How to save up for the big purchases?

[Coronet]

So I have a question for everyone. The general rule of thumb is to save 20% of your gross income a month, right? I was thinking about how little that truly is in actual numbers for me. My take home after taxes, 401k deductions, medical deductions, etc. is ~$3200/month (I make ~$60k/year). Of that $3200 a month I put $800 straight into a savings account which is about 25% of my take home.

Even saving $800/month I wonder how I will ever be able to save up a 20% downpayment for a house. It just seems like so much money! I'm thinking about buying a 200-225k house in the future, so my 20% downpayment would be $45,000. If I saved for no other financial goal it would take me about 4.5 years to save for a downpayment. I know other people save for other goals like cars, vacations, college, etc. so that number just seems daunting to me.

Do most of you guys save more than 20% of your gross income a month or does it take seemingly forever to save up for the big things?

[Joan.of.the.Arch]

It is very striking that 4.5 years seems like a long away goal for a house purchase. Personally, I would expect most people need to save that long, probably longer. Your feeling that 4.5 years is a long time to save for a house might be influenced by the recent years when people could arrange near instant financing with little to no down payment. Those were "disordered" times. Try not to be sad or impatient about having to save. In the long run, it will put you in a more secure place.

[disneysteve]

Wait. I don't see the problem here. You are saving $800/month NOT COUNTING your 401k. $800 is 16% of your 60K gross. What percentage of gross is going into the 401k? If it is at least 4% (and hopefully it is a lot more than that), you are at or above the 20% figure.

I agree with Joan that taking 4-5 years to save up a down payment isn't bad at all. You are correct that people save for other things like cars and vacations but those things are almost always a lot cheaper than a home down payment. And with cars and college, you have a lot longer to save (if you do it right). We started our daughter's college plan when she was 5 so that gave us 13 years to accumulate money. As for a car, if you buy a car with a 3-year loan, as we recommend, and drive that car for 8-10 years, that gives you 5-7 years to save for the next car.

The numbers you are giving sound just fine to me.

[jIM_Ohio]

I noticed same thing Steve did- if you are saving in 401k (pre tax) then also setting aside 20% of NET pay, you are probably saving close to 30-40% of gross pay total. That is excellent.

[GREENBACK]

I agree that 4.5 yrs. is a pretty short time. Took me close to ten. Oh, don't forget to save more than the 20% down. If it's your first home you'll need much more for various things.

[kork13]

Definitely agree with the rest... I've been saving aggressively toward a home downpayment for about the last 3.5 years now, and only just this month got to my goal of $50k. However, I've been saving between 30%-40% of my gross income for that entire time.

Just remember, saving is not a race--it's a slow, methodical process that takes time. 4.5 years is a completely reasonable timeframe to save up a home's downpayment. Thinking of it differently, you're saving $10,000/year toward your future house! That's very significant! And if you're not happy with that, you can slowly increase the level of your savings.

In the end, I wouldn't worry about it... You're saving at least 20% of your gross income including your 401k (I find gross income easier to work with), which is far above what most of the country is doing. Take it slowly, and you're doing just fine.

[scfr]

I agree with what the others have said. It sounds like you are dong very well.
One way to reach your goal sooner would be to set your sights on a slightly less expensive house.

[creditcardfree]

Originally Posted by scfr

One way to reach your goal sooner would be to set your sights on a slightly less expensive house.

This was my first thought when I read the post. I personally would try to find a less expensive first home given your income.

[jpg7n16]

There was an old rule of thumb of "don't buy a house worth more than 2 1/2 times your annual salary"

That would put you at a $150k home MAX, needing $30k down, which at $800 a month would be just over 3 years.

$30k is no joke. Neither is buying a house.

[Hector]

In most cases its normal that one needs multiple years to have enough for down payment towards house. During this period, where do you guys park your money?

[disneysteve]

Originally Posted by Hector

During this period, where do you guys park your money?

Money needed for a short-term need like a down payment should be kept safe and secure in a money market account or CDs.

[Coronet]

Originally Posted by jpg7n16

There was an old rule of thumb of "don't buy a house worth more than 2 1/2 times your annual salary"

That would put you at a $150k home MAX, needing $30k down, which at $800 a month would be just over 3 years.

$30k is no joke. Neither is buying a house.

I live in a very expensive place where $150k is just not doable. For a modest 2 bedroom house/condo $200k would be the bare minimum unless I wanted to live in dangerous neighborhoods. I also know that my salary will be jumping $20k in 2-2.5 years.

Thanks for all the feedback, everyone.

[Hector]

Originally Posted by Coronet

I live in a very expensive place where $150k is just not doable. For a modest 2 bedroom house/condo $200k would be the bare minimum unless I wanted to live in dangerous neighborhoods. I also know that my salary will be jumping $20k in 2-2.5 years.

Thanks for all the feedback, everyone.

Good thing that your salary will be jumping 20k in a couple of years.

For others, I dont think buying a house worth 250k is MUST because 150k is not doable.

[scfr]

Originally Posted by disneysteve

Money needed for a short-term need like a down payment should be kept safe and secure in a money market account or CDs.

Wait! I didn't ask that (the quote attributed to me). How did that happen?

[greenskeeper]

Originally Posted by Joan.of.the.Arch

It is very striking that 4.5 years seems like a long away goal for a house purchase. Personally, I would expect most people need to save that long, probably longer. Your feeling that 4.5 years is a long time to save for a house might be influenced by the recent years when people could arrange near instant financing with little to no down payment. Those were "disordered" times. Try not to be sad or impatient about having to save. In the long run, it will put you in a more secure place.

that and people want everything right now, not in the future. Especially young people who see the things their parents have, want them now, and not wait through 30+ years of work to have those things.

[disneysteve]

Originally Posted by scfr

Wait! I didn't ask that (the quote attributed to me). How did that happen?

I have no idea. I fixed it.

[krantcents]

Originally Posted by Coronet

So I have a question for everyone. The general rule of thumb is to save 20% of your gross income a month, right? I was thinking about how little that truly is in actual numbers for me. My take home after taxes, 401k deductions, medical deductions, etc. is ~$3200/month (I make ~$60k/year). Of that $3200 a month I put $800 straight into a savings account which is about 25% of my take home.

Even saving $800/month I wonder how I will ever be able to save up a 20% downpayment for a house. It just seems like so much money! I'm thinking about buying a 200-225k house in the future, so my 20% downpayment would be $45,000. If I saved for no other financial goal it would take me about 4.5 years to save for a downpayment. I know other people save for other goals like cars, vacations, college, etc. so that number just seems daunting to me.

Do most of you guys save more than 20% of your gross income a month or does it take seemingly forever to save up for the big things?

My savings rate is much more, however my children are grown. I have no debt except for a mortgage, which is small. Everyone is in different circumstances. The key is establishing a savings habit, you can always increase it.

[Bastille]

It will ensure you get the best possible product at the best possible price. I really have to discipline myself to do this. Patience isn't a virtue I was born with, but I have found that if I take my time and do my due diligence,