When my husband and I bought our first house last year we knew we’d be spending more money than we’d ever previously spent on a purchase. Still, despite the extensive research we did on the process beforehand, the number of unexpected expenses that cropped up still surprised us.
If you’re currently navigating the same transition, these tips can help you get your finances back in shape after joining the ranks of first-time homeowners.
Step 1: Master your new monthly homeowner’s budget
Why it helps: Your mortgage is just one payment you’ll be responsible for in your new home. To truly get a sense of how much you’ll owe each month, it’s essential to factor a number of costs—from HOA fees and property taxes to homeowners insurance and increased utilities bills—into your monthly budget. Once you know how much you’re spending each month on necessities, you can better plan for how to achieve additional monetary goals, like furnishing your new home.
Ways to save: It might be tempting to fill every room with furniture as soon as you move in, but waiting a few months will give you time to assess what you really need and save enough money to pay for those purchases outright. A few simple cost-cutting adjustments, such as investing in energy-saving appliances and water-saving showerheads, can also help lower bills. Lastly, David Frisch, CPA of Frisch Financial in Melville, New York, suggests consulting an accountant to reassess your paycheck withholdings. “With the extra deductions of mortgage interest and real estate taxes, the client may be able to itemize their deductions on their tax return, lowering overall liability,” he said. “If the overall tax liability goes down, decreasing withholdings can help with extra cash flow.”
Step 2: Save for the unexpected
Why it helps: When you own your home, a leaky faucet or ant infestation can be more than minor annoyances if you aren’t prepared to pay for them. A helpful thing to do after buying a house is to open a separate savings account specifically for household repairs or emergencies, and deposit at least a small amount of money in it each month.
Ways to save: General upkeep like changing filters and cleaning rain ducts and fireplaces can help your appliances last longer. Research the best service people in your area before you require their service, which allows time to get referrals and check online without the pressure of a dire situation forcing you to go with the first company you find.
Taking on a small side gig—even temporarily—is another way to pad your budget that doesn’t have to be a huge pursuit. When Brian Graham, 30, of Middletown, New York, discovered he was going to need a new oil tank in his new home, that’s what he did. “Having priced it out, I decided the easiest way to come up with some extra money without putting a strain on our budget was to take on a side gig,” he said. So Graham started coaching at the high school where he teaches and was able to earn more than enough for the purchase.
Step 3: Rebuild your regular savings by reevaluating your financial goals
Why it helps: Most new homeowners dig into their savings to buy a new house, but replenishing that account may be easier than you think. First, determine how much you need in your emergency fund—most experts recommend enough to cover at least three to six months of expenses. Then, begin to carve out space in your budget for other savings goals. Deposit additional money that comes your way—bonuses, raises, cash gifts—directly into that savings account to help reach your goals faster, and consider setting up automatic savings from your paycheck each pay period so you won’t have to remember to move the money yourself.
Frisch recommends waiting about six months before automating your savings, though. “[New homeowners] have no idea what monthly expenses will be in the beginning,” he said, advising that you should wait until there is more monthly cash flow information to transition your savings strategy.
Ways to save: For a tangible way to make room in your new homeowner’s budget, try a cash diet—set aside a certain amount of money per month and simply stop spending once you’ve used it all.
Step 4: Get homeowners insurance in order
Why it helps: Renters insurance may have felt optional, but getting homeowners insurance is a must. And if you bought a house with someone else, you may want to look into life insurance as well to protect your loved ones financially should something happen to you.
Ways to save: Research is your best friend when it comes to insurance. If you’ve been a loyal customer with a company, start there for quotes. Other key cost-saving strategies to employ include:
- Shop around and ask neighbors, friends, and family for recommendations.
- Consider whether pursuing a fully underwritten life insurance policy (and the required health exams), might result in reduced premiums.
- Determine what life insurance options are offered through your employer, including whether premiums could be taken directly from your paycheck on a pre-tax basis.
- Inquire about discounts to particular buyers—students, say, or military veterans—bundled package deals, or credits for home security features like alarms and cameras.
- Remember that gaps in coverage can be costly, so keep your insurance company updated on household changes you make.
Buying your first home is one of life’s major milestones, and with a little forward thinking and a bit of determination it can provide a solid foundation for you and your family’s future happiness and financial success.