The stress and excitement of buying a house has come and gone — it’s time to hang a welcome sign and call it home.
But a new journey in budgeting begins once you’ve paid the closing costs and tipped the movers. Now it’s time to learn to budget as a homeowner.
If you’re new to budgeting, buying a home marks a good time to start. The 50/30/20 budgeting approach is a good foundation, where 50% of your household income goes to needs, 30% to wants and 20% to debt repayment and savings. See how your income breaks down using a budget calculator or a budgeting worksheet with pencil and paper.
Even if you’re not new to budgeting, there are many additional things to consider now that you own a home. Start with the following.
Account for new regular expenses
You may have already been covering household expenses, such as electricity and water bills, at another residence, but be prepared for many other regular homeownership costs — beyond your mortgage payment. Here are expenses unique to homeowners.
Real estate taxes and homeowners insurance: These are typically, but not always, included in your monthly mortgage payment. Even if you have a fixed-interest mortgage, your payment can fluctuate from year to year because of changes in taxes and homeowners insurance premiums.
Homeowners association: If you live in a planned neighborhood, you’ll likely be part of a homeowners association, which comes with dues that can cost several hundred dollars a month. Even if your HOA fees are due annually, earmark the amount each month so you’re not hit all at once.
Home maintenance and upkeep: Taking care of repairs and updates can get expensive. Whether you plan on staying in your new house forever or selling it some day, you’ll want to stay on top of maintenance. Rob Jones, a certified financial planner with Hutchins & Haake CPAs in Overland Park, Kansas, recommends that homeowners set aside 1% to 2% of the value of their home each year for upkeep. If your home is older and may need more repairs, plan on the higher side of this range.
Anticipate bigger project costs each year
Estimating just how much you’ll spend on home maintenance is difficult. The 1% to 2% range is a good place to start, but high-value repairs may push your annual home maintenance spending over this range.
When you revisit your expenses annually, think about upcoming expensive projects. For instance, you may have a 20- or 30-year-old roof, or a deck that may need replacing every decade or so. Include these projected expenses in your budget in addition to the 1% to 2% for general maintenance.
“These things shouldn’t be a surprise,” Jones says.