(originally written June 27, 2011)
This is the not-so-fun part about home-buying, especially if this is your first time. Saving up a considerable amount of money is a very long and tedious process that requires some serious lifestyle changes for some folks. It doesn't have to be nearly as terrible as you would think though.
Even before you start the process by taking classes or doing research on lending products, you need to start saving every penny you can. It's going to suck. That means you'll probably need to forgo Friday night drinks with the girls or the season tickets to a local sports team. You may even have to cancel your cable (like there's anything good on anymore anyway) or eat peanut butter and jelly every day for lunch. But, once you see how much money you're saving, it's totally worth every peanut buttery bite.
Here's a little guide to get you started on how you can save some $$ toward your new home:
Cable tv: Do you seriously watch all of those channels? If you do, you must do little else. Canceling your cable and getting a digital box (you can still get basic broadcast channels) and the watching the rest on Hulu or Netflix will save you nearly $50 a month, or $600 a year.
Cell phones: While most people don't have land-lines anymore, cell phones are a mixed bag. People spend a ridiculous amount of money on them. Just remember, a few years ago we didn't have (or need) all of the fancy-schmancy options that are out there - so why do we need them now? A basic talk/text plan will run quite a bit less than some of the fancier smart phones. If you can manage it, go back to a basic phone and plan when your contract runs up. At the very least, you'll be saving $30 a month without the data plan, or $360 a year.
Going out: Garry and I don't "go out" much to begin with. We're content cooking dinner at home and popping in a movie. But, if you have the need to constantly be out with friends you might want to curb that a bit by having people over (if you have the space) for dinner and drinks. Potluck meals work great and you're only spending money on making one item. Not only that, but you're saving on gasoline as well.
Movies/Entertainment: Again, Garry and I don't go out much, but we do know how to save some money here if you absolutely must do something. Most towns have discount movie theaters. I know, they're sometimes kind of scary, but if you're dying to see something and can't wait for it to come out on Netflix, then that's the best bet. Also, you can check for low-cost or free entertainment in your local newspaper or through your favorite radio station (most have a Community Calendar listing). Also, many media outlets have weekly prizes for movie tickets, concerts, etc... so keep your ear to the ground and you could score some free stuff.
Food: Not many people realize exactly how much money they spend on food. Chances are, if you live in an apartment you can't really buy food in bulk since there is generally less space to put it. A good way to save money on food is to plan ahead. Garry and I make a bi-weekly "menu" and only buy groceries for that menu. It allows us to buy enough food without overspending. We also plan out left-overs nights and try to save some money that way too. Coupons are also really helpful. You don't have to be a crazy coupon lady to make it work, but having a few on hand are helpful for things you buy often. Sometimes you can find coupons online too.
Clothing: It's really important to shop sales. A few times a year many clothing stores will have their end-of-season clearances and you can find some nice stuff for 70% off or more. Also make sure you're buying good quality clothes. If you buy cheap stuff that just rips in a few months then you'll need to replace it. If you spend a little more you might have a sweater that lasts for years. It saves money in the long-haul. Of course that doesn't mean run right out and buy a whole new wardrobe now, but when you need to replace something keep that in mind. Also, try and sign up for any rewards clubs that they may have. Some companies (like NY&Co) have amazing sales that they email to their club members.
Gasoline: It's a hard one, gas prices are crazy high and we're, unfortunately, at the mercy of the price at the pump for the most part. If you live in an area where you can use public transportation then go for it - it will save a ton of money. Or, if you live within walking/cycling distance of work or other places you need to go - by all means do it. Unfortunately, not many people have that luxury, so we're left sitting behind the wheel. A few ways you can cut the cost down is to consolidate trips as much as possible and carpool with friends to work.
Credit cards/Banking: Goodness, pay off those credit cards every month! While having credit is a great thing, if you have a ton of outstanding debt it makes you less "mortgageable." Also, if you carry over a balance, you're paying interest on your purchases which means you end up paying more than what you originally paid in the long run. Having a card can be good though. If you can get something that offers reward points or something of that ilk, you can use them toward other purchases - which saves money in the long run. If you're planning for long-term savings (we're talking a few years or so) an IRA is a great way to go. You can deposit money, but you can't take it out without a penalty (which is great for folks who get tempted easily) and it will gain interest over time. Depending on what type of IRA you want to use will determine the length of time it needs to "mature." Sitting down with someone at your current bank will be helpful to discover all the savings options there are out there.
So it really isn't that awful saving up for a house. After making a few changes here and there, you could end up saving a few extra hundred dollars into savings each month. By the end of the year that will equal up to a few thousand dollars. At first, I'll admit, it will kind of suck, but like anything that you want to make into a habit, if you keep at it, it will become part of your lifestyle after a while. Remember that a lot of things that "we can't live without" weren't around a few years ago.