How to Automate Saving to Buy a Home

By Neal Frankle, Los Angeles-based Certified Financial Planner and chief editor of WealthPilgrim.com, MCMHA.org, and CreditPilgrim.com

Once you’ve decided to buy a home, you probably want to get it done as soon as possible. I understand that. Still, there may be some distance between you and the down payment you need to get in to your cozy castle. How do you bridge that gap? In my experience, the easiest and fastest way to get this done is to automate your financial life as much as possible.

What Does Automating Your Financial Life Mean?

When you automate your finances, you set your savings and expenses up so that the money gets transferred automatically to your bank or investment account (in the case of savings) or creditor (in the case of expenses) each month without you doing a thing. You give these institutions permission to dip into your bank account each month on a given day and take out what you owe them or what you’ve authorized them to invest or save for you.

Why Automate Both Bill Payments and Savings?

When you tell a bank or creditor they can come in to your account and take the money you owe them each month, it forces you to be very mindful about your account balance – and your spending. Some people who are very keen to purchase their home get aggressive with their savings, and overlook spending. A little voice in their head tells them that they will somehow come up with the money to pay the bills when the time comes. Sadly, what often happens is they have to invade the account they are using to save for the home in order to pay those bills. This pushes out the day when they can finally buy the house they really want.

By putting all your bills and savings on autopilot, this won’t happen to you. What will happen, however, is that you’ll shift your focus. Rather than just worrying about how to find the money to pay your bills, you will keep your eyes on spending, which is exactly where your attention needs to be.

Other Benefits of Automating Finances for a Home Purchase

Buying a house is likely the biggest investment you are ever going to make. Coming up with the down payment may take you some time. When you run the numbers, you may realize that you need to change your plan. Let’s look at an example.

Assume you’ve already saved $20,000 and you need a total of $50,000 in order to get the down payment you need to buy the house you want. Let’s say you determine that you can save $1,000 a month towards the down payment. At that rate, it will take 30 months – or 2 ½ years in order to come up with the cash.

That may be OK. But if that is too long, you may decide to buy something a little smaller. That way you can get into the real estate market much faster. Unless you automate your down payment savings plan, it will be more difficult for you to see how that works and make that kind of decision.

And while automating your bill payments won’t directly result in a lower-cost mortgage, it just may contribute. As you may know, when you reach out to get your mortgage, lenders review your credit score. If you automate your bill payments, there is a lower chance of you missing a payment and getting any dings on your credit report. When you keep your credit file as clean as possible, it’s one of the best ways to keep your credit score high and your mortgage rate low.

When you are saving in order to buy your house, automate both your monthly savings and your bills, too.  This makes it effortless to achieve your goal in the shortest amount of time possible.

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