How to Save for a House: 13 Simple Tips to Save Your Down Payment!

how to save for a house

How to Save for a House

In this article I am going to discuss how to save for a house. Learn 13 simple tips for how to save money for your first house (or your next house)! With these easy steps, you can save money for the down payment for your home in no time! These tips for saving to buy a house will help you to make your dream of becoming a homeowner a reality. 🙂

 

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13 Simple Tips on How to Save for a House

If you are looking for how to save for a house, then this article is for you! Here are 13 of the simplest and best ways for a family or individual to save for a house.

For most families, housing is their largest expense. So the more money that you can save and the bigger you can make your down payment, the better so that you can reduce your monthly house payment and pay off your mortgage more quickly! #debtfreeisthewaytobe

As I write this article, the housing market is back up in Crazyville again in many areas in the U.S.meaning that prices and demand are high. It’s a seller’s market. But you may still want to buy a home, and you may be in a good financial position to do so.

If you are financially ready to buy a home, then the sooner you start saving for your home, the better because the bigger a down payment you can save up.

So if your family is ready to start saving for your first home (or to upgrade your home), even if you’re not looking to buy for a few years or even several years, here are 13 steps you can take to save for a house.

 

1. Earn a steady income.

Before you even begin to save up to purchase your first home, it’s crucial that you have a steady, reliable income.

Check out this article for 11 simple tips to make more money.

 

2. Have a fully funded emergency fund (EF) in place before you begin to save for a house.

Before you begin saving for a house, you should also have at least a three- to six-month emergency fund that could cover basic expenses for that period of time in case something were to happen to cause you (or your spouse) to lose your income for a time or in case you had to replace an expensive item such as your car or had a major medical bill.

Having a large emergency fund is primarily so that you can be prepared financially in case something happens to you after you buy your home so that you don’t miss payments and risk losing your home to a foreclosure, but having substantial savings will also help you qualify for financing for your mortgage and will help you get the best mortgage interest rates.

It will also be very helpful if you discover there are things that you need to fix once you move into your home (that aren’t covered by your homeowners insurance—which can definitely happen and did happen to us shortly after we purchased our second home).

 

 

3. Start to save for your house.

Once you have a full emergency fund, start saving aggressively for your home purchase. Depending on your timeframe, determine which saving method will be best for you. For most people, their timeframe is probably around five years or less, so that means that you should save the money for your down payment in a simple savings account.

I recommend an online bank like Capital One 360 where you can open separate savings accounts for your various financial goals. Learn how to save for large purchases and expenses (and why you need to!) here.

On the other hand, if you know that your timeframe is more like 6 to 10 years (or longer) before you wil likely buy your home, then you can look at investing the money (learn how to start investing here) in good mutual funds instead of simply saving it in a bank savings account. That is what we are doing to save for our next home, which will probably be worth 1.5 to 2 times the value of this one and which we plan to buy in 5 to 8 years for cash. (Learn more here about my favorite way to buy a house—the 100 percent down plan!) We have investment accounts through both Charles Schwab and Vanguard.

Both are excellent companies with great customer service and very low fees. And you can transfer money, for free, easily from your checking account to either of these two brokerage firms.

Want to learn how to set up an account and start investing in good growth-stock mutual funds? Fill in the information below to receive my free investing cheat sheet!

 

 

Are you new to investing? Sign up below for the simple 5-day Invest Your Money mini challenge! Learn the basic principles and steps to start saving for retirement and to build wealth! Learn the basics of how to invest to reach your long-term financial goals.

 

 

Check out these related articles:

33 Must-Know Tips for How to Save Big on Housing Expenses

3 Simple Steps to Save to Pay Cash for Your Next Car (and Get Rid of Car Payments Forever)!

 

4. Figure out how much you can comfortably afford to pay for your home purchase.

Another important tip related to how to save for a house is that you be careful to not buy a house that is too expensive that will leave you house poor, you need to be realistic about what you can truly afford.

I know it’s not that common, but try to save up a 20 percent down payment so that you can save a bunch of money on interest during the life of the loan and so that you can avoid having to pay private mortgage insurance (which is where you pay a monthly fee because a lender was willing to take on more risk by allowing you to purchase a home with a smaller down payment). If you feel a 20 percent down payment isn’t realistic, try to save up at least 10 percent.

I know that saving up a substantial down payment takes more time and discipline than having a smaller down payment, but there are things you can do to reduce your current housing expenses, food expenses, utility bill, transportation expenses, cell phone bill, entertainment spending, and more so that you can make this a reality. And you can also work to boost your income as you save up for your home in order to reach more quickly your goal of home ownership.

Keep your estimated mortgage payment (including principal, interest, taxes, and insurance, or PITI) to no more than 25 percent of your take-home pay. (If you tithe or if you give a large amount to charity, deduct this amount from your take-home pay, as well, before doing your calculations so you’re budget will be less stretched.) That way, you will avoid buying a house that you cannot truly afford and that will keep you from having financial peace and reaching other awesome financial goals like saving for a comfortable retirement and helping to pay for your children’s college expenses so that they can avoid the awful burden of student loan debt.

 

5. Plan for maintenance expenses.

Then make sure you also include in your monthly budget a reasonable amount that you can save each month for needed maintenance and repairs on your home. Financial experts recommend that you save at least 1 percent of the purchase price of your home each year for these maintenance-related expenses. So if you’re looking to buy a $200,000 home, you should plan to save at least $150 a month for maintenance and repairs. Again, put this money in a separate savings account so that you won’t be tempted to spend or accidentally spend it on something else.

 

6. Choose a 15-year mortgage over a 30-year mortgage.

I strongly recommend that you take out no more than a 15-year mortgage. By sticking with a 15-year or less mortgage, you’ll save a ton of money on interest, not just because of the decade and a half that you’ll save in making payments (the vast majority of which in the early years goes to interest, thanks to front-end-loaded amortization [front-end loading the amount of interest you pay on your loan]—yikes!) but because you’ll also pay a lower interest rate because the bank is taking on less risk.

So, for example, if you take out a $200,000 15-year mortgage in today’s market (at about a 4 percent interest rate), you’ll pay about $1,471 a month on principal and interest. And you’ll pay $66,287.64 during those 15 years on interest. (That’s a lot of interest!) But if you instead get a 30-year mortgage at a 4.5 percent interest rate, you’ll pay $1,013 a month in principal and interest, so your payment won’t be as high, but you’ll pay an insane $164,813.42 in interest over the life of the loan. That’s getting close to the amount you paid for the house itself. Not cool! Just take a 30-year mortgage off the table. That’s what normal people do who are OK staying in debt for literally the rest of their lives. But you are not normal. You are on your way to being a financial rock star.

So, let’s look at a hypothetical situation. If you make a combined household income of $4,500 a month after taxes and taking out money for tithing or charitable giving (and after taking out money for health insurance premiums or other monthly expenses you have if they’re substantial), then your maximum monthly payment should be $1,125 a month. But then make sure to run the numbers so that you know that you can also save an additional $125 or more a month toward maintenance and repair costs.

And also don’t forget that your monthly utility bill will likely be higher, and you may have other fees such as homeowners association dues. Be sure to consider all of these expenses when you are working toward buying your home so that you don’t get taken by surprise and so that you, again, don’t buy more house than you can comfortably afford.

 

7. Research the neighborhoods you want to live in.

Next, start looking at the areas where you would like to live (that you can afford). If you find that the neighborhoods you can afford aren’t the ideal neighborhood you would like to live in, see where you might compromise on your wish list. For example, maybe if you reduce the square footage or the number of bedrooms or bathrooms, you can still be in one of the neighborhoods you prefer. Or maybe you could look a mile or two over, and still be in a pretty good neighborhood.

When my husband and I bought our current home, we wanted to have a good-sized lot and we (or really I :)) wanted to be very close to my work, and we wanted to have a mortgage that we could comfortably afford on one income, following the guidelines outlined above. So we decided to live in not as nice a neighborhood as we would have preferred (but still safe). But we also have a big dog and we got an awesome, inexpensive alarm system (check out SimpliSafe; they have been great, and we pay only $15 per month!) that doesn’t require a landline or contract, and we’ve never had any problems with vandals or break-ins. So for us, the compromise was worth it.

 

8. Budget for other expenses related to buying and owning a home.

Another important thing to remember as you consider how to save for a house is to remember to save for expenses and purchases related to moving into your new home.

If you’ve always lived in a furnished apartment, the expenses related to purchasing a home might come as a bit of a shock. Many items are not included with a typical home purchase, such as furniture and many of the standard appliances. Depending on your willingness to buy used or less-expensive furniture and appliances, you may need to spend several hundred or even several thousand dollars after you move into your new home in order to furnish it. You may very well need everything from curtains and blinds to washer and dryer to beds and linens and dressers to couch and loveseat to towels and knickknacks for the spare bathroom. Do your best to estimate how much the items you will need to buy will cost, and start saving for them as you are saving for your down payment.

 

9. Have enough money saved to cover unexpected expenses after you move in.

Even with planning for the known expenses of moving into your first home, there are probably going to be some things you can’t plan for. Even if you have a home inspection done (which you definitely should do!), it won’t be able to tell you everything about your new abode. Of course your emergency fund can cover these unexpected expenses, but personally, I do not like to have to pull money from my emergency fund—I would rather have additional money set aside so that I don’t ever have to touch my emergency fund.

If you can save an additional $1,000 above the cost of your down payment and the money to buy your needed furniture and appliances, you will be able to cover the majority of unexpected expenses that might come up.

 

10. Think about your future income and circumstances.

So many people buy a house based on their current situation, but they don’t think about how their circumstances might change in 3 or 5 or 10 years. For example, I know of a few different situations where a young couple bought a home shortly after marriage, when both spouses were working. And they qualified for a mortgage based on their combined incomes. But then when they decided they were ready to have children, the mother either stayed working when she wished she could be at home, or she quit her job, and things were extremely tight financially.

If you know that you are going to want one of the parents to be able to stay home and to be a single income family at least for a time, then plan for that by purchasing a less-expensive home. Or if you know you want one of you to be able to work only part-time, then plan for that.

When we bought our first home and then also with our second home, even though my husband was working part-time and going to school, we bought them solely based on my income because we knew that we wanted one of us to be able to stay home to be with our children (and he just got to be the lucky—blessed—one to be able to do it!).

Learn how to live on one income here.

11. Plan to buy something you can stay in for at least 5 to 10 years (and longer is even better!).

In order for you to really benefit financially from your home purchase, you need to build up a decent amount of equity that you can use as a good-sized down payment for your next home. This is particularly important if you’ll want to upgrade a little when you make your move.

When you buy a home, you typically pay several thousand dollars in upfront closing costs, so between that and the very small amount of money that goes toward principal in the early years (remember amortization, that I mentioned above), you really don’t build up much equity in the early years of your mortgage.

But the longer you stay, the more principal you pay down, and the more money you’ll have when you are ready to sell (assuming home values have generally risen during the time you own the home).

So if you know that you want to have children in a few years, for example, don’t buy a one-bedroom (and maybe not even a two-bedroom) townhouse. Buy something reasonably priced that you could stay in for 10 or 15 years or longer, in case that ends up being what makes the most financial sense or the most sense for your family. Be patient, and wait to buy a home till you can afford something that you would feel good about staying in for 5 to 10 years at least—and the longer the better.

Don’t listen to the hype that you’ve got to buy a house right now—got to buy a house, got to buy a house! There are houses on every corner, and they will be there in three or five or ten years when you are ready to buy. When you are ready to buy—not when everyone else tells you you should buy.

 

12. Know what you’ll be getting yourself into financially.

Also as you are planning how to save for a house, keep in mind that the purchase of the home is just the beginning of your home-related expenses.

As I mentioned briefly above, do your homework so that you know what expenses and costs to expect when you buy your home and also as a new homeowner. Make sure you understand the different closing costs and interest rates and the expenses you’ll need to be prepared to pay when you make your first home purchase.

For example, as a new homeowner, in addition to needing to pay maintenance and repair costs for your home and also for appliances and furnishings, you also might have homeowners association (HOA) or other fees, and you’ll have property taxes and homeowners insurance. So make sure you’re familiar with all of these expenses and that you know about how much they’re going to cost you every month or year so that you can budget accordingly.

Learn how to create a simple budget (that will actually work!) here.

 

13. Trim your other expenses as you work to save up to buy your first home.

As you save up the down payment for your home, rent as cheaply as you can and also cut expenses in other areas. For example, you could reduce your spending on your groceries, eating out, entertainment, your cell phones, your utilities, and more.

Sign up below for our free money-saving guide to find hundreds of tips for ways you can save money on food, housing, transportation, utilities, cell phones, clothing, entertainment, and more and find easy ways to manage your money and reach your financial goals!

 

Conclusion

I hope you have the information you need now about how to save for a house and that you feel confident and ready to start saving for your first home purchase.

Saving up for and buying your first home is an amazing accomplishment! This is a very exciting time in your life! As you can see from the list above, there’s a lot that goes into this very important financial move (no pun intended! :)). There are many cases where spending the money to buy a home is well worth it.

Just make sure you know as much as you can about what you are getting yourself into—and don’t buy before you are financially ready to, no matter what outside forces you may be feeling to buy as soon as possible.

As you consider making your first home purchase, remember these important items: do your homework, make sure you have an emergency fund in place, think about your likely future circumstances and plan accordingly, don’t get a mortgage that is more than 25 percent of your take-home pay (and preferably the take-home pay of only one of the spouses), don’t get buyer’s fever and overspend your budgeted amount, and don’t forget to budget for the expenses related to purchasing a new home (such as buying furniture and paying for routine maintenance work to be done) and for unexpected expenses that might arise.

 

 Do you have any questions questions about how to save for a house? Which of these tips on how to save for a house do you think will be most helpful to you? Leave a comment below and let me know!

 

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9 Simple Steps to Help You Finally Start Saving Your Money

how to start saving money

 

 

How to Start Saving Money

It definitely is not always easy to figure out how to start saving money. For many people, saving money just does not come naturally.

A recent study found that 78 percent of Americans live paycheck to paycheck. Another study found that 40 percent of Americans could not cover even a $400 emergency expense. And more than 60 percent of Americans could not cover a $1,000 unplanned expense. These are scary statistics! When you don’t have any savings, when you don’t have any buffer between your family and the bad things that happen in life, that can be a frightening place to be. I know; we have been there too!

And on the flip side, when you figure out how to start saving money, and then you actually do start saving money! :), you can really begin to do some awesome things. You can build financial security. You can ensure your children don’t have the burden of student loan debt. You can know you will retire with comfort. You can ultimately achieve financial freedom!

No matter what your current financial situation, the steps below will help you to know how to start saving money so that you can go from where you are to where you want to be.

 

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9 Best Tips for How to Start Saving Money

 Here are 9 important steps you can take that will help you to start saving money today!

 

1. Figure out your why for wanting to save money.

Why. That one little word is incredibly powerful. Understanding your financial why may be your most powerful tool for getting you to save money, and that’s why we’re talking about it first.

The reason it is so important is that in order to change old habits and start new, better habits, we’ve got to have a very strong motivation—and that motivation, for many people, is their why. To learn more about the power of why, I highly recommend the book Start with Why, by Simon Sinek. It is (and all of his books are) an excellent read.

In order to be effective, your why has to be powerful—more powerful than your urge to buy stuff or do things that you can’t really afford—or better put, that jeopardize your long-term financial stability or goals. Maybe your why is to have financial security, have one parent be able to stay home with your children, be financially independent early on in life, live in comfort (or luxury) in retirement, be able to give very generously to worthy causes, be an awesome example of managing money well to your kids, or be able to retire early to travel, volunteer, or spend time with your children and grandchildren.

For me, my financial whys are very strong motivators. One of my current financial goals is to be able to get this blog to the point where it can replace my full-time income so that I can be home all day with our three little cherubs. Even though I love my current job, being able to be home with our children is something I want even more, and so I’m willing (very willing, really) to make sacrifices (of sleep, mostly, and “me” time) to make that hope and dream a reality. And then they aren’t really sacrifices at all—they’re just choices I have made that I am very happy to live with.

When your motivators are strong enough, you will choose to get control of your money and start saving. And I’m here to help you every step of the way.

 

 

2. Set financial goals that will inspire you to save your money.

What are you big financial goals and dreams? What is it that you could do with your money that just makes you giddy when you think about it? Whatever those things are, make a plan, and work toward reaching them.

If some of the goals you initially thought of aren’t getting out of debt, building an emergency fund, and investing for retirement, then add these goals to the list. Those are the financial pillars that will allow you to attain long-lasting financial stability and success.

 

3. Differentiate (honestly) between needs and wants.

If you are painfully honest with yourself, you’ll likely recognize that much of your spending is for things that you want but not that you truly need. You probably already have a closet full of clothes, a car that can get you around for many years to come, and gadgets and toys and home furnishings that make your home or apartment burst at the seams.

So the reality is that you could probably go a long time without needing to buy anything at all besides food and gas for your car and very basic things like that. To break yourself of mindless, needless, or even reckless spending, do a no-spend challenge for a couple of weeks or a month. The savings can be dramatic, and the change to your mind-set monumental. Or if that seems too extreme, start with a no-spend week. Learn more about how to do a no-spend challenge.

For more information about differentiating between needs and wants, read this article.

4. Reduce your spending.

You can probably reduce your spending in almost every area, if you become very intentional with your money. There are so many ways to reduce your spending, in fact, that I’m not going to list them here because it’s enough great content to be an article all on its own (and now I have written it; check out these 150+ easy ways that you can save money!). For a great list of ways that you can start spending less money in different areas, read this article with more than 20 ideas on how to reduce your spending in various budget categories.

But here are just a few ideas to get you started:

 

Check out these related articles:

 

5. Increase your income.

Even though I strongly feel that reducing your spending is the most important part of the money-problem-solving equation (because you can always outspend your income, no matter how high it gets), increasing your income is a great way to turn your finances around more quickly and has a higher potential impact. Overall, you have a lot more control over how much you earn than how much you spend. There is only so far you can realistically cut your spending, but the amount of money you can earn is nearly limitless. (That’s one of the reasons that being a blogger and writer and business owner is so exciting!)

In rare cases, the problem truly is a lower than sustainable income. If that is the situation you are in, then know that you’re not stuck. You can start taking small steps to increase your income so that in two or five or ten years your financial situation is drastically different than it is today.

You may need to get a second job temporarily. If only one spouse is working in your household, the other might want to get a night job or work-from-home job to help make ends meet and help reach your financial goals. Longer term, you’re probably going to want to look at training or education and career moves that can help boost your income.

If you do not have a college degree, it may make sense to sacrifice to get one. Though a college degree is not a guarantee of a high-paying job, statistically you are likely to make more money, and sometimes significantly more, by earning a degree. Just be smart about it and earn a degree where you gain an actual marketable, high-demand, well-paying skill.

Here are some simple ideas for things you can do to make more money starting today:

  • Work overtime. If you have the opportunity to do so, working overtime is a great way to help you to save money quickly.
  • Ask for a raise or promotion. If it’s been a few years since you received a significant raise and you’ve been an exceptional employee at work, make a list of your contributions and your accomplishments, and schedule a meeting with your boss to request a raise or a promotion. Focus on ways that you’ve earned the company money or saved them money. If you learn that a raise or promotion isn’t going to happen right away, ask what specific steps you can take in the next year or two to make it a reality. Read this article for more information on how to seek a raise or promotion.
  • Do freelance work. If you work in a field that lends itself to doing freelance work, take advantage of that opportunity to earn extra income to help you save money fast! I have been doing freelance writing and editing since before I graduated from college with my English degree and editing minor, and doing freelance work has not only helped me gain experience in other areas besides what I do for my full-time job but has also at times (when I wanted to give the time to it) brought in significant additional income.
  • Do coaching or consulting. Similarly, if you have job experience or a skill that lends itself to coaching or consulting, put that skill to use! Popular areas for consulting include human resource (HR) consultant, public relations (PR) consultant, marketing consultant, business management consultant, and accounting consultant. Popular areas for coaching include financial coaching, job coaching, personal fitness coaching, and leadership coaching. Look for opportunities on indeed.com or your favorite job website.
  • Get a (second) job. If one spouse is available to get a second job in the evenings or on Saturday, for example, then this is another great potential way to earn additional income. And if you are a one-income family, or if one of you works only part-time, you might want to consider reentering the workforce or going full-time temporarily in order to save money more quickly.
  • Start a side hustle. If you would rather earn money without working another regular job, there are a lot of things you can do to earn a little extra income with a side hustle. Some ideas include starting your own small business where you turn a hobby into a money-maker, being a virtual assistant, or driving for Uber or Lyft. Learn how to start a side hustle and find out about many side hustles that you can explore.
  • Start a money-making blog. The potential for significant income is one of the reasons that I started this blog. If you love helping people and enjoy writing, being a blogger might be a great fit for you. In addition to great income potential (check out these amazing income reports of bloggers who make $10,000 to $100,000 or more per month!), there are many other benefits of being a blogger, such as being able to be your own boss and work on your own schedule. Learn how to start a blog for less than $5 a month.
  • Earn passive income. Some options for earning passive income are to create a product you have someone sell, write a book, create a money-making podcast or vlog, develop an online course, or participate in affiliate marketing. Read this article to learn more ideas for earning passive income.
  • Use rebate apps like Ibotta and Ebates. With rebate services such as Ebates and Ibotta, you can earn money by shopping for things and at places where you would shop anyway. With Ebates, you generally buy items through their website to save up to 40 percent on purchases. It is primarily an online service. Ibotta, on the other hand, is an app you use primarily after you make purchases at brick-and-mortar stores. Because of this, you can actually sign up for and use both apps to save on purchases. Sign up for a free Ebates account here, and sign up for a free Ibotta account here. You can literally sign up for both in just seconds and let the savings start stacking up.
  • Sell stuff on eBay or Amazon. If you have a good eye for a bargain, you can buy items at thrift stores or garage sales and sell them for a profit on eBayAmazonCraigslist, or your local online classifieds.
  • Sell your clothes to consignment shops. If you’re like most people, you probably have more clothes than you need. So use them to bring in some quick cash!
  • Have a garage sale. Declutter and earn money, all at the same time!

Learn more here about the many ways that you can increase your income.

 

6. Create and commit to follow a budget or spending plan.

To help you start saving money, you need to follow a budget. I know you might cringe when you hear the word, either because of past difficulties with budgeting or because of negative feelings you might associate with the word that have kept you from budgeting in the past. But a budget, or spending plan, is just a list of monthly goals for your money. It is where you decide what you want to spend for each area of your finances.

As you create your first budget and then work to tweak it, don’t shoot for perfection and don’t be too hard on yourself. It will take a few months for you to get most of the kinks worked out and for you to start really budgeting effectively. But after about three or four months, when you do get the hang of it, chances are that you will feel like you got a raise, even before you start adjusting your budget in order to spend less and save more. Find steps for creating your first budget here.

 

Check out these related articles:

 

 

When you are new to budgeting, you will probably want to estimate a little high for the different budget categories at the beginning, just to give yourself some wiggle room. We’ll talking briefly about ways to find more money in your budget in the next few sections of this article.

Check out these related articles:

 

7. Work to get out of debt to help you be able to start saving money.

It’s also important for your financial well-being that you get out of debt. Having a big pile of debt is awful. It’s scary. It causes gut-wrenching fear and sleepless night. Having so much debt that you don’t know how or if you can pay it off is a horrible place to be. I’ve been there. But I got out—my husband and I completely changed our financial situation and our financial future. And so can you! If a ton of debt is where you are today, it is definitely not where you have to be down the road. You can get yourself out of the mess you’ve created—and I want to help you do it.

When you pay off your debt, as Dave Ramsey says, you free up your most powerful wealth-building tool: your income. When you don’t have to pay all of your money to everybody else, you can use it to accomplish some really amazing things!

You can use it to purchase a car with cash, save for retirement, save for your children’s college, go on guilt-free vacations and travel, give generously to causes you really care about, and become rich (really—the old-fashioned way!) and achieve financial freedom.

No matter how much debt you have, whether a little or a lot, get rid of it, and free yourself from captivity. Read this article to learn a simple, step-by-step process for how to get (and stay!) out of debt.

 

 

8. Automate your savings plan.

One of the best things you can do to help ensure that you consistently work toward and reach your financial goals is to automate your finances in such a way that it helps you succeed. One of my all-time favorite financial books is The Automatic Millionaire, by David Bach. If you want to win at money, you need to take willpower out of the equation as much as possible and replace it with a system that won’t allow you to fail.

So, let’s say, for example, that for now you have four main savings goals that you want to work on: you want to pay off your credit card debt, build up a three-month emergency fund, start saving for retirement, and start saving to purchase a five-year-old car in a couple of years. This is how you could go about doing that:

Set up direct deposit. First, set up direct deposit with your employer if you possibly can and if you don’t already have it set up (for convenience, but more important, so that you won’t spend money right from your paycheck that would have been better off going to something else more important).

Then, set up an automatic transfer from your main checking account into a separate savings account that will be used for your emergency fund. Transfer as much money as you can each paycheck into this EF savings account until you have at least $1,000 but up to one months’ worth of expenses in this account.

A great way to do this, if your bank doesn’t offer the option of having multiple savings accounts linked to your checking account, is to open a savings account (and then more savings accounts, as you are ready to use them) with an online bank like Capital One 360. We currently have over 10 different savings accounts for our various savings goals, and I love knowing that I won’t accidentally spend the savings for one item or category on something else.

In order to build up your initial emergency fund as quickly as possible, see if you can sell anything around the house or in the garage that you don’t need. And look into ways to earn extra income.

Then after you have a small initial emergency fund in place, work toward paying off all of your credit card debt, and get that paid off as quickly as you can, as well. If you haven’t gotten a second job or side hustle before this time, consider getting one now so you can get out of debt sooner. To begin paying off your debt, automatically transfer the money that was going into your emergency fund (once you have at least $1,000 in that account) toward paying off your debts. There are a couple of ways you can do this: attack your highest-interest debts first (avalanche method) or your smallest debts first (snowball method). You can do whichever will help you to best stay motivated, but my recommendation would be to attack your debts smallest to largest because of the quick wins that you get and the extra motivation that gives to stay focused and keep working on getting out of debt. As you work to pay off all of your debts, reexamine your spending, and see if there are places where you can cut your spending in order to get out of debt sooner. Here are more than 20 ideas of how you can reduce your spending in various areas.

Then once you have paid off all of your debts, start transferring more money into your emergency fund, until it has at least three to six months’ worth of expenses in it. To save more money toward your emergency fund, transfer all of the money that you were using to pay off your debt to fully fund your emergency fund. Try to do this a quickly as you can—in three to six months. Consider taking on a side hustle or doing overtime, or find other ways of earning extra income, if you haven’t yet. And then you can begin investing for retirement, saving toward your children’s college, and saving (to pay cash!) for large purchases such as a newer vehicle, awesome family vacation, new furniture, and more.

Once you have a fully funded emergency fund, start saving money in your 401(k) at work (or Roth IRA or other retirement account available to you), or increase your contributions, to at least 10 percent (and up to 15 percent) of your income. Here, again, set up automatic electronic transfers so that the money will leave your paycheck before it has the chance to get spent. Once you have invested enough to receive the full match from your employer in your Roth or traditional 401(k), invest the rest of the money allotted for retirement savings, until you reach 10 or 15 percent of your income, in a Roth IRA (because you likely have a lot more options available to you through a brokerage firm that offers Roth IRAs than you do through your company retirement plan—which means your potential for higher rate of return is likely better). For more information on investing for retirement, read this article.

Finally, at the same time as you are working to increase your retirement account contributions (or sooner, if you can fit it into your budget), start saving for larger purchases and expenses. Begin automatically transferring money each month into a savings account for that used car that you want to buy in a few years to replace the one that you are currently driving. If you can save $200 a month toward the car that you want to purchase in two years, then you would have about $5,000 to go toward that newer car, plus the amount that you can sell your current car for at that time—let’s say that that was also $5,000. So that would give you $10,000 to buy the five-year-old car with—for cash! So you would transfer automatically each month that $200 into a savings account, and allow the money to grow for the next couple of years.

And that is how you automate saving, paying off debt, and investing in order to gain financial stability and build wealth.

For more information on automating your finances, read this article.

 

9. Shift your mind-set to think long-term.

If you only ever think about the short-term—what you want to do with your money today or this week or this weekend or this month or even this year—you will always be broke.

In order to build wealth so that you can live your financial dreams, you’ve got to think long term. If you don’t always want to have a car payment and if you ever want to pay off your mortgage, you’ve got to think long-term. If you want to get out of credit card debt—for good!—you’ve got to think long-term.

If you want to actually plan how to start saving money toward your children’s college educations instead of just thinking that you know you should, you’ve got to think long-term. If you want to have a nice (or even amazing—it really is possible and probably isn’t nearly as hard as you think) retirement, you’ve got to think long-term.

That probably means giving up some things that you may want now for things that are even more important for a bright financial future. One of my favorite quotes could be applied to personal finance: “Don’t give up the things you want most for the things you want now.” In other words, don’t let eating out, buying a new fancy car, purchasing a too-expensive home, buying too many gadgets, and so on rob you of a secure and awesome future. It’s just not worth it!

 

Conclusion

Figuring out how to start saving money isn’t always easy. I know that it’s difficult to reverse habits and to make lasting change. It’s a lot easier (at least, in the short term) to buy that new pair of boots or another handbag or a motorcycle than it is to say no. It’s easier to take the kids to Wendy’s for dinner or order pizza than it is to stick to your meal plan. But saving for your worthwhile financial goals is an essential part of your overall financial success because it allows you to get and stay out of debt and build wealth.

I know it is hard, but you can do it! And I will help. 🙂

 

What are your best tips for how to start saving money? Which of the tips listed above do you think will be most helpful to you to help you start saving money? Leave a comment below and let me know your thoughts!

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Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help others? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being. Thank you!

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Starter Emergency Fund: What Is a Starter Emergency Fund, and How Much Should You Put in It?

starter emergency fund

Starter Emergency Fund

In this article I am going to explain the meaning of a starter emergency fund. I will also share how much I recommend you save in your starter emergency fund, and I will give ideas for how you can fund your starter emergency fund.

By creating a starter emergency fund,  you will be helping your family to stand on wonderfully firm financial footing! 

What Is a Starter Emergency Fund?

A starter emergency fund, or a baby emergency fund, is savings that you put in a separate savings account and that you don’t use for anything else besides a true emergency.

Of course people define emergency differently, but I consider an emergency something that is essential for you to get by. So if your car breaks and you have to have your car to get to work, that is an emergency. However, if you have a car and it breaks but your spouse also has a car and you can get to work for a few months by riding your bike and in the meantime save up the money to fix the car, then that is not an emergency.

The difference between a starter emergency fund and a full emergency fund is that you build up a starter emergency fund very quickly, and you save less money in your starter emergency fund than in your full emergency fund. Read the next section to learn how much I recommend you save in your starter emergency fund.

Learn how to build a fully funded emergency fund here.

 

     

    How Much Should You Have in a Starter Emergency Fund?

    I recommend that you save somewhere between $1,000 and one month’s worth of expenses in your starter emergency fund. Note that I mention one month’s worth of expenses—not one month’s worth of income. If your expenses currently exceed your income, then work on reversing that trend. 🙂 But the starter emergency fund should be based on your monthly expenses, not your monthly income, and should cover up to one month’s worth of expenses. But if you feel comfortable with a $1,000 starter emergency fund, then go with that amount because you can save that up more quickly and because $1,000 will cover most financial setbacks you will have.

    Find awesome ideas for how to fund your starter emergency fund in the next section!

    How Can You Build Your Starter Emergency Fund?

     There are two main ways you can build your starter emergency fund, and I recommend that you use both of them. 🙂

    The first is to work to reduce your expenses. Cancel your cable or satellite service, cancel subscriptions and memberships, save money eating out and slash your grocery spending, do a spending freeze for a period of time, and make other cuts where you can. Treat funding your starter emergency fund like an emergency! (That way, when you have a financial setback or emergency, you’ll have accomplished this goal quickly so that you’ll be prepared.) For more information on how to reduce your spending, see this article.

    The other way to quickly build your starter emergency fund is to make extra money. You could do overtime at work or get a second part-time job, or take on extra clients or work if you own your own business. You could start a side hustle. You could rent out rooms in your home on Airbnb, or you could get a side gig driving for Lyft or Uber. You could sell stuff around your house that you don’t need.

    For more ideas, check out this article on increasing your income.

    Conclusion

    If you don’t have a starter emergency fund, treat getting one like an emergency! 🙂 Try to have your starter emergency fund funded in a month or less if you can by making extra money and reducing your spending. And then after you have your starter emergency fund and have paid off your nonmortgage debt, work to build your fully funded emergency fund of three to six months’ worth of expenses.

     

    How much do you feel is a good amount for your starter emergency fund? What ideas do you have for funding your starter emergency fund? Leave a comment below and let me know—I would love to hear your ideas!

     

    Invitation to Share

    Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help a family member or friend or people in general? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being with others. Thank you!

    Join Our Facebook Group!

    Join our closed Families for Financial Freedom Facebook group to get support and share ideas for how we can all improve our financial well-being by earning more, spending less, saving more, and investing more and reach our financial goals. You can do this! And we are here to help.

    13 Amazing Ways to Spend Your Tax Refund

    what to do with tax refund

    What to Do with a Tax Refund

    In this article I am going to discuss my best suggestions for what to do with a tax refund. Learn 13 awesome tips for what to do with a tax refund to use it to your best advantage! With these 13 fun tips, you can get great ideas for what to do with a tax refund this year!

    13 Best Ideas for What to Do with a Tax Refund

    If you are looking for what to do with your tax refund, then this article is for you! Here are 13 of the best things you can do with your tax refund.

    But before we get to the suggestions for what to do with a tax refund, I do want to make this recommendation: If you regularly get a tax refund of more than $600, then you should change your tax withholding so that you are not giving an interest-free loan to the government! 🙂 I know that most people just see their tax refund as found money, but that is money that you have given to the government to use throughout the year, and you didn’t get any benefit from them using your money!

    According to Bankrate, the average tax return for 2018 was $2,899. That means that the average American family allowed the government to use $241.67 a month that they could have kept in their own pocket and used to fund their own awesome financial goals! So let’s not do that!

    Again, if you regularly get a large tax refund, don’t just see it as a windfall and blow that money! Adjust your W-2 tax withholding, and then use the money that it saved you each month to reach your own amazing financial goals!

    But for this year, here are 13 ideas for what to do with that wonderful tax refund.

    1. Build a starter emergency fund.

    One of the best things that you can do with a tax refund is to create an emergency fund. If you do not already have a starter emergency fund of at least $1,000 or up to one month’s worth of expenses, then start there. Put your tax refund money in a separate savings account (I like Capital One 360 because it is so easy to set up multiple savings accounts for your various savings goals, and they have been a great bank for us) earmarked for emergencies only, and then don’t touch it unless you have an emergency! Learn what an emergency fund should be used for here.

     

    2. Pay down credit card and other nonmortgage debt.

    Another great tip for what to do with a tax refund is to use it to pay off debt.

    If your nonmortgage debt is less than the amount of your tax refund, awesome! Pay it all off, and free yourself from that burden! If you do not have enough in your tax refund and other money available to pay off all of your nonmortgage debt at once, then pay off the debt with the highest interest rates first, or else begin and follow a debt snowball plan to wipe out all of your debt as quickly as possible!

     

    3. Finish off funding your emergency savings.

    If you have enough money with your tax refund money and maybe even other savings you have available to do so, then fully fund an emergency fund with at least three months’ worth of savings or, ideally if you can, six months’ worth of savings. Or save as much as you can toward that goal using your tax refund.

    And then save additional money each month (the money you were overpaying the government that gave you this awesome windfall in the first place? :)) to finish funding your emergency savings account until it is fully funded with, if possible, six months’ worth of expenses (but at the very least three months’ worth of expenses).

     

    4. Invest the money for (an amazing!) retirement.

    Another great option for what to do with a tax refund is to put the money toward your retirement savings.

    If you don’t have one set up already, you should open a Roth IRA and begin putting money in it each month to save toward your retirement. As of 2019, you can save up to $6,000 in your Roth IRA.

    So just for fun, let’s say you did that. If you are 32 years old, for example, and you got a big tax refund of $6,000 this year and put it all in your Roth IRA, And then let’s say that you worked till the (now recommended) age of 67.  And let’s also say that you invested the money in good, solid growth stock mutual funds and were able to earn the 30-year historical average of 12 percent on that investment. You would have $316,797! Pretty awesome, right? I would take $6,000 and turn it into $316,000 any day. 🙂

    If you don’t have a Roth IRA yet, sign up for the cheat sheet below to get simple instructions for how to open a Roth IRA in 10 minutes or less!

    5. Invest the money in an educational savings account for your children’s college educations.

    If you have children, one of the best things you can ever do for them is to help them have a debt-free college education. (It is possible, and even very doable—I promise! Learn how to save for your children’s college educations.) Don’t let them saddle themselves with thousands of dollars of student loan debt; just don’t! You likely had student loan debt yourself, and I bet you hated it! I bet you couldn’t wait to get rid of it! So save your children from having to go through that experience by helping to ensure that they pay for their college education with cash.

    They will thank you profusely for helping to set them up for financial success in life by not having to start out their adult life shackled by student loan debt—I promise.

    6. Use the money for a large purchase that you need to make (with cash!).

    If your washer and dryer need to be replaced, now might be a good time. If your car is on its last leg, buy a new (to you! not brand new!) car with cash. If you have been wanting to buy a nice piano for your children to put all of those many hours of practice to use on, by all means go for it.

    7. Use your tax return to pay for home improvements.

    If you are nonmortgage debt free or if you have home improvements that really need to be made before they become an emergency, then using your tax refund on home-improvement projects is a great idea!

    We don’t normally get much of a tax refund (because, again, we don’t like giving the government an interest-free loan for the year when we have so many financial goals of our own!), but we are getting a tax return this year, and because we are debt free (including the mortgage!) and already saving for our kids’ college educations, we are going to use the money for some much-needed home improvements.

    A speedy driver was kind enough to rearrange the fence on the east side of our home for us, and now we are going to get it replaced and finally pour the approach for the side driveway and do a few other things like that. I’m excited!

     

    8. Use the money to pay down your mortgage!

    If you have an adequate emergency fund (of three to six months’ worth of expenses), you are out of all nonmortgage debt, and you are saving the recommended 10 to 15 percent (ideally 15 percent) of your income each month toward retirement, then you are a financial rock star! Congratulations to you!

    In that case, a great way to spend your tax refund is to use the money toward paying off your mortgage. My firm belief is that one of the best things that you can do for your own family’s financial well-being, financial security, and ultimate financial freedom is to pay off your mortgage as soon as you can. Once you have paid off your mortgage, no one can take your home from you if you have a financial setback such as a death of a spouse, a major illness, or the loss of a job.

    And once you pay off your mortgage, you can invest the money in your own wealth instead of the bank’s! If you will pay off your mortgage as quickly as you can and then pay yourself a mortgage payment every month (as we have started doing since we paid off our mortgage a couple of years ago! #debtfreeforlife), you can then invest that money in good growth stock mutual funds in order to buy a more expensive house with cash in five or more years (which is our plan) or for your long-term financial security and wealth.

     9. Put your tax refund money toward a larger down payment to purchase your future home.

    Another great option for what to do with a tax refund is to put the money toward your down payment for the future house purchase you are saving money toward. By saving up a larger down payment, your monthly mortgage payment can be smaller. (I know it is extreme, but you might even consider the 100% down plan! That’s our plan for our next home purchase! #100percent down :))

     

    10. Start savings accounts for larger purchases and expenses (sinking funds).

    Another great idea for how to use your tax refund is to open individual savings accounts (these are all savings accounts that we have and regularly fund and use) for large purchases and expenses such as car maintenance and repairs, future (cash!) car purchases, home maintenance and repairs, annual life insurance premiums, family vacations, Christmas, birthdays and other gift giving, appliance and furniture purchases and repairs, and miscellaneous short-term savings.

    These types of funds are often referred to as sinking funds, and they are a fantastic part of your overall financial success plan so that you can avoid going into debt in these and other areas.

    Read this article for more information on saving up for large purchases and expenses and this article to learn more about sinking funds.

     

    11. Use the money to continue your education.

    If you are in a position where you would benefit from additional education to further your career (or just to further your own interests), then consider taking some college classes or completing a certification or other job training program.

    One of the best investments you will ever make is in your own education if it helps you to be able to increase your income. And even if you take classes just for fun, additional knowledge is always a worthwhile thing.

     

    12. Start a side hustle or small business.

    If you have been wanting to start a side hustle (learn how!) or small business on the side, this could be the perfect opportunity to do it!

    I would not recommend that you go into debt to start a side hustle or small business, but if you can do it for cash and have done the research to show it is a good fit and a viable (profitable) option for you, then go for it! Discover 19 awesome side hustles that you can do from home (or anywhere)!

    Perhaps you haven’t considered starting a side hustle and should! If your day job lends itself to freelance or consulting work, for example, then starting a business on the side could be a great way to further use your skills, expand your professional network, and earn extra income to reach your financial goals—like paying off debt or purchasing a home—more quickly.

     

    13. Go have some (debt-free, guilt-free) fun!

    Whether or not you follow any of the suggestions above for what to do with your tax refund, if you use some or all of the money from your tax refund for some debt-free fun, you will still be ahead of the game!

    You could use the money to buy a new TV, a new smartphone, or a nicer (paid-for, please!) car, or you could even go on an epic trip, like my coworker is (he and his wife are going to China!). You could purchase bikes for your whole family (can you say “tandem”? :)). You could pay for an awesome backpacking trip or go to Disney World or take a family cruise.

    If you love to save money when you travel like we do, read this article with 5 awesome ways that we save money by using Airbnb! And if you haven’t tried Airbnb yet, you need to! Sign up here to receive $40 off your first Airbnb rental!

     

    Conclusion

    There are many great options for what to do with a tax refund, but these 13 suggestions are some of the best ways to spend your tax refund to get the most bang for your buck!

    As I mentioned earlier, if you regularly receive a tax refund of more than $600, adjust your tax withholding on your W-2 so that you are instead bringing that money home each month! Then use the money to move you toward financial freedom! Use the money to fund your own amazing financial goals like building a six-month emergency fund, saving more money for retirement, paying off your mortgage early, funding your children’s college educations, or even taking an epic, paid-for family trip!

     

    Related articles:

    12 Best Tips to Save Money on Entertainment
    109 Easy Ways to Save Money: Your Ultimate Guide to Saving Money!

    5 Awesome Ways We Save Money Traveling with Airbnb!

    5 Best Frugal Living Hacks to Save $500 a Month or More!

     

    What are you going to do with your tax refund this year? Are you going to pay down debt, invest, build your emergency fund, save for a large purchase, or spend the money on something fun? Leave a comment below and let me know—I would love to hear your ideas!

     

    Invitation to Share

    Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help a family member or friend or people in general? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being with others. Thank you!

    Join Our Facebook Group!

    Join our closed Families for Financial Freedom Facebook group to get support and share ideas for how we can all improve our financial well-being by earning more, spending less, saving more, and investing more and reach our financial goals. You can do this! And we are here to help.

    What Is a Sinking Fund?

    what is a sinking fund?

    What Is a Sinking Fund?

    In this article I am going to answer the question “What is a sinking fund?” And I will also list the sinking funds that I think every family should have (and some other fun ones that you might want to have, as well!).

     

    What Is a Sinking Fund? Three Definitions

    When I Googled  “what is a sinking fund” because I was curious what definitions I would find, this is the first one that came up: “a fund formed by periodically setting aside money for the gradual repayment of a debt or replacement of a wasting asset.” That’s pretty clear—except for the “wasting asset” part.

    So here is another definition for what is a sinking fund, from the folks over at EveryDollar (Dave Ramsey and company): “A sinking fund is simply a strategic way to save money by setting aside a little bit each month.”

    That’s not too bad of a definition. But here is what I would say, if you asked me “what is a sinking fund”: a savings account that you set up and regularly put money into in order to replace money you regularly or periodically spend on a specific purchase or expense.

    Is that pretty clear? If you have an even better definition, comment below and let me know!

     

    What Is a Sinking Fund Used For?

    So now that we have given a basic definition for what is a sinking fund, let’s talk about what sinking funds are used for.

    In order to manage your money well, it’s really helpful to use individual savings accounts to make sure that you are savings for the things that you need to be. As soon as you have a fully funded emergency fund of at least 3 to 6 months’ worth of expenses, you should start setting up additional savings accounts for irregular or unanticipated (though not completely unexpected) expenses.

    If your bank doesn’t allow you to easily set up multiple savings accounts, then I recommend setting up an account with an online bank such as Capital One 360. They have been a great bank for us and have one of the best savings interest rates around.

    Read on to learn about 9 sinking funds that pretty much everyone should have, as well as a handful of additional savings accounts that may be beneficial (and fun to have!) in your situation.

     

    What Are Sinking Funds That Everyone Should Have?

    When you are considering what sinking funds to set up, here are my recommendations. Below I list the different sinking funds I feel that virtually every family (and everyone) should have (and that we ourselves have).

     

    Vehicle maintenance and repairs

    One of the most important sinking funds for most families (all who have one or more vehicles) is a sinking fund for vehicle maintenance and repairs. We all love our cars, but the simple reality is that they need regular maintenance and eventually they need repairs. So rather than having to put the bill on your credit card the next time your battery dies or your brakes need to be replaced or your transmission goes out, pull the money from your vehicle maintenance savings account.

     

     

    Vehicle purchase

    Another important sinking fund is a savings account for the purchase of a vehicle. Do you want to know where most people’s wealth is? It’s sitting in their garage. Really. I don’t mean that our vehicles make us rich. I actually mean the exact opposite, because vehicles go the wrong direction—they go down in value. They depreciate. And yet the average car payment in America is more than $400 a month.

    Did you know that if you paid yourself that $400 a month for 40 years instead of paying it to the bank in car payments you would have invested $192,000 (can you believe that people spend that much on this depreciating asset?!), and at an average annual return of 11 percent, which is very realistic over the long term, you would have $2,907,969  in your investment account after that 40 years! Isn’t that amazing?

    So instead of paying the bank that much money and all of the interest included when you finance a vehicle, set up a vehicle savings account and pay yourself a monthly car payment. That may mean that you want to sell your current vehicle that has a car payment and buy an inexpensive car to get around in until you can buy yourself a car for cash in a couple of years. (And if you cannot pay off your vehicle quickly, that is what I would strongly urge you to do. Please, build your own wealth; not the bank’s!)

    If you can pay yourself $200 a month for 2 years while you drive a $1,000 to $3,000 get-around car, you would have about $5,000 to buy a little bit nicer car. And then if you drive that car for two more years, you could then buy a $10,000 vehicle ($5,000 from the value of the current car plus $4,800 from saving $200 a month for 24 months = ~$10,000). And then if you drive that $10,000 vehicle for four more years, you could then buy your next car, with cash, for $20,000. And because you’re going to buy a car that’s at least 2 to 4 years old, since you don’t want to take the huge bite that happens when you buy a new car (save that for when you have a net worth of at least $1 million and can really afford to take that kind of financial hit that comes with the depreciation of owning a brand-new car!), you can get a great vehicle for that price—and you’re just eight years into your vehicle saving plan. You would have a $20,000 car—and it would be paid for with cash! Amazing!

    If you want to buy a vehicle for even more than that (though personally I hope to never spend more than that on a vehicle unless it’s an RV or sailboat or something—I like to use my money for things that go up in value), you could save more, such as $300 a month. If you saved $300 a month for eight years and earned a little interest on that, you would have about $30,000 to pay toward your vehicle, plus the resale value of the current car you were driving. And of course you could increase that by about $10,000 for every additional $100 a month that you chose to save—so if you wanted to buy a $50,000 vehicle with cash, you would need to save just $500 a month for eight years. Again, the average car payment in America is almost that much, so please, if you want to buy a vehicle that is that expensive, please save up the money and buy it with cash!

    I know that having a car payment in America is normal, but you don’t want to be normal! Normal is broke and in debt and living paycheck to paycheck. Normal kind of stinks. So don’t be normal. Be awesome. And one of the ways you can do that is to get out of debt and never look back. Find out how you can save on the many costs related to car ownership by reading this article.

     

    Auto insurance and vehicle registration renewal

    Another important vehicle-related sinking fund is a savings account for auto insurance and annual vehicle registration and related fees (such as vehicle inspection and safety fees). By saving money for these expenses every month you can pay for your auto insurance annually, for example, which will generally save you money over having a month-to-month plan.

    Whenever you can, it is generally a good idea to be your own bank!

     

    Home repairs

    When you buy a home, you not only sign up for 15-plus years of hefty payments but you also sign up for the upkeep and repair that a home requires. Home ownership (generally speaking) is definitely worth it, but you need to be prepared for the extra expense of home maintenance in your budget. You should save about 1 percent of the purchase price of your home for home repairs and maintenance each year. (If you have an older home, you may need to save more than that.)

    So if you purchase a $250,000 home, that would be about $2,500 a year that you should save, or about $200 a month. This money can then be used for the deductible of your homeowner’s insurance if you need to make a claim, for example.

    Note: You should consider putting your homeowners insurance deductible high enough that you never want to make a claim unless it’s something pretty catastrophic. So put your deductible at about $2,000 or more. That will keep your premiums significantly lower, but perhaps more important, it will keep you from making insurance claims that you should not make for things that you should instead pay for out of your house maintenance and repairs savings fund—or even your emergency fund if needed. If you make too many claims, not only will your insurance premiums get raised significantly, but you might even get dropped from your insurance company. And because your claims are visible to other insurance companies (on something called the CLUE, or Comprehensive Loss Underwriting Exchange, report), making too many claims will also make other insurance companies less likely to be wiling to take your business.

    So instead, self-insure by having a fully funded emergency fund and then by saving monthly for the home repairs that you will need to make throughout your time in your home.

    For more helpful information on saving money on housing, read this article with more than 30 top suggestions for saving money on housing.

    Furnishings and appliances

    It is also a good idea to include a sinking fund category in your budget for furniture and appliances.

    You need to plan to do periodic repairs and replacement of your appliances and furniture. And you don’t want to have to rely on credit cards to do that. So instead, save up regularly for these eventually anticipated expenses. You’ll get a good feel for how much you need to save once you start paying attention to this, but if you’re unsure, start saving $50 a month. If you buy gently used furniture and appliances, you’ll get a great bang for your buck and be able to buy a lot of great things for $600 a year.

     

     

    Christmas and gift giving

    Another important sinking fund is a gift fund.

    The way many people act, you would think they don’t realize that Christmas (and the cost of it) are coming until at least Black Friday. But you can plan better than that! If you spend the average $900 that most families in America do, then you can save up for Christmas for just $75 a month. Sweet! So get it done.

    Or, you might also consider cutting back on your Christmas spending so you can save less each month and put the money toward other great causes (such as your children’s educations or your own retirement—now those are gifts that keeps on giving!). Read this article for ideas on how to save on your Christmas spending and this article on how to open an educational savings account for your child.

    In addition to Christmas, look at saving some money each month for additional gift giving such as birthdays, weddings, and so on.

     

    Vacations

    Another important sinking fund is a vacation fund.

    The best kind of vacation is the one that doesn’t follow you home in the form of credit card payments! So set up a savings account to save up for your vacations. You can estimate how much to save each month by looking at how much you have spent in the last year or two on family trips and vacations, but $100 to $200 a month is probably a good place to start.

    Do you want to save money on your traveling and family vacations? Of course you do! If you haven’t checked out Airbnb yet, you need to! We love Airbnb for saving money on our accommodations while traveling! Give them a try; they’re awesome! You can get $40 off your first stay by signing up here!

     

    Life insurance

    If you have children and you are not independently wealthy (yet! :)), then you need life insurance. And one way that you can save on the cost of your life insurance premiums to pay for them annually. But that also means that you need the money available when it comes time to pay the annual premium. So set up a sinking fund to take care of that, that you fund every month with the amount that would be the annual premium divided by 12.

     

    Miscellaneous/other short-term savings

    We also have a savings account for miscellaneous purchases and expenses. You may want to have one to cover things that come up like purchasing electronics or bikes and recreational gear or things like that.

     

    Additional Sinking Funds You Might Want to Have

    I’ve listed below some additional savings accounts that you might want to consider when determining what to save money for.

     

    Utilities

    Your utility bill is another thing, as you are considering what sinking funds to have, that you might want to open a separate savings account for.

    When we lived in our previous home the natural gas company had a bill pay program where they equalize your payment every month so that it’s easier to budget, rather than having potentially really high natural gas bills to heat your home in the winter, for example. And that was a really handy option. But at some point I decided we could just save the money ourselves during the months when the utilities cost less and pull the money from our utilities savings account for months when our utility bills were higher, like the summer with the AC and the winter with the furnace. I really like being my own bank. 🙂

    For ideas on how to reduce your spending on utilities, read this article.

     

    Down payment

    Probably the biggest purchase you will ever make is your home, so a down payment fund is another important item to include as a sinking fund. If you hope to be a homeowner in the foreseeable future, you should start to save toward the purchase of your home.

    To be able to save as much money as possible in your down payment fund, rent as inexpensively as you can. Rather than rent a posh place with all of the awesome amenities, rent an inexpensive (but reasonably safe) place for as little as you can, and save the difference. There’s a lot you can put up with if you know that it’s only for a certain amount of time (say two to five years, as you save up a good down payment) and if it’s for a great cause. To learn more about saving up to buy a home, check out this article.

    If you know that you are at least five years (and the closer you get to ten years or more, the more this might make sense) away from purchasing a home, you might even consider investing the money in mutual funds to earn more money on your money.

    You might even consider what we’re planning to do for our next home purchase—the 100 percent down plan! We are planning to stay in our modest, three-bedroom, 1,300-square-foot home for the next five to eight years (we’ve lived there almost eight years now) so that we can buy our next home (that will probably be close to twice the value of the one we live in now) with cash. It’s maybe a sacrifice to stay in a smaller than average home with our three kiddos, but the payoff of never being in debt ever again is worth the trade-off. And as we save that money for the next several years, because it is a mid-term time frame of more than five years, we are investing the money in mutual funds in our Schwab brokerage account.

    If you want to know how we choose the mutual funds that we are investing in to diversify our investments, enter your information below and I will be happy to email it to you, no strings attached.

       

      Baby fund

      Another sinking fund to consider setting up is a baby fund.

      Those squishy little cherubs not only cost a chunk of change at the hospital, but you may have heard that they cost some money once you bring them home, too! 🙂 The copayment or deductible and all that baby gear add up, so when we’ve been pregnant (and for several months after) with our children we’ve put $100 a month into a savings account to help pay for those expenses.

      Read this article to learn ways to save on expenses for your baby.

       

      Recreation and entertainment

      Another sinking fund you could set up is a recreation and entertainment fund.

      If you spend more money some months on recreation and entertainment than others, consider opening a savings account and just puling the money out when you need it. For example, if you get family ski passes and buy needed ski gear every winter, you might save up for that throughout the year so that it’s not such a hit on your wallet at the beginning of ski season.

      For ideas on how to save on recreation and entertainment for your family, check out this article.

       

      RV/boat/ATV purchase and maintenance fund

      You might also want to include setting up a recreational vehicle maintenance sinking fund.

      Cash is king. Saving up and paying for your recreational vehicles is the best way to go, so if you intend to have these fun toys, save up to buy them and to maintain them after purchase.

       

      Wedding

      If you are engaged, then a wedding fund is another great sinking fund.

      When planning a wedding, open a separate savings account to save for it. If you have a specific date in mind and have figured out how much you can afford to pay for your wedding and related costs, you can figure out how much money to save each month for them. And yes, you should create (and stick to) a wedding budget!

       

      OC fund

      OK, this is just one quirky thing that I do—among who knows how many. 🙂 But I don’t ever want to touch our emergency fund if we can help it, so in addition to having an emergency fund for larger unexpected expenses we also have an OC fund. You could say it’s our backup EF—our “Oh, criminy” fund (or another slang word of your choice that starts with C). Since most financial emergencies can be covered with $1,000 or less, that’s how much we have in this OC fund. We have pulled money from this fund and then replenished it, but because of our other savings accounts for car maintenance and home maintenance and car replacement and things, we haven’t yet had to pull money from our EF. (Knock on wood!)

       

      Mission, humanitarian service, or charitable giving fund

      If you have children that you hope will serve missions for your church (as we do!) or do humanitarian service trips or study abroad or similar things or if you give a substantial amount to charity on some schedule rather than monthly, you may want to have one or more savings accounts for these funds.

       

      Disney fund!

      A trip to Disney is another (fun!) thing to consider including as a sinking fund.

      We’re planning to go to Disneyland (and other fun places in Southern California) in a few years and then Disney World and nearby attractions within a few years after that, so I just recently opened a savings account to save specifically for these trips. If there is something similar that you want to specifically save for, you might open a separate savings account to do so, since opening savings accounts such as the ones we have with Capital One 360 is so fast and easy. (And having separate accounts is so convenient—and important, so that you do not spend money you intended to spend on one thing on something else!)

       

      Other helpful sinking funds

      In addition to those listed above, here are some other sinking funds that you might want to consider setting up:

      •  Homeowners insurance (if you have paid off your mortgage and need to pay the premiums yourself)
      • Property taxes (again, if you need to pay these yourself)
      • Medical expenses (if a flexible spending account is not available to you)
      • Pet expenses
      • Clothing and shoes (if you are like us and don’t buy clothes and shoes every month)
      • Children’s sports and other activities
      • Spending money (aka fun money, blow money)
      • College expenses (if you are close enough to needing the money that you do not want to have the money in mutual funds in a college educational savings account)
      • Memberships and subscriptions

      Conclusion

      I hope that you feel you have a great understanding now of “what are sinking funds?” Do you have more questions about what sinking funds are or how they should be used? Leave a question in the comments below!

      If you want to set yourself up for financial success, you’ve got to stop living paycheck to paycheck, like the majority of people do. And one of the most important factors to accomplish that is to have the cash (as savings) that you need to pay for expenses as they come up so that you don’t have to rely on credit card and other debt.

      As you are able to get out of debt, as Dave Ramsey says, you are able to free up your most important wealth-building tool: your income. By having the various sinking funds identified above, you can make sure you cover all of your bases so that you are prepared for life’s financial curveballs and opportunities.

      Similarly, by putting money aside in your monthly budget to save up for these expenses, they won’t cause you to go into debt so that you’re paying potentially hundreds of dollars in interest and they won’t derail you from your investing or other financial objectives—these (somewhat) unexpected expenses won’t keep you from reaching your awesome goals and dreams!

       

      How would you answer the question “What are sinking funds?” What additional sinking funds do you have that I didn’t mention here? I would love to hear your ideas, so leave a comment below!

       

      Invitation to Share

      Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help a family member or friend or people in general? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being with others. Thank you!

      Join Our Facebook Group!

      Join our closed Families for Financial Freedom Facebook group to get support and share ideas for how we can all improve our financial well-being by earning more, spending less, saving more, and investing more and reach our financial goals. You can do this! And we are here to help.

      5 Simple Frugal Living Hacks to Save More Money: Save $500 or More per Month!

      Learn 5 simple frugal living ideas to save money each month! These 5 must-know frugal living tips will help you to save $500 or more per month!

       

       

       

      5 Top Frugal Living Ideas

      In this article I will share 5 simple frugal living ideas to help you save money fast. Learn 5 simple frugal living ideas that will help you save more money in order to reach your financial goals and live your dreams! With these 5 easy frugal living tips you can save $500 or more per month!

       

      5 Simple Frugal Living Ideas to Save More Money

      If you are looking for simple frugal living ideas, then this article is for you! There are many, many things you can do to live more frugally and save money each month, but these are 5 of the best ways for a family or individual to live frugally in order to save more money each month. Follow these simple frugal living ideas to save $500 or more a month!

       

      1. Cut your food budget (in half!) to live more frugally.

      One of the very best frugal living ideas is to reduce the amount you spend each month on groceries and eating out.

      The average American family spends close to $800 a month on food. But you really can spend significantly less than that, especially if you nix eating out so much. So if you will cut $100 to $200 from your grocery budget for the month and $150 from your restaurant budget, you will have $200 to $300 (or more!) to go toward reaching your awesome financial goals!

      Here are my two best frugal living hacks to help you get the most bang for your grocery-spending buck:

      • First, make a plan. Get this helpful weekly meal planning worksheet (below) to get organized and plan your week’s worth of meals! The meal planner comes with helpful meal planning tips that will help you save a ton of money on your grocery shopping!
      • Second, shop with a grocery list and a price comparison cheat sheet! Make a list, check it twice, and then don’t deviate from it! 😊 Use this awesome, super handy shopping list and grocery price comparison cheat sheet to help you spot great deals and pass over grocery items that are overpriced.

      And here are even more frugal living hacks that will help you save a bunch of money on groceries:

      • Use what you already have. Clear out your fridge, cupboards, freezer, and pantry. There’s a good chance you have a week’s worth or more of food in your home, and using it up periodically is a good idea to make sure nothing goes bad. (But if you find things that have expired, don’t automatically toss them out. The dates are just guidelines, and you can eat most things months past the best by date.)
      • Cut down on sweets, snacks, juice, beer, and so on. You can save a ton of money by just sticking to the main food groups. Leave the rest of the junk (food) on the grocery store shelf.
      • Plan to have a few meatless meals each week. Meat is one of the most expensive food items, so by omitting meat from your meals you can save a ton of money. Consider going meatless for a few dinner meals a week, or even plan a whole week or two week’s worth of meatless meals if you want to save even more money.
      • Buy only items that are in season. Blueberries may sound divine in January, but pass them up for fruits, vegetables, and other items that are in season.
      • Buy what’s on sale. Check the week’s grocery ads, and then plan what you buy for that week’s meals around that.
      • Be OK with unconventional dinner and other meals. If you really want to save more money on groceries, give yourself permission to plan super simple meals like cereal with milk, egg omelets, waffles, fried eggs with toast, grilled cheese sandwiches, peanut butter and jelly sandwiches, fried eggs with rice, chicken with rice, spaghetti, chicken alfredo, tacos, burritos, and so on.

       Want more ideas for how to save money on your grocery shopping? Read this article for more than 70 suggestions for how to slash your grocery bill without needing to use coupons!

      And dont forget to save money on eating out! The best way to save money on eating out is to eat out less! 🙂 My family spends on average less than $30 a month eating out, but we make it a priority to save for retirement, fund our children’s ESAs, and be consumer and mortgage debt free! 

      There are lots of other ways that you can save money eating out, as well. Find 13 ideas to save money when eating out here.

      Savings = $200-$300+

       

       

      2. Spend less money on entertainment. 

      Saving money on entertainment is another great frugal living idea. The average family in the U.S. spends close to $300 a month on entertainment. So here, too, you can save a ton of money each month if you will reduce your entertainment spending.

      My favorite money-saving hack to spend less on entertainment (and the area where we save the most money) is to save on vacations and traveling! For that, I love to travel with Airbnb. If you have not tried them yet, you need to! We saved about half the price of a hotel just on our last vacation alone by using Airbnb for our accommodations. And we stayed in a three-bedroom home in a beautiful gated community with a pool and hot tub (which we had to ourselves most of the time), a playground, and more! You can sign up to become a member of Airbnb here and save $40 on your first stay!

      You also should look at reducing your monthly internet bill and your cell phone bill (and specifically, your data plan). For that, my best money-saving tip is to check out Xfinity internet and Xfinity Mobile. If you’re in an area with Xfinity high-speed internet and mobile, you’ve got to check them out! We’re paying an introductory price of $40 per month for our internet (same price as the much slower internet that we used to have from a different provider), and the cell phone plan is potentially virtually free.

      Since we’re such light data users (especially given the fact that Xfinity Mobile has free hotspots it seems almost everywhere—really!), we pay only $3.16 a month for taxes and fees for each line. (That’s the price if you use less than 100 MB of data per month, which we do; then it’s $12 per GB per month after that, or $45 per month for unlimited.) It’s such an awesome deal!

      And Xfinity Mobile has the same coverage as Verizon, which reportedly has the best cell phone coverage in the U.S. You do need to sign up for Xfinity internet in order to use Xfinity Mobile, at least initially. You can then drop the internet service if you want, but then you’ll pay an extra $10 per month per line for the mobile service. Interested in learning more or signing up? Use this referral code to save up to $100 when you sign up: 1RQ4SP

      To save even more money on entertainment, you might spend less money on the following things (or even give some of them up completely, if you really want to save money!):

      • Paying for cable or satellite. You could easily save $60 to $100 a month (or more!) by doing that alone
      • Going to the movies.
      • Going to music concerts.
      • Going to sports events.
      • Video gaming.
      • Purchasing gadgets (electronic devices).
      • Paying for subscriptions to magazines and paid TV services (Netflix, Sling, and so on—videos from the library are free!).
      • Paying for memberships to the gym, rec center, museums or zoos, and the like.
      • Participating in recreational activities like skiing, bowling, miniature golf, playing arcades, and so on.
      • Christmas shopping.
      • Your personal monthly spending money (some people call it fun money or blow money).

      Find more ideas for how to save money on entertainment.

      And just because you decide to spend less money on or even give up some paid activities completely, that doesn’t mean you have to give up fun! Check out this article with 90+ fun, free activities you can do without spending any money!

      Savings = $200+

       

      Related articles:

      12 Best Tips to Save Money on Entertainment
      91 Fun, Free Activities to Do during a No-Spend Challenge!
      109 Easy Ways to Save Money: Your Ultimate Guide to Saving Money!
      5 Super Simple Steps to Save $1,000 for a Debt-Free Christmas
      11 Ways to Save Big on Your Christmas Shopping
      4 Powerful Principles of Gratitude to Change Your Financial Life
      Contentment: 9 Powerful Principles That Will Help You Save More Money and Reach Financial Success

       

      3. Trim your transportation costs to live more frugally.

      Another of my favorite frugal living ideas is to reduce your transportation expenses. Especially since you’ll be cutting back on (paid) entertainment and shopping, you can likely save money on transportation as well.

      My best frugal living hack to save money on transportation is to drive paid-for cars. If you have car loans (and statistically, you do ☹), consider selling the car and buying a less expensive car for cash. The average car payment in America is over $400 a month, so if you will get rid of your car payments, you will be well on your way to saving $500 per month just by doing that alone! You can literally become a millionaire simply by deciding to live your life without car payments! (So please give it a try—the financial benefits are amazing! 😊 Learn how to buy a car for cash.)

      Here are some more awesome ideas for ways to reduce your transportation costs (they really will save you tons of money if you will put them into practice, especially the first one!):

      • Enjoy staying home rather than spending money going places for entertainment. Pick up reading, playing family games, doing crafts, watching (free) movies, and doing other activities at home to save money on transportation costs.
      • If weather allows, ride a bike or walk to your destinations when possible.
      • Drive less. Combine errands and find other ways to drive less.
      • Carpool to work and school, or take the bus.
      • Telecommute!
      • Drive the speed limit. 😊
      • Use apps like GasBuddy to save money when purchasing fuel.
      • Look around for a cheaper mechanic.
      • Shop around to make sure you are getting the best deal on auto insurance.
      • Save money on auto parts by shopping at places like RockAuto (which truly has amazing prices!). If you possibly can, buy the car part yourself, even if you have a friend, family member, or trusted mechanic do the actual labor. You will save a ton of money that way! In my experience (and I have looked into this in virtually all of the auto mechanic shops in my area), the markup on car parts, even by reputable auto mechanic shops (unfortunately), is huge!

      Looking for more frugal living ideas to save money on transportation? Find more than 30 ideas for how to save on transportation costs.

      Savings = $50-$200+

       

      4. Spend less on housing and related expenses (like utilities).

      Another one of my most important frugal living ideas is to reduce your housing expenses.

      For most families, housing is their largest expense. Fortunately, there are a lot of things that you can do to save money on housing, even if you own your home and so your mortgage is fixed. 

      My favorite frugal living hack for saving money on housing is to rent out your spare bedrooms on sites like Airbnb and Booking.com. If you are able to do this, you could earn well over the cost of your monthly mortgage or rent payment. And you can meet some amazing people in the process.

      To save even more money on housing expenses, look at these options:

      • Consider refinancing your home if interest rates have dropped significantly. (But don’t lengthen the term of your loan! Keep it the same or, even better, shorten it! :))
      • Talk to your insurance agent and find ways to lower your homeowners or renters insurance.
      • Save money on your utilities and your winter utilities bill and summer utilities bill.
      • Work to pay off your mortgage as quickly as possible so that you can invest the money in your own wealth instead of the bank’s.
      • Sell your home and purchase a smaller, less expensive home if your mortgage payments really pinch your budget or if you no longer need as much space as you once did.
      • Save a larger down payment before you purchase a home so that your mortgage payment is smaller. (Consider the 100% down plan!)
      • Rent a cheaper place.
      • Consider moving in with family or friends.
      • Simplify your landscaping (this saves money spent on watering it, too!).
      • Get a roommate (or roommates).

      For even more frugal living ideas for saving money on housing costs, read this article with 30+ simple ways to save money on housing and related expenses.

      Savings = $50-200+

       

      5. Spend less money on clothing to live more frugally.

      And one additional frugal living idea is to not spend so much on clothing and shoes. The average American family spends over $100 a month on clothes, so if you will spend say half of that, then you can add that amount to the money that you save each month!

      My favorite hack for saving money on clothing is to set up a clothing co-op of sorts. If you have children, see if you can swap children’s clothes with your nieces and nephews or with children from your neighborhood or church. My sisters and I share clothes for our kiddos, and it is an awesome way to save money (and help out the environment just a little)! Plus, I just love seeing my nieces and nephews in clothes that my kiddos wore! It brings back such fun memories!

      You can also save a bunch of money on clothes by shopping the sales and by shopping at discount clothing stores, thrift stores and second-hand stores, garage and yard sales, websites like eBay and Craigslist, and more!

      Want even more ideas? Check out this article with 13 must-know ideas to help you save money on your clothes buying.

      Savings = $50+

       

      For even more frugal living ideas, check out this article with 21 must-know tips to spend less money!

       

      Conclusion

      There are really tons of frugal living ideas that can help you save more money! The possibilities are endless. But these 5 simple frugal living ideas are a great place to start and can help you save $500 or more per month!

      And while you’re at it, in order to put yourself and your family on wonderfully solid financial ground, check out these cool things to save up money for to run your financial house smoothly.

       

      What are your favorite frugal living ideas? Or which of the ideas above do you think will help you save the most money this year? Leave a comment below and let me know—I would love to hear your ideas!

      Related articles:

      How to Get (and Stay) out of Debt!
      17 Must-Know Tips to Rock Your Budget
      13 Top Tips to Help You Stick to Your Budget
      16 Best Tips to Help You Stop Living Paycheck to Paycheck
      15 Top Tips to Help You Finally Stop Overspending
      31 Budget-Friendly Easy and Cheap Dinner Recipes for under $5
      42 Cheap and Easy Budget-Friendly Meals for under $5
      73 Easy Ways to Save Money on Groceries without Coupons!
      151 Easy Ways to Save Money: Your Ultimate Guide to Saving Money!

       

      Invitation to Share

      Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help a family member or friend or people in general? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being with others. Thank you!

      Join Our Facebook Group!

      Join our closed Families for Financial Freedom Facebook group to get support and share ideas for how we can all improve our financial well-being by earning more, spending less, saving more, and investing more and reach our financial goals. You can do this! And we are here to help.