The Sub-Baby Step: Saving for a House

Where the smaller Baby Step falls in the money plan

May 13, 2010 | WRITTEN BY CHRIS RUSSELL

So you've made it through the toughest part of the Baby Step process ... paying off debt. Not only are you now debt-free, but you have a full emergency fund of three to six months of expenses saved.

Now what?

Now is something we call Baby Step 3b. Now is the time to start saving for a house.

Since you have no debt, it should be pretty easy to start piling away cash to put toward your own digs. The goal you are striving for here is to have 20% of the purchase price saved. Why that amount? If you have that much to put down, then you won't have to pay private mortgage insurance on top of your house payment.

It may be hard to do Baby Step 3b because you might think you're not doing a Baby Step at all. We're used to paying off debt and saving for emergencies, retirement and college. Saving for a house is not something that's really emphasized in the plan.

But this really is part of the process. Because you sacrificed and saved, you have prepared for a lifestyle upgrade. It's great to own a home if you can afford it because it appreciates in value and is an awesome hedge against inflation (home prices are a big factor in determining inflation rates).

On top of that, once you've bought the house, you have instant equity in it. That 3b money doesn't just vanish into thin air! So don't think that you don't get to enjoy the rewards from saving that money.

Hear Dave talk about saving for a house.

As long as you are stockpiling cash, take a look at how much you can save. The minimum you are shooting for is 20%, but what if you could save more? Depending on how much you earn and how little you live on, what if you could pay for your house with cash? Don't do that if it will take 15 years to get the money, but what if you could sacrifice for a short time and really put a dent in how much you borrow for a home?

When you get to Baby Step 3b, take a serious look at what you can be saving for a house. It will pay off in the end!

Reader Comments (1)

Here is a question I have about owning a home. I realize that most of Dave's plans are geared toward traditional families with children. However, I am single, and probably will be for the rest of my life. I am also have more of a wanderlust heart. I am unclear if I want to set down roots in one place at all, and I am definitely still unsure about where that would be. Is there a way to be a longer term renter vs. owner and make of for that lack of investment somewhere else?
Member at 10:30 PM, June 01 2012

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