Most of us feel the occasional need to ‘tighten our belts’ and trim some expenses. It’s a life skill to live within one’s means, and the importance of saving for a rainy day cannot be overstated.
Maybe you’ve heard that you should not spend more than 32-35% of your income on housing expenses. All told, the recommendation is that your total monthly debt payments not exceed 40%. This is a rule of thumb that many lenders use to decide how much of a mortgage to approve you for.
To make sure that you aren’t stretching your budget too thin, though, you’ll need to know exactly how much is coming in and going out every month. We have prepared this handy budget planner to help you plan, log, and track your income and expenses.
As a home owner, this exercise can help you plug some financial ‘leaks’ and ensure that there is never any month left at the end of the money.
If you haven’t yet bought your first home, a mock budget that includes bills related to home ownership can help you figure out what a reasonable monthly mortgage payment will be for your circumstances.
HOUSING EXPENSES
Some new home owners are surprised at all the expenses that come up. In addition to the monthly mortgage payment, which can feel a lot like the rent they used to pay, there are now
- Taxes
- Insurance
- Utilities
- Maintenance and repairs
- Condo fees
You should be able to figure out an almost-exact estimate on taxes, insurance, and condo fees. The cost of utilities largely will depend on how you live, work, and use your home, though there are things you can do to reduce utility bills.
Maintenance and repair bills often come up unexpectedly, and at very inconvenient times. If you are not going to be paying condo fees, one idea is to set aside a fixed amount every month in a maintenance fund of your own so that you’ll have the money when you need it. The age and condition of your home will dictate how much you will need, based on what repairs you anticipate in the months and years to come.
OTHER EXPENSES
Besides housing costs, you will need to plan for the rest of life’s bills and expenses. Many of these are adjustable, if not optional. When planning your personal budget, make sure you include:
- Groceries
- Transportation
- Health/Life insurance
- Credit card payments
- Phone
- Cable/Internet
- Child care
- Entertainment (including restaurants)
- Memberships (eg, gym)
- Personal savings
- Charitable giving
- Other expenses
Once you have written everything down, it will be much easier to figure out what a reasonable mortgage payment would be for your circumstances. (The amount the bank is willing to lend is not always the right amount for you to borrow.)
STICKING TO A BUDGET
Making a budget is the easy part. Sticking to a budget is the real challenge!
There are some apps and online services that can help make this a little easier. Here are a few to check out:
These apps keep you accountable and help you watch your savings grow. Paired with a healthy dose of self-discipline, they can help prevent you from ever becoming house poor – and put you on the road to financial security.
