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If you’ve needed to scrimp and save extra money for the days leading up to payday, you aren’t alone. According to a 2021 survey, 54 percent of U.S. workers report living paycheck to paycheck in order to make ends meet each month.

Breaking the paycheck-to-paycheck cycle can help you improve your quality of life and financial stability—including your credit score. Read on for more information on how to stop living paycheck to paycheck, and don’t forget to check out the infographic on tips to level up your career to save more.

1. First things first: start budgeting

One of the most effective steps you can take to stop living paycheck to paycheck is to create and follow a budget. There are a few different ways you can budget your money, from a sinking fund to cash envelopes, so don’t be afraid to try different strategies until you find what works best for you.

The best budget will account for all of your expenses, from weekly grocery trips to car payments. Having a monthly budget can show you how much money you’ll have coming in and going out each month, so you can spend (and save) accordingly.

Tip: Create a monthly and yearly budget to guide your spending and saving.

2. Set personal financial goals

Sometimes, all you need to motivate yourself to save is a concrete goal to keep in mind. This goal can vary, but some examples are:

• Have $5,000 in your savings by the end of the year
• Pay off your credit card bill
• Take a fully paid off family vacation in the summer
• Put aside four percent of your paycheck each pay period
• Finish paying off your car lease

These goals help give you something to work toward that you can keep in mind when you’re tempted to overspend. You can even print off a picture of your goal (like your car or your dream vacation locale) and wrap your credit card in it, so you can remind yourself why you shouldn’t overspend.

Tip: Set a financial goal to accomplish in the next six months to a year.

3. Decrease spending where possible

One way to have more money each month is to cut back on unnecessary spending, which can be easier said than done. If you find yourself spending impulsively every time you go out, try to remove that temptation altogether, either by not window shopping or by leaving your cards and cash at home when you do go out.

A surefire way to cut unnecessary spending back is to have a rigid budget in place and a financial goal in mind. This can help remind you what you’re budgeting for, and how worth it resisting spending will be when your goal is met.

Tip: Make a priority list of things you need before shopping so you aren’t tempted by impulse purchases.

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4. Avoid lifestyle inflation

When you get a raise or income bump, it’s natural to want to treat yourself for your hard work. But making a habit of spending more as you make more, also known as lifestyle inflation, can lead to some serious overspending.

While it’s certainly tempting to make some big purchases as you make more money, it’s important to stick to your budget and not make unwise financial decisions just because you can afford it.

Tip: Treat yourself to one item you’ve been eyeing when you get a raise or new job, but otherwise continue spending like you were before you got a pay bump. Save the extra money, or put it toward your goals.

5. Pay yourself first

Each month, you should try to “pay yourself” first by putting money into savings and/or retirement. If you find yourself forgetting to do this each month, you could tell your employer to reroute some of your pay into a separate savings account. This way, you don’t see the money that’s being sent there, so you don’t get a chance to miss it.

Tip: Set up three to four percent of your paycheck to be automatically drafted into your savings account each pay period.

6. Take steps to eliminate debt

If you are anxiously awaiting your next paycheck because you have debt piling up, you may want to make an aggressive plan to eliminate or downsize the debt you have. To do this, start making more frequent or larger payments on the debt that has the highest monthly interest rate to cut down on the total amount of debt you have. Once you’ve eliminated some of your debt, you can save more each month.

Tip: Create a plan to pay off debt, starting with the debt with the highest interest rate and working down.

7. Keep a “cushion” in your checking account

Once you’ve been able to put aside some money in your savings account each month, it’s advised to create a cushion of a few hundred dollars in your checking account. This cushion gives you some flexibility financially, so you aren’t stressing about overdraft fees or overspending.

This can give you peace of mind that even if you go off budget for the month or your bill at dinner is higher than you anticipated, you won’t send your bank account into the negatives.

Tip: Build up how much you save from your paycheck each month to create a cushion of a few hundred dollars (or however much you feel comfortable with) in your checking account.

8. Create an emergency fund

An emergency fund, as the name suggests, is a fund created specifically to use in the event of an emergency. This could include unexpected car repairs, damage from a fire or flood, or anything else in your life that constitutes an emergency expense. The fund ideally allows you to cover these things so you don’t need to empty your bank account for something you didn’t budget for.

A 2020 survey showed that only 41 percent of U.S. adults would be able to cover an unexpected $1,000 expense, and 37 percent of adults said they would need to borrow money in some capacity for an unexpected bill. Having money stored away “just in case” can grant you peace of mind that you won’t be put into debt by an unanticipated expense.

Tip: Aim to have around $1,500 to $2,000 saved in case of an emergency.

9. Increase your income

A job isn’t just about the money, but if your job isn’t paying your bills, it can cause a huge amount of stress. If your main source of income isn’t cutting it anymore, you may want to consider asking for a raise or finding a higher-paying position that meets your financial needs.

A 2018 survey found that 70 percent of workers who asked for a raise received one, though it wasn’t always the amount they requested. If you aren’t comfortable or not in a position to ask for a raise, additional ideas to increase your income include:

• Starting a side hustle, like delivery driving or ride-sharing
• Monetize a hobby, such as selling or commissioning your work
• Create passive income opportunities

Tip: Set a goal of how much income you’d like to be making, and take necessary steps to make that happen.

10. Keep in mind the “Four Walls”

If you find yourself overspending each month, you may want to try a spending detox to show how much you can save by cutting out extraneous expenses. One method is the Four Walls budget, popularized by financial guru Dave Ramsey. The Four Walls are the top priority spending areas for your budget each month: food, utilities, shelter and transportation.

By taking care of your Four Walls each month, you’re making sure you and your family are fed, with a roof over your heads, bills taken care of and the ability to get where you need to go. By only spending money on these areas for one month, you can make your budget work for both your needs and wants (and hopefully cut out a few of the less necessary wants).

Tip: Try one month where you spend money only on your Four Walls to see how much you save when you cut out unnecessary purchases.

11. Spend intentionally

If you need some help with intentional spending, start by paying close attention to what you’re spending your money on. You might go on autopilot at the grocery store and get the same name brands you always get, but are there cheaper, generic alternatives you can swap for? You may have a set monthly shopping date with a friend, but can you have a BYO picnic instead of going to the mall?

Many major bank apps have a spending breakdown in monthly statements, so see if that’s an option for you to analyze your spending habits and cut back where necessary.

Tip: Pay close attention to and audit your spending for a week, then make adjustments based on your highest spending areas.

12. Remember the big picture

Budgeting and saving can feel frustrating, especially when you aren’t seeing huge payoffs or differences right away. However, it’s important to keep the big picture in mind and remember your “why.” By budgeting and being more intentional about your spending, you can soon have paychecks come and go without anxiously counting down the days. It’s hard work, but it will be worth it when you’re able to have confidence in your financial decisions.

Tip: Write down your saving goal in a spot you see each day, so you’re always reminded why you’re making tough financial decisions now.

What happens when you break the paycheck-to-paycheck cycle?

Now that you know some strategies on how to stop living paycheck to paycheck, you may be wondering what happens when you finally break this vicious cycle of spending, anxiety and waiting for payday. Check out three ways that not living paycheck to paycheck may improve your life.

Quality of life may improve

Fifty-eight percent of Americans feel their finances control their life, according to a 2020 survey. Breaking free of the paycheck-to-paycheck cycle can help you regain control of your life and no longer feel like you’re being controlled by money, which can lead to an overall improvement in your quality of life.

Stress levels may go down

Seventy-seven percent of those in a recent survey said they regularly feel anxious about money. Once you’re no longer living paycheck to paycheck, that major stressor may be eliminated.

Forty-three percent of those surveyed said financial stress causes fatigue, while 41 percent said it interferes with their sleep and 42 percent reported difficulty concentrating at work. The peace of mind that comes with no longer living paycheck to paycheck could have a positive impact on your overall health and well-being.

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You may have more financial freedom

Once you’re no longer living paycheck to paycheck, you’ll notice greater financial opportunities and options to choose from. This also means you’ll have more flexibility when it comes to purchases—you’ll likely be able to pay for things in full, so you’ll have the opportunity to stop putting expenses on your credit card and rack up debt.

This in turn frees you from the debt repayment cycle and lets you have full control over your money. Money shouldn’t be a roadblock on the path to happiness, so financial freedom opens you up to living life on your own terms.

While stress about money may never completely go away, there are several things you can do to eliminate the need to live paycheck to paycheck each month. Taking control of your finances can then positively impact your credit by making better financial decisions that will help you pay down debt and raise your credit score.

Reviewed by Anthony Moore, Credit Consultant and Trainer at CreditRepair.com.

Anthony Moore started working for CreditRepair.com November of 2016. Anthony Moore started as a credit advisor, and quickly advanced to to helping members get caught up on their overdue payments. In addition to reviewing and writing content for CreditRepair.com, Anthony assists other credit advisors with approvals and supports the credit repair process.

Note: The information provided on CreditRepair.com does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only.

The post How to stop living paycheck to paycheck: 12 tips to get ahead appeared first on CreditRepair.com.

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It’s time to say “Ho, ho, ho!” to the winter holidays without putting a “ho, ho, hole” in your wallet. With so many expenses bundled up at the end of the year, November and December can be a stressful time. If you’re trying to spread joy without spreading your finances too thin, you may need to spend some time budgeting for the holidays.

Holiday budgeting isn’t as hard as you might think, and sticking to your budget is a lot easier when you’ve laid out your plans clearly. 

Follow our tips below to master your holiday budget—that way, you can give yourself the gift of stress-free finances to end the year right.

1. Look at last year’s holiday spending

Get ready to sleigh your budget by looking at last year’s financial successes and places for improvement. Pull up your bank and credit card statements—or any receipts you saved—from last holiday shopping season. 

Ask yourself some of the following questions:

• Where was I able to save money?
• What did I buy that feels wasteful now?
• What did I spend money on that was most valuable?

Ultimately, taking a look at your previous spending should help you decide on what you value most in the holiday season: family, travel, meals, gifts, traditions or something else entirely. Take these values forward into your budgeting so you know what to prioritize.

2. Set a realistic limit

You snow the drill: a budget only works if we put a cap on it. Everyone’s circumstances are different, so you’ll want to take a look at your income, savings and essential expenses to come up with a number that’s right for you. 

No matter what, make sure your limit is realistic. Writing down an absurdly low number may feel like progress, but you could be disappointed if you end up overspending. On the other hand, shooting too high may lead to missed opportunities for saving. 

The average American household spends almost $1,500 on purchases related to the winter holidays, but your budget may be more or less depending on the size of your family and your financial situation. 

Here’s the best gut check for your limit: imagine the number you chose disappeared from your bank account right now. Would you still be on solid financial footing? If not, you may be cutting into expenses that are more essential than your holiday budget.

3. Start a conversation

Before you start to “treat yo elf,” remember everyone else you need to include in your holiday plans. Whether you’re single, married or have kids, a holiday budget usually involves expenses that extend beyond yourself.

When you’re looking to spend less or spend wisely, it’s best to talk with your friends and family to make sure you know what’s important about the holidays for those you love. During those conversations, you’ll also want to make sure you share your own hopes for the holidays. 

Having conversations about money can be tough in any case, but even more so when the holidays are involved. We’ve got conversation starters to help you discuss holiday spending with your family, partner or kids. 

4. Lay out all of your expenses

When you think about your holiday spending, you may fir-get that it involves a lot more than just gifts. Finding memorable gifts for everyone in your life may occupy your holiday attention, but your budget needs a few more line items.

Consider some of these other expenses that may need to be accounted for:

• Groceries and restaurants
• Car or air travel
• Decorations
• Clothes
• Cards or stamps
• Wrapping paper or gift bags

Making sure that your budget encompasses all of your expenses is a great way to avoid overspending. 

A good guideline for budgeting is the 50/30/20 rule: Aim to spend 50 percent of your income on needs, 30 percent of your income on wants and 20 percent of your income on savings or debt payments. Since holiday budgeting likely falls under the “wants” category, you’ll want to calculate with 30 percent of your income—but be sure to factor in non-holiday wants as well.

5. Try out envelope budgeting

If you think envelopes are great for holiday cards, yule love hearing how they can make your budget even better. Envelope budgeting is the process of determining a dollar amount for each expense and setting that money aside so that you don’t use it for anything else. 

If you’re using cash, you can use actual envelopes—but there are alternatives for online money management, too. For example, many banks enable you to create savings buckets, so you can split up your account into different categories. By creating a bucket for each holiday expense, you can get a sense of how much you still need to save, and you can keep track of your spending throughout the season.

6. Make a list and check it twice

If the holidays have you feeling Santa-mental, it may be time to plan which gifts to get—otherwise people might see you as a rebel without a Claus. Although it’s tempting to get an expensive gift for everyone on your list, you’ll want to prioritize spending on the most important people in your life.

Keeping your overall spending limit in mind, list out the people you want to buy gifts for, then write down their likes or wish list to come up with a spending target. If you need help keeping track, we’ve got a great resource for making a gift list.

7. Give your time 

While gifts often feel like the only way to celebrate the holidays, those closest to us often prefer our presence to our presents. During a busy time of the year, taking a moment to get together with friends or family is often the best gift of all. 

Here are some ideas for gifting your time:

• Set up a potluck
• Host a board game or trivia party
• Help out with decorating
• Pitch in with winter chores
• Take your nieces or nephews for a day trip
• Schedule a family video chat

Whatever your family or friends enjoy doing together, make it a point to set aside time to make it happen—the memories will likely last longer than any gift.

8. Share some creative coupons

If expensive gifts are your go-to, you may need to act more like a Christmas tree and branch out. Personalized gift coupons are one of the oldest tricks in the book, but they’ve stuck around for a simple reason: they’re actually amazing. 

With one of your gift coupons, your partner can redeem a cup of hot chocolate with marshmallows on a chilly evening or your kids can cash in for a few extra minutes before bedtime. Of course, you may also have some great ideas of your own for how to fill out a super special holiday coupon.

Use one of our pre-made coupons or fill out your own to share with your friends, family or children.

9. Start new traditions

If your holiday routine is in a rut, it may be time to spruce things up. The main point of your holiday season may currently be gift-giving, but it doesn’t have to stay that way. Often the best parts of the holidays are the little traditions that don’t cost much or anything at all. 

If your holiday crew has decided to scale down the presents, try some of the following alternatives for low-cost and memorable traditions:

• Caroling door to door
• Visiting well-decorated neighborhoods
• Baking cookies and other treats
• Playing board games
• Volunteering at a local charity
• Sharing family stories
• Creating holiday crafts
• Watching classic holiday movies

Whatever you choose to do, do it with the people you love. Most of our lasting memories of the holidays revolve around people rather than presents, so starting a new tradition is a great way to keep your spending under budget while increasing your joy.

10. Create personalized gifts

It’s simple Claus and effect: giving personalized gifts makes the recipient feel special. Taking a moment to think about what someone really needs shows care and consideration that outweighs any monetary value. 

Some of the best gifts are inexpensive or free—but well-thought-out. Personalized gifts can be DIY or purchased. Maybe you provide cooking lessons for a family member you know has been hoping to improve their culinary skills. Perhaps you craft fabric ornaments for all your coworkers. Or you may simply write a thoughtful letter to a friend you know needs to hear from you. 

11. Watch out for “buy now, pay later”

The sticker shock on popular holiday gifts often has us all muttering, “Say it ain’t snow.” In the past few years, many companies have tried to hide the true cost of larger purchases with “buy now, pay later” offers. Instead of seeing the full cost, you’ll see a monthly payment and a term. 

While the short-term cost may seem appealing, this long-term contract for holiday spending can throw a wrench in your budget. If you’re going to end up paying $50 each month for two years to cover the cost of a present, for example, your budget may not actually stretch for the entire $1,200 cost. 

A good motto to stick by during the holiday shopping season is this: if you can’t afford it now, you can’t afford it (yet). Your budget may change down the line, but it’s best to stay within your current means when making holiday purchases.

12. Be mindful of credit card spending

Credit cards are wonderful financial resources, but they can get you in a fa-la-la-lot of trouble if you don’t monitor your spending carefully. While it’s tempting to spend up to your card’s limit, a good approach is to set your own spending limit that matches your budget. 

Paying off your full credit card balance every month is an excellent habit that can boost your credit score, and you don’t want to make an exception for the holidays. Remember the budget you set for the holidays, and don’t let your credit card interfere with your financial goals. If it helps you keep your seasonal spending in check, consider sticking with your debit card or cash during the holidays.

If you’re using a credit card during the holidays or any time, you’ll want to make sure to keep a close eye on your credit report. Errors and inaccuracies with your personal information, balances or payment history can happen, and unless you file a dispute, your score may drop unnecessarily as a result. If you’re having trouble understanding the information on your credit report or need help fixing your score, a credit repair company could be the support you need. 

With a solid plan in place for your holiday budget, you’ll be able to stress less about finances and focus on what matters most this time of year: being with the people you love.

Reviewed by Anthony Moore, Credit Consultant and Trainer at CreditRepair.com.

Anthony Moore started working for CreditRepair.com November of 2016. Anthony Moore started as a credit advisor, and quickly advanced to to helping members get caught up on their overdue payments. In addition to reviewing and writing content for CreditRepair.com, Anthony assists other credit advisors with approvals and supports the credit repair process.

Note: The information provided on CreditRepair.com does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only.

The post 12 holiday budgeting tips to save money and stay merry appeared first on CreditRepair.com.

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Disclosure regarding our editorial content standards.

The thought of buying a home elicits a lot of feelings—excitement, worry, confusion, stress, joy—and also a lot of questions. Going from renting to owning can be a huge source of satisfaction, but the process of buying a home often seems shrouded in mystery.

Before anything else, most people wonder about how to save for a down payment. How much do you need? Where should you keep the money? What’s a reasonable timeline?

Below, we’ll cover everything you need to know about finding the funds for a down payment.

Step 1: Determine how much you need to save

Setting a savings goal is an important part of getting your down payment together, so first you’ll need to know how much you need to save.

While it’s difficult to pin down an exact figure, you can come up with a reasonable goal by considering three questions.

How much home can you afford?

In general, you’ll be able to afford a home that costs two to three times your gross income. If your household earns $125,000 annually, you could expect to buy a home worth $250,000 to $375,000.

Take some time to look at houses in cities and neighborhoods that you have your eye on to see recent sales prices as well as pricing trends. The homes you’re looking at now may be more expensive by the time you have a down payment prepared, so you may want to adjust your calculation to include rising prices.

What percentage will your down payment be?

Your down payment may end up being anywhere from 3 percent to 20 percent or more of the total cost of your home, depending on your loan.

• Conventional loans: Loans from banks and other financial institutions may allow for down payments as low as 5 percent, though 10 percent to 20 percent is more common.
• Federal Housing Administration (FHA) loans: Loans from the FHA offer down payments as low as 3.5 percent.
• Other loans: Loans from Veterans Affairs (VA) and the United States Department of Agriculture (USDA) may offer loans with no down payment with other qualifications.

When considering how much to put down for your home purchase, consider the cost of private mortgage insurance (PMI). Most loans will require monthly PMI payments for down payments less than 20 percent of the home’s value. This insurance protects the lender in case you default on your loan.

A larger down payment will lead to a lower monthly payment and less interest paid overall, so you’ll want to try to save the most money you reasonably can.

What are your other home-buying costs?

While the down payment represents the largest initial sum you need to purchase a home, there are other costs to consider. When determining how much to save before buying a house, don’t neglect other important costs, including:

• Closing costs: Closing costs, which include the transactional costs associated with originating a loan and transferring ownership of the home, often amount to 2 percent to 5 percent of the home’s value.
• Repairs: Upon moving into a new home, you may have initial costs to repair expensive items like the air conditioner or roof.
• Furniture and appliances: If you’re moving into your first home, you may need to purchase appliances that were previously included in your apartment as well as furniture to fill a larger space.

Buying a home is an expensive process, and owning a home is costly as well. You’ll want to be sure that after purchasing your home, you still have an emergency fund that can support the mortgage, utility and repair costs associated with owning a home. Make sure that your savings goal includes a buffer for the months after you move into your house, which often prove to be pricey.

After answering all of the above questions, you’ll have a rough idea of how much you need to save to purchase a home. Next, you’ll need to look at your current income, expenses and savings to figure out how to reach your goal.

Step 2: Examine your budget

To save a large sum of money, you need to have a very clear picture of how much you’re earning and how much you’re spending. Whether or not you’re already using a budget, you’ll need to take some time to dig deep into your finances.

Look at your bank and credit card statements as well as any other financial accounts you have, then ask yourself the following questions:

Income

•  How much do I earn each month?
• Is my income regular or irregular?
• Are the balances of my savings and checking accounts increasing over time?
• Do I have opportunities to earn more money?

Expenses

• What are my fixed expenses? (Housing, utilities, insurance, food, transportation, etc.)
• How much do I spend each month on nonessential purchases?
• In which areas am I willing to cut back my spending?
• Do I have any recurring costs or subscriptions that I don’t need or use?

Savings

•  How much do I currently have saved?
• How much do I save each month?
• Do I contribute regularly to any retirement accounts? (E.g., a 401(k) or IRA)
• How much more would I save by cutting out nonessential expenses?

 Debt 

• What debts do I currently have?
• Do any of my debts have high interest rates? (Greater than 6 percent)
• Is my debt decreasing or continuing to grow?
• How long until I am debt-free?

In order to save for a down payment, you need to ensure that your spending stays below your income every month. To do that, you’ll need to look carefully at where you spend your money and how you’ve currently been saving.

Step 3: Find ways to spend less and save more

After taking a look at your existing spending, it’s now time to get down to business finding ways to put together the cash for your down payment.

There are two key things you need to do to increase your savings: earn more and spend less. Neither of these is necessarily easy, but there are ways to work on both as you try to save for a down payment.

Spend less

•  Look for unused or unneeded subscriptions or memberships with monthly or annual fees.
• Try to reduce spending on eating out, entertainment and nonessential purchases.
• Consider getting a less expensive cell phone or cable television plan.
• Watch out for lifestyle creep, which occurs when increased income leads to increased spending.
• Postpone any vacations that can be deferred.
• Avoid credit card interest charges by paying your bill in full each month.
• Use automated savings through your bank to avoid impulse purchases and increase your savings rate.

 Earn more

• Find opportunities for side hustles or part-time gigs, especially if they involve one of your passions.
• Consider asking for a raise if your performance has been bringing additional value to your employer.
• Seek out a new job or career if your current position has reached an income ceiling.
• Think about selling unused or unneeded items around your house.
• Direct any windfalls, like tax returns or inheritances, directly toward your savings goals.

In addition to all of the above, one of the best ways to increase the amount of money available to you each month is to pay off any existing debts. Monthly debt payments can eventually be redirected toward your down payment savings goal, so making a plan to get out of debt is an important step on your financial journey. Read more to learn how to deal with debt as you save for your house.

Step 4: Deal with debt

If you have any debt, you’ll need to figure out how to deal with it before deciding to save for a down payment. Nearly everyone has some kind of debt, like a car loan or student loans, and debt is not necessarily an obstacle to purchasing a home.

Still, understanding your current debt situation could help you make a solid savings plan and avoid headaches during the home-buying process.

Answer the following questions when considering how to proceed with saving for a down payment while dealing with debt.

What is the interest rate of your debt?

If you’re carrying high-interest debt, especially credit card debt, that could be an obstacle to saving for a down payment. In fact, saving for a down payment could be a financial liability in the long term, since you will end up spending even more on interest charges while you save. 

Consider, for example, someone who has $5,000 in credit card debt with a 21 percent interest rate. If they make minimum payments on their credit card debt for a couple of years to save for a down payment, the debt will then have grown to more than $7,000.

If debt is currently ruling your financial life, it may be worth finding ways to get that under control before saving for a down payment.

What is your debt-to-income ratio?

When you apply for a loan to purchase a home, the lender will look closely at your credit score and debt-to-income ratio (DTI). Your DTI is a reflection of how much you owe relative to how much you earn. To calculate your DTI, add up all of your monthly debt payments and divide by your monthly income.

If your debt payments make up a significant percentage of your monthly income, you may be seen as a risk to lenders, who want to ensure that the loan will be paid back. In that case, you may need to spend time addressing some of your debt before you’re ready to apply for a mortgage.

What are your monthly debt payments?

Calculating the total value of your debt payments can be helpful in determining whether you’re ready to save for a down payment. Additionally, you’ll want to get a sense of how soon you’ll be debt-free.

Many budgets account for 50 percent to go toward fixed expenses, 30 percent to go toward discretionary spending and 20 percent to go toward savings. If your debt payments are interfering with your savings rate, that could be a sign that saving for a down payment needs to wait.

If you already have a plan to pay down your debt, you can still start planning to save for a down payment in the future. The amount of your current monthly debt payment could eventually be used to save for a down payment every month. The average American spends $1,233 each month on debt payments, which would amount to almost $30,000 saved over two years after the debt is paid off.

Step 5: Set a timeline and monitor your progress

Once you know how much you can save each month, it’s time to make a savings timeline. Many people set the goal to save up for a down payment in two to three years, but there’s no set deadline—everyone has different financial circumstances.

Take your savings goal and divide it by your monthly savings to come up with a rough estimate for how long you’ll need to save. For instance, you may want to save up $40,000 for a down payment by putting aside $1,500 each month. That will take you 26 months, or just over two years.

Finances aren’t entirely predictable, so your plan may need to adjust over time. Set aside time each month to review your income, spending and savings and adjust your plan as needed. Some of your other savings goals—like investing for retirement—may be interrupted during this time, but often the long-term investment of buying a home is worth prioritizing.

As you keep working toward saving for your down payment, keep the following questions in mind.

What happens if my savings goal changes?

There’s no problem with needing to make adjustments to your plan. You may experience changes in your goal, your income, your spending or your savings rate as you try to save for a down payment.

The important thing is that you keep your eyes on your goal and make necessary changes to your financial behaviors to reach it. If needed, take a look at the earlier steps again to reevaluate your situation. Could you look for a loan with a smaller down payment? Could you increase your income? Could you refinance any of your existing loans? Could you make cuts to your expenses?

Where should you store your down payment?

Most people choose to keep their down payment in a traditional or high-yield savings account. Since a down payment is a savings goal rather than an investment, you likely don’t want to put the money in an investment account where you run the risk of losing it.

Instead, a savings account offers the possibility for modest gains through interest while protecting your money with federal insurance.

Step 6: Keep an eye on your credit score

As you continue to work toward saving for a down payment, one other aspect of your finances that you should monitor is your credit. A down payment is an important component of purchasing a home, but your credit will play a major role in determining whether you are able to secure a mortgage and what kind of interest rates you are offered.

In order to improve your credit as you save, try to do the following:

• Pay your credit card and loans on time and in full every month. Lenders want to see that you’re responsible with your credit, which means first and foremost that you make payments every month.
• Try to work toward a favorable debt-to-income ratio. Take time to pay off high-interest debt or loans with high balances, as you’ll be more likely to get a mortgage with a lower debt load.
• Keep an eye on your credit report. Your credit report keeps track of your accounts, balances and payments—and it’s what lenders will use to judge you when you apply for a mortgage. Make sure you know what’s in there and that your report is accurate.

Your credit report will influence your loan application, but it may not be accurate. For that reason, it’s important to look closely to make sure that your report reflects your actual credit history. If you notice anything that seems incorrect, consider reaching out to a credit repair company, which can dispute inaccurate information on your behalf. This has the potential to improve your credit, making it easier to secure a mortgage.

Congratulations on making a goal to save for a down payment, which is the first step on the path to homeownership. With patience and financial savvy, you can come up with the funds you need to purchase a house.

Reviewed by Upuia Sagapolu, Credit Consultant at CreditRepair.com.

Upuia Sagapolu has worked in credit repair for over 17 years. She has a great wealth of knowledge and wisdom concerning the credit repair process. Upuia champions herself as a strong advocate assisting all hard-working Americans towards increasing their credit scores and achieving their financial goals. She is a firm believer that having great credit is essential to a person’s credit journey, which is their financial power that leads to their financial freedom.

Note: The information provided on CreditRepair.com does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only.

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