A wealthy real estate mogul recently told millennials to stop buying avocado toast if they ever want to buy a house, and the internet went berserk. The advice was poorly received because many felt that it was out of touch with the current financial environment. For one, the millennial generation has only ever known income stagnation, wages that haven’t kept up with inflation, and skyrocketing college and real estate prices. Two, the assertion that we can’t stop shelling out for fancy breakfast foods buys into the shallow narrative that millennials don’t know the meaning of hard work or the value of a dollar.
While I largely side with the outraged denizens of the interwebs, I’ll play devil’s advocate here: Clearly, Avocado Man was hoping to make a point about frivolous spending, but he veers off track when making the assumption that this is a trademark of the millennial generation. Current times have seen people of all ages spend more on “stuff” than ever before.
Even with the benefit of the doubt, it is unproductive to make a statement like this. There are other ways that millennials can make real progress in saving for a down payment that don’t involve relinquishing a small monthly splurge. If you are pursuing homeownership and want to save up for a down payment, congrats! Owning a home is a wonderful financial goal for lots of people, but it’s also a big commitment. Most folks will need to get creative about stashing away enough money. Here are four legitimate changes you can make to start saving more now.
1. Pay yourself first
As Warren Buffet famously said, “Don’t save what is left after spending, but spend what is left after saving.” Paying yourself first is a powerful way to save. Although it’s no substitute for keeping a budget, I love the idea of never letting money touch the spending vortex that is the checking account—and then making do with what’s left over. Trust me, you can make it work.
Set up an automatic deposit to your savings account three days after your paycheck hits (to give the money enough time to clear if it lands on a weekend). Start with a number you’re comfortable with, and crank that dollar figure higher when you can.
Ideally, you’ll save your down payment in a separate savings account—don’t keep the money in your checking account or group it in with your emergency fund. This will make it easier for you to track your progress, and keep your hands off that money.
2. Go after big wins
As far as your savings balance goes, cutting out the one avocado toast you buy every six weeks is going to be a drop in the bucket. While having a firm grasp over your budget is important, you can’t save up for a down payment by skipping little luxuries here and there. It’s time to think bigger.
If you’re living paycheck to paycheck or feel that you’re not saving enough, you need to evaluate the biggest expenses on your personal balance sheet. Start with insurance: Can you shop around for cheaper prices? What about getting rid of a car altogether? (Seriously, would you spend less in a month if you took Ubers and public transportation everywhere?) How about canceling cable or other subscriptions? At one point, my subscriptions totaled over $300 a month. Wipe out a few big line items and automatically redirect that money to savings.
What about rent? If your goal is to put a down payment on a place in three years, could you downgrade for the time being, so that later you can buy a place you love? Saving $200 or $300 a month on rent is going to get you a helluva lot farther than skipping brunch.
3. Get your credit right
A credit score is a numerical representation of your credit history, and it gives banks an idea of what type of borrower you’ll be. Don’t downplay the importance of a credit score—it ultimately determines the interest rate at which a bank will lend you money. People with better scores get better rates. While a 1% difference in a loan rate might not seem like a big deal, it could be the difference of tens of thousands of dollars on a mortgage over time.
Good credit will save you money over the course of your life, but it can also help you save money now; you can use an improved credit score to negotiate better rates on any existing debt. For example, if you have high rates on your student loans, refinancing a sizable student loan could save you thousands, which is money that could be used for a down payment.
To improve your credit score, pay off as much of your credit card balance as you can, keep cards open to show that you have available credit that you aren’t using, and don’t miss payments. (P.S. If you have lots of credit card debt, consolidating it with a personal loan could boost your credit score.)
4. Eliminate an entire spending category
I’m not great with moderation, so I prefer black-and-white spending boundaries. I’ll eliminate whole categories of spending for designated periods of time. For example, could you give up dining out for six months? Or beauty-related spending? How about shopping for clothes, expensive workout classes, or outside-the-home entertainment? You get the idea. I’m not suggesting you nix them all, but what if you picked whichever was the least important to you, eliminated it, and saved all the proceeds?
Now, if eyebrow waxes or tech gadgets make your life better, you don’t have to get rid of ’em. We’re all going to consume differently, and that’s okay. But if you are on a stationary income (ahem, no money from some rich great-aunt) and want to save for a down payment, it will require some above-and-beyond spending sacrifices. If you want a real shot at building up enough wealth to make a down payment, an important step is accepting that you can’t give into every temptation. This is undoubtedly what Avocado Man wanted (but failed) to say.