If you’re like most Americans, chances are you are not the best at saving money. Both the statistics around debt and savings in the United States paint a picture that highlights a lack of financial wisdom.
The personal savings rate among Americans was 8.8 percent in 2018. This is in contrast to the 2012 and 1970 rates of 12 percent and 13.2 percent, respectively. The lowest savings rate we’ve seen in recent years was over 2005 and 2007 — savings rates maintained a rate of 3.6 percent. The recommended savings rate is at least 15 percent, with 20 percent the common goal. How much money does that translate into? We have to look at the statistics by age and demographics.
On average, Americans have just $8,863 saved. The lowest savings average came in for singles — both with children and without. The highest savings average was in couples with children aged between 55 and 64. They had over $16,000 in savings.
Contrast this to the debt we carry. Most age groups are in debt for amounts ten times what they have saved, on average.
So when we consider the would-be real estate investor, we have to recognize the importance of savings. As homebuying is growing increasingly out of reach for the average American family, how do people save enough to purchase an investment property?
Before we talk about saving money for your first real estate investment, we have to note — Memphis Invest has a close relationship with financial partners who will help you navigate this aspect of your investing career. It’s not a burden you have to bear all on your own, with help from our partners as well as your personal turnkey adviser.
Do This to Save for an Investment Property
Make it your priority.
First things first — if you want to save money for any kind of downpayment, it has to become a top financial priority. Recognize that every frivolous purchase moves you further and further away from your goal. Let that downpayment be at the forefront of your mind with every buying decision. Remember those debt statistics?
It should be noted that for those under 35, nearly 40 percent of their income goes to discretionary costs: clothes, entertainment, and other non-essentials.
Conventional wisdom tells us that if 50 percent (and no more) goes to essential expenses, you can spend up to 30 percent on discretionary “want” costs. 20 percent goes to debts and/or savings. What we see then is a failure to prioritize what really matters.
If you want to save for an investment, that portion of money that goes to discretionary costs has got to change.
Rework your budget.
Budgeting is always essential. Instead of trying to fit a new savings category to your existing budget (such as funneling your general savings to investment savings), rework your budget from the ground up. Not only do you need to consider the amount you need for a downpayment, but account for other costs that will come in the future — insurance, emergency funds, and mortgage.
Adopting this budget early will help you be best prepared when you do finally invest.
Be sure to check out: 5 Golden Financial Strategies That Save Money Around the Clock!
Opt for automation.
We live in an increasingly digital and automated world. While we lose some things in the process, this automation can be enormously beneficial for those looking to save more money — particularly for a goal. Start a new savings accounts specifically for your down payment. Set up an automatic deposit whenever you get paid. This will ensure that you’re always moving towards your goal.
Make short-term goals.
It can be demotivating to have a large goal in mind for savings. Each month you see such small progress that it can seem like you’ll never get there. Start with small goals to complement your long-term goal. Aim to save an extra dollar amount per week. Turn it into a game — how long can you go without eating out or picking up a fancy coffee? Put what you would have spent towards savings instead.
Hit debt where it hurts.
Debt can greatly impact our ability to save. As we’ve discussed, American debt far outpaces American savings. This isn’t to say you have to be debt-free before you can save for a rental property. What it does mean is that eliminating debt (and building good credit as a result) should be a top priority alongside your savings ambitions.
Get your financial house in order. Our advisers are waiting to help you develop your real estate investment game plan.