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It may be out of reach, but I dream of owning a lake house someday. Here's how I plan to buy one.
I opened up a savings account yesterday -- to save for a second home. Since it's going to be a seasonal cottage, I'm looking at spending less than $200,000. So I'm trying to put in $100 a month for the next 20 years. In my account right now: a meager $200.
At this point in my life, I can only daydream about that cute little white house with Adirondack chairs facing a Wisconsin lake. And the awesome barbecues I'll host. And the canoe rides at sunset. I'm not ashamed to admit I spend many hours cruising real-estate listings. So I decided to at least
try to make that dream a reality.
Turns out that I took the right first step.
Ellie Kay -- author of the 2008 book
"A Tip A Day with Ellie Kay: 12 Months' Worth of Money-Saving Ideas" and the upcoming "
The 60-Minute Money Workout: An Easy Step by Step Guide to Getting Your Finances into Shape" says that the first step is often the most important. "People dabble," she says, but they don't often make a move. While it may take me a couple of decades to save for a down payment, it can't hurt, she says, to begin the process early.
It's not just me with a lofty dream. Many of my friends in their 30s and 40s are also pondering pre-retirement plans. After the kids are grown and their own student loans are paid off, what is it they want for themselves? For many, it's to have a retreat from the manic lifestyles we've all settled into. For one friend, it's a Chicago condo she's saving up for. Then she can hop onto the Amtrak from where we live in Milwaukee and less than two hours later be in her own urban condo, surrounded by hip bars and restaurants.
Financial expert and
author Manisha Thakor and her husband, who live in Houston, just completed the construction of their dream vacation home in Santa Fe, New Mexico. As founder of the Women's Financial Literacy Initiative and author of "
Get Financially Naked: How to Talk Money With Your Honey," she will begin offering e-courses this month on a variety of topics, including saving for a second home. Drawing upon her personal experience, she was more than willing to dish about the ins and outs of having a vacation home -- and how to get ready for it.
Don't dive into the dream too soon.
"We've seen how so many dreams can go awry because you don't see the specifics involved," says Thakor. A perfect example, she says, is the 45-day luxury cruise she just took for her 40th birthday. During her years of daydreaming she failed to inquire about the average age on a cruise; it ended up being 75 years old. "I was surrounded by people who were at a completely different stage of life."
Schedule a few vacations in the region where you might want to have a second place, just to confirm you like things. Test your access to the beach (it's not going to be fun fighting traffic for 45 minutes on a regular basis) and what's selling in the aisles of local supermarkets (your vegan diet might not be so easy to pull off). You could start slow by renting an apartment in your target area, taking note of the pluses and minuses, before you dump a lot of cash into a home that you own.
"Really explore the dream and make sure it is what you want. It's so easy to get caught up in what you think it will be," she says.
If you plan to rent it out, be realistic about when you'll get to use it.
Many people, says Thakor, turn their vacation home into a temporary rental during the weeks they are not occupying it. But this means being flexible, perhaps giving up some of the winter weekends in your Scottsdale ranch, or deciding to go down to Florida in spring and autumn. "The problem is that everybody wants to rent your place the same weeks you want to be there," says Thakor.
Even if you do snag vacationers to share your dream home, think about how you'll have to decorate it to suit their fancies. When people are paying $1,000 a week -- in lieu of a hotel with daily housekeeping services and top-notch decor -- they expect appliances and decorations to be higher-end and not show signs of wear and tear. One of Thakor's friends recently dealt with tourists who trashed the place, a situation you do not want to be in.
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LakeHousesOfWisconsin.com
Scale back on current expenses.
We all know that the quickest way to put more money into your pocket is to use less of what you already earn. Evaluate your monthly budget. Is there anything you can drop or reduce the cost of?
Kay suggests looking at two big monthly expenses: auto insurance and homeowners policy. "It should be a once a year thing," she says. "Only one in four people actually do this." Hop onto
Progressive.com where quotes from four providers (for auto insurance) are provided at no cost. Armed with a lower quote you can either ask your current provider to match it -- or move to a new provider. Kay estimates you can save between $300 and $400 a year by consistently searching for the best rate.
What vice can you pledge to give up in pursuit of your second house dream? It could be anything from ditching the monthly French manicure in favor of DIY nail-care to cutting down on the number of magazines you pick up off the newsstand (remember, subscriptions are always a better deal!).
You can also save on grocery bills by simply visiting
Couponmom.com, say Kay, where when you enter your zip code all of the food sales in your area come up. Since food is estimated to be the third largest expenditure, and includes toiletries and household cleansers, you can always stock up when you see a sale. If you like to eat out often, don't think you have to give that up for the next 20 years. Subscribe to sites like
Travelzoo.com,
Restaurant.com,
LivingSocial.com and
Groupon.com -- deals are sent right into your inbox. (With Groupon, I got half-off tickets to
Summerfest, an annual music festival in Milwaukee, so it's not just for dining out.) Also follow your favorite cupcake, cafe or coffee shop on
Twitter for news about code words that can save you money on your next visit.
For me, I need only look at the cup holders inside my Honda Civic to see where I can best save money. I'm famous for pulling into cafes four times a week and ordering a latte or -- when I feel money is tight -- a plain old cup of coffee. David Bach, a financial expert, coined
the "latte factor" as one piece of the puzzle in why we aren't flush with money. On his web site (
FinishRich.com) is a link to an interactive calculator to help you figure out where your money is going each month, in terms of frivolous expenses, and how to reclaim it by funneling that cash into a savings account.
I bought a $15 stove-top espresso maker at IKEA
("Radig") last week and plan to prepare lattes with this, as well as milk in my Bodum frother, and I figure if I invest in some $5 bottles of syrups I will pretty much have a mini Starbucks in my kitchen -- but for a fraction of the cost.
When you save, really save -- Put it into your savings account.
Now that you've latched onto some savings, rule #1 is to not spend that money. Instead, put it into a savings account attached to your vacation-home dream. "I'm a firm believer that at the point of savings, you transfer the funds," says Kay.
Buy a cheaper first house.
Yet even with all these cutbacks -- and for me, that might mean taking fewer vacations -- the biggest thing you can do is not buy an expensive house as your primary residence. "The place where we live in Houston is well below what we can afford," says Thakor. "If you really feel strongly that you want to have a two-house lifestyle, unless you expect your income to accelerate dramatically, the best way is to be more conservative with that first home."
To read more about house dreams visit:
The Small House Movement is Gaining Momentum and I Want In
California Closets and Peter Walsh's Mega-Makeover
Real Estate Love: A San Francisco Dream
If you are considering buying a second home take a look at this video for more information!
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