If you’re thinking about buying a house
in a few years, log on to zillow.com and check home prices in your area. Let’s just say the average house in your neighborhood costs $300,000 and you want to do a traditional 20% down payment. That’s $60,000. So if you want to buy a house in five years, you should be saving $1,000/month.
Crazy, right? Nobody thinks like this, but it’s truly eye-opening when you plot out your future spending for the next few years.
It can almost seem overwhelming, but there’s good news:
First, the longer you have to save for these things, the less you have to save each month. If you instead decide to wait for ten years to buy a house, you’d only need to save $500/month for your down payment. But time can also work against you: If you started saving for an average wedding at age 20, you would have to save about $333/month. By age 26, however, you’d have to save $2,333/month.
Second, we often get help: Our spouse or parents may be able to chip in — but you can’t count on someone else coming to rescue you.
Third, theoretically you could use some of your investment money to pay for these savings goals. It’s not ideal, but you can do it.
What if the house you want — even the down payment — is just way out of your plan? This can be heartbreaking if it happens.
When people realize they can’t live the life they envisioned, they rarely step back, take stock of their position, and make a sensible plan.
Instead, I’ve seen many people, believing they have “nothing to lose,” make increasingly risky decisions to catch up to where they believe they should be. This is particularly relevant for buying a house: When people realize they can’t afford the house they want in any reasonable amount of time, they start making increasingly risky decisions: 2% down, buying more than they can afford, etc.
My advice: Stick to being conservative. If it takes a little longer, fine! Save, invest, be patient. You will be much better off in the long-run.