One of the largest financial expenditures we face in our lives is that of buying a home. Proper budgeting before taking that final step to buy a house is crucial to making the process easier and stress-free. Here are a few tips we put together to budget wisely and effectively to make a mortgage more manageable.
Study the Expenses
Most people know how much money they have in any given bank account or credit account. However, a lot of folks do not know how much they are spending on household expenses or car expenses. One of the smartest things one can do is to get to know their finances. The best way to do this is to create a spreadsheet to break down expenses into different categories of importance. Some online banking tools will make this process easier by breaking down expenses within their systems and allowing the export of this information into a spreadsheet.
The first category and most important category should include just the essentials such as food, gasoline, rent, utilities, other regular monthly expenses. Add up those expenses for each month.
The second category should break down noncritical expenditures like entertainment, coffee shops, and dining out.
A third category should include impulse expenses for purchases that were not really needed or planned.
Breaking out financial data in this way can give great insights into spending habits and allows us to be able to make better decisions about our money and how we are spending it. Additionally, this type of analysis can also help us plan how to save money more efficiently and effectively. We can start to put back emergency funds for a rainy day, invest in 401k’s and long-term savings for a down payment on a house.
Study the Numbers
Figure out what the expenses would be for owning a home. This doesn’t have to be exact a good rough estimate with some wiggle room should serve the purpose. With the cost of a home figured out start going through the expenses and find ways to reduce overall monthly expenditure. Cut back on some utilities or sacrifice a few morning coffees. Do whatever it takes to get to the goal of being able to afford a home.
At this point, we should have a good idea about how much money we will need to save and put aside for being able to afford a down payment for a house, closing costs, insurance, PMI, and some extra cash for unforeseen expenses. We should also have a good idea where most of our money is going in any given month. With this knowledge, we can start to create a plan and set goals for saving money and putting money aside to buy a home.
Reassess when Needed
Don’t just stop there. Always look for new ways to reduce spending and start saving. Most people who can successfully start saving money go through their expenses quarterly to keep a firm grasp on the situation and address any spending habits that get out of hand.
You don’t have to wait to for your down payment to live in the home you want to buy. Consider a rent-to-own home to move in today and buy later.