Dear Barb – Saving for a home

Dear Barb;

I have just graduated from university and will be starting a new job next week. I want to save for a house, but I’m not sure where to begin. During my university years I did some budgeting, but it really wasn’t very effective. My question is how can I learn to budget wisely? Are there any tricks to successful financial planning?

Ben in B.C.

Excellent question, Ben. You obviously realize how important budgeting is to reaching your goals. Home ownership is a dream most people share and are able to achieve through careful planning. There are some basic steps I can suggest to get you started, but that is the easy part. The hard part is going to be up to you. For a financial plan to work, you’ll need a lot of discipline and willingness to sacrifice.

The first step in budgeting wisely is to track all your expenses for one month. This will give you an idea of where your money is going. Once you know how much money is coming in and how much is going out, you can organize your expenses into categories; for example housing/rent, food, utilities, automobile, insurance, loans, credit cards, clothing, personal, and misc/other. Subtract these totals from your income. The difference is what you have available for saving. Many experts say we should have three months income put aside for emergencies. I believe for most people this is difficult to achieve, but it is definitely worth striving toward.

The next step is to decide what type of home you are interested in purchasing and the price range you will be able to afford. After that, determine how much you need for your down payment. Many financial institutions are offering 100% financing, but this will increase your monthly payments and leave you with no equity in your home. If possible aim for 5% or 10% of your purchase price as your down payment. Let’s say you want to purchase a condo for $100,000, with 5% down. You will need to save $5,000. Calculate how much you can save monthly in order to purchase this home within a defined time. If you want to be in your own home within a year, you will have to save approximately $400 a month. You must also consider other costs involved in purchasing a home, such as lawyer’s fees, land transfer tax and moving expenses.

Nonetheless, there are ways to reduce your monthly expenses and become a homeowner sooner. If you have a school loan or other debts, a consolidation loan would be beneficial as it provides a better interest rate than you would be paying on credit cards. Combining your debts will leave you with only one monthly payment. As a result, you will have more disposable income to save toward your down payment. However, you have to be careful with consolidating debts, as you do not want to run your credit cards up again. A good guideline is, if you cannot afford to pay cash, then perhaps you really cannot afford the item.

Ultimately, Ben, you will be ahead of the game, if you learn early in your adult life to live within your means, not beyond. Thanks so much for asking such a valuable question.

E-mail your questions to Some submissions may be edited for length or to protect confidentiality: your real name and location will never be printed. This column is for entertainment only. The author is not a professional counsellor and this column is not intended to take the place of professional advice.