SPOTLIGHT:

Budgeting for Homeowners

A new home often means new and significant financial adjustments. Mortgage payments, property taxes, insurance, utilities and maintenance add up quickly and can easily throw the best of financial intentions out of whack.

Following a budget gives homeowners a roadmap for their financial needs and goals. Yes, monthly home-related expenses need to be met, but they’ll also need to consider much more: food, clothing, education, healthcare, transportation and savings for both retirement and emergency expenses. Homeowners will definitely have unexpected costs that arise at inconvenient times – the water heater needs replacing, or the roof urgently needs repairing. Having a way to cover these expenses is critical not only to the home but for peace of mind.

Here’s how to get started on budget planning:

1. Examine household income against expenses. First, list monthly income – take-home pay, self-employment income and any other outside sources of income. This amount will form the basis of the budget.
2. Next, make a list of monthly fixed expenses including the mortgage payment, car payments and insurance, internet, phone, health insurance, etc. For expenses that are sometimes billed less frequently, such as property taxes, home insurance and childcare, divide the total yearly amount by 12. Fluctuating costs such as utility bills can be averaged to a monthly total and added to this list as well. Credit card payments will need to be factored in, too. Long-term and emergency savings should also be considered fixed expenses – making this commitment to the future will pay off, literally, in the years to come.
3. Then list variable expenses: food, clothing, cable or streaming subscriptions, online subscriptions, gas, entertainment, gym memberships, and even haircuts are some typical examples. Track these expenses for a few months to arrive at accurate numbers. It’s important to be realistic about current spending because once the overall expense budget is developed, homeowners may need to look for reductions in these variable items.
4. Add the fixed and variable expenses together. If the income is enough to cover everything, homeowners can still look for ways to budget in their favor. Reducing some variable expenses and shifting the difference into savings, for example, is a great way to boost one’s financial situation without making major changes.

And if expenses exceed income?  If an increase in income isn’t on the horizon, they’ll need to reduce expenses so that they’re in line with what they can actually afford. First, go to the list of variable expenses and closely consider each line item. Are all those streaming services really necessary? Can more meals be prepared at home? Is the latest gadget a must? Reducing expenses in these categories can really make a difference.

If reducing the variable costs still isn’t enough, reexamine the fixed expenses. Consider trading down to a car with affordable payments and raising the deductibles on home and auto insurance. Check into cheaper plans for mobile devices. The differences can be significant over the course of a year.

No matter how careful the budget planning, it won’t work if the budget isn’t followed. Personal finance software can be helpful for tracking cashflow, and adjustments can continue to be made over time. By keeping to a budget, homeowners will come out ahead and sleep better at night, too.