December 9, 2023

According to Redfin, with the typical home down payment now exceeding $60,000 — nearly double what it was before the pandemic — it may seem like it will take forever to accumulate enough, putting the dream of home ownership out of reach.

Yes, it will definitely take some time to start from zero and try to save a little bit every month. To put that principal amount together, you’ll need to save $500 a month for about nine years in a high-interest savings account with a 2% yield.

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But it is not your only option.

You may be tempted to try the fastest routes like cryptocurrency, meme stocks or just an S&P 500 index fund (SPY),
But it can go horribly wrong.

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“I had a client who traded in the down payment money for their house. I didn’t know about this until I was working on their tax return and got a 1099-B from the broker As expected, there was a huge capital loss,” says Larry Pon, a certified public accountant and financial advisor based in Redwood Shores, Calif.

Another customer was confident of bitcoin BTCUSD,
That was the way to double your money fast. You can guess what happened to that plan.

It’s not that high risk either. Dow Jones Industrial Average DJIANasdaq computer applicationS&P 500 spx and even the bond market BX:TMUBMUSD10Y All are closed for the year.

“I’ve been doing it for 36 years, and the advice has never changed: You pay somewhere safe,” Pon says.

Here are some strategies to help your savings grow fast so you’re never too old to enjoy your white picket fence.

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First you need a house fund

“Move the money into a separate savings account and name it,” says personal finance expert and CEO Jean Chatzky, People may find it silly, but she is serious and takes it into her stride syllabus.

Be as visual as you can about it, like naming it “304 Maple Avenue Fund,” so you’re motivated to save for a specific goal.

Then set up automatic monthly deposits, like you would with a 401(k) deduction from your paycheck, Chatzky says. You can also ask your payroll department to send money directly from your paycheck, so you never have the opportunity to spend it.

Want to save even more? Shield the growth of your savings in a health savings account, where you can save up to $3,650 per year for one person in 2022. That money comes from your paycheck before taxes, and growth is also exempt from federal, state, and local income. do.

Pon suggests, “Don’t reimburse yourself on the go, but save the receipts.”

When it comes time to buy a home, you can withdraw the money and earnings without any penalties or fees — up to the amount you justified with receipts.

squeeze the most produce you can

The goal of short term savings is to earn maximum interest without taking any risk. In today’s economy, that is always changing. I-bonds are a great option if you already have a large portion left over and your home purchase is at least 15 months in the future. For example, in October 2022, you would lock in a rate of 9.62% for the next six months, and then perhaps another good rate for the next six months.

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A few caveats: You must hold the I-bond for at least one year and if you cash out before five years, you will lose three months’ worth of interest. Since the rate changes every six months and The buy system is crappy, it’s probably not the best for incremental purchases.

That’s why Milwaukee-based financial advisor Jeremy Keel is turning to Treasury bills right now and laddering them up for clients. “It’s always about getting the best interest,” he says, and he gets a return on the six-month bill TMUBMUSD06M,
To be the best option, at about 4% as of early October 2022.

Laddering strategies can be complex, requiring spreadsheets and constant management, so you might want to ask a financial advisor for help. Some brokerages will help you build a Treasury ladder or CD ladder that will automatically rollover and reinvest for you.

You can also consider other bond options. Nicholas Olsen, a financial advisor at Cathmere Capital Management in Wayne, Penn., has a client closing in on a home soon, and he put his money into ultrashort California municipal bonds. You can also access short-term bonds through exchange-traded funds, and some yield as much as 4%, he says.

With rates changing so rapidly, you will want to be careful about how long you lock in your money. In a very short time, a simple high-yield savings account may be your best option.

Other ways to turbocharge your savings

Still not going fast enough for you? Increase your savings rate. “Maybe you hustle toward a weekend or ask for a hike. You can look for a better-paying job,” says Bobby Rebel, a certified financial planner and host of the podcastMoney Tips for Financial Adults,

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You can also view your tax refunds, bonuses and gifts from family members to add big cash to your household fund.

“Drip-drip-drip is a great strategy, but people get impatient with it,” Pon says.

Another way that PON’s customers save for a down payment is to look at their restricted stock options and employee stock purchase plans. “It’s part of the income, not necessarily part of the equity,” he says, especially if you exercise the options immediately when you know their value.

shift target positions

At the end of the day, a goal of $60,000 or whatever your initial goal may be may be too much for you. So think of a tiny house or wait for this crazy housing market, where mortgage interest rates are touching 7% and home values ​​are changing daily. “Spending your time is a good financial move,” Chatzky says.

If anything sounds expensive, it probably is. Walk away and keep watching. “Take comfort in the fact that as a buyer you always have options. There will be another asset to buy,” says Rebel.

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