How to Save Money for a Second Home

*This post has been reviewed by an Illinois Registered CPA. However, when making important financial decisions, it's best to speak with your financial advisor.

Last Updated on August 25, 2022

Saving Money for a Second Home

This year might be the right one to become a homeowner for the second time. You can even spend Christmas in your new home. The pandemic has put a strain on many peoples’ finances. Some homeowners may not have recovered from the shock and disruptions the lockdown caused. As a result, they may have decided to give up one of their properties.

Why not benefit from the situation and buy a second home? You might already have some money put aside for this goal. If not, learn how to save money for a second home this year.

How to Save Money for a Second Home by Cutting Costs

No one wants to hear this, but the easiest way to save money fast is to cut down on your expenses. Reducing your expenses doesn’t mean giving up all your pleasures and hobbies. You won’t have to eat less or stop buying clothes either. You can still buy what you want, but you need to think and plan ahead. Make sure you buy things you’ll use so you don’t waste money instead of saving for a second home.

An excellent method to avoid impulsive behavior is the 30-day rule. This method involves the following simple steps.

1. When you see an item you like, keep it in mind. Write the name and price down, or save the link.
2. Allow yourself 30 days to think about this item. Set a reminder or notification 30 days from the moment you first saw it.
3. After the 30-day period, take a look at the product again. Do you still want to buy it? In many cases, the urge to purchase passes. You will no longer be interested in buying this item, and as a result, you’ll save money.

This rule is especially important when buying disposable items. Clothes or new electronics can fall into this category. If your fridge or TV breaks down, the rule might not apply. You’ll most likely consider those expenses necessary.

Impulse buying is one of the most unhealthy financial habits. Once you shake it off, you can fully commit to your savings goal. Other disposable expenses you might be able to reduce include:

• Clothes, make-up, and skin care products
• Takeout coffee, home delivery meals, dinners at restaurants
• Subscriptions you don’t use regularly
• Beauty-related services (nails, hair, etc.)
• Vacations and other hobbies

The golden rule to cutting down these expenses is saying no. You could live without buying too many clothes for a few months to save money for a second home. You could also eat dinner at home most evenings and at a restaurant once a week.

All these habits bring extra money into your savings account. It allows you to save for a down payment on your second home. It can also help you fix your credit fast.

To be able to do this, you might also need support. You should talk about your goal with your family and friends. You don’t have to ask for financial help but for moral support. Do you plan on living on a limited budget for a few months? This will mean adjusting your lifestyle.

For example, you might want to reduce those expensive night outs with your buddies. They should know the reason behind it. The same goes for your family. Letting them know about your goals will help you prevent distractions and temptations.

Cutting Down on Necessary Expenses

After you give up or reduce disposable expenses, go to the next level. Wondering why you can’t save enough money? Try cutting down costs on your necessities too. This is the hardest part. You can think of anything from food to gas and utility bills. Here are a few suggestions for each category:

Where to cut down costs	How to do it
Utility bills	Switch to energy-efficient light bulbs. Better insulate your home to avoid wasting heat. Keep devices turned off when not in use. Reduce your warm water consumption. Use the half-payment method to save money for your bills.
Groceries	Check discounts. Buy items in bulk. Keep and use all the coupons you get. Buy from cheaper stores.
Gas	Buy groceries from stores nearby. Avoid driving everywhere. Use public transport if possible. Combine errands to pay less on gas.

Saving for a Second House by Increasing Your Income

Cutting down on your expenses might not come easy. If you have kids, it becomes more complicated. In this case, the solution to affording a second home is to earn more. There are different ways to increase your income. One of them is to put more effort into your full-time job, which can translate into extra hours. Doing overtime might be tiring, but consider the hundreds of dollars you could earn this way.

Another option is to stick to a regular schedule but move up the company’s hierarchy. If you work for a corporation, you might be able to do it. Changing your job title can mean a significant raise, but it also comes with more responsibility. Make sure you are up to it. Scrutinize all the available options. Then, discuss them with your manager. You might get promoted faster than you imagined.

If you love what you’re doing, it is the best way to increase your income. For example, a $500 salary increase per month means $6,000 more in your savings account per year.

Getting a Side Hustle

With a job in a small company, promotions might not come easy. Chances are, there is no higher position available. Also, the company might have a limited budget, and asking for a raise might be out of the question. It doesn’t mean you have to stop there. You could earn more by getting a side hustle.

There might be plenty of job options out there, but make sure you can handle both jobs. For example, you could work for your side job on weekends.

Dedicate weekdays, as before, to your full-time job. If you’re good at DIY, you can focus on that. There are things you could make and sell. Decorations, furniture, even custom clothes. It all depends on your skills.

If you’re good with computers, you could get an online side hustle. There are plenty of jobs for freelancers in several domains. Online marketing, customer support, data entry, and web design are some examples.

If you have a lucrative hobby such as photography, leverage it. You could work as a weekend photographer at private events. There are also lots of jobs you could do offline. Some of the common ones include

• Food delivery services
• Pet care
• Restaurant and hotel jobs
• Driver jobs
• Housekeeping jobs
• Shop assistant jobs

Having multiple revenue streams not only brings more money, but it also increases your stability. If one job fails, you have a backup. Plus, if you’re young, it also helps with your resume.

You might be able to make a few hundred dollars per week from your extra job. Here is a simulation

Extra money earned weekly	$300
Monthly extra income	$1,200
Annual extra income	$14,400
Annual extra income earned by you and a partner	$28,800

Let’s imagine you earn $300 more per week. This brings $1,200 more per month. Now, let’s multiply the amount by two. Your partner might also be willing to get an extra hustle. At the end of the month, you’d have $2,400 more in your savings account. At the end of the year, this account’s balance would be $28,800.

Now, the goal of buying a second home seems more realistic. This amount can go toward your house’s down payment. If you also manage to save money from your main job, even better.

What to Consider Before Saving Money for a Second Home

Many people ask themselves how to save money for a second home, but the primary question should be how much money do I need for a second home? Without a clear goal in mind, it’s hard to put together a plan.

You first need to know how much you will have to save. Are you only saving for a down payment or a larger amount? You might plan on buying a second home with cash. It is possible if you already have a robust savings account. Although the average house down payment amount is 13%, we still suggest you strive to pay at least 20% for your down payment.

After you have this amount, look for a loan. The more you save, the better. Your mortgage rate and interest decrease as your down payment increases.

To calculate your down payment you need to:

1. Choose a city and neighborhood where you plan on buying a second home.
2. Look around for options you can afford.
3. Establish a price range based on your income and savings amount.

When you complete these three steps, you will know the approximate value of your down payment. Then, you can divide it by the number of months.

For example, you might want to gather the whole amount in one year. Divide the down payment by 12. You will learn how much money to put aside each month. Then, all you have to do is stick to this strict savings goal. To make it easier, create a separate savings account for your down payment. That is how you avoid tapping into your savings.

You can set up automatic payments. Every month, the amount will automatically be transferred into your savings account. Internet banking tools and budgeting apps like YNAB can help you out.

Saving Money for a Second House by Budgeting

Budgeting is key to a sound financial life. It is also how you save money for big goals such as a second home. Here are some of the best budgeting strategies you can use.

1. The Digital Envelopes System

This is quite an effective budget strategy. You can use digital or real envelopes to apply it. The steps to take are the following:

1. You divide your budget as per your monthly expenses.
2. You put aside the established amount of money for each type of expense.
3. Use what is in each envelope for each spending category.

2. The 50-30-20 Budget

With this budget strategy, you divide your earnings into three parts as follows

1. 50% of your income for your necessities
2. 30% of your income for your wants
3. 20% of your income for your savings

3. Priority Budgeting

This budgeting method involves establishing a priority. In your case – buying a second home. All the other expenses remain behind this one in your budget strategy. When you get money, first allocate an amount to your second home budget. Then, take care of the rest of your priorities.

Frequently Asked Questions (FAQs)

Is it easier or harder to buy your second home?

It all depends on your financial situation. If you have the necessary budget to buy a home with cash, it’s easier. If you need to save money and make a loan, you need patience. Getting a mortgage comes with responsibility. Budget and organize your finances. Make sure you can afford this loan. Otherwise, waiting to save more money is better.

How much money can I save for a house with an aggressive budget strategy?

You can save hundreds or thousands of dollars per month. It depends on your earnings and spending. You can save lots of money with the envelope system or the 50-30-20 strategies.

How much money can I save for a second house from a side job?

Imagine that with a side hustle, you could earn around $250 – $350 per week. This would mean $1,000 – $1,500 per month. If your spouse gets a part-time job too, double the amount.

What should I watch out for when buying a second house?

As you save money for a second home, also monitor the housing market. The prices and offers are often changing. You need to stay up to date. This is how you can enjoy the best housing deals and pay less on your second home.

Sources:

What’s the average down payment on a house in 2022? Mortgage Rates, Mortgage News and

Strategy : The Mortgage Reports. (2022, July 14). Retrieved August 8, 2022, from https://themortgagereports.com/60543/average-down-payment-on-a-house-and-low-down-payment-benefits