Badass vs Dumbass
Master your Financial Kung Fu to be one and not the other.
Go to Sifu’s Notebook for 11 Ways to Save for a Down Payment for a First Home
Primer: Who are Sifu & Ronin
Episode 11: Ronin Running with the Roaches
Ronin: Sifu, I can’t take it anymore! My apartment is the kind of place where hope goes to die. Even the cockroaches are trying to escape it. I need to move out to a place I actually own – maybe a condo. But saving for a massive down payment? Howwww?
Sifu: Well #1. I can tell you one thing. Cockroaches have been roaming this earth for more than 300 million years, a few more than us mere humans. They clearly know about survival, and if they want out, the evil in the walls must be strong! How are you still alive, #1? You are looking a bit pale with a shade of green lately, Kermit.
Ronin: Oh, that’s just my day-time face mask. Gotta stay pretty for the ladies, am I right, senior wingman?
Sifu: No doubt, Romeo Ronin. As long as it doesn’t smell like ass, the mask doesn’t scare me … much.
A man’s fragrance is his silent partner, it speaks for him before he says a word.
Anonymous
Ronin: All good Sifu. I’m getting better with my scents after the word whoppin’ you gave me last month when I put on that cheap-ass cologne. This facial has an air of watermelon, jasmine and vanilla. Good enough to eat!
Sifu: Just like you, #1 – always thinking about your damned stomach. So you’re tired of playing the budget version of The Game of Homes, where you’re just a pawn, moved from one sad shit shack to another, eh?
Ronin: So sick of it, boss! Slumlord doesn’t care one iota. Rent keeps jacking up, but the quality of the place is taking a nosedive. I mean, what the actual fuck, dude?! I am at the end of my rope here; need to get off this crazy train, like yesterday.
Sifu: Heard. This sounds bad, so we’d better get down to bizniz and figure a solution before it’s too late, and the evil within devours you when you’re sleeping.
Ronin: Word to your mother – YES!
Sifu: Why not just move to another rental apartment, #1?
Ronin: This is actually my third rental unit in three years. They all sucked balls, dude! And beside that, I’m tired of paying down the owners’ mortgages with my rent money. I get nothing out of it at the end. I figure if I actually owned my home, the monthly payment would at least go to paying off the place. Then one day, it would be mine, free and clear. Is this doable, boss?
Sifu: Again, you are wiser than you appear, especially today, Junior Hulk. Buying your own place instead of renting again is definitely doable and a worthy goal. A definite milestone to add to your journey to FIRE. Let’s dive into the proven ways to get that down payment for your first place, shall we?
Ronin: Ready Freddy. We’re goin’ heavy!
1. Set a Clear Savings Goal
Setting goals is the first step in turning the invisible into the visible.
Tony Robbins
Sifu: First, you gotta have a clear goal. There’s no willy-nilly here, pal. Clear AND realistic.
Ronin: Oh, you sayin’ I can’t just fill up my cookie jar with Benjamins, and call it a day?
Sifu: Hahaha, dumbassery lives! More like, “I want $100,000 for a down payment on a $500,000 condo downtown.” It’s specific, it’s clear, and it’s terrifyingly real.
Ronin: Yowza, 100 stacks?! That’s a very large pile of pesos, bro. OK, I’m not scared yet – well not that scared. What’s next on the hit list, boss.
2. Create a Budget
Sifu: Now, to make this mountain of money manageable, create a budget. Think of it as building a roadmap—without it, you’ll end up in a ditch, financially speaking.
Ronin: Bingo-bango and boogie, boss. Have my budget from last time, and I’ve been updating it too, just as you instructed.
The art is not in making money, but in keeping it.
Proverb
Sifu: Sweet! Now take a deep look at your habits and see where you cut back on some unnecessary expenses. Your excellent income won’t do you any good if you can’t keep it. Find enough figurative coins and bills hidden in your sofa, and you’ll be better off for the down payment. Get me, boy?
Ronin: Tracking that, Batman. Roger.
3. Open a Dedicated Savings Account and Automate Your Savings
Sifu: Next #1, you gotta open a dedicated savings account. This is your iron fortress, where your down payment fund can grow safely, untouched.
Ronin: And I just automate it, right boss? So the money disappears from my checking account faster than socks vanishing from my dryer!
Sifu: Yessir, Ronin. You won’t even notice it’s gone. Until you do, and then it’s too late to squander it on yet another Monday night out clubbing with your funky tribe.
Ronin: Yuppers boss, we are in sync like a boy band! Those weekday club nights were cut from the budget as of last week. See, I listen to you … sometimes 😉
4. Increase Your Income
Sifu: Ha! Now, consider increasing your income, like adding a new weapon to your arsenal. A side hustle here, some freelance work there…
Ronin: Absolutely! Besides writing as MC Ronin, I’m deciding between Uber delivery and part-time at the resto so I can eat for free.
Sifu: Pure genius – who knew? Get on that right away so that extra loot can be saved along with your other income.
Ronin: On it boss. Free delicious dinners and maybe some midnight snacks from that eatery sounds better every minute!
5. Save Windfalls and Bonuses
The best way to enjoy your bonus is to save it and use it wisely.
Peter Lynch
Sifu: Full stomach. Check! OK, whenever you receive extra money—bonuses, tax refunds, or that one time your uncle sent you $50—stash it.
Ronin: Oh man! So no blowing that tax refund on a trip to the coast? Dang it!
Sifu: E-nope. Save it instead. You’ll just have to imagine the coast while staring at your ever growing down payment account. It’s almost the same thing, LOL.
Ronin: Hahaha, good one, boss! Maybe I invest in some cool-ass AI-powered VR glasses that put me on the beach with my honeys where I can’t tell it’s not real?
Sifu: Shazam! That’s next level, even for you, Junior Jedi. When you find that tech, make sure you bring an extra set for Sifu 😉
Ronin: Hee-hee, of course, I got you!
6. Cut Unnecessary Expenses and Avoid Impulse Spending
Beware of impulse purchases; they often lead to financial regrets.
Warren Buffet
Sifu: Next, we need you to cut back on all your nonsense spending.
Ronin: Whuttt? No more buying stuff I don’t need? C’mon man – you’re murdering my mojo! Where’s the fun in that?
Sifu: All that fun comes when you realize you’ve saved enough to not live in a shoe box anymore. Well, not a rented shoe box anyways!
Ronin: Alright, bye-bye bullshit purchases. I’ll miss you more than my ex!
7. Reduce High-Interest Debt
Sifu: High-interest debt is like that evil dwelling in your walls that drains your life force—or, in this case, your bank account. Exorcise it, #1.
Ronin: Word. I’ve got some credit card demons that need banishing. Any tips on where to find holy water?
Sifu: The only holy water you need is a solid plan to pay off those debts. Focus on the highest interest ones first.
Ronin: So, slay the nastiest demon first. Roger that, Hellboy.
8. Cut Back on Luxuries
Sifu: Now, I know you like to live large with your wannabe friends, but if you really want to own your home, you’re going to have to live more simply. Cut those luxuries out, for good if possible. Over-consumerism is killing your whole generation and maybe mine too. Embrace minimalism—or at least, “I’m-saving-for-a-house-ism.”
Ronin: Gotcha boss. Cut out the expensive green toast and rip-off lattes. No more Negronis and Martinis. Done and done.
9. Consider Downsizing Temporarily
Sifu: Consider downsizing temporarily—moving into a smaller space to save on rent. Think of it as going undercover.
Ronin: Undercover as what? A sardine in a tin can?
Sifu: Exactament, mon ami! But a sardine with a future down payment fund growing in the background.
Ronin: Oy! So back to a studio apartment with a bed that folds into the wall?
Sifu: Hahaha. Those are called Murphy beds, and they are all the rage right now. Don’t you watch HGTV on your 1000 channel cable box? If bling bosses love that shiz – regular people should too!
10. Take Advantage of First-Time Homebuyer Programs
Sifu: You should also look into first-time homebuyer programs. They can be the secret weapon in your arsenal, offering grants or low-interest loans.
Ronin: You mean the government actually wants to help me buy a house? Sounds like a devious trap?
Sifu: Not a trap, Mighty Mouse. Don’t think so anyways … Just be sure to read the fine print before you dive in headfirst.
Ronin: Dope! I’ll take whatever they’re offering—grants, loans, free lunches.
11. Invest Your Savings Wisely
Sifu: Lastly, invest your savings like the wise guy you purport to be. Let your money do the heavy lifting, like a secret financial Kung Fu move.
Ronin: Invest? You mean like buying stocks and bonds? You know I only recently learned how to set the clock on my microwave. Sounds complex, big man!
Sifu: No need to feel intimidated – just go back to Sifu’s Notebook for your cheat sheet on investing. Just start small. Even a simple investment can grow into something substantial. Think of it as planting a seed, but with spreadsheets instead of dirt.
Ronin: So boss … I just throw my cash into Wall Street and hope it turns into a down payment? Not risky, Sifu?
Sifu: A calculated risk. Dare to win, Ronin. You’ve got to risk it to get the biscuit! And bonus – the possibility of not living in an evil roach-free box.
Without risk, there is no reward.
Anonymous
Ronin: I’m in! But if I end up having to eat instant noodles three times a day, I’m coming back for you, big guy!
Sifu: Hahaha, your threats are legendary, squad leader. Just in case, I’ll prepare a room for you. But don’t you dare bring any cheese factory stank through my doors.
Ronin: Heard, bossman. From now on, it’s strictly watermelon, jasmine and vanilla.
Sifu: Ugh. At least Gamora loves you.
Sifu’s Notebook
1. Set a Clear Savings Goal
Before you begin saving, it’s crucial to establish a clear goal. Knowing exactly how much you need for a down payment will help you stay focused and motivated. Typically, a down payment ranges from 5% to 20% of the home’s purchase price.
Example: If you’re looking at homes priced around $400,000 and aiming for a 20% down payment, your goal would be $80,000. Break this down into monthly savings targets to make it more manageable.
2. Create a Budget
A budget is the foundation of any successful savings plan. By tracking your income and expenses, you can find areas where you can cut back and put more money toward your down payment. Use a budgeting app like Mint or YNAB to categorize your expenses and identify areas where you can cut back. Allocate a specific amount each month towards your down payment fund.
Example: Sara created a monthly budget using a simple spreadsheet. She tracked all her income and expenses, realizing that she was spending $300 a month on takeout. By reducing this to $100, she could save an extra $200 a month toward her down payment.
3. Open a Dedicated Savings Account and Automate Your Savings
Opening a separate savings account specifically for your down payment can help prevent you from spending these funds. Automating your savings by setting up regular transfers from your checking account will ensure that you consistently save without thinking about it.
Do This: Open a high-yield savings account with an online bank and set up automatic transfers from your checking account to your dedicated savings account every payday.
4. Increase Your Income
Finding ways to boost your income can accelerate your savings process. Whether through a side hustle, freelancing, or asking for a pay bump, additional income can make a massive difference.
Do This: If you have a skill like graphic design, offer freelance services on platforms like Upwork or Fiverr. Alternatively, take on a part-time job or gig work, such as driving for a rideshare service.
Example: Martha, a teacher, started tutoring students on weekends to earn extra money. She made an additional $300 a month, which she deposited directly into her down payment account. This extra income helped her reach her savings goal faster.
5. Save Windfalls and Bonuses
Whenever you receive unexpected money, such as a work bonus, tax refund, or even a monetary gift, resist the urge to spend it. Instead, deposit it into your down payment savings account.
Example: If you receive a $3,000 tax refund, instead of going on an impromptu vacation, deposit the entire amount into your dedicated savings account. Similarly, allocate any work bonuses or monetary gifts towards your down payment fund. Congrats – you’re closer to your goal.
6. Cut Unnecessary Expenses and Avoid Impulse Spending
Take a serious look at your spending habits and find areas where you can cut back. Avoiding impulse purchases and unnecessary expenses can free up more money for your down payment fund.
Do This: Cancel unused subscriptions, cook at home instead of dining out, and limit discretionary spending on non-essential items. Use a shopping list to avoid impulse purchases and stick to your budget.
Example: Thomas loves tech gadgets, but he realized that his habit was chewing into his savings. He started the “7-day rule,” where he waited 7 days before making such purchases. He found that quite often, the urge passed. As a result, he saved hundreds of dollars that went straight into the down payment savings account.
7. Reduce High-Interest Debt
Paying off high-interest debt can free up more money for your down payment savings. Reducing your debt also improves your credit score, which can help you secure a better mortgage rate.
Do This: Focus on paying off credit card balances with high interest rates. Consider consolidating debt to lower your interest rates and avoid taking on new debt while saving for your down payment.
Example: Tamara had $8,000 in credit card debt with a 21% interest rate. She focused on paying off this debt quickly. Once it was paid off, the $140 she had been paying in interest each month was redirected straight to her down payment savings account.
8. Cut Back on Luxuries
Temporarily downsizing your lifestyle and living more frugally can help you save more money for your down payment. This might involve cutting back on luxury expenses and simplifying your lifestyle. Consider what you can live without in the short term to achieve your long-term goal of homeownership.
Do This: Reduce spending on luxury items such as expensive vacations, dining at high-end restaurants, and designer clothing. Opt for more affordable alternatives and focus on saving.
Example: Jackie enjoyed her monthly spa days, but this cost her $200 a month. She decided to cut back to once every three months, saving $800 over six months. Those savings went straight into her down payment savings.
9. Consider Downsizing Temporarily
Consider moving to a smaller, more affordable living space temporarily to save on rent and utilities. . The money saved on rent can be added to your down payment fund.
Do This: If you’re currently renting a large apartment, consider moving to a smaller one or sharing a space with roommates to reduce your monthly costs. Redirect the savings to boost your down payment fund.
Example: Perry and Pamela were renting a two-bedroom apartment for $2,500 a month. They decided to move into a one-bedroom apartment for $1,700 a month. The $800 saved each month (or $7,200 a year) went directly into their down payment account.
10. Take Advantage of First-Time Homebuyer Programs
Many first-time homebuyer programs offer grants, tax incentives, or low-interest loans to help you get into your first home. Research and take advantage of these opportunities to reduce the amount you need to save.
Do This: Research first-time homebuyer programs in your area. Programs like FHA loans, VA loans, and USDA loans offer lower down payment requirements and can make homeownership more accessible.
*** Canadians: Use FHSA ***
11. Invest Your Savings Wisely
Investing your savings can potentially yield higher returns than a traditional savings account. However, investing comes with risks, so it’s important to choose investments that align with your risk tolerance and time horizon. Low-risk investments like bonds or a diversified portfolio can offer much higher returns than a traditional savings account.
Do This: Consider low-risk investment options, such as certificates of deposit (CDs) or high-yield savings accounts. If you have a longer time horizon, explore other investment options like exchange-traded funds (ETFs).
Example: Bruce and Lucy planned to buy a home in five years. They invested $70,000 of their down payment savings in a low-cost index fund. With an average annual return of 8%, their investment grew by $32,852 over five years – a great addition to their down payment fund.
