Buying your first home is exciting, but it’s also important to be prepared for all the costs associated with homeownership. Unlike renting, homeowners are responsible for paying property taxes, insurance and other fees that can add up quickly.
These additional expenses can make a mortgage that looks affordable on paper seem much more expensive in reality. Here are some tips for budgeting as a new homeowner: An important tip is to reach out to a home warranty provider who can explain what is covered under a home warranty.
1. Know What You Can Afford
Creating a budget is an essential first step for many new homeowners. It allows you to create a plan for spending and saving, which can make it easier to achieve financial milestones such as building an emergency fund or saving for a down payment.
Separate your expenses into categories such as needs versus wants. Typical needs include rent or mortgage, utilities and insurance. Wants might include food, travel and entertainment.
Be realistic about your budget. Life can throw curve balls, so be sure to include a category for emergencies and recurring charges that don’t happen every month, such as annual bills or birthday gifts. Also remember to factor in the possibility of a home purchase with your savings goal.
2. Create a Budget
Creating and maintaining a budget is the best way to keep track of your spending. Start by identifying your fixed expenses, those that stay the same each month such as rent or mortgage payments, utility bills and car payments. Next, look at your variable expenses that may change each month such as groceries, gas, dining out and entertainment. Use past credit card and bank statements to help estimate these amounts.
Many new homeowners are surprised to find that homeownership also comes with unexpected costs such as home improvement expenses, landscaping and homeowner’s insurance. Make sure you have savings earmarked for these potential expenses. Finally, make it a habit to review your budget on a regular basis. This will ensure that your expenses match up with your income and that you’re meeting your financial goals.
3. Set Goals
Whether you’re using a budgeting app or rifling through your bank statements and jotting down expenditures, documenting your goals can help you stay focused on what matters. Make sure to use SMART (specific, measurable, action-oriented, realistic and time-based) goals that are aligned with your lifestyle and personal identity.
New homeowners may find their mortgage payment isn’t the only unexpected expense they’ll face, especially if their home is older or needs repairs. Having an emergency fund and adequate savings for property taxes and homeowners insurance can help cushion the blow of unexpected expenses.
Those savings can also be used for fun purchases or paying off debt. Achieving these goals will help you build momentum towards financial wellness.
4. Be Flexible
It’s important to separate fixed expenses from flexible ones, like entertainment costs. Using less power, buying second-hand items, or limiting vacations are all ways to cut costs. It’s also vital to consider what kind of home you can afford. A
a quaint house that overlooks the water may be your dream, but shoveling that long driveway in winter or paying for an air conditioning system could break your budget.
It’s helpful to categorize your expenses into categories and convert them into percentages instead of specific dollar amounts. This will allow you to better understand your budgeting needs and adjust your spending accordingly. It can also help you determine how much you’ll be able to afford as a first time homeowner. It may take some trial and error, but be patient with yourself.
5. Make Payments on Time
A mortgage isn’t the only expense that new homeowners will have to contend with. They will also be responsible for property taxes, homeowners insurance and possible homeowner’s association fees. These expenses can add up quickly, especially if you don’t pay them on time.
Consider setting up recurring payments with your service providers (like your electric company or cell phone carrier) to help ensure that you always make payments on time. It may take a little extra work, but it’s worth it when you avoid late fees and stress.
Taking on the responsibility of homeownership will require that you refocus your budget and approach your finances in a different way. But with a few tips, it’s easier than you might think to get your household expenses under control.