hustle Era
In the era of side hustles, there are various ways to earn extra income.
If you’re a pet lover, pet sitting can be a great source of income.
If you love sports, consider refereeing for a local team.
And if you’re a recovering shopaholic, you can sell your unwanted items on Facebook Marketplace, Poshmark, or local consignment stores to make some extra cash.
Explore your interests and hobbies to discover potential opportunities for a side hustle.
Investing & Savings
If you are expecting a tax return or year-end bonus, it might be a good idea to consider investing it in a FHSA, RRSP, or TFSA.
These options can help you save for your future while also providing potential tax benefits.
TFSA (Tax-Free Savings Account)
A TSFA is a great place to start saving your money. It allows you to invest money without paying taxes on the investment earnings or withdrawals. However, be mindful of your TFSA room as there are annual and lifetime contribution limits.
RRSP (Registered Retirement Savings Plan)
An RRSP is a tax-deferred account that allows you to invest money on a tax-deferred basis.
You can claim a deduction on your tax return for any contributions you make to your RRSP, which reduces your taxable income.
You can withdraw up to $35,000 from your RRSP for a down payment without paying taxes on the withdrawal.
However, you have to repay the funds back to your RRSP within 15 years. Also, be aware of your RRSP room as there are lifetime contribution limits.
FHSA (First Home Savings Account)
The FHSA is a new account introduced by the Government of Canada. Contributions are tax-deductible, reducing your taxable income. Unlike RRSP, withdrawals from an FHSA are not required to be repaid to the account. There is an annual limit of $8,000, and a lifetime contribution limit of $40,000.
Optimizing Employer Incentives
Make sure to make the most of any employer benefits such as RRSP matching, employment savings plans, and stock purchase plans.
These incentives are designed to motivate you to save, establish healthy savings habits, and also offer the added advantage of “free money” from your employer with compounded returns.
Remember, saving for a down payment takes time and discipline. Be patient and consistent in your efforts, and don’t be afraid to get creative in your approach.
Once you have a hold of your down payment, we recommend reaching out to one of our reputable lenders to talk about the next steps. They can advise you on rates, mortgage insurance and help you cross the finish line for your home financing.