Posted on July 19, 2014

How to Save for a Down Payment in Seven Simple Steps

Purchasing a home in Metro Vancouver is no small feat. With all the incredible features our great cities have to offer, it should really come as no surprise that so many people desire to make this amazing place their home. And with mountains to our north, ocean to our west, and the border to our south, there is only so much land to go around. Thus as demand increases, so does the price of land and, therefore, the price of real estate. 

Saving for your first home can be a challenge. Most Vancouverites are living on fixed incomes, have some consumer or student debt, and have to manage the high cost of rent and all the spending temptations in the city - we do have some of the country's best restaurants and shopping, after all! However, despite how it may seem at times, you can get your foot on the property ladder. It might mean making sacrifices in your life, but if you make it a priority, you can achieve your goal to become a homeowner. As they say: "Where there's a will, there's a way."

Here are a few things to consider that will help to keep your saving on track:

1. Money in, money out

It's a simple concept but one that must add up: you must have more money coming in than money going out in order to start saving. And the faster you want to save, the greater this ratio must be. Accept the fact that it may be time to start prioritizing and making some sacrifices.

2. Pay off all consumer debt

Most Canadians have some consumer debt such as high interest credit cards with balances carried over month after month. Before you start putting any money in a savings account, pay off your consumer debt first so you're not wasting your money on interest payments. The Credit Counselling Society suggests that if you have more than one credit card, start with the one with the lowest balance and highest interest rate. Then when that one is paid off, start applying your previous payments to the next card, and so on and so forth. This will be the fastest way to tackle the debt. 

3. Get yourself a TFSA and an RRSP

A Tax-Free Savings Account (TFSA) is a must for anyone saving for a down payment. It's exactly that - "tax-free" - which allows you to increase your savings by earning interest tax free. Also, the brilliant thing about TFSAs is that you can withdraw money without penalty if you ever need to in an emergency, so you can deposit the yearly limit of $5500 without worrying about also saving for a rainy-day fund. You can also use your Registered Retirement Savings Plan (RRSP) towards your first home. The Home Buyers' Plan allows eligible individuals to withdraw up to $25,000 tax-free from their RRSP to purchase or build a qualifying home.

4. You won't miss money you never had

Once all your debt is paid off, continue to pay the same amount monthly but put it directly into your TFSA or RRSP. If you can increase your monthly payments at this point, that's even better. 

5. Prioritize

Start tracking your monthly spending to make sure you know where your money is going (the Mint app is great for this!). Then, start cutting back on the things you can live without. Perhaps you can trade in your car for a transit pass or start packing your lunch to work every day. Or, maybe you can live without the trip to Tuscany and instead spend a weekend in the Okanagan's wine country. Every expense you can eliminate or decrease will quickly add up. And everything you do save, put directly into your savings.

6. Increase your income

Of course, wouldn't we all love to do that? However, if you're serious about saving then you should really look at ways of doing so as it could decrease your saving period significantly. If you're capable of earning more in your field, keep your eyes open for a position with a higher salary. Or, if you're happy with your day job, consider finding a second source of income. This can be anything from serving in a restaurant, working as a movie extra on your evenings or weekends, or picking up some freelance work in writing or graphic design or another valuable skill you have. Get creative! 

7. Take advantage of BC first-time homebuyer benefits

With the rising cost of real estate, the Government of BC and the Government of Canada have implemented programs to help first-time homebuyers take the plunge. BC residents who have never owned a home can receive up to $10,000 through the BC First Time Home Buyers’ Bonus. All Canadian first-time homebuyers are eligible for the First-Time Home Buyers’ Tax Credit (HBTC) up to $5000.

Do you have other saving tips that work for you? We'd love to hear them - tweet to us @BeedieLiving and let us know. Happy saving! 

Photo Credit: Chatelaine