Owning a home can be intimidating, but you’re not in it alone
"Home is the nicest word there is."
- Laura Ingalls Wilder
Financial Tips For After You Buy Your Home
Date Published: Mar 11, 2021
After you buy your home you are probably ready to celebrate for you just completed a major milestone and made what could be the biggest purchase of your life. It is an accomplishment that is well worth celebrating!
While you achieved this milestone, and most-likely dropped a large amount of cash for it, there is still plenty of more budgeting and financial planning to tackle, outside of things like buying new furniture.
However, the work and saving you did toward buying the house is going to help you along the way in the process. For instance, you already figured out how much you can afford, put together money to make a down payment, and secured a home loan.
We understand that what we just mentioned, about having more financial planning and budgeting tasks, may sound intimidating, but don’t panic.
We are here to help you get your foot in the door! Just keep reading this article for tips, tricks, and steps to get you on the right track financially and keep you moving forward during this nerve wracking, but very exciting time in your life.
Establish a Budget and Stay With It
If you had a budget when it came to saving for your home, it is time now to use that experience to create a new one, if you have purchased your new house. Building a budget right after you buy a home is a crucial step that you don’t want to skip out on, for it will pay dividends.
When you go to create your budget you may want to perform a financial audit to help you figure out your new budget. Make a solid list of all of your expenses including bills, groceries, night out money, gas, 18-holes of golf, and so on.
Next, divide the list into two sections, one section for needed expenses and the other for optional. For example, your mortgage payments and food costs are essential, but sadly expenses like playing 18-holes of golf or your morning coffee at your favorite coffee house aren’t necessarily needed.
After you finish up your audit, there is a good chance that you will have extra expenses that you were able to afford before you bought your house that you no longer can afford, and this is normal. Eliminate the unnecessary expenses out of your budget to give you an assist in getting your finances in a row (Elite Personal Finance).
Your budget should include the costs of owning a home, such as mortgage payment, increase in expenses in regards to higher utility costs, and maintenance costs. One thing to consider is to set up a separate home-ownership savings account to help pay for major repairs like a roof or heating and air conditioning (HVAC) system.
You will also want to leave some space in your budget for money on any upgrades you would like to make on your home such as a kitchen overhaul. Paying cash for major upgrades can help you bypass high interest and finance charges that can come with using credit cards.
Lastly, prioritize paying off any debt you may have by making room in your budget for it. Crossing off payments like car loans or student loans can earn you more cash to put towards your home savings fund and open up more room in your budget. If you find debts to be a big obstacle due to high interest rates, you could do a 0% APR credit card balance transfer or refinance your student loans.
Stay On Top of Insurance
If you are a first time home buyer getting homeowner’s insurance is a must. Along with homeowner’s, there are also other types of insurance you will need to get as well.
One of them that is highly recommended is life insurance. This insurance reduces risk and can assure that your spouse and/or family does not lose the home if you pass away. Proceeds from the insurance are tax free and can help to pay off a mortgage or other large expenses, in turn, decreasing any debt your family could have.
Life insurance can also come into play by providing your family with a source of cash to put towards monthly expenses or other things like college costs for your children.
When purchasing or updating a life insurance policy you want to make sure that you have enough coverage to pay off your mortgage, and pay for living costs for your family for the first few years after you pass away.
There are two types of life insurance to choose from and if you are not sure which one is best for you, talk about your options with a licensed insurance broker or agent:
- Term Life Insurance: Also known as pure life insurance, it guarantees payment of a declared death benefit throughout a certain term. When a term expires the policyholder can renew the insurance for another term, switch the policy to permanent coverage, or let the policy expire. Term Life is the least expensive route because it only covers you for a specific term. Going with this insurance plan makes sense if you are a first time home buyer and you only need to be covered during the time you have a mortgage.
- Permanent Life Insurance: This insurance is basically a term that covers life insurance policies that don’t have an expiration date. It lasts a lifetime and can give you cash value accumulation, but is can be the more expensive option.
Permanent life insurance usually combines a death benefit with a savings portion. There are two main types of permanent life insurance called whole and universal life. Whole offers coverage for your full lifetime and its savings can increase at a secured rate. Universal also offers a savings plan, as well as a death benefit, but provides various types of premium structures and earns based on market performance.
Another insurance that you will want to consider is disability insurance.
If an injury prevents you from working in short-term or a serious illness requires you to take an extended leave of absence, it could hinder your ability to make mortgage payments. That is where short and long term disability insurance comes swooping in to protect you financially in scenarios like or similar to those.
Furthermore when it comes to insurance, it is also a good idea to take a look at insurance policies or home warranties to lend you a hand in repair costs. Especially if your home is on the older side of things. You may be able to grab yourself a discount by bundling homeowner’s with other insurance policies.
Keep Retirement in Mind
Buying a new house may cause a major dent in your cash supply and your budget could be changing and increasing. So it is understandable if future financial goals, such as retirement, get put on the back burner for a bit. However, you don’t want to completely abandon it though.
As soon as you can afford to begin saving for retirement do so, for the earlier the better. To keep it with your budget, check your contribution rate to your employer’s plan if you have a retirement account, such as a 401(k), at your place of work.
Next, compare that with your new budget to check and see if the amount is sustainable and figure out if there is room to increase your retirement contributions. If you are unable to start a 401(k), a traditional and Roth IRA’s are great alternatives (Lake, Investopedia).
With investing in your retirement it is important to start back up as soon as possible because of this aspect called compounding interest, which will make your money much more valuable the sooner you begin investing.
Start or Refuel Your Contingency/Emergency Fund
One of the big financial steps to take after you buy your house is to get your contingency/emergency fund going. While you may not be able to put a large amount of money into it right after you make your home purchase, add whatever amount you feel comfortable with right away. It is better to have the emergency fund and not need it, then need it and not have it.
Most financial experts agree that you should have about three to six months’ (but aim for 12 months’) worth of expenses put aside and readily available. Any extra money you obtain such as spare change and birthday or holiday money you should stash into your emergency fund. Every little bit helps!
The biggest thing is just to get into the habit of putting money into your emergency fund regularly. This way if an emergency pops up or your employment is interrupted, you have a supply of money to pay for expenses.
Open a Savings for Home Repairs
While starting up a contingency fund will keep you covered for everyday expenses, a separate fund for home repairs will help you out when you need to make a major repair on your home, such as a new roof.
It is recommended that you should try to set aside 2% of the value of your home if you can, in a separate emergency fund in case you need to make a major home repair. For example if you have a $120,000 home you would aim to set aside somewhere around $2,400 (Parets, NerdWallet).
50/50 Savings Method
One trick to assist you in building a savings is called the 50/50 trick. How it works, is that for everything you earn you put half of it into your savings. Now, if you are unable to afford the full 50/50, that is okay! You can customize it to fit your financial situation.
Instead of shooting for 50/50 you could alter it to something like 35/65. Whatever you choose the important thing is to stay committed to it so you can always be saving money without breaking the bank. Look over your budget and use that to help you figure out how much you can comfortably put aside and stick by that number.
There is an App for That
There exists, out there in the digital world, smart phone apps that allow you to organize your finances. Through these financial apps you can track finances such as your debt, savings, and bills and some have features you can set up that will alert you when an upcoming bill is due.
Majority of the apps have clean visualizations, like pie charts, to paint a clear picture of your expenses and revenue. You can even develop savings plans and strategies in some apps to aid you in your money saving endeavors.
There are apps that have ways you can automate your savings. For example, you can sync your bank account to the apps and set up “round up” purchases. You can customize this feature in the app to round up to, let’s say, the nearest $10. So, if you purchase an item or service for $33 dollars, the app would round up the purchase to $40 and put the extra $7 into your savings account.
Utilize the Snowball Method
If you have any debts after you buy your house the snowball method is a great strategy to keep in mind to help you tackle any debts you may have, here is how it works:
Basically, with the snowball method, you would pay off your lowest debt first and after you pay it off, roll that payment amount over to the next smallest one. It will ultimately help you pay your bills faster.
Let’s say you have $2,500 left on an auto loan with a $300 monthly payment and $9,000 student loan with a $100 a monthly payment. Now, once you pay your auto loan off you would then put that $300 a month toward your student loan so you would be paying $400 a month instead of $100. This would allow you to have your $9,000 student loan paid off in about two years instead of the seven plus years it would take for the $100 monthly payment.
This method can also work to help you trim down your excess spending. For example, if you decide to cancel your cable that comes with a $75 dollar monthly payment you can then put that $75 dollars towards another payment like your mortgage. Ultimately, helping you get ahead in your bills and pay bills off faster (Elite Personal Finance).
Gain a Peace of Mind with Your Finances
Putting together a spending budget after you buy a home may be a tricky thing to do, but it will keep you from becoming overwhelmed with your finances and benefit you greatly in the long run. So, try to make financial planning a priority.
The most important and valuable thing to do when creating a budget is to set reasonable goals for yourself that you feel confident you can accomplish. Yes, try to push yourself if you can, but don’t make any far-fetched or near-impossible goals.
Buying a house is a big financial move, but if you budget right, be honest with yourself, follow these tips and tricks, and save money anyway you can, your financial situation will blossom. Should you ever need any help with planning your budget or finding a mortgage for yourself, we are just a call away.