Homeownership comes with its own set of expenses, from upfront costs like mortgage loans and closing fees to ongoing monthly payments for HOA dues, property taxes, homeowners insurance and increased utilities. Keeping an eye on your finances is essential for maintaining a healthy homeownership budget.
To stay within your housing budget, consider the following tips.
1. Set a realistic budget
One of the first steps you need to take as a new homeowner is setting a realistic budget. It’s not a fun task, but it will help protect your personal finances and your investment in your new home.
In addition to your mortgage payment, other expenses you should include in your budget are homeowners insurance, property taxes and utilities. If you live in a condo or townhome, you may also have HOA fees that need to be paid each month.
Make sure you’re leaving room in your budget for unexpected costs, such as a new water heater or a clogged drain. You should also set aside money for routine maintenance and repairs. A good rule of thumb is to have savings that can cover about six months of expenses.
2. Get organized
We all know that getting organized is important, and it can be tempting to spend a fortune on organizational tools. However, it’s best to use what you have and not overspend on products that may end up costing you more in the long run.
It’s also smart to start each month by reviewing your budget and spending. This can be done with a pen and paper, a smartphone app or budgeting spreadsheets and templates available online. Many credit card and bank apps can automatically categorize your expenses and make it easier to review and track them.
It’s also helpful to have a miscellaneous line in your budget. This will allow you to keep track of things like field trip permission slips, goat yoga classes or those random purchases that tend to eat into your budget.
3. Cut down on unnecessary spending
Unnecessary spending can quickly derail your budget. Whether it’s going to the grocery store for a toothbrush and leaving with an entire cart full of things you didn’t need or buying a few extra snacks at the office vending machine, there are plenty of easy ways to cut down on unnecessary expenses.
One of the best is to shop smarter. Rather than purchasing items with an “impulse buy” factor, such as junk food and soda, plan your meals and shopping list ahead of time.
Additionally, look for ways to cut down on utilities costs. Making a few small changes like switching to Energy Star light bulbs, getting rid of cable television and using cold water for laundry can save you a pretty penny each month.
4. Set aside money for emergencies
Whether you’re new to homeownership or have been there before, it’s important to create an emergency savings fund. This cushion is a financial lifeline that helps you weather unplanned expenses like home maintenance or repairs, car repair, job loss, and even unexpected medical bills.
Most experts recommend saving enough to cover three-to six months’ worth of expenses. But, if you’re starting from scratch, it might be easier to set smaller goals and work your way up. This will help keep you motivated as you build your savings. You can also automate your savings by depositing extra money that comes your way — bonuses, raises or cash gifts – directly into your emergency funds. These small changes can add up quickly. Experts would tell you to buy a home warranty to save money. It can also prevent you from using credit cards or taking on debt to pay for unexpected expenses.
5. Don’t go overboard
It might be easier to go a little loosey-goosey with your spending when you are renting, but as soon as you become a homeowner, it is time to start budgeting again. You need to keep in mind that you will now be responsible for paying for
property taxes, homeowners insurance, and maintenance costs. You also need to make sure that you are setting aside enough money to cover unexpected expenses, like home repairs or furniture for your new space. If you find that your budget is getting tight, try looking for ways to save money, like canceling unnecessary streaming services or buying generic products at the grocery store. These small changes can add up and make a big difference in your financial outlook.
Remember, the 28% rule is a general recommendation, and your budget may vary from month to month depending on your circumstances.
