Bought A New Home? Here's How To Budget After That

You have bought a home. You are excited to set foot in your new home.

However, a new journey awaits you right after you pay the new property’s closing costs and have tipped the movers. As the new owner, you need to budget for it as well.

Basics of budgeting as a new homeowner

If you don’t know how to create a budget, we’ll help you out. Start with the 50/30/20 budgeting approach. It gives a good foundation. In this budget plan, 50% of your income goes to meeting your needs, 30% towards meeting your wants, and 20% towards repaying your debts and savings. Perhaps it’ll help to use a budget calculator and a budgeting app.

If you are not new to all this, start with the following.

Plan to meet the new regular expenses

You are already covering household expenses like water and power bills at your old home. However, there are other additional costs which come with being a new homeowner. These are beyond the mortgage payment and are exclusive to homeowners.

1. Homeowners insurance and real estate taxes: These are generally included in your monthly mortgage payments. Even if you have a fixed-interest mortgage, it can fluctuate from one year to the next because of tax changes and homeowners insurance premium changes.

2. Homeowners association: This is something that is becoming increasingly common as people buy properties in a planned neighborhood. These can cost quite a bit per year, so it’s important to save up for it.

3. Home upkeep and maintenance: Repairs and upgrades at your new home can get expensive. Whether you are planning to stay here forever or to sell it at a higher price after some time, you need to keep spending on maintenance till then. Homeowners should keep aside 2% of their salaries per year to meet this. If the property is older, the charges shall be more.

Plan and save for big projects

It can be tough to plan for home maintenance expenses down the line. However, for this purpose, 1% to 2% of your annual salary and/or savings shall be enough. However, do remember, the more high value the repairs and upgrades are, the more you’ll have to pay. When you do your annual expense planning, think about the home renovation projects which are upcoming. 

Revisit your LIC and savings

You may have a strong emergency fund already, along with a sound LIC and retirement account all in one place. But it is useful to review these from time to time, especially after buying the new home.

Prioritize other forms of debt over your mortgage payments

You may possibly have bought the new home with a mortgage. If so, this mortgage is most possibly, right now, your biggest debt. However, that does not mean it is your biggest priority. Mortgage is one of those debts that is good for you. With a home loan, you get a lower interest rate, and buy a larger asset.

Before making extra mortgage payments, remove these debts if you have them.

1. Payday loans

2. Credit card loans

3. Title loans

4. High-interest personal loans

If you are beset with these debts, start making extra payments till all these are eliminated, your retirement savings are on track, and your emergency fund is a nice egg nest.

Consider taking side gigs to make the above possible.