So you want to get started in those whole real estate investment thing: but you’re a little worried about cash. Maybe you’re young and kind of broke. Maybe you just haven’t had the savings rate you would like. You don’t see how you can possibly save the capital you need to get started in the foreseeable future. It’s overwhelming and maybe you just don’t know where the begin!
But hey—there's good news! Many now-successful real estate investors were once in that same boat.
There are savings strategies that yes, demand work and sacrifice, but they will help you build up your capital so you can start investing sooner rather than later.
5 Steps to Building Up Savings for Investing
Set Your Financial Goals
The first step to any financial plan is mapping out your goals. First, there’s the overarching monetary target: how much do you want to save to start investing? $5,000? $10,000? Once you have that number in mind, you can begin to make monthly and yearly projections to figure out what’s realistic in meeting your goals on time.
Pay Yourself First
From your overall savings target, consider what your savings rate can be. Don’t say you’ll put aside a certain dollar amount every month to savings. Use a percentage. On the front end, say “I will pay myself this percentage of my take-home pay, no exceptions.”
An effective savings strategy doesn’t wait for scraps off of the table. It puts aside your savings first, then worries about the rest. Depending on your non-negotiable expenses, that percentage might not be high at first. Do some calculations and budgeting: start with a 10% savings rate, then work out your budget. See where you can make adjustments later.
Cut Your Expenses
There are certain things you’re just not going to be able to cut: housing, food, utilities, gas, and so on. Map out every true non-negotiable expense and factor those monthly costs into your pay and what you save. Your savings? They’re non-negotiables now. After all of the essentials, you’re bound to have some left over to go to non-essentials that can range in importance from your car payment, internet, and cell phone, to shopping and eating out.
Rank these in order of necessity (car payments and cell service is likely high on that list) and cut them off when you’ve used the rest of your take-home pay.
...And then see if you can cut some more. The more you sacrifice non-essentials, the faster you’ll meet your financial goals. It might not be entirely eliminating something. Just tightening your belt on the budget to make room for savings. Those short-term sacrifices are some you might just have to make.
Reduce Your Debts
For young people especially, debts can be crippling when it comes to savings. It can be extremely difficult to hit even that 10% goal when you have loans to pay off. But that doesn’t mean you have to wait to be debt-free before you can save. It might take a little longer, but you don’t have to let it stall your investment aspirations.
Reducing your debt can happen in plenty of ways: eliminating or reducing credit card debt is one of the easiest. Pay them off as soon as you can, and use them sparingly. Don’t let interest build up and come back to bite you later. As for larger loans, see what you can do to pay them off faster. It might mean dedicating things like tax returns, holiday bonuses, and gift money to reducing debt (alternatively, that money can also go into your savings!).
Make Short-Term Milestones
Now that you’ve budgeted out your expenses, savings, and goals, you’ll be able to project how long it will take you to save up. If it’s longer than you’d like, see if you can rework the budget (and make more cuts). It won’t be fun or easy, but you’ll get there faster. Don’t forget, too, to mind your milestones. Saved that first $1,000? Revisit the budget. Get a raise at work? Revisit the budget. At each milestone, push yourself to the next.
And Then Save Some More
Every chance you get, keeping looking for ways to save and reduce debt. Some options:
- Start couponing
- Settle for cheaper brands of certain items
- Give homemade gifts or baked goods
- Search for cheaper phone, cable, and insurance plans
- Automate payments to prevent late fees
- Use debit, not credit
- Look into refinancing options if appropriate
- Take advantage of available tax breaks
There are plenty of ways to cut your spending and save: even in unexpected places. With careful attention to budgeting and a resolve to prioritize saving, you’ll reach your goals in no time.
What savings strategies have worked for you? Share your tips in the comments!