First-time home buyers shouldn’t go through life without a detailed financial plan, just as you would get directions to a new place you plan to visit.
“An ongoing household budget is essential, whether it’s helping you save for retirement or buy your first house,” said Eric Hamilton, President of Vanderbilt Mortgage and Finance.
“A budget can help first-time home buyers avoid common mistakes by helping you live within your means while planning for the future.”
If you’ve never planned a budget you may be unsure how to begin. Building one can be easy as long as you follow a few simple steps.
Establish your financial goals.
Do you want to be debt free? Buy a new home? Build an emergency fund? Save for retirement? Setting financial goals can help guide the budgeting process.
Determine your total monthly household income.
This should include net income (the final amount of take-home pay after all taxes and deductions) for every working member of the household, including any government aid received, child support, alimony, pensions, etc. Knowing the total income gives you a starting point for your budget.
Calculate your monthly expenses.
It may be helpful for first-time home buyers to break expenses into categories, such as home, utilities, long term debt, medical, auto, groceries and personal. Personal can include items like clothing, entertainment, dining out, etc. It is helpful to review your cash spending, bank statements and receipts over the past few months to give you a better idea of your spending habits. Check with your bank for tools offered, such as online banking or a mobile app to track of spending on the go.
Identify where you can reduce spending.
After you’ve assessed your spending habits, you might be surprised to find areas where you can cut back. Small changes can make a big difference to your budget. For example instead of buying lunch every day, you could take your lunch to work or school.
Less spending means saving more money.
Be sure to set aside these new freed-up funds and allocate them toward your goals. If you’re trying to save for a new home or down payment, view your personal savings as a must-pay fund that’s as important as your rent or car payment.
Periodically reassess your budget.
Life is full of changes such as fluctuations in income and shifting priorities. It’s important to go back over your budget from time to time to help ensure you are on track to achieve your financial goals.
