So, you want to buy a home? Saving and investing can get you there!
Understand Saving Vs. Investing!
A lot of people use these two terms interchangeably, but I see them as vastly different. Saving is socking away cash in a cookie jar, under the mattress or a regular savings account at your financial institution. In all 3 of these instances, you are earning ZERO interest on your money. You’re saving it (i.e., not spending it), but it's not growing. And the name of the game is to GROW your money! You do that by earning a return (interest) on it.
Investing, on the other hand, is putting your money in vehicles where you will earn a return on it. There is risk involved since your money is now out there in the open market and often volatile market, but as the saying goes: “no risk, no reward.” Sure, with the cookie jar, mattress, and savings account, your money will always be there. There’s no risk (well except potentially theft or fire with the cookie jar/mattress) of losing any money. But contrarily, there’s no reward either. You want your money to work for you. You want to use money to make money.
There are other options, besides a regular savings account, at your financial institution which could yield interest on your money, such as: certificates of deposit, money market accounts, and high yield savings accounts (typically found at online-only banks). But in recent years, even these options offer below average yields, and likely won’t help you reach your cash goal within the set timeframe. Instead, I recommend investing some portion of your income in stocks, ideally in a growth mutual fund, as opposed to individual stocks, to balance risk.
If you’re thinking, “I have no money left over to invest,” – start looking for ways to free up money and lessen expenses, such as cancelling cable, doing your own hair and nails, make your own chai tea latte at home. You might even want to consider more extreme changes like, moving back home with your parents, moving to a smaller, less expensive apartment, or getting a roommate to help offset costs. Some of these changes can be huge sacrifices in the short term, but remember, they are temporary and working for a larger good.
The key is to be consistent and disciplined, which you can do by setting up automatic deductions. Every payday a percentage of money (that you won’t see and be tempted to spend) will go directly to your mutual fund. Leave your mutual fund undisturbed and before you know it, you’ll reach your cash goal and be on the phone with a mortgage lender!
Please be advised: we only talked about investing for the specific goal of purchasing a home, there are lots of other financial considerations, such as: investing for long term (retirement), debt elimination, diversifying your investments across all asset classes (cash and cash equivalents, stocks, bonds, real assets) and much, much more.
– Barbara R. Galloway
About the Author:
Barbara is the Amazon best-selling author of “Renewing Your Money Mind: How to Go from Common Cents to Kingdom Wealth.” She has an MBA in Finance and a BS in Accounting and has a passion for helping people become financially free.