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Saving for a house - How to save to buy a house
If you are currently living in a rented accommodation, this is perhaps the most appropriate time to plan savings to buy your own house. The most important advice is that you first ask yourself a few questions: How much you can save on a monthly basis for buying your dream home? How much you can buy or invest in a house? Today, I will answer some important questions about savings for a house and discuss other important aspects of buying a house that will enable you to realize that buying your home with savings is not impossible.
Open a savings bank account
Most people in the world have a savings bank account. If you don’t have one, open one with your nearest bank and start depositing some amount in the account every month. When saving for a house, simple savings bank account will not give you very good interest rates so you can switch to other savings instruments listed below.
Open a fixed deposit account
A fixed deposit account comes with a fixed period that means your money will be there in your fixed deposit till the time it matures to be withdrawn. If you will withdraw your money before the maturity date, you will not get the interest according to the terms and conditions of that specific FD. When saving for a house, fixed deposits are long term investments, like keeping a good amount of money in your fixed deposits for 5 to more years for maximum benefits in interest rates.
Open a recurring deposit account
You can open a recurring deposit account with a bank for any period of time, i.e., 1 year, 2 years, 5 years. Recurring deposit accounts give better interest rates than fixed deposits and you do not need to invest all your major savings in one go like FDs. In recurring deposit accounts, you pay monthly. For example, before buying my first house in April 2005, I opened three recurring deposit accounts in three separate banks for a period of three years. Then I took a home loan and invested all the money saved for buying my first hous in Indirapuram, Ghaziabad, India.
The above saving instruments are totally risk free but at the same time provide low interest rates when compared to other investments like mutual funds, commodities, shares, etc. but all these investments with high interest rates carry a certain amount of risk.
Buy mutual funds for at least five years
Whatever amount of money you have, I suggest you to buy mutual funds after doing extensive research and for at least five years. If you plan to cash out early, you will not get some high interest rates. Also, it is really important to buy mutual funds from different mutual fund providers so that you don’t stick money to only one mutual fund. If you want to buy one mutual fund, I recommend you to buy Benchmark S&P CNX 500 mutual fund which is a combination of 500 best performing mutual funds in India. In 2009, one of my reliance mutual fund gave out 153% growth and another one gave only 7% growth, so then I decided to buy 500 fund. Mutual funds will give you highest returns on your savings for buying a house.
If she had started saving $80 a month ten years ago, she would have $9,600 to put down on a house
So above were some savings instruments which you can utilize in your personal finances to enable yourself buy a new house. Other important things to be considered before buying a house are checking if the house you have always dreamed of fits your budget. What should you do to apply for a mortgage loan? I will discuss these questions and several others in my upcoming articles.