Is purchasing a new home somewhere on your radar? Then you need to be aware that the first step to home ownership is securing enough funds for a down payment. Whether you decide to invest or save for a down payment it is essential to understand that this is a timely process. This is particularly true if you are either renting or have other major financial commitments. This is a huge obstacle for most people looking to purchase their first property, especially if you live in an urban area. Read on for more on saving or investing for a home down payment.
Saving vs. investing for a down payment
When you are looking to put money together for a down payment, you have the option of either saving or investing. In addition, you can utilise both options and save as well as invest. There are several highly effective strategies to help you procure funds for a down payment. Each strategy has its inherent benefits and drawbacks. Needless to say, it is important to identify the saving or investment strategy that is suitable for your circumstances.
Saving for a down payment
When it comes to building and securing wealth, saving is the ‘slow and steady’ approach. However, it is by far the easiest and safest means of money management. There are various types of savings accounts that you can utilise to undertake your saving endeavour. It is imperative to research and understand the different types of savings accounts and their associated advantages and disadvantages.
Tax-free savings accounts
To start with, we will take a closer look at tax-free savings accounts. These types of accounts are capable of much more than just saving money. In addition to saving cash, you can use a tax-free savings account to hold various types of investments. One of the most attractive features of this type of account is that you can earn interest on your savings without paying tax.
Registered retirement savings plans
Secondly, we will examine registered retirement saving plans. As the name suggests, this type of account is a savings account meant for retirement. Much like a tax-free savings account, a registered retirement savings plan offers more flexibility than a lot of people realise. Along with being used for cash savings, registered retirement savings plans are also investment accounts. This ultimately means that various types of investments can grow sheltered from tax.
High-interest savings accounts
High-interest savings are also a great way to save for a home down payment. These types of savings accounts are highly suitable for a wide variety of financial goals. As the name suggests, high-interest savings accounts offer greater interest in comparison to other registered accounts. However, it is essential to keep in mind that a high-interest savings account incurs tax on interest earned.
Investing for a down payment
Many people also look towards investing their money in an effort to earn sufficient funds for a home down payment.
Guaranteed investment certificates
To start with, guaranteed investment certificates are generally considered one of the safest investment types available. Simply put, the principal amount invested in guaranteed investment certificates is guaranteed. In addition, the interest that the investment earns is also guaranteed. However, guaranteed investment certificates are term deposits, therefore the funds are unavailable for the of the investment term. Terms for guaranteed investment certificates range greatly based on personal needs and circumstances.
Whether you decide to save, invest or both, it is important to ensure you are using a method that does not charge you tax. As a rule of thumb, saving for a home down payment means keeping as much money for as long as possible. This starts with saving more and paying less on taxes.