My 4-part strategy helped me save thousands for a house, and it totally ignores conventional advice

Tara Mastroeni

Feb 12, 2020, 00:30 IST

My 4-part strategy helped me save thousands for a house, and it totally ignores conventional advice

AP Photo/Gregory Bull

As a full-time freelancer, it's hard to follow conventional wisdom and save the same amount of money every month with an automatic transfer since my income is variable.
I want to buy a house, though, so I created my own savings strategy that accommodates my fluctuating income. By keeping my money in a high-yield savings account, I've also earned over $500 in interest.
I started by setting an overall savings goal, then decided on a percentage of my income to add to my savings account. I also save every windfall to make up for months when I'm not able to save as much as I'd like to.
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I work full-time as a freelancer, which often means I have to handle my finances a bit differently than those who receive a steady paycheck. Recently, I've been saving for a down payment on a house, and I've realized that this financial process is no exception.

Instead of following conventional saving advice, I've been working on my own savings method that takes my inconsistent income into account and, so far, it's been working out great.

In 2019 alone, I contributed thousands of dollars to my down payment fund and am on track to meet my goal of putting over 20% down. Using a high-yield savings account helps me grow my money, too - in 2019, I earned over $500 in interest.

I've laid out what I'm doing to save below, as well as some tips for how you can do the same with your income, no matter how up-and-down it seems.

The conventional savings advice I'm not following

I'm a bit of a money nerd, so I've read a lot about how to save over the years. One piece of advice that I've seen come up time and time again is "automate your savings."

On its own, this is pretty solid advice. After all, it means you're saving consistently without even really having to think about it. But, as a freelancer, this method just isn't for me.

Automatic transfers work by taking a specified amount of money from your checking account at a predetermined time each month and transferring it to your savings. This method works great if you're confident that you'll have that specified amount of money in your account on the day the transfer is scheduled.

However, as a freelancer, my income is inconsistent. Some of my clients need work every month while others only use my services on a per-project basis. Some clients pay my invoice as soon as they receive it and others pay a month or 45 days later.

In short, the amount of money that's in my business checking account at any given time fluctuates a lot. If I were to set up an automatic savings transfer, I would be constantly worried about overdrafting my account.

In light of that, I knew I had to handle my savings differently, so I came up with a system that worked better for me.

My 4-part savings strategy

Have a savings goal in mind

I'm a firm believer in setting savings goals. I was able to decide on my savings goal once I knew what price range I wanted to be in while house hunting. At the same time, I also knew that I wanted to try to put down 20% in order to avoid paying mortgage insurance.

To find the correct amount, I took 20% of the high end of my price range and made that my total savings goal. Then, since I knew that I wanted to buy within two years of starting to save, I divided that number by 24 in order to land on my monthly savings goal.

Truth be told, I don't always make enough to put away my full goal amount and sometimes I'm able to put away more, but having a number in mind of how much I would like to save regularly helps me gauge how much money I need to have coming in each month.

Save a percentage of your income each month

When it comes time to put money away each month, I focus on putting away a percentage of my income, rather than a specific amount. This way, as my income fluctuates, I don't have to guess at how much I can afford to transfer into savings. I just base the transfer off of the required percentage.

In this case, I follow the 50/30/20 rule. According to the rule, 50% of your income should go toward your fixed expenses, 20% goes into savings, and 30% is for discretionary spending. With that in mind, I put at least 20% of my income aside each month for my down payment.

Put away any windfalls

In freelancing, some months are better than others. I try and take advantage of any windfalls that I have and put away more than my required minimum of 20% during those months. For example, this month I was given a bonus by one of my clients. That bonus went straight to my savings account.

Keep your money in a high-yield savings account

Aside from how much I save, I also do my best to make sure that the money I put aside works for me. By that, I mean that I put my down payment money into a high-yield savings account.

With an interest rate well above the national average, any money I put into my high-yield savings account earns at least 15 times what it would sitting in a savings account at my regular bank. In 2019, for example, I earned over $500 in interest.

As a freelancer, I sometimes have slow months when I'm not able to save anything close to my savings goal. This interest helps supplement for those months and make up the difference between what I'm able to save and where I want to be with my down payment fund.

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