You've just made the most significant investment of your life. You're ecstatic, but also a little nervous. How do you get your finances back on track? Buying a new home is likely to have depleted your bank account, so how do you regain control of your money after such a large investment? Your mortgage payment is only the tip of the iceberg when it comes to homeownership costs. Aside from the monthly payment to your lender, there are other expenses to account for once you purchase a home.
What are some ways to safeguard your homebuyer's investment? Despite the satisfaction of finally being there after all of the labor of locating and purchasing the property, the financial planning and budgeting work does not end once you receive the keys to your new home.
A leaking faucet or an ant infestation might be more than mere annoyances if you aren't prepared to pay for them when you own your house. Opening separate savings account expressly for household maintenance or emergencies and depositing at least a little amount of money into it each month is a helpful thing to do after buying a house.
Most new homeowners use their savings to purchase a new home, but replenishing that account may be easier than you think. First, determine how much you need in your emergency fund most experts recommend at least three to six months of expenses. Then, begin to make room in your budget for other savings goals. Deposit any extra money that comes your way bonuses, raises, cash gifts directly into that savings account to help you reach your goals faster, and consider setting up automatic savings from your paycheck each pay period so you don't have to remember to move the money yourself.
Maintenance costs the average homeowner $2,000 per year, which includes landscaping, housekeeping, and small repairs. However, greater expenses you may face as a homeowner, such as having to replace your HVAC system or roof, both of which may easily exceed $5,000, are not covered by this amount.
If you're dealing with a newer property, you may be able to set a one percent savings goal because things like the roof, appliances, and heating and air system should still be in good repair. "A budget of 4% is more reasonable if your home is 20 to 25 years old or older because many of the home's equipment and assets are nearing the end of their useful life."
When deciding what to budget for after you buy a house, keep in mind that repair prices may rise over time as the house ages, so you'll need to adapt your budget accordingly. Regular maintenance can help protect the equipment and structural parts of your home, potentially allowing you to postpone expensive repairs.
A budget is made up of two components: income and expenses. To begin, grab a piece of paper and a pen, or make a spreadsheet on your computer. Begin with your current earnings: Enter all monthly income, including work, spousal or child support, investments, and any other sources.
After that, make a list of your expenses. Begin with your mortgage payment and any other home-related expenses such as homeowners association fees, insurance, and taxes. homeowners should set aside around 1% of the home's value for repairs and emergencies each year.
Now add any other bills or expenses, such as auto insurance, car payments, debt payments, utilities, groceries, childcare, and so on. It's fine if you have to make educated guesses about bills that change. Add up all of your expenses to determine how much take-home money you'll need each month to make ends meet. Then, throw in all of the present monthly expenses that you don't absolutely require. Consider Netflix, Spotify, gym memberships, and housekeeping or lawn care services.
Subtract your new spending total from your overall household income. If you have anything left over, congratulations; you now have enough money to save and have fun. As a homeowner, it's a good idea to set aside some money for those unanticipated repairs we mentioned before.
How To Make A Homeowners Budget
Without a homeowner's budget, it's easy to go overboard. After purchasing a home, most people must repair it, account for family needs, pay bills on time, and possibly save a little money for a rainy day. Even with a budget, sticking to it can be difficult. In fact, 79% of Americans say they have trouble sticking to their household budgets. Perhaps this is why 96 percent of people are concerned about their financial situation.
Ø Plan for the Future
Make sure you save money for your future in addition to your monthly necessities. Examine your pay stubs to determine how much money you're putting aside for retirement.
If your employer contributes a portion of those funds, you'll have extra money to put toward your retirement. Consider An IRA allows you to contribute $6,000 ($7,000 if you are 50 or older). You'd have to invest $500 to $584 every month to reach the maximum. You may have debt that needs to be paid off after retirement. To pay off debt, go above and above the minimum payment, which usually only covers interest.
Ø Set Aside Funds for Home Maintenance or Repairs
Home maintenance is another item that should be included in your budget, even if it does not occur every month or year. This is especially true when planning a budget for a new home. When anything breaks, it usually happens out of the blue, and charging the repairs to a credit card could result in hefty interest costs.
Ø Analyze Your Spending
Prepare to take notes on your paystubs, credit card statements, and bank statements. It's time to sit down and actually think about where your money goes each month.
Expect to find a lot of non-essential spending in the mix. According to one study, adults spend an average of $697 per month on non-essentials, whereas Millennials spend an average of $838 per month on products that can be considered extracurricular.
That isn't meant to be a source of embarrassment! Non-essentials can provide much-needed pleasure, and your budget should reflect this. But the trick is to know how much to budget for this type of spending so that it does not overwhelm you. Budgeting entails more than just allocating funds to main household expenses. It entails examining your spending patterns and determining which ones you wish to change in order to save or better allocate income.
Ø Learn the Basics of Making a Budget
To begin your budget, categorize your spending to identify what you absolutely need to spend to keep your household running, get to and from work, and pay for food and clothing for your family. It's helpful to conceive of these expenses in terms of fixed, variable, and discretionary costs.
· Fix expenses are things like your mortgage, insurance, auto payments, and certain utilities that don't fluctuate month to month (e.g., a cell phone or cable bill).
· Things that change monthly, such as your water and power bill, are considered variable expenses.
· Things like impulsive buying of those great new shoes or eating out because you were too tired to cook dinner are examples of discretionary expenses. As we mentioned before, these costs can quickly build up and deplete your monthly budget.
Choose between paper, a spreadsheet, or a budgeting program to keep track of your spending. Then divide your spending into three categories: fixed, variable, and discretionary. In each column, write the type of expense along with the amount. Add up a few months' worths of bills to obtain a feel of the monthly average for variable expenses. Take three months' worth of eating out ($180, $235, $195), add them up, and divide them by three ($203).
Budgeting isn't fun, but it's a smart decision as a homeowner with a fresh set of costs. Tracking your spending can help you prepare for emergencies and ensure that you can maintain your current lifestyle.