The COVID-19 pandemic postponed many major personal and financial milestones for people across the country, so 2021 is likely shaping up to be a busy – and expensive – year.
Whether your plans got delayed or you are heading into these milestones for the first time, you’re likely going to need to save a significant amount of money. Hopefully, you’ve been saving for years. Either way, there are some important and helpful money-saving steps you can take even as the milestone approaches.
Saving for a Home
When it comes to saving for a house, you’re really saving for the down payment, since just about everybody needs a mortgage to purchase a new home.
While some lenders may allow a down payment of less than 20% of the cost of the house, you should really try to save enough to reach that 20% mark. If you put down less, you’ll be subject to private mortgage insurance, a premium that gets added to your monthly loan payments. For perspective, in 2019, the average new home in the United States sold for $284,600 – a 20% down payment of that sale price is $56,920 .
Assuming you’ve already been saving for a new home, you can divide how much money you need to accumulate by the number of months in which you plan to purchase the house. For example, if you need $50,000 and want to move in 10 months, you’ll need to save $5,000 each month. You may learn that you’ll need a few more months of saving.
Then you need to find ways to cut your budget. You can cut any unneeded expenses, but one way to save significant amounts of money is by downsizing. If you know your dream home is at least a year away, considering finding a less expensive place and putting all the saved rent money toward your down payment.
Learn more about homebuying in 2021.
Saving for a Wedding
According to The Knot, the average wedding in the United States in 2019 cost $33,900. This number varies drastically depending on where you live and the type of wedding you have.
Still, it’s safe to say that your wedding will cost a significant amount of money. But before you start saving, you’ll need to know a more precise number. The first step in saving for a wedding is coming up with a realistic and workable budget.
From there you can figure out how much money you need to save each month. Just take your total budget and divide by the number of months until the wedding. For example, a $30,000 wedding in 15 months would require saving $2,000 each month. This, of course, doesn’t factor in any financial help friends and family may contribute or the personal savings you already have.
Where should you put these savings? A high-yield savings account or money market account may be a good idea, as they allow you to gain interest. However, you will be limited in the number of monthly withdrawals allowed.
Saving for a Baby
A newborn is a bundle of joy, but one that costs a bundle of money. A child born in 2015 will cost approximately $233,610 to raise from birth to age 17, according to the U.S. Department of Agriculture.
But let’s just focus on having a baby. Before the newest addition arrives, there are several financial questions you need to address. Will you be able to return to work after the birth? Does your employer offer maternity and paternity leave? Is it paid? If one of you does not return to work immediately, will you be able to get by on one income? How much does it cost to add a dependent onto your health insurance?
There is a lot of planning that goes into having a child. Much of this planning should be done as early as possible in order to budget and properly save. After all, just giving birth can be expensive, even if you have health insurance. Then tack on expenses like a crib, food, clothes, strollers and diapers. Not to mention child care, which can cost thousands of dollars each year.
And while you may not have friends and family willing to chip in for your mortgage, you likely have people in your circle with baby hand-me-downs they’d be happy to let go. It’s also a good idea to set up a registry. A new baby is exciting for the whole family and many people will be happy to gift much-needed supplies.
Since having a baby isn’t a fixed cost like a wedding, instead of simply worrying about upfront costs, make sure your finances are set up for the long haul. This includes eliminating debt and creating an emergency fund.
Saving for Retirement
Are you planning on retiring in 2021 or the near future? If so, you’re probably weary about the pandemic’s effects on the economy. But there are a number of ways to handle a tough economic environment. When you’re getting closer to retirement it may be a good idea to shift more of your saving from stocks to bonds, according to Investopedia. And although bonds don’t yield the high results of stocks, they are generally considered less risky.
If you’ve set up your retirement budget and don’t believe you have the funds to meet it, there are other financial tools to help you save. A reverse mortgage, or home equity conversion mortgage, is one that allows homeowners age 62 and up to gain access to the equity they have built up in their home in the form of tax-free* loan proceeds. A reverse mortgage allows the homeowner to receive the equity of the home as monthly payments. This can free up a significant amount of money to save for future needs during retirement.
* AAA recommends consulting a tax advisor for your individual financial situation.
Whether saving for a house, car or retirement, AAA can help. Learn more about our financial tools at AAA.com.