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Saving for a downpayment can be quite a challenge, especially in metropolitan cities where rental prices are high. But if your goal is to become a homeowner in the next few years, you’ll need to take some concrete steps towards cutting your spending, boosting your income, or both. We’ve put together a list of what we think are the best ways you can save for a house, or any other large expense. Here are our tips:
1. Create a realistic weekly and monthly budget
Saving for a downpayment will require some prioritization. Take a look at your expenses over the past few months, and sort out the non-essential spending (eating out, membership costs, travel, shopping, and entertainment) from the essential spending (rent, groceries, bills, medical expenses). Then, decide which non-essential activities you can cut down on until you reach your financial goals. Try setting concrete resolutions with a fixed deadline – for example, deciding not to buy a single new piece of clothing, or only eating home cooked meals, until your full downpayment amount has been saved.
When creating your budget, financial planners have suggested using the 50-20-30 rule as a guideline. No more than 50% of your monthly income should go towards essential expenses, 20% should be saved, and 30% can go towards personal choices. If you find that your essential expenses are taking up much more than 50% of your income, you might consider making bigger steps to cut down your costs, such as moving to a smaller rental apartment, using public transit, or taking in a room-mate to help share expenses.
2. Pay off your debt first
You can’t save money if you are paying a lot of interest to someone else. The first step to saving for a home is paying off all of your other debts, such as credit card debts and student loans. Begin with your smallest high interest debt, and pay it off aggressively. Then use the minimum payment from that debt to pay off the next small debt with the highest interest rate. Once you have that one paid off, the two minimum payments that you used to pay for those smaller debts can help you pay off your next debt faster (again, choose a small debt with a high interest rate). You will notice a snowball effect as the minimum payments you are freeing up help you to make larger and larger payments against one debt at a time. This is one of the fastest ways to pay off debt.
3. Trade in your car for a metro pass
If you and your partner have two cards, consider getting rid of one and sharing the other. Or, if possible, get rid of both. Losing even one car will save you thousands of dollars a year, and could cut down the time you spend saving for your downpayment in half. To facilitate the switch, you could consider moving closer to your workplace, taking public transportation (80% cheaper than owning a car), car pooling or even cycling to your job in the summers. Make sure you bank all the money saved.
4. Create a separate savings account for work bonuses
When you get a bonus at work, stash it in a separate savings account immediately instead of spending it as an “extra”. Use this account for extra sales commissions, tax refunds, and any extra income generated through raises. Individually these amounts may not seem like much, but they will add up over time.
6. Borrow from your RRSP
Montreal’s Home Buyer’s Plan (HBP) allows you to withdraw up to $25,000 from your RRSP to buy your first home. If you’re buying with your partner, that’s $50,000 – an amount likely to cover your entire downpayment and closing costs. Note that you have to pay the money back to your RRSP within 15 years. If you don’t repay the money within that timeframe, it’ll be taxed as income. Check with your financial planner or advisor to see if this option is right for you.
5. Use a Tax Free Savings Account
Your Tax Free Savings Account is also be a great place to save your down payment money. You don’t have to pay income tax on the money you earn as it grows in this account, allowing you to save at a faster pace.
8. See if you qualify for a First Time Homebuyers Program
Aside the HBP, Montreal also offers a few programs with interest-free loans and bursaries, for new home buyers. These programs are initiated to ease the financial burden of homeownership amongst young families, and to help develop parts of the city that are struggling. They usually have very specific requirements – check with your city hall to see if you qualify.
9. Last but not least, look for cheap or free activities in your city
Going into crunch-mode with your saving doesn’t necessarily mean you have to deprive yourself of fun recreational activities. Montrealers are lucky enough to live in a city where there are hundreds of fun and cheap things to do all year round. With a bit of research and planning, the time you spend saving for your first home could also be a time for discovering new hobbies, meeting new people, and exploring all the great cultural events Montreal has to offer.
Here are just a few examples:
- Free concerts and exhibitions at the Montreal Museum of Fine Arts and the Musée d’Art Contemporain de Montréal
- Free outdoor festivals: Festival International de Jazz de Montréal, Nuits d’Afrique festival, Montreal Just for Laughs Festival, Les FrancoFolies de Montréal, Montreal First Peoples’ Festival , among others.
- Celebrate the written word at the Blue Metropolis International Literary Festival in April (and the accompanying Children’s Festival).
- Picnics and strolls in Montreal’s beautiful parks. Outdoor ice skating in the winter.
- Sign up for free talks at the Segal Centre for Performing Arts, including Sundays @ The Segal (11 am on the first Sunday of each performance run) and Place à l’Opéra, lectures from the Opéra de Montréal.
- Free outdoor dance classes at Tango Libre
- Thursdays after 5:30 (and all the time for students and children), are free admission to the Canadian Centre for Architecture and its exhibits.
- Take up biking, jogging, or skating along the Lachine Canal.
- Volunteer at a local charity
- Go to free classical music concerts and orchestra performances at the Schulich School of Music.