By the No Worries Team
So, you’ve made it through your big day! You finally got the wedding of your dreams after months, and maybe even years, of planning. With the perfect ceremony and reception, you had plenty of time to hang out with friends and family and celebrate the union between you and your spouse. While your wedding day may have been the best day of your life, unfortunately, your big wedding came with a big bill.
As you and your spouse begin your life as newlyweds, you may find that the sought after “American dream” lifestyle has a huge caveat that was never mentioned — finances! How do you juggle each preexisting bill with the new investments you both want to make? More specifically, should you hold off on buying your first home until after you’ve paid off your wedding, or are there ways to do both? Luckily, with a little creative thinking, you can save for your first home while paying off your wedding debt.
Create a Budget
First and foremost, you’ll want to start by creating a budget. This arguably is the most important step to both saving for your home and paying off wedding expenses. Plainly lay out every income source, expense, and savings goal so you have a better understanding of how exactly you should move forward. From there, you should create a plan of attack for how much of your income will go toward your wedding debt repayment and how much for your home’s savings. You should make the point of separating the two to ensure that you are focusing on both as goals instead of spending considerably more on one.
Develop Debt-Repayment Strategy
When planning wedding-debt repayment, there are a number of strategies you can implement. Two of the most popular are the snowball and avalanche methods. The snowball method got its name from the common way you form a snowball in the winter. You start with a small chunk of snow and, as you roll it, the snowball becomes bigger over time. This is essentially the way you’d be paying off your debt using this method. You’d start by paying off the wedding debt that has the smallest principal amount. Then, move to the next highest principal until you’ve paid off all debt. The more and more debt you pay off, the more expendable cash you have to pay your higher principal debts as your “snowball” grows.
The avalanche method, however, starts from the top, down. Instead, you’d attack the debt with the highest interest rate first while still paying the minimums for all other debts owed. This method aims to get rid of your higher-risk debt first so that you are spending less money on unnecessary interest and putting more toward your principal amounts.
Designate Savings for Your Home
In addition to developing a repayment strategy in your budget, you’ll also want to incorporate the amount you wish to save for your new home within your budget. Be sure to consider how much you want to pay for your future home and what down payment percentage you are going after. Then, set a date in which you’d like to achieve your savings goal so that you can designate a specific amount toward your goal each month. To be ahead of the game when you begin the home buying process, do your research on mortgage and loan options now. Some commonly used mortgage loans for first-time homebuyers are FHA loans and VA loans.
FHA loans are, in simple terms, government-backed mortgages with lower loan requirements, typically making it easier for first-time homebuyers to attain. Even with preexisting wedding debt, you can still qualify for this type of loan with a credit score of about 580 and a down payment of at least 3.5%.
VA loans, on the other hand, are typically the go-to for home buyers with a military connection. Depending on you or your spouse’s military status, a VA loan could give you a $0 down payment on your home. While this may seem like a quick solution to saving for your home, it’s important to understand the qualifications and requirements of the loan before jumping in.
After creating your budget based on your debt repayment plan and strategy for home savings, it’s important to look for areas where you can cut back on expenses. These days, many households are cutting back on recurring costs like cable TV or rarely-used subscription services. However, if these aren’t current expenses for you, try cutting out the small daily purchases you may have in your budget. These may include trips to your favorite coffee spot or that $10 sandwich you just have to have when lunchtime rolls around. Take your budget to the next level and fully evaluate what works and doesn’t work so you can create the most realistic and effective saving strategy.
Adopt New Spending Habits
As you may have guessed, saving for a home and simultaneously paying off wedding debt will require quite a shift in lifestyle. These are two large financial decisions to tackle at once. However, they can be achieved with a change to your spending habits. There are a number of ways you can get a handle on unnecessary spending. Some common strategies are creating an emergency fund, setting up automatic savings through your bank, or starting the 24-hour rule for large purchases.
Adopting more effective spending habits is pertinent in long-term saving for both your wedding debt repayment and your future home. By selecting an achievable spending plan and sticking to it, you may be able to reduce your debt faster than expected, freeing up more money to pour into your home savings account.
Review with a Professional
An important step in your debt repayment and home savings is to never underestimate the value of a financial advisor. While developing your own budget and strategy for both financial decisions can be helpful, an advisor may be able to point out areas of improvement that can get you to your goals much more smoothly. Allow them to pick apart your plan and provide their best recommendations that are cost-effective and achievable.
Buying a home is no easy task, and as newlyweds with individual and combined wedding debts to pay off, developing a clear plan for your finances is key. By following these steps and adjusting them to fit your combined income and savings goals, you’ll be able to pay off all wedding debt while still saving up for your first home. Don’t forget to seek advice for your plan to ensure you’re making the best financial decisions possible for you and your new family.