Homebuying Savings Hacks for Millennials

• Automatic transfers.  Automatic scheduled transfers from your checking account to your savings can help to make the process mandatory — and maybe a little less painful.
  

• The $5 bill savings plan.  Every time you receive a $5 as change, you set it aside. One woman claims to have saved $36,000 with this little trick, though it took 12 years.
  

• Add a payroll deduction.  Many employers offer the option to direct deposit a percentage or dollar amount from your paycheck into your savings or other account.  This may be another “less painful” option since you don’t “see” the funds take from your paycheck.
  

• Save raises and bonuses rather than spending them.  This takes a bit of discipline, but it’s totally doable.  When you get your raise or bonus, don’t consider it extra money, consider it “house money” and save it!
  

• Set aside tax refunds.  Use those dollars to give your savings a bump.
  

• Keep the change. At least a couple of banks have variations on this theme. For example, Bank of America allows debit card users to sign up for a service that rounds up purchases to the nearest dollar and puts the change into a linked savings account.  Or round-up on your own! Got a few bucks over a round number in your checking account? Just transfer the extra to your savings.
  

• Use cash rewards credit cards to get cash back on purchases and put the rebates in savings.  Just be careful with this one, since high-interest credit cards may cost you more in interest than you’re getting back in rewards.
  

• Keep the car and save the payment. Finally paid off your car?  Congrats. Resist the urge to buy a new one and save the monthly payment.  If you still have an auto loan, consider refinancing it to lower your payments.
  

• Refinance your student loans. Lower your student loan interest rate to save on the total cost of your loan. This little hack could save you thousands to put toward your down payment.
  

• Start building momentum.  Start your down payment fund with a bonus or other windfall. A quick start might motivate you to see the balance build even bigger.
  

• Visualize your goal.  “Slap big, beautiful photos of your dream house on the refrigerator [and] near your office workspace,” suggests nerdwallet.com 

Stash the Cash

Now that you have a plan to save for your down payment, where do you put the cash?  Here are a few ideas:

• Invest it??  Your first thought might be to invest it, with the hope of supercharging your return on what may be a meager starting balance.  “Unless your target date for buying a home is way down the road — say eight, 10 years or more — don’t do it,” advises bankrate.com. “The stock market is too volatile for short-term savings. One severe market downturn can set you back significantly, not to mention discourage your ongoing efforts.
  

• High yield savings accounts.  “These days, ‘high yield savings account’ is a bit of an oxymoron. But with easy access, total liquidity and FDIC insurance, it’s a common choice for short- to mid-term savers.  Banks, especially online versions, like Capital One 360, Ally and Synchrony offer decent rates. Be sure to check with your local credit unions, as well,” advises nerdwallet.com.
  

• Money market accounts and funds.  Money market accounts and funds can also be good options for the short-term saver.  Money market accounts are insured and offered by banks and credit unions.  Don’t get them confused with money market mutual funds, however, which are available at investment brokerages and are not insured.  As with savings accounts, it takes a bit of shopping to find decent returns.
  

• Certificates of deposit.  “Perhaps the best option is buying certificates of deposit (CDs) timed to mature around the time you expect to have the bulk of your down payment saved,” advises bankrate.com. CDs offer a slightly higher rate than savings accounts or money markets, but that’s because your money is locked up for the term of the CD: six months, one year — even two, three years or more.  The fact that your money is inaccessible unless you pay a penalty may help keep those of us easily tempted to tap savings on track.