A new home can be a financial burden if not carefully planned and saved for. Here are five tips for budgeting as a first time homeowner:
Whether your goal is to save money for a down payment, pay off debt or create an emergency fund, it’s essential to look at your expenses and make realistic adjustments.
- Make a List of Your Monthly Expenses
It’s important to be realistic about your monthly expenses when you become a homeowner. You’ll need to factor in your mortgage payment, plus property taxes and homeowners insurance. It’s also a good idea to build an emergency fund for unexpected expenses like a broken water heater or a new roof.
Start by creating a list of all your recurring monthly expenses. Include items like your rent, student loan payments, utilities and food costs. You can even use an app like EveryDollar to automate this process. Once you have a list, you’ll be able to see where you’re spending money each month and make any necessary adjustments. This will help you avoid getting caught off guard by unexpected expenses and debt in the future. You can also start building your emergency savings, which is a necessity as a first time homeowner.
- Create a Budget
Homeownership can be a major financial undertaking, and a budget is essential for first time homeowners to establish.
A budget is simply a plan of how you will spend your money and can include anything from a simple spreadsheet to digital tools that automatically track spending by linking your accounts. The goal of a budget is to help you control your spending and stay on track with your financial goals, like paying off debt or increasing your savings.
It’s a good idea to start by tracking your actual spending for a month or two, either using an app that automatically records your purchases or by saving receipts and adding them up manually. This will give you a true picture of your current spending habits and help you pinpoint areas that need improvement, like eating out more than cooking at home or overspending on entertainment. This information can also help you set realistic financial goals for yourself, such as limiting luxury purchases or scaling back on vacations.
- Set a Budget Goal
After years of saving, planning and dreaming, you’ve finally bought your first home. Owning a house comes with many new expenses and responsibilities, so it’s important that you make the necessary adjustments to your budget.
Using the data you’ve compiled from your fixed and variable expenses, determine how much you can reasonably afford to spend each month. You can do this manually in a spreadsheet, or by using digital tools like Mint that automatically track your spending and allow you to set specific (and realistic) spending limits.
You should also include in your budget an amount that’s dedicated to saving for unforeseen expenses and maintenance needs. This could mean cutting back on unnecessary expenses or even sacrificing some entertainment. It’s better to do these things now than to regret it later when the roof starts leaking or your hot water heater stops working. You can also consider getting a home warranty to help cover repair costs. You might be thinking, “Home warranty is worth it?” Many homeowners do not regret having coverage that provides them a peace of mind when it comes to repairs in their home.
- Set Up a Savings Account
The specific savings account you choose might depend on your reason for saving, like a high-yield online savings account that makes it easy to access your funds or a First Time Home Buyer Savings Account designed to help first-time buyers save toward their down payment and closing costs. You also might want to consider a bank that has a relationship with the mortgage lender you’re using to get your loan.
Many new homeowners find that owning their house causes lifestyle changes, and that can lead to spending increases that can eat into your budget. To avoid this, make sure to track your expenses regularly and use a budgeting app that can help you stick with your savings goals.
Another way to supercharge your savings is to save “found money” — like annual bonuses, cash gifts for birthdays or holidays and even your tax refund. Putting this extra money into your savings can help you reach your goal faster.