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June 2, 2021
The paperwork has been signed, your new living room is full of several cardboard boxes labeled “clothes” and “silverware” and such, and the keys to your new home are resting safely in the palm of your hand. A wave of relief washes over you as you realize the last year of house hunting, mortgage shopping, and seemingly endless stacks of paperwork is finally over and you’re ready to settle into your new residence.
Now the real work begins!
While you’re officially a home owner, this doesn’t give you permission to treat your finances more leisurely. In fact, all that advice you followed and those good financial habits you developed leading up to this point will help you as you focus on keeping your finances healthy now that you’re a home owner. At this stage, you’ve probably already calculated how much home you could afford, saved funds for your down payment, and experienced the loan application process. Now it’s time to apply that knowledge to budget as a home owner and keep that momentum going, building a solid foundation for your future.
Build a Foundation for Your Budget
By the time you purchase a house, you should have plenty of practice budgeting. It can be tempting, after finally achieving the goal of home ownership, to take a break from worrying about your finances, but this is precisely the time when it’s more important than ever that you establish a homeowner-oriented financial plan.
Your budget should take into account all the costs that come with owning a home. This includes mortgage payments, increased expenses associated with higher utility costs, homeowner’s association or condo fees, and saving for maintenance or repairs. Those last two can be a bit of a surprise for home owners transitioning from renting to owning, where the landlord foots the bill for maintenance and repairs.
The average homeowner spends $2,000 per year for things like landscaping, housekeeping and repairs. This amount trends higher when you include larger expenses like replacing an HVAC system or repairing a roof, both of which can easily top $5,000.
You should speak with your community bank about setting up a home savings fund where you can save up for more expensive projects. Extensive repairs or renovations to your home can cost upwards of $15,000 depending on the size of the project, which leads many people to take out home equity loans to pay for home repair. However, by putting money away in a savings account, you will be able to pay cash for these services instead and avoid high interest rates and finance charges.
It can also be helpful, budget-permitting, to prioritize paying off existing debt like car loans, student loan payments, or credit card debt to free up additional funds that you can funnel into your home savings fund. Of course, you should take into account how much of your income you can devote to debt, mortgage, and saving while still leaving enough spending for food, utilities, and other necessities.
Reassess Your Long-Term Savings Goals
It can be easy to lose sight of other long-term financial goals while balancing your budget around home ownership. Mortgage payments, home repair funds, and daily living expenses are immediate and necessary, but it’s just as important to make sure your budget includes saving for retirement. No one wants to hit retirement age unable to retire due to lack of foresight!
If your employer offers a 401(k) or similar retirement account, check your monthly contribution rate to make sure it fits within your budget. Once you’re comfortable with your balance between mortgage payments, monthly bills, and other expenditures, you should consider increasing your retirement contributions to more quickly fund your nest egg.
Depending on the situation, you could have many different savings goals in mind when you sit down to plan out your budget. Things like an emergency fund for non-housing related expenses or college savings accounts for your children may also be on your list of goals. For an emergency fund, it is advisable to save at least three to six months’ worth of regular expenses in a savings account that you can quickly withdraw in the case of an emergency.
Should you find yourself struggling to set money aside for non-discretionary spending on top of your financial responsibilities as a new home owner, it can help to categorize your monthly expenses into “wants” and “needs” so you can identify spots in your budget where you might be able to tighten your belt to meet your savings goals. New Tripoli Bank’s online banking tool features a Manage My Money option that can help you organize your spending and better visualize how much you spend on certain things.
Conclusion
After the stressful experience of purchasing a home, it is as important as ever to focus on your finances and make sure you can live comfortably, with your financial future secure.
Spend some time going over your budget and make sure you include things like mortgage payments, a home savings fund, retirement savings, and an emergency fund in addition to your monthly living expenses. This provides a holistic view of your financial situation and lets you identify where you can increase your spending or where you need to decrease spending. Make sure you work out a budget that covers all your ongoing home costs as well as setting money aside for repairs and improvements. However, don’t neglect your long-term savings goals like retirement.
Buying a home can take the weight of certain financial obligations off your shoulders, but in their place can add new challenges. If you’re looking for help getting your budget in order, consider opening a savings account with New Tripoli Bank; we’re more than happy to help you reach your financial goals! With proper planning, you can prevent yourself from becoming overwhelmed or in debt. Ideally, preparing yourself financially begins before you purchase a home, but it’s never too late to start making planning a priority.