Budget Planning for First-Time Homeowners

Many first-time buyers lack proper budget planning tools to maintain good financial standing with their new responsibilities. When you own a home, expenses can occur that you previously did not need to handle. As a result, home ownership is expensive not just because of the mortgage check you cut each month but because of the other expenses you must make a priority in your life. Maintenance of your property, taxes and insurance are all new expenses to be accounted for.

Budget for Debts First

Before a single dollar is allocated toward another expense, you must assure your debts are paid. Since you are a homeowner, your greatest asset is currently placed as collateral on at least one loan. You may also be using your home for collateral on a credit card or other loan. It is important to make these payments before paying other bills, like utilities, which are not secured with collateral. As a general rule, you should keep your debts to no more than 50 percent of your monthly income. If you currently have debts in excess of this halfway mark, you need to begin paying off as many loans as possible.

Maintain an Emergency Account

When you are a renter, you may maintain a small emergency account. If you lose your job, you can always move to a new, cheaper residence. As a homeowner, you lose this luxury. In order to assure you can continue to pay your mortgage in an emergency, you must keep an emergency account with at least three months' worth of expenses or salary in the bank, liquid, to be accessed if needed. If you do not currently have this degree of savings, you will need to begin setting money aside for this purpose. Most financial advisers recommend placing 10 percent of each paycheck into savings until this sum is met.

Plan for Taxes and Insurance

"Budgeting" is just another word for "planning." If you plan for the proper expenses, you will have a better idea of your budget for luxury items. When you set up a household budget as a new homeowner, assure you are accounting for items such as property tax, homeowner's insurance and mortgage insurance. You have not paid these expenses in the past, but they will be required of you now. If you owe property tax annually, consider setting up an escrow or savings account to deposit to each month. This way, you will not be surprised by the bill at the end of the year.

Track Your Cash

When it comes time to cut back, you will need to know where you can afford to squeeze a little bit. Most people can consult a credit card or debit card record to find out how much they are spending on dinners out, entertainment or shopping. As a new homeowner, you would be wise to keep a record of any cash you are spending. This is one area of your finances you may not be able to consult in the future. You may be surprised to learn how much you can save by cutting back on small cash expenditures.