Budgeting 101 for New Homeowners

Budgeting 101 for New Homeowners

One of the largest purchases that you will ever make in your life is buying your first home. Becoming a homeowner means additional responsibilities. This includes learning how to budget your finances to purchase the home, as well as maintaining your budget to continue paying for your home.

Understanding the Concept of Budgeting as a Homeowner

Budgeting refers to making a future plan on how to spend your money. This planning is based on money going in and money coming out, also known as income and expenses. The concept behind budgeting is creating a plan to take control of finances and to help you save money.

Why Is It Important?

The importance of budgeting is to gain insight into where your money is going each month. Budgeting household expenses is important because it can help you with your debt, bad spending habits, tracking expenses and identifying ways to save money. 

Budgeting Basics

The basics for budgeting involve deciding how you will go about planning your budget, actually planning the budget, using the right tools to help you plan and determining what you should include in your budget. 

Budgeting is not easy for everyone. However, there are expense tracker apps, family budget calculator apps and budget planning apps that make it easy for you to stay within your budget. These apps can be downloaded on your phone or computer, and you can link them to your bank accounts and the stores that you shop at to help you monitor your spending habits. 

To create a budget planner, you will need the following information:

  • Income from all sources
  • Expenses divided into primary and secondary expenses
  • Expenses that are labeled fixed amounts and variable amounts

Steps to Begin a Household Budget

Step 1: Start by charting all sources of income or money coming in. 

Step 2: Next you should list all your expenses, starting with your rent or mortgage and anything related to the expenses of your home.

Step 3: You will then list other monthly required expenses. These would include car payments, car insurance, utilities, groceries and other necessary expenses.

Step 4: List the unnecessary monthly expenses that you currently have. These would include monthly magazine subscriptions, subscriptions to a streaming or music service, gym memberships and other things that are not needed to survive. 

Step 5: Take the total of your expenses and subtract them from your income, this number is what you have to save or use toward other debts. 

Budgeting Approaches and Techniques

The following are some budgeting strategies to help you find one that works for you.

50/30/20: This is the typical approach that financial planners often recommend once a homeowner is comfortable with the other two approaches listed below this one. This approach requires you to minimize your needs to 50 percent of your income, increase your wants to 30 percent and allocate the remaining 20 percent for savings and paying off other debt. It is said that this approach to budgeting is the most difficult of the three because you are required to make adjustments to your essentials.

60/20/20: This is the same concept as above, except the percentages are allocated differently. This one may be easier for beginning household budgeters.

Easy budget for beginners: If you are new to budgeting, you can start by calculating all of your monthly expenses and income. The difference between the two is what you are left with for the month to save or spend as you like, while making sure that you cover unexpected emergencies or expenses.

What Should Be Included

Some of your expenses will be fixed amounts each month, while others will fluctuate. You should review your last 3 months of bank or credit card statements to calculate an average monthly amount for expenses that fluctuate.

More on Budgeting as a Homeowner

When you become a new homeowner, you will incur additional expenses that you did not have prior to homeownership. These homeowner finance expenses include the following:

  • Real estate taxes 
  • Emergency repairs (This should be around 1-2 percent of the value of the home.) 
  • Maintenance and upkeep of your home (1-2 percent of the value of the home)
  • Homeowner association fees. These fees can vary depending on the neighborhood that you live in. If it is an annual fee (which most are) divide the amount by 12 to determine your monthly allotment for this expense. 
  • Homeowner’s insurance
  • Private Mortgage Insurance. This is insurance to protect your mortgage if you put less than 20 percent down. The amount that you will pay each month can vary depending on the amount of your loan. 

Budgeting to Achieve Homeownership

When you are creating a budget to purchase a home, you need to know what your immediate expenses will be and how much of your money you should allocate towards these expenses. You need to budget for the following:

  • Downpayment for your new home. You could be looking at 3-20 percent of the cost of your home. 
  • Moving from your old residence to your new home
  • Furnishing your new home
  • Deposits for hooking up or transferring utilities to your new home
  • Closing costs (This is roughly around 2-5% of the purchase amount for the home.) 

Additional Tips

Here are some additional financial tips and budgeting tips that you can use to help you with budgeting as a new homeowner. 

  • Always practice your budget before you implement it.
  • Try the piggy bank technique to help you stick with your budget.
  • Review your budget regularly and make note of changes that need to be made. Adjust your variable expenses to stay within your budget. 
  • When you initially create your budget, avoid accumulating new expenses until you have a grasp on your current budget. 
  • When reviewing your budget, make sure that you leave yourself some wiggle room.

By Admin