Good financial planning begins long before you buy your first home. But it’s never too late, even if you’ve owned your home for years. A homeowner budget keeps you on track so you can afford your daily routine and your future responsibilities, and it also help you work toward a comfortable retirement.
Budgeting is more than money in / money out. It takes a lot of careful planning, even for people who always pay every bill on time. No matter which stage of life you’re in, there are ways to help manage money better.
We have a few tips to help you create a workable budget that’s flexible enough to make you happy and meet all of the needs that life can bring:
The Time for a Homeowner Budget is Now, Even if You Don't Know How
A lot of people, both men and women, play the avoidance game with money. As long as the bills get paid, all seems well. But that's not a plan, it's just a lifestyle.
The personal finance software company, Mint.com, ranks money avoidance #2 on a list of issues women should avoid. Not knowing how to budget isn't a good reason to live from paycheck to paycheck. Especially when the basics of budgeting are actually quite simple.
Part one is gathering all of your financial information. This means your pay stubs, bank and credit card statements, utility bills, mortgage and tax information, and everything else in your home that identifies money coming in and money going out. These are your bare bones.
With that, your next step is making a simple, two-column sheet. The left column lists your income with a total at the bottom, and the right lists your expenses. Don't forget discretionary expenses, which include small things such as coffee on the way to work every day and money spent on clothing and groceries. Buying a $4 coffee on the way to work every day adds up to almost $1,000 in discretionary expenses at the end of the year.
Now that you know what's coming in and what's going out, you can easily see just where your money goes and how much is left over. There is a lot more to budgeting than this, but these steps will help get you started.
Building a Basic Budget for Buying a House
If you're planning to buy a house, your budget will look a bit different from one for a person who is already a home owner. Planning to buy a house brings along with it expenses that you won't have after the contract is completed and you've moved in. (Read: Home Inspection Checklist and Finding a Home Inspector)
If you're still in the planning stage, you'll have new expenses in the right column to plan for. One of these is the down payment. The bigger down payment you save, the better your mortgage rates might be, and the less you'll have to finance and pay interest on later. So one of your budget categories should be a savings account dedicated to your down payment. If you don't have enough money left over in your regular budget to put toward savings, this means you'll have to cut back elsewhere.
Other pre-sale expenses might include your home inspection, taxes in some cases, and assorted fees that will vary both by location and by the home you're buying.
Altering the Budget Once You Own Your Home
After you move in, priorities will naturally change. Your emergency fund will become more critical, as it can save you from an overwhelming and budget-busting expense such as a new roof or the repair on a heat and air unit that used up its last good day. Most budget gurus recommend starting with a minimum of $500 in an emergency fund, working toward $1,000 as soon as possible, and then gradually building it up as you can.
You'll need other budget categories that will vary. Maybe you plan to hire out lawn care on a regular basis, or you have decided to renovate. Homeowner goals each need their own savings category in the budget to help ensure your regular expenses get paid while you save up for the bigger potential problems and expenses that arise. The more you plan to save for, the more you'll have to cut back in other budget areas.
When you've settled into your home, you might also start thinking more seriously about retirement. (Read: Single Woman Home Buyers) Saving for retirement should begin as soon as possible. Not everyone is fortunate enough to have a lot to contribute toward retirement, so this means the sooner you start the more you'll have when you need it. Even $50 a paycheck now can add up to a tremendous amount in years to come.
Budgeting isn't necessarily anyone's idea of a good time, but it can certainly help ensure that there's good times to be had. The stress you might feel when first taking on money management tasks will be mitigated once you start experiencing the peace that comes from knowing where your money is, how you're using it, and how much you have set aside for emergencies.
Your homeowner budget keeps you on track through each stage of life. From planning to buy a first house to living your everyday life once you've moved in, it's what keeps you moving forward and not sinking into unexpected debt.
How are you managing your homeowner funds? We would love to hear your budgeting stories!