Buying a home can be a great investment, but it's also a major disruption to your personal finances. Your old budget is out the window, replaced by one that now includes a mortgage. You may have even emptied your savings to make a down payment.
Once your home purchase is complete and the dust settles on your move, it's time to revisit your budget, start rebuilding your savings and get serious about tracking expenses. Here's how to nail down these three critical steps.
Revisit Your Budget
Becoming a homeowner changes your slate of monthly expenses, which inevitably means re-balancing your budget. Among the expenses you'll have as a homeowner:
- Mortgage payment: Say goodbye to rent and hello to your monthly mortgage payment. In addition to principal and interest on your home loan, your monthly mortgage payment may include property taxes and homeowners insurance.
- Property taxes: Property taxes paid to your local city or county government help pay for police and fire services, schools and other infrastructure. If your property taxes aren't included in your monthly mortgage payment, check with your local tax assessor to find out when and how to pay your bill.
- Homeowners insurance: Your lender most likely will require you to carry insurance on your home to protect the value of the property in case of fire or other damage. Like property taxes, your home insurance may be added to your monthly mortgage payment or may be paid directly to your insurance provider. While you probably can't opt out of home insurance, you can look for ways to reduce the cost.
- Homeowner association (HOA) fees: Your home, townhome or condominium may be part of a community (or building) that's managed by an HOA. An HOA typically collects monthly fees to maintain common amenities like landscaping, plumbing or streets. If they apply, HOA fees are mandatory.
- Maintenance and repairs: Now that you are your own landlord, maintenance and repair costs are on you. You'll need to account for routine maintenance like gardening, whether you hire a service or buy your own supplies and do it yourself. You'll also need to save up for bigger, less frequent expenses like roof repair (or replacement), painting, plumbing and so on.
- Utilities: While you may have paid utilities as a renter, your utility costs may go up when you own your own home. You may receive separate bills for electricity, gas, water, garbage, internet, TV and phone—and your bills may be higher in a home vs. an apartment. Check for ways to lower your energy bills to keep your costs down.
Rebuild Your Savings
Chances are, at least some of your savings has gone toward your down payment and moving expenses. Now it's time to reset your savings goals and rebuild your reserves.
As you adjust your budget, take a moment to think about your short- and long-term savings. You'll want to confirm that you're saving appropriately for retirement and future expenses like your kids' education. More immediately, make sure you're saving for emergencies—and major planned expenses.
Shore Up Your Emergency Fund
Experts recommend keeping three to six months' worth of expenses in a separate emergency savings account. If you used emergency savings to cover part of your down payment, repay yourself over the months to come. And even if you haven't touched emergency savings, you may want to add a few dollars to your fund. Your monthly expenses may be higher now, and the potential for a sudden unexpected expense is higher too (pinhole plumbing leak, we're looking at you).
Create a Sinking Fund for Home Expenses
A sinking fund is dedicated savings you contribute to each month to finance a large expense. Say, for example, your new backyard resembles the surface of the moon. You'd like to install some new landscaping, which will cost $5,000. If you set aside $200 monthly, it'll take you around two years to save up the money—but you won't touch your emergency savings or need to use credit to make your backyard oasis a reality.
You can create multiple sinking funds for individual expenses like replacing the roof or painting, or create a general fund for future home repairs and improvements. Either way, regularly setting aside money you intend to spend on your home will help ensure you have funds for repairs and upgrades when they're needed.
Track Your Expenses
Owning a home may mean more (and potentially bigger) expenses, which can make managing your finances more difficult. The key is finding a way to track your expenses efficiently and consistently, based on what works best for you:
- Use an app to track expenses on your mobile device. A budgeting or expense-tracking app can typically connect your bank, credit card, investment and retirement accounts to track expenses and savings automatically—and provide a snapshot of your finances anytime, anywhere.
- Create a spreadsheet and track your income and expenses at least once a month, using information from your bank, credit card and investment account statements.
- Log your spending in a notebook or paper ledger. You can stash receipts in an envelope and log them later or use your monthly statements to record expenses.
The Bottom Line
Regaining your financial equilibrium after buying a home takes a bit of thought and effort, but putting your finances in order is an important part of settling into your new home—and life. If you don't already have an Experian account with free credit monitoring, now may be a good time to consider one. Healthy finances and good credit may come in handy down the road when you need a home equity loan for home improvements, a home refinance or a new mortgage on a new home.