Opinion: How to save $60,000 for a real estate down payment with no risk or eternal wait


Yes, starting from scratch and trying to save a little each month will take some time. To raise this princely sum, one would need to save $500 a month for about nine years in a high-interest savings account earning 2%.

But that’s not your only option.

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

“I had a client who daily exchanged the down payment money for his house. I didn’t know until I worked on their tax return and got the 1099-B from the broker. As expected, there was a very significant capital loss,” says Larry Pon, a CPA and financial advisor based in Redwood Shores, Calif.

Another client was convinced of bitcoin BTCUSD,
was the way to double your money fast. You can guess what happened to this plan.

It doesn’t even have to be that risky. The Dow Jones Industrial Average DJIA, Nasdaq COMP, S&P 500 SPX and even the BX:TMUBMUSD10Y bond market are all down for the year.

“I’ve been doing this for 36 years, and the advice has never changed: you put a deposit somewhere safe,” says Pon.

Here are some strategies to help your savings grow faster so you don’t get too old to take advantage of your white picket fence.

First you need a house fund

“Move money into a separate savings account and name it,” says Jean Chatzky, personal finance expert and CEO of hermoney.com. People might think that’s silly, but she’s serious and includes it as a step in her lessons on financefixx.com.

Be as visual as possible, for example by naming it “304 Maple Avenue Fund”, to motivate you to save for a specific goal.

Then set up automatic monthly deposits, just like you would with 401(k) deductions from your paycheck, Chatzky says. You can even ask your payroll department to have the money sent there directly from your paycheck, so you never have the chance to spend it.

Want to save even more? Protect your savings growth in a Health Savings Account, where you can save up to $3,650 per year for an individual in 2022. This money comes from your pre-tax paycheck, and the growth is also tax-free. federal, state and local revenues. taxes.

“Don’t reimburse yourself over time, but keep the receipts,” suggests Pon.

When the time comes to buy a house, you can withdraw the money and the winnings, up to the amount you have justified with the receipts, without penalties or fees.

Squeeze as much yield as possible

The goal of short-term savings is to earn as much interest as possible without taking on risk. In today’s economy, this is constantly changing. I-bonds are a great option if you’ve already saved a lot of money and are planning to buy your home in at least 15 months. In October 2022, for example, you would lock in a rate of 9.62% for the next six months, and then probably another decent rate for another six months.

A few caveats: you must hold I-bonds for at least one year and if you cash out before five years, you will lose three months of interest. Since the rate changes every six months and Treasurydirect.gov’s purchasing system is clunky, it’s probably not the best for additional purchases.

That’s why Milwaukee-based financial adviser Jeremy Keil is currently turning to treasury bills and laddering them for his clients. “It’s always about getting the best interest possible,” he says, and he finds the yield on six-month bills TMUBMUSD06M,
to almost 4% at the beginning of October 2022, to be the best option.

Laddering strategies can be complicated, requiring spreadsheets and constant management, so you may want to seek the help of a financial advisor. Some brokerages will help you create cash ladders or CD ladders that will automatically rollover and reinvest for you.

You can also consider other bond options. Nicholas Olesen, a financial adviser at Kathmere Capital Management in Wayne, Penn., has a client who is closing a house soon, and they’ve invested their money in ultra-short California municipal bonds. You can also access short-term bonds through exchange-traded funds, and some earn 4%, he says.

With rates changing so quickly, you’ll need to be careful about how long you lock in your money. In the very short term, a simple high-yield savings account might be your best bet.

Other ways to boost your savings

Still not going fast enough for you? Increase your savings rate. “Maybe you’re taking a weekend off or asking for a raise. You might be looking for a better paying job,” says Bobbi Rebell, certified financial planner and host of the Money Tips for Financial Grownups podcast.

Lily: I’ve set salary policies at big companies – here are 3 secrets to getting a raise

You can also view your tax refund, bonuses, and gifts from family members to invest large sums of money in your personal fund.

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

Another way for Pon clients to save for installments is to review their restricted stock options and employee stock purchase plans. “It’s part of income, not necessarily equity,” he says, especially if you exercise the options right away when you know their value.

Move the goal posts

In the end, a goal of $60,000 or whatever your initial goal might be too much for you. So think of a smaller home or waiting out that crazy real estate market, where mortgage interest rates hit 7% and home values ​​change daily. “Bidging your time is a good financial decision,” Chatzky says.

If something seems overpriced, it probably is. Walk away and keep looking. “Rest assured, as a buyer, you always have a choice. There will be another property to buy,” says Rebell.

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Elaine R. Knight