Saving for the down payment on your first home is one of the most critical goals in your lifetime. Once you have a home, you can parlay the equity into future successes; however, buying your first house is the toughest.
With the price of real estate moving upwards of 10% a year, you don’t have 5-10 years to save a down payment. We need to devise a way to quickly save for a starter home in 1-3 years.
Today, I want to focus on three aspects of savings for your first home: investment vehicle, wealth generator, and savings rate. Using all three of these in tandem will quickly get you to your goal. Let’s explore these topics, then formulate a plan to use them together.
Retirement Planning vs. Estate Planning
Investment Vehicle. Your investment vehicle is where you put your money as you save it. Conventional wisdom is to put it in a savings account. Unfortunately, it will only earn 0.1% (or less) in a standard savings account.
Sure, you could use a high-yield savings account, savings bonds, or Treasury bonds to get somewhere between 0.5-4% yields, but that is hardly ideal.
To keep our money moving at the speed of light, we need to leverage USDC stable coins, which pay 9% interest. USDC gives us little risk but massive rewards. If we are to make a run at saving for a down payment, this is the investment vehicle of choice.
Wealth Generator. Your standard 9-5 job will make it challenging to save for a down payment. How much money do you have after saving for retirement and paying expenses?
The Passive Income Hero 2
You may already have a spouse and children, which will make it tough to save. We need to leverage a wealth generator to create pure cash flow.
Typically, we aim to have an infinite return as our wealth generator. An infinite return is the highest return on investment because we don’t have any of our own money in the asset.
For example, let’s say we took out a bank loan for $10,000 and bought a barnhouse (storage shed). The payment for the loan was $150/month, and we rented the space for $300/month. We would have created an infinite return.
Your Retirement Planning Guide 2
If we quickly paid off the loan, we would create pure wealth by printing $300/month. The concept of an infinite return should permeate your thoughts at all times, especially if you want to save quickly.
Savings rate. Finally, your savings rate is the total income you put towards your down payment. The media will tell you to save between 10-15%, but I differ. You will need to get at least 50% of your income into your down payment savings.
Luckily, by living below your means and creating a wealth generator, we can quickly increase our savings rate. We can feed all the additional income into our investment vehicle and get a significant return on our investment.
The book “The Millionaire Fastlane” talks about the process of creating a wealth generator and funding your money system (stock market investing). Read that book for ideas on the best wealth generators to leverage.
What if Your House Paid Dividends
Putting it together. Now, we need to put it all together to save for our down payment quickly. Remember, we are aiming to buy a starter home first. Starter homes are tough to find, but they are the best way to get into real estate early.
Trust me; if you do things correctly, you’ll have many more chances to buy the home of your dreams. Let’s look at a quick example of how fast we grow our down payment.
An example. The Johnsons make $100,000 combined at their jobs. They have no children and want to buy a home for $200,000. This amount means they will need a down payment of $40,000.
They are currently saving $1,000/month into their down payment savings account, which is earning them 0.1%.
Relationships in the Metaverse
Step 1: Living below your means. The first step they take is to live below their means. They trade in their cars for cheaper used models. They also cut back on Netflix, restaurants, and clothes.
By changing their lifestyle, tidying up their home, and becoming minimalist, they can now save $2,000/month. Impressive!
Step 2: Wealth Generators. The Johnsons’ first wealth generator is house-hacking, specifically renting a room in their home. Since they are renting, they get permission from their landlord to add an additional tenant.
They receive $1,000/month of pure cash from their roommate. This money goes directly into their investment vehicle. The Johnsons each decide to start side hustles inside the house.
Rob starts a small cake-making business catering to the folks at his work. He can profit $500/month from this business. Jolie began to do nails at their home after getting her license. She also brings in $500/month into the household.
The Magic of Passive Index Fund Investing
Step 3: Savings rate. The Johnson’s now are saving $4,000/month into their investment vehicle. They know they can save more but are limited in options because they rent.
Step 4: Investment vehicle. The Johnsons invest their hard-earned money into USDC at 9% interest. First, they save $5,000 into a high-yield savings account as an emergency fund, then go all-in with USDC (on Voyager -Affiliate).
The Johnsons decided to go with this setup for two years. They want to go above and beyond their down payment goals. In two years, they will have amassed $105,072 in savings.
The Magic of Dollar-Cost Averaging
Seeing the writing on the wall, the Johnsons decide to go directly to buying a home outright. Yes, prices may go up over this timeframe, but bringing an all-cash offer will give them a great deal.
Step 5: Buying a house outright. After five years of grinding and living below their means, the Johnsons reach $293,000 in savings.
They have enough to buy a home outright and keep some cash on hand. They can even upgrade the size of the house with the intention of getting two roommates and earning positive cash flow from their mortgage.
Conclusion. Does this story sound unbelievable? Do you think a couple can buy a house outright in five years?
Living Overseas on Passive Income
Well, it’s possible. My wife and I saved $220,000 in less than three years. I am not even including the debt we paid off in this timeframe. Yes, these methods work and get results fast.
We used renting rooms as our wealth generator. House-hacking is low-cost and generates direct income without any skills. You need only be good with people.
I am now building an automated business as my wealth generator, and my wife is doing nails as a side hustle. You have to think outside the box to be highly successful in this world.
Instead of saving for a down payment, you can buy a house outright. Live below your means for 5-7 years, build a wealth generator, invest wisely, and you’ll be surprised by the results. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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