This article was written by Silvi Specter and originally appeared on Lemonade.com

How to save up for a house, according to behavioral economics experts

When you were younger, what did you want to be when you grow up?

Whether it was an astronaut, teacher, skydiver, or NBA star, that dream may have included your very own home. (And, if you’re like us, a gigantic trampoline and massive tree house.)

But the thing is, your 9-year-old self probably didn’t realize how hard it is to save for this first house. And now that the time has finally come (!!), chances are it’s more daunting than you thought.

It’s no help that headlines are calling out millennials for struggling to buy homes. But the truth is, millennials aren’t the only ones – every human wrestles with the idea of saving for a big purchase far down the line.

Why? As humans, we’re not very good at prioritizing our future selves. “If given the opportunity to spend a thousand dollars now or wait until it grows larger in the future, most people will choose to spend that money now,” said Garrett Meccariello, a behavioral scientist.

It’s no wonder saving up for a home poses such a challenge, and the biggest regret among millennial homeowners is not saving more money before buying. (Nerdwallet)

To get to the bottom of how to save for your first house, we met with experts: graduates of UPenn’s Behavioral and Decision Sciences Masters Program (MBDS). They spent a year studying how to apply behavioral sciences to improve the lives of others.

1. Narrow your home savings goals, and write them everywhere

Truth is, it’s hard to save without a concrete goal in mind. In fact, studies show that if you have a savings goal without a concrete vision, it’ll soon become wishful thinking.

So a crucial first step to saving for your first home is figuring out how much you’ll need to set aside each month. How? It’s tough to know the exact number, but this’ll help you get close:

1. Research the average price of a home in your dream neighborhood, and take 20% of that number. This is your hypothetical down payment.

2. Decide roughly when you’d like to sign the dotted line. Is it 12, 24, or 34 months from now? Divide your down payment by that number.

That number is your new monthly savings goal for your home. Now that you have this goal, Garrett Meccariello advises:

“Take your future goal, and write it down somewhere visible, say, on a post-it-note. Do this often. When you see your goals in front of you, you’ll be reminded of what you want to accomplish, and it’ll be seared into your subconscious.”

So write your monthly savings goals down on a few post-its, and place them wherever you feel comfortable: on your laptop, bathroom mirror, front door, or even on your milk carton! You’ll see instant results.

Saving Money Reminders - Lemonade Blog

2. Save for your home automatically

Behavioral economics 101: People only save money when it’s automatic. Science shows that many of us would rather splurge on a sushi dinner than save that money for the future.

So to combat this bias, MBDS alum Sakshi Ghai suggests:

“Develop a habit that’ll help you attain your future house. Push yourself to start saving every month. How do you do that? Put dollars into your bank account automatically. I find commitment devices are the most practical ways to save.”

Her suggestion is backed by research. In a study, one group of people deposited their money in ‘commitment accounts,’ while the other group spent their money freely. The first group ended up with considerably more savings than the second.

The trick here is to allocate a flat percentage (10%, 15%, or 20%) of your salary to your savings account the day you get your salary, rather than at the end of the month. Why? If you spend first and save second, you might run out of money before you have the chance to save.

Follow this habit to a tee, and you could have enough for your down payment in less than 2 years, according to Veritas Urbis Economics.

Saving For First Home Graph - Lemonade Blog

3. Stick to one spending rule

Being realistic here, it’s difficult (and even unproductive) to tell yourself, ‘I’m going to cut back on my spending.’ Remember what we said about needing a concrete goal? That applies to spending, also.

“If you need to cut back on your lifestyle, we find that in general, it’s easier for people to just cut things off as a category,” our Chief Behavioral Officer Dan Ariely told us.

If you tell yourself you’ll stop spending money on a single category, it’ll eliminate your need to choose on a daily basis. The decision will have already been made for you.

“Rather than allow yourself to shop unnecessarily, you should stop that behavior before it happens,” advised Garrett.

So what should you cut back on?

The best approach is to understand which activity you can give up without impacting your happiness. Is it shoe shopping, going out to dinner, or taking Lyfts?

To figure it out, take a look at your most recent bank statement, and rate your purchases on a scale of 1 to 10 (1 being, ‘I wish I never bought this,’ and 10 being ‘best purchase I made all year!’). Sort your purchases into categories, and determine which category led to the highest amount of regret. That’s your sweet spot of where you can stop spending, without compromising your lifestyle.

If you struggle with committing to this, follow Sakshi’s hack:

“Every time you save, reward yourself to give your brain an incentive to change. Be creative! This could be as simple as treating yourself to an ice cream, or your most sinful food. All you have to do is repeat this loop of saving and then rewarding yourself, and suddenly, you have a habit.”

Change your phone background to your dream house

Ever heard the phrase, out of sight, out of mind? Well, the opposite also applies. If you keep your long-term goals in sight, they’ll stay top-of-mind.

The first step is figuring out what your new home may actually look like. Try answering these questions:

  • Do I want to live in an urban or rural neighborhood?
  • Do I want a standalone house, or neighbors in my building?
  • Do I want to drive, ride the train, or walk most of the time?

These questions will help you narrow down what you envision when you think about your future home. Once you have a clear picture, Tobias Nasgarde, an MBDS alum, suggests:

“Have your dream house on the back of your phone screen. That’ll give you a constant reminder of your goal.”

Garrett had a similar suggestion:

“Realistically, I look at my phone 20 times a day. If I see a picture of the type of home I want to live in, that subconscious process is going to come into play when I make spending decisions.”

Why does this work, you ask? Garrett gave us a personal example:

“Every time I want to buy something new online, I look at what I have in my shopping cart, and back at what I could have: the house. I say to myself, ‘if I buy now, I won’t be where I want to be in the future.’ So I don’t go through with the purchase, because I brought the outcome (the house) a lot closer to the decision of purchasing something unnecessary.”

This low-effort hack will make it much easier to stick to your saving goals. All it’ll take is some simple Google image searching to find a photo that resembles the house of your dreams.

Home Search OG

5. Curate your Instagram feed for inspiration

Have you ever looked at an Instagram photo of someone vacationing in Florida, and suddenly developed a craving to hop on a plane? Or swiped through stories of a fantastic restaurant, and proceeded to check their availability on Resy?

Turns out, there’s some science behind that. What you see on your Instagram feed can determine your desires, and even alter your behavior.

Garrett suggests using that to your advantage:

“Curate your feed to help yourself reach your goals. You’ll want to put the best role models possible in front of you, because naturally, you’re going to want to act on what you see. If you see a bunch of pictures of people’s new homes, you’re going to want to save up to get there yourself.”

So pinpoint what gets your heart racing when you think about your future home: interior design, gardening, etc. Then, follow Instagram accounts or hashtags that’ll get those types of images on your feed. You’ll be itching to reap the benefits of your new home ASAP, which will motivate you to save.

Garrett also suggests using Instagram as a tool to pay it forward:

“If you see people who are saying, ‘I saved up, I finally got my dream home!’ and you post a similar picture, you can actually help empower someone who’s in a similar situation, and complete the cycle of social proof that’s important when making decisions.”

Ready, set, save!

Wrapping it all up, here’s the TL;DR of the hacks that’ll make saving for a home a bit less painful:

1. Calculate how much you need to save each month, write that number on post-its, and stick them them everywhere.

2. When you get your monthly paycheck, automatically allocate and send a percentage of it to your savings account

3. Cut one category of splurge purchases off entirely

4. Change your phone background to a pic of your dream house

5. Curate your feed to help reach your savings goals

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