You have now achieved the dream of homeownership—congratulations! However, now, as a homeowner, is when you really need to hunker down and get serious about your household budget, your credit score, and your overall financial success. You’ve reached a major milestone, but now come the unexpected expenses tied to property upkeep and the responsibilities of ownership. Thankfully, we’ve compiled a helpful guide to get you started on the right foot and take some of the uncertainty out of this process:
Understanding the Typical Expenses Related to Homeownership
As you know, the purchase price and even your monthly mortgage payment are one part of homeownership in terms of expenses. You also have to be ready for the other costs that come along with owning a home and property. The following is a helpful breakdown of the typical costs you should be prepared to cover as you venture into homeownership:
- Homeowner’s Insurance: If you have a mortgage through a lending company or bank, then you will be legally required to keep homeowner’s insurance on your home and property. It is necessary, to be sure, because you never know when something is going to happen that could cost you dearly. Homeowner’s insurance is your safety net against the unexpected. It can ensure that you don’t end up homeless if something significant happens to your home. This includes acts of God, such as storm damage and more, along with fire damage. Make sure that you know what is covered in your homeowner’s policy, and it includes provisions for all risks in your area.
- Property Taxes: Another expense that comes along with homeownership is property taxes. As the adage says, “There are only two things that are guaranteed: death and taxes.” Property taxes are what you pay to your local government in order to remain living on your property. You can either save throughout the year and pay this once a year or instead or include it in your mortgage payment through the bank, which is often easier, as it is a standard amount each month, based on the estimated amount you will owe at the end of the year. Of course, as taxes increase, so will the amount you will have to pay each month.
- Property Maintenance: Unfortunately, regular maintenance and repairs are just part of homeownership. This can range in terms of how much you will need to spend. From plumbing, electrical, and lawn maintenance to appliance repairs and roof repairs, your house is an investment that requires constant attention and consistent focus. Therefore, knowing this is coming can help keep it from sidetracking you.
- Neighborhood Dues: Depending on where you live, another common home-related expense is Home Ownership Association or HOA fees. This might include fees associated with neighborhood amenities, like a pool or tennis courts. It can also include just basic fees for the cost associated with being part of an organized neighborhood association. It’s a good idea to find out exactly what HOA fees you might be expected to pay and what that investment covers, meaning what you get in return.
- Home Improvements: Another common expense that you have to think of as a homeowner is upcoming home improvements. This is different from fixing something that is broken or needs replacing, and instead looking at ways that you can improve your home’s features or even add on, making your home all that you have dreamed about. It’s important to plan for these expenses as well, because almost certainly, there will be some ways that you will want to transform your home, either cosmetically or functionally.
Create a Budget as a Homeowner
Budgeting is necessary in order to stay on top of everything that will be coming along with homeownership. Don’t look at the word budget and assume this means something negative. Instead, consider labeling it a spending plan. A budget doesn’t restrict what you get to do, but ensures that all your needs are planned for, and you have the means to meet your needs and occasional wants. The following are some general guidelines on how to create a budget, or spending plan, as a homeowner:
- Follow the 50/30/20 Rule: This is a simple way of dividing your income and focusing on categorizing it in some key areas. Aim to spend around 50% on household expenses, such as utilities, your mortgage payment (including the expenses listed above), and groceries. Then, set aside 30% for things considered wants. This could include the cost of dining out and entertainment. Fun stuff, in other words. Then, allocate 20% towards debt repayment and savings.
- Consider Budgeting Apps: There are budgeting helps galore. You can go with the tried-and-true paper and pencil route, or instead download an app that will allow you to modernize your budgeting efforts. You can keep up with your budget from your phone or computer and better track all your expenses, even categorizing them in their proper order.
- Automate Savings: Saving is not something you should do only if you have money left over at the end of the month. Here’s a hint: you will never have money left over if you don’t assign it beforehand. In fact, setting up automatic transfers to come out immediately when your income comes in can make saving money as quick and painless as possible.
- Create an Emergency Fund: In addition to categorizing all the responsibilities and expenses that will come, and building long-term savings, you also need to create an emergency fund. Experts vary on how much you should allocate within this easy-to-access account. However, in general, the lower end should be at least $1,000, and if you can build up 3-6 months of living expenses, that’s even better. Whatever you have to do to save at least $1,000 will help you withstand the many unexpected expenses that will come up when owning a home.
- Consult an Expert: If these general guidelines don’t help you form a complete picture of how to create a budget and how to succeed in homeownership, then you can always get the guidance of a professional financial advisor. This is especially helpful if you want to also consider long-term investments that will yield profit over time. Getting direction from an expert will also ensure that you diversify your investments and further prepare you for all that comes along with homeownership.
Homeownership is a wonderful achievement. It means you have reached a milestone that many work for years to achieve. However, this is just the beginning when it comes to financial success and overall budgeting skills. Keep the tips listed above in mind to budget for upcoming expenses and have continued financial success. Give yourself grace, though, as you might not be able to get there all at once. However, by making small, good decisions over and over again, you will find yourself achieving financial success through proper budgeting.
Gangtokian Web Team