Buying a home is an exciting and challenging venture. With commitment, planning, and learning, you can become a successful homeowner. Managing your personal finances wisely is an important part of the home-buying process and your overall financial security. Money management is about choices, choosing how to spend and saving your money. To afford the routine costs of home ownership, you might have to make some different choices.
Setting a Goal and Spending Plan
When you set a realistic goal, a spending plan can help you reach your dream of home ownership and cover all of your other expenses. Plus, your plan will help you determine what house payment is affordable to you based on your income, regular expenses and other priorities.
If you have never used a spending plan, you may not have a clear picture of where your money is going. A spending plan directs your money to where you need and want it to go. It will help you reach your goal of home ownership and prepare you for large or irregular expenses, such as insurance premiums.
Managing your money is making a plan and then sticking to it. You will need to adjust your plan as your circumstances change over time. For example, maintenance costs of owning a home, having children, medical expenses, or even a change of jobs. When you set financial goals, it helps you align your financial resources and behaviors to reach those goals. It’s as simple as setting a goal, developing a plan to achieve it and then putting that plan into action.
Your Home Ownership Goal
For your goal of home ownership, be specific. How much money is needed? When do you want to buy? What small steps could everyone in your family take to help reach this goal? The more specific you are with your goal, the better you will be able to adjust your financial habits to reach it.
This Free Spreadsheet will help you determine exactly how much you need to save every month to reach your goal in the time frame that you choose. You are probably wondering what that total amount is. What I found was that the general idea is to save 15% of the home purchase price, to cover the down payment, closing costs and set some aside for emergencies.
To get an idea of purchase prices in your area, you can visit www.zillow.com or www.trulia.com. Multiply the average home price by at least 15 percent to estimate how much money in total you will need to set aside to buy a home. Depending on your location, the total amount you need to set aside could be as high as 30 percent, this is what a good lender or real estate agent could fill you in on.
Our How Much Spreadsheet will subtract any funds you already have saved, divide the amount of additional funds needed by when you want to buy your home (in months) to determine how much you would need to set aside each month. You will need to make a commitment of when you will start saving, which account you will use for those savings and how you will set aside the funds into that account on a regular basis.
If this monthly amount seems to unrealistic, see what adjustments you can make. This is your goal and your plan; you get to decide what the best choices are for you. If this amount is unrealistic for you, you can buy a less expensive house, apply for down payment assistance, wait a few more years to buy, or adjust your financial habits. Maybe cutting out the daily coffee run, or picking up a second job, these will both contribute to your savings, but you have to know what is best for you to still enjoy your life.