Buying a home is an important investment that requires a lot of financial planning, but this budgeting does not stop once you have purchased your first home. Here, we share four financial tips you should do even after you buy your first home.
Adjusting your budget for after purchasing your home can be a daunting task, but it is essential to managing your finances. Homeowners should work to create a budget that covers all the costs of owning a home. This includes your mortgage payment, utility costs, homeowner’s association fees, maintenance, and repairs. Costs associated with maintenance and repairs are often overlooked when homeowners create budgets, but it is crucial to plan ahead for unexpected expenses in these areas. The amount of money you can expect to spend on maintenance can cost anywhere between 1% and 4% of the sales price. This cost can include landscaping and minor repairs, but large expenses you may encounter (such as HVAC replacement) are not included in this estimate. Homebuyers should set up a separate savings fund to help in covering more expensive and unexpected repairs. Because these repairs can cost a pretty penny, real estate experts recommend keeping at least $5,000-10,000 in cash for emergency maintenance use.
In addition to setting money aside for maintenance and emergency repair situations, homeowners should also prepare for making home upgrades. You may decide to renovate the kitchen or bathroom, but these areas can add up to a significant amount quickly. According to the U.S. Houzz & Home Annual Renovation Trends survey, homeowners spent a total of $15,000 on renovations. Of these surveyed homeowners, over 80% decided to pay for their upgrades in cash. Financially, it is wiser to pay for these expenses in cash to avoid new debt after purchasing a home. If you have existing debt before making the home purchase, prioritize paying it off to free up more cash that can be placed towards your home savings fund.
Homeowner’s insurance is a must for first-time buyers, but there are other types of insurance that need to be accounted for as well. According to Kyle Whipple, finance advisor at C. Curtis Financial Group, “Life insurance is a self-completing plan.” Life insurance is critical to prevent the risk of your spouse and family being burdened with debt in the event of death, and can provide cash flow to cover monthly expenses. This cash flow can help pay off a mortgage, which is why you should ensure it is updated after purchasing a home. There are two types of life insurance options to choose from. Term life is the least expensive policy, and provides coverage only while you still have a mortgage. Permanent life is more costly but lasts a lifetime and can offer cash value accumulation. Disability insurance is another consideration you should make to financially protect your family, as it can offer support for your mortgage payment in the event of a short term or severe illness.
Just because you accomplish one goal by purchasing a home, does not mean that the rest of your financial goals should be neglected. Of these goals is saving for retirement, which is significant since 64% of Americans are on track to be “retire broke” according to a report GOBankingRates. To avoid this, check your current contribution rate to your employer’s plan if you have a retirement account at work, such as a 401(k). This should be compared to your new budget after your home purchase and adjusted accordingly if there is room to increase it.
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