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From $70K in debt to $50K in savings: How I saved for my first home

Giving up this view for two tiny basement windows wasn't easy, but it was worth it. (Stephenie Morris)

This year, I’m buying my first home.

It’s a goal that was planned over three years ago, when my fiancé and I said goodbye to our gorgeous 700 sq. ft., 18th floor Yonge and Eglinton apartment with sweeping southern views of Toronto. We traded that in and said hello to a basement apartment with soyoothing sounds of the subway rattling by. We also embraced staying in on the weekends, holding up lines in the name of couponing and making our own wine at only $3 a bottle. With a budget set and goals to meet, our dreams slowly began taking shape while living a less than idyllic life in The 6ix.

We began the journey to home ownership in over our heads and about $70,000 in the hole. Student debt and having too much fun had caught up with us, and we were drowning. This is not unlike most people in their mid-twenties, and I for one had accepted that I would always carry debt and would never be able to afford any sort of down payment. Such is life. Until one day, it hit me: I want to grow up.

Over three years later and we are debt-free, still living in the same glorious basement apartment, but we have over $50,000 in savings to put toward our home and an aggressive plan to have a lot more than that by the end of the year when we make the biggest purchase of our lives.

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Sounds like quite the success story, huh? Don’t be fooled, it has NOT been easy. We have sacrificed a lot of great travel opportunities, living space, and nice things to make that happen. We have good paying jobs and the ability to save large chunks of money at a time, which has certainly helped our situation and not everyone can do that. However, everyone is capable of living within or below their means, setting a budget, and achieving their home-buying dreams.

You don’t have to do it like me. Wade Stayzer, Vice President of Sales and Service for Meridian Credit Union has tips and tricks on how anyone can make their own plan that works for them and save for a down payment a first home.

Living Like You Already Own

Setting aside money for “Future You” or “Past You” when you could be spending that money on yourself today is a difficult pill to swallow, and one that has an acquired bitter taste. Seeing your paycheque and saying “no thank you, I don’t want that extra money in my pocket” is hard. Really hard.

But if you want to own a home, the best way to do it is to set a budget and start living that way before you even start looking.

“If you’re looking to say ‘how do I set myself up to own a home when I’m living day to day now?’ I think a great exercise is to say if you know you want to own a home and the monthly mortgage is $1,200 a month, start acting like you own the home now and set that money aside so you get into that good financial habit now,” Stayzer says.

Not only will you begin to realize the cost of a mortgage and how it feels to live making that monthly payment, but that money will be tucked away in down-payment savings. If you’re already spending on rent what you think you would on a mortgage, think of whether you could afford the additional bills and costs owning a home would tack onto that payment and decide if you could survive long-term. Then adjust your lifestyle or budget to suit your needs.

Spend the Same – Regardless of Life Changes

“Another tip that I will say, and this is particularly relevant to someone who is younger and maybe is moving jobs and getting promotions: If you’ve proven that you can live on ‘Salary A’ in this job and you either get a merit increase during the year or you get a new job, take all that extra money that you’re receiving from either a raise or a promotion and push it right into savings,” Stayzer says.

Seeing bigger numbers on your paycheque can make you second-guess your spending habits and you could enter into a “treat-yourself” mentality. However, if you’ve lived decently on your old earnings, keep living that way and bank the extra funds.

“We all have this habit of the more you make the more you spend. In early days the more you can save is really going to determine how much house you can afford later in life,” says Stayzer.

RRSPs, TFSAs and Pre-Authorized Savings

The Government has put programs in place to help those of us looking to buy a first home, and we should be taking advantage. The First-Time Home Buyers’ plan lets you withdraw up to $25,000 of your RRSP money to make the purchase, and there are so many ways to start saving and growing your nest egg.

“This may go without saying but if your employer has an RRSP matching program, and most employees have to use it, but if you aren’t utilizing it to your fullest then you are missing out on an opportunity,” Stayzer says. “It is free money and studies have been done that show you can’t do better than that in the market, so don’t miss out on those opportunities.”

In addition to, or as an alternative if you’ve been fortunate enough to hit the $25,000 ceiling in your RRSP, a TFSA is another savings vehicle you can test drive.

“The other thing is as you’re putting money into a TFSA there are a number of different investment vehicles just like in your RRSP,” Stayzer says. “Don’t just think that it needs to sit in a low interest savings account there are high interest savings accounts there you can invest in Mutual Funds or Index Linked vehicles in your TFSA. If you have money in your TFSA and it is somewhat locked away, then it will be less likely you’ll dip in there.”

I am not ashamed to say that after almost 4 years of living cheaply I am officially frugal. I get excited when the weekly flyers come out, I almost never buy myself a Starbucks coffee, and I would never dream of buying a piece of clothing full price. Conversely, my savings account keeps rising and my home ownership goals are now so close I can taste it, smell it, see it. Once you figure out what works for you and how much you can afford to spare, you too can start to make saving a game.