While owning a home is certainly a better investment than renting, there are many things you need to consider as you’re deciding what you can afford. Building a workable budget is the first step toward financially healthy homeownership. The ideal budget is something you can easily maintain without living from one paycheck to the next or straining your family’s finances.
Step 1: Evaluate Your Income and Expenses
The first step to creating a household budget is to have a full understanding of what you make and what you spend. This should take into account all your expenses including groceries, transportation, entertainment and any other miscellaneous expenses.
Being honest about what you spend and adding all your regular expenses together will give you an idea of how much money you have left over at the end of the month. If you find that you are spending more than you make or are even coming close, you need to immediately reevaluate your expenses and make efforts to cut back. Leaving yourself some wiggle room is a necessity.
Step 2: Know What Homeownership Will Cost You
If you don’t own a home yet, it’s important to consider all the costs of homeownership as you make your budget. Many new homeowners don’t think about expenses like insurance, property taxes, and homeowner’s association fees. Use online sites to get quotes for what you’ll spend. Include these expenses along with your estimated monthly mortgage payments as you’re determining what you can afford.
Step 3: Include Preventative Maintenance in Your Budget
Don’t fall into the trap of waiting until something breaks to consider its care and maintenance. Plan for regular home maintenance throughout the year and include these scheduled tasks in your budget.
Have your heating and air conditioning systems tuned up once a year. Steam-clean the carpets every 6 to 12 months. Decide how often you plan to repaint the house or re-seed the lawn. Allocate the necessary funds for all these tasks at the proper times each year. Do this and your budget won’t be demolished by unseen circumstances.
Step 4: Pinpoint Ways to Save
Whether your current lifestyle is financially unsustainable or you simply want to have more money left over at the end of the month, cutting back is a fine way to improve your household budget. Consider bundling your insurance costs with a single provider for added savings, cutting back on cell phone or cable services, carpooling to save on gas, and limiting your restaurant meals. Taking measures to cut back on your power or water usage may help you save some money as well.
Step 5: Set Up a Savings Plan
After adjusting your budget to free up as much money as possible, you can decide just what to do with those extra funds. Home ownership creates a lot of added expenses, many of which are largely unpredictable. You should set up savings that you can dip into for home repairs, appliance repair and replacement, and pest control. Add a little bit to these funds every month so you know you’re ready for whatever comes your way.
Planning ahead will help you create a household budget that’s realistic and sustainable. Don’t wait until the last minute to figure out how you’ll make it all work when a well-organized budget can take the guesswork out of financially smart homeownership.